Why Startups Are Leaving Silicon Valley for Other Areas

Since its inception by Bill Hewlett and David Packard in 1938, Silicon Valley has served as the global center for top technological innovation for decades. The region drew its name from many manufacturers and innovators of silicon-based computer chips and MOS transistors.

The area hosts more than 30 contributors of fortune 1000 and thousands of business startups by entrepreneurs from all corners of the globe. That is not all. The valley also accounts for more than one-third of the entire venture capital investment in the US.

The presence of numerous venture capitalists, technology-oriented persons, natural beauty, and favorable climate has transformed the region into a startup ecosystem and leading center for top-notch technological innovations. Though the area continues to experience an influx of new investors, the number of businesses leaving the region has lately increased.

Why Startups Are Leaving Silicon Valley

This article explains the possible reasons why startups are leaving Silicon Valley for other regions. Check them out.

why startups are leaving silicon valley
why startups are leaving silicon valley

1. The High Cost Of Living

Silicon Valley has a higher cost of living than any other place in the United States. The average price of renting a two-bedroomed house is more than $ 4,000, far beyond the $1000 for two-bedroomed houses in Texas.

This is not to mention other expenses like transportation, education for children, recreation, and the typical basic needs.

The cumulative cost of living in the valley can leave a hole in one’s pocket even if one earns a six-digit salary. As such, most people move out of the valley to find cheaper town alternatives to live to the fullest while saving for the future.

2. Rampant Congestion

After Hewlett and Packard established Silicon Valley as a technology town, there was an influx of many other manufacturers and innovators in the region.

The companies, in turn, employed new workers who resided in the valley. The place also became a frequent spot for visitors, and the trend continued until the valley was densely populated.

The high population, in turn, caused congestion on the roads and other sectors of the economy hence causing delays in almost all sectors.

Today, it is time-consuming to travel from one town to another within the valley due to traffic congestion. The time-conscious residents are quitting the valley to seek places where they can conduct business more conveniently.

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3. Availability Of More Practical Alternatives

The popularity of Silicon Valley as the leading technological hub increased demand for the region. The increased demand subsequently increased the number of restrictions for startups.

For instance, the new entrants had to pay huge taxes, huge house rents, and align with strict legal requirements, which still apply today.

Luckily, cities like London, Singapore, Tel Aviv, Toronto, and Berlin are steadily growing into reliable technological hubs. Unlike Silicon Valley, the cities offer various incentives to entrants in the markets, including reduced taxes, grants, and reduced government interference, among others. These incentives explain why the startups are leaving the valley for other regions.

For instance, the American software giant Oracle announced that it would be relocating its headquarters from redwood city, in the valley region to Texas, due to higher operational costs and colossal tax amounts.

4. Fear Of Cybercrime And Loss Of Jobs To Machines

In the past few years, most people worldwide would view Silicon Valley as the holy ground for most technological innovations. They would appreciate and capitalize on almost all technological innovations that emerged from the valley market. However, that is not the case today.

As people become exposed to technological innovations, they become skeptical about them. For instance, most people are aware of how cybercriminals can use artificial intelligence to commit serious crimes like taking control of their company or reduce the need for human labor.

In other words, there is increasing fear and risk of losing data or the control of the company to cybercriminals. Some business owners like Elon Musk have moved out due to fear of their business security, among other reasons.

On the other hand, some employees are quitting due to the fear that the machines may take away their roles and leave them jobless.

5. Cutthroat Competition

Silicon Valley is already dominated by prominent players like Facebook, Google, and Apple, among others.

Entering the valley to compete with a dominant player in the market is like chasing the wind. You will remain irrelevant in the market. This case applies to most startup businesses in the valley.

After understanding the competition, most startups prefer establishing their authority in developing regions where there is little or no competition. “It’s much easier to become the most well-known startup in Columbus, Ohio than it is to become the most well-known startup in Palo Alto, California,” the HuffPost.

6. Pursuance Of The Tech Workers

Given the high cost of living, most workers leave Silicon Valley for other towns where the cost of living is affordable. Consequently, some business owners move out of the valley to take advantage of these tech workers.

The qualified team coupled with low operational costs will ultimately lead to the growth of the companies in the long run.

7. The Emergence Of The Gig Economy

The emergence of freelancing sites such as Upwork, freelancer, and Fiverr has provided people with alternative sources of income.

The good thing about the freelance sites is that they are unbiased, and they offer both skilled and unskilled jobs. Another good thing with freelancing is that you are not under the control of anyone.

One can always work with them provided they have the right skills. For instance, anyone with excellent writing skills can earn a considerable amount of income by writing articles, blogs, or even service pages for companies.

Perhaps the business owners and employees are leaving the Silicone Valley to enter the gig economy to enjoy the flexibility that the freelancing jobs offer.

causes why startups are leaving silicon valley
Causes why startups are leaving silicon valley

8. Changes In The Political Climate

Suppose the standing government does not support foreigners from specific corners of the world to invest in their country. In that case, the investors from other regions may perceive that racism as a potential threat and then start leaving.

This could probably be why Silicon Valley experienced the highest decline in the number of startups in 2016 when Trump threatened to deport non-Americans back to their countries.

9. Coronavirus Pandemic

The movement restrictions meant to control the spread of the coronavirus had the worst effects on all businesses across the globe.

As people and businesses adapt to the new normal, it has become challenging for most companies to achieve efficiency in assembling raw materials or distributing finished goods to the final consumers.

As a result, their productions reduced to a great extend, leaving the companies with two options of either quitting the market or sending their employees home. The companies in Silicon Valley are not an exception.

Examples of companies that have moved out of the valley include:

Elon Musk’s electric car maker-Tesla moved its headquarters to Houston, Texas.

Palantir Technologies – an American data analytics company shifted its headquarters to Denver, Colorado.

10. Misuse Of Resources

A significant percentage of the most prominent CEOs in the region have reportedly been misusing their company’s resources by leading lavish lifestyles and spending the company’s financial resources conspicuously for their benefits without minding the welfare of their workers.

Ro Khanna (the Silicon Valley congressman) argues that some engineers in the valley region have the biggest Egos known to humankind. Their behaviors have widened the gap between the rich and the poor, forcing most people and companies to quit the valley searching for places where morals are upheld.

11. Environmental Degradation

As repeatedly mentioned, the Silicon Valley region is highly congested due to numerous people, traffic, industries, etc. The presence of many industries and massive traffic means rampant air and water pollution due to the release of harmful gases and waste from vehicles and companies.

Worst still, most leaders are less concerned about environmental welfare but more concerned about their welfare. While the situation has sent some firms and individuals out of the valley, the hurting truth is that the pollution may ultimately change Silicon Valley to a story of the past if left unattended.

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Conclusion

Despite some companies and individuals’ departure, Silicon Valley remains the leading hub for technological innovations in the US. While the above reasons could make some startups leave the region, there are no provisions that tie startups to Silicon Valley. That means they can enter and flee anytime. What counts most is whether a startup can achieve its goals while still in the area.

If you are still in the region and can’t meet the competition, why should you stay? Remember, your ultimate goal for engaging in business is to maximize profits. That means you should drop all factors that bar you from accumulating more profit and concentrate on what maximizes them.

That said, you can stay in Silicon Valley if you can meet your goals despite the competition. On the other hand, you should look for greener pastures in other developing regions if you struggle to survive in the valley region. Remember, ‘it’s better to be a big fish in a small pond than being a small fish in a large pond.