The Decade Ahead
Why North Bay Startups Will Proliferate in the 2020s
Monday, May 4, 2020 from Corte Madera, CA
This is Part 1 of 4 in a biweekly series we will publish on the North Bay startup ecosystem. Click here to subscribe to receive future pieces.
The idea that the ‘world is changing before our eyes’ has seemingly been the topic of every business article published over the past weeks of the COVID-19 public health and economic crisis. For the North Bay, the short-term impact of COVID-19 is now colliding with six trends that have been building over the past few years and all lead to the conclusion that the 2020 decade will see a proliferation of startup companies forming across Marin and Sonoma counties.
These trends can be viewed in three categories:
Structural - New talent moving into the counties is mixing with entrepreneurs and startup workers already here
Generational - How tomorrow’s founders think and are wired
Technological - Greater ability to effectively tap a national and global workforce
Taking these shifts in tandem, we are seeing the traditional barriers to building a successful startup based in Marin or Sonoma diminish. Previously, conventional wisdom held that your startup would be hampered if you did not locate in San Francisco or the mid-peninsula. Now, with more talent migrating north, with an anti-commute, go-local, and community-building perspective pervasive through this next generation of founders, and with distributed workforces, remote technical talent, and increased investor support for prudent cost structures all reducing the need to achieve operational scale entirely in the North Bay, we believe we are on the cusp of entering what will be an historic decade for startups north of the Golden Gate Bridge.
Here is what we are experiencing and have observed:
SF Tech Talent Moving North
With the Silicon Valley center-of-gravity pushing north and solidifying in San Francisco this past decade, Marin and Sonoma have become a more attractive destination for those commuting to tech jobs. Whereas traveling each day from Larkspur or Petaluma to Palo Alto or San Jose may be gut-wrenching, making the same trek to San Francisco is doable (albeit still not great - more on this below).
I look at my personal network as a microcosm of this. We moved to central Marin in 2016 from San Francisco and have made friends with other young families with similar-aged children. The majority of working parents in the group are in tech, including three software engineers (one who is now a founder), a product manager, a marketer, and a tech recruiter.
According to MSIV analysis, 67,000 Marin and Sonoma residents commute out of the two counties each day because there is greater demand for their services south. Startup talent is already here, and more talent is coming.
Trend Outlook: Few people are moving during this crisis so this has been temporarily slowed, but when migration does pick back up, we expect more San Francisco tech talent, particularly those with young families, to desire relocating to the North Bay.
Bay Area Commutes Worsening
We all know the struggles when forced to commute out of the counties, in particular down the 101-corridor through the Marin Sonoma Narrows or over the Golden Gate Bridge, Richmond Bridge, or Highway 37. No silver bullet infrastructure projects are coming to solve this problem.
Prior to founding MSIV, I worked on the leadership team of a growing Series-A startup based in SOMA. I hated the commute. I tried everything to make it better - driving, bus, ferry. No matter what I did, I spent two or more hours each day travelling to and from work, and I needed those hours back to invest in my family and my own physical and mental well being.
This issue is generational - put simply, those in their 20s and 30s maintain a visceral negative reaction to commuting. This means a growing desire to find jobs locally or jobs that can be performed remotely. While growing families and a love of open space causes talent to move to the North Bay, generational instincts push that talent to desire more local opportunities.
Trend Outlook: The commute isn’t bad during shelter-in-place, and commute times do ease somewhat during economic downturns. But we expect the commute to be as bad as ever once the economy picks back up.
Go Local Movements Intensifying
Sonoma and Marin are at the epicenter of the go-local movement. We donate local - just look at the Sonoma Strong response to the Tubbs and Kincaid Fires or the continued generosity that has pushed the Marin Community Foundation’s assets over $2.5 billion.
We eat local to support nearby agriculture, a key sector in both counties, and to ensure a healthy lifestyle for our families. And we buy local so our downtowns stay vibrant and small businesses can thrive in our region.
The North Bay is filled with natives and transplants who maintain entrepreneurial instincts and ambitions. These are tomorrow’s founders and their go-local desires apply to the companies they will start as well. Recently, I met with two separate Marin-based founders of startups less than a year old who were actively considering whether to locate their companies in Marin or San Francisco. They both desired to build in Marin but weren’t sure that was the best decision for their business. Currently, both companies are still based in Marin. More of these community-minded founders are coming.
Trend Outlook: Shelter-in-place has necessitated everyone thinking locally and reinforced the importance of one’s local community. We expect this to provide an extra push for the community as a whole to proactively back more local business formation moving forward.
Distributed Workforce Model Growing
I’ve chatted with over 30 current North Bay startup founders over the past six months and can count on one hand the number that did not have at least one remote team member. The idea that a startup is constrained to a single office space or geography is outdated, and most early teams are forgoing office space entirely given the remote nature of the workforce and unnecessary rent expense.
As startups mature and staff up to scale, and the team building and culture components become of even greater importance, a physical office space is generally acquired. Human beings are social animals, and despite the success of a few notable all-remote companies that have made this model work, the office will not be going away in its entirety in the 2020s even if overall demand for commercial office space may decline.
Trend Outlook: COVID-19 is simultaneously reinforcing that great work can be completed remotely and that there is no substitute for face-to-face human interaction (how many Zoom meetings can one sit through?). A company’s physical location will be as important as ever just as distributed workforce models will keep growing - these two things are not contradictory.
Global Technical Talent Available Remotely
In recent years, recruiting software engineering talent in the Bay Area became nearly impossible given that local demand for this talent so far outstripped supply. For North Bay startups, if they were not successful in recruiting local talent, it was even more difficult given the North Bay is not centrally located in the Bay Area, and it can be tough to recruit talent from the peninsula, south bay, our southern east bay to Marin or Sonoma.
At the same time, the number of high-quality engineers available remotely overseas has grown, whether in India, Ukraine, Poland, or elsewhere. The key to engaging remote external teams is in how they are managed locally and integrated into the home effort, and I know multiple Sonoma-based startups leveraging this availability to fill gaps.
Trend Outlook: Advancements in collaboration technology are making this option more viable for North Bay startups. An economic downturn is likely to make more talent available overseas but also increase the supply of local talent, perhaps reducing the need to tap overseas teams.
Non-California Operations Opening Earlier
At my most recent startup, we opened a second location outside of the state when we reached 50 employees. Previously, North Bay founders could struggle to fathom how they might quickly scale to 1,000 employees locally if their company made it big, but that’s no longer the relevant question. Today’s question is ‘can our headquarters location be home to the core 100-150 people we will need to compliment the rest of our operations spread across the country and world?’
Prior to COVID-19, the venture community was already pushing startups to demonstrate greater profitability metrics. Looking forward, startups will be under even more pressure to ensure their cost structures are prudent, and given the high cost of labor in the Bay area, complimenting California operations with offices in Biloxi, Bozeman, and Bangor will make strategic sense from an earlier point in the company’s lifecycle.
Trend Outlook: The high cost of doing business in California won’t subside anytime soon. This will accelerate.
Conclusions
The decision for Marin and Sonoma founders to locate their business elsewhere in the Bay Area seems shortsighted given these growing realities. The most important asset an early-stage startup has is its founding team. Given the choice of backing a founder building a business in her/his community and a founder spending two hours per day commuting from another location, investors would be wise to back the founder reinvesting those same two hours into her/his family and physical fitness, ensuring greater stamina and perspective to push through the tough days that will inevitably be ahead for the fledgling business.
Marin and Sonoma counties combined have 750,000 people and $43 billion of annual GDP, which is greater than two U.S. states. There is a rich history of startups prospering across both counties and three new startups continue to be formed each month across Sonoma and Marin, from the Santa Rosa medical device cluster to the still vibrant Telecom Valley businesses of Petaluma to the northern Marin biotech cluster to the plethora of software companies scattered throughout southern Marin to the innovative food and beverage brands across the entire two-county area.
While the conditions are now ripe for future prosperity, we must come together as a community to take advantage of this moment if we are to see this come to fruition. Let’s re-imagine the future of the North Bay economy together. Get involved with our movement to chart a new path forward for our community and help promising local new ventures become the next great North Bay company.
Zachary Kushel is Founder & Managing Partner of Marin Sonoma Impact Ventures.
This is Part 1 of 4 in a biweekly series we will publish on the North Bay startup ecosystem. Click here to subscribe to receive future pieces.
