When a tech startup receives its first round of substantial funding, how does it decide where to set up shop? Perhaps where the founders started the company. But what if the office space is too expensive? Or what if the founding state doesn’t have a favorable tax environment? Where would be the best place then?
Since labor cost and availability typically top the list of site selection factors, starting there seems like a good bet. And when we crunched those numbers, here’s what we found.
Market selection methodology
To generate the top 10 tech labor markets we used 12 SOCs of roles commonly found in tech companies and assumed the need to hire 200 workers. For some of these, we had to crosswalk to the nearest role, such as project management specialist for product manager.
11-2021 Marketing Managers
13-1082 Project Management Specialists
15-1231 Computer Network Support Specialists
15-1232 Computer User Support Specialists
15-1241 Computer Network Architects
15-1242 Database Administrators
15-1251 Computer Programmers
15-1252 Software Developers
15-1254 Web Developers
15-1255 Web and Digital Interface Designers
15-2051 Data Scientists
27-1024 Graphic Designers
We then compared labor market data across six different categories. Labor Growth includes competitive effect (shift share), five-year labor supply percentage growth, and projected five-year labor supply percentage growth. While Demographics captures the unemployment rate, overall population growth, and working-age population and growth (ages 20-59). Education, Labor Supply, Labor Costs, and Hiring Competition are the remaining four categories.
Markets for tech startups
In the number one spot, Austin leads four Texas MSAs with a perfect score in Labor Growth, while also strong in Demographics. Salt Lake had the highest Labor Growth score of the top 10 behind Austin and had one of the best Labor Cost scores. But the lowest labor costs were found in Las Vegas.
Labor Supply scores were low among all the top 10, mirroring a national trend of talent being hard to source. Interesting with this top 10 is how it aligns with our Talent Attraction Scorecard. Six of our best locations for tech startups are also top 10 in talent attraction.
Market selection based on available workers
For a company making a location decision, the number of current workers in an occupation doesn’t tell them anything about their ability to fill necessary positions—in this case, 200 roles across 12 occupations. The Labor Supply category in our Market Selection tool thus includes the number of estimated available workers as one of its inputs. This estimate is calculated as the combination of unemployed workers in the role plus the employed workers likely to change jobs (turnover rate).
The number of estimated available workers eliminates eligible communities. In this scenario, we are looking at large MSAs (1M+ population), of which there are 56. But the need for 200 workers in these tech occupations eliminated 11 communities, including the likes of Fresno, Memphis, and New Orleans.
Of the 45 qualifying MSA, the well-known tech hubs of San Francisco, Seattle, and San Jose ranked 43rd, 44th, and 45th, respectively. Labor Costs were the drag for each. Meanwhile, the Washington, DC MSA ranked 36th, with strong scores in Education and Labor Supply, but a very low score in Hiring Competition.
Our Market Selection tool also allows us to weigh the importance of each category. In our initial analysis, Labor Costs were weighted more heavily with the idea of making the startup’s initial funding raise go as far as possible. Additionally, with the intent to grow the firm, Labor Growth was weighted high to meet future hiring needs. But these factors can be adjusted based on the specific needs and intentions of an expanding or relocating company.
Labor market data for market selection
Lightcast has been looking into the best labor markets for all industries, not just tech. We’ve been asking the question, “What’s the best market for…?” Where’s the best place to open an additional food manufacturing facility or medical lab? What locations can support housekeeping and banquet staff for the new 2,000-room resort hotel I want to develop? When doing such an analysis, paralysis quickly sets in trying to compare all the possible data points across all possible markets. Our model was built to easily capture all the data and allow the user to benchmark the markets based on their specific criteria. We’ll be diving into other industries and scenarios in future posts.