Blog

August 24, 2018
Why Silicon Valley Is Looking Hard At Chicago For Expansion

I was reading a fascinating story in the Wall Street Journal focusing on a very large software-specific private equity firm that has a unique strategy – when they buy a company that happens to be based in a high cost area, they subsequently try to diversify the geographic location of their talent.

For example, the private equity firm was buying one company on the east coast as well as another company in the same field in St. Louis. They then encouraged the merged company to expand in St. Louis rather than in the more expensive area.

We’re starting to see a very similar trend here in Chicago, where our firm has been approached by a number of companies looking to build greater capabilities in Chicago. The key drivers seem to be that it's so difficult to get essential talent in the San Francisco bay area and Silicon Valley, not to mention how expensive those people are to hire.

The bottom line is this: I have not seen San Francisco-based companies come into Chicago and talk about building development centers – until this year. Now, I've seen a number of them.

I will not be surprised to see this trend accelerate to the degree that a number of Silicon Valley-based companies are going to have a lot of employees here.

Why does that matter? For one, having many employees located in Silicon Valley can be a very expensive proposition for both the companies and the people who are devoting a significant percentage of their compensation to their landlords (many of them can't afford to even think about buying houses).

We’ll be watching closely to see if these companies indeed find that there is a sufficient supply of tech people in markets in the Midwest and whether it will create a new wave of technological-driven resurgence.

We’ve actually seen this happen before in Chicago. Think back to the year 2000, when there were quite a few companies building software in Chicago. Many of these companies would ultimately shut down, merge and move out of town to the west coast. We haven’t seen the same scale of growth of software businesses since (which is not to say that there aren’t solid software companies in town, Groupon being one such example).

Higher Cost-Efficiency, Lower Cost Of Living Proving Attractive

However, the times may be changing. With many west coast companies running out of people who can afford to live there, those companies are taking a hard look at expanding to the Midwest.

It would seem a Midwest expansion plays well to the vast resources Chicago has in areas such as financial technology, which we recently focused on in a previous Tidbit.

While there was a time when much of the software development done by many west coast companies was migrated off shore, it appears Silicon Valley-based companies are coming to the Midwest not only because it's relatively less expensive for them compared to going off shore but that it also might be more effective for their overall business goals.

Facebook Is Coming – And The Impact Could Be Huge
.

If you want to see evidence that the Silicon Valley expansion may reach a dramatically higher level, look no further than the recent news that Facebook has signed a lease for 263,000 square feet of office space downtown on top of hiring at least 65 recruiters in the last year. With that kind of space, it’s no stretch of the imagination to suggest that Facebook could be targeting 2000 people (or more) to hire, many of whom represent the top technical talent in the Midwest. This should at least cause some nervousness among Chicago-based employers who either have or may compete for that talent, from CME to Grubhub and more.

They’re not the only ones.

Based on Amazon currently evaluating locations for a second headquarters and Google growing a substantial office environment outside of Silicon Valley, certain companies are getting the message that the idea of growing a business in one location might not be an optimal strategy.

For all of the talk about Chicago’s harsh winters, there’s little question that Chicago offers an attractive cost of living and quality of life by comparison to living in cramped conditions or commuting 90 minutes one way to work.

“The Lottery Effect”


I’ve come to believe that the lure of Silicon Valley for many is due to what I call “the lottery effect”: It attracts people who are in a position to gamble. Essentially, you’re going to a place where the type of work you do today can hopefully make you a fortune ten years down the road. It sounds reasonable enough, considering the number of people making a fortune in Silicon Valley is higher than, say, Moline, Illinois.

However, if you’re 32 years old and have three small children, perhaps San Francisco is not the right place to get a software position that’s slightly higher than entry level. You’ll probably have to live in very cramped conditions, which is something your spouse and children might not appreciate. Therefore, if we continue to see companies expanding beyond their base toward the east, it’s entirely possible we may see a migration of talent in this direction as well.

If yours is a company interested in expansion to Chicago and wanting to identify the very best technical talent, why not talk to the tech recruiter that has been well established in this market for over 30 years? Roy Talman & Associates has earned its reputation as recruiting the “best of the best” for companies in expansion mode that have so much riding on a substantial set of successful hires. Bring us into a hiring strategy conversation now to ensure the next chapter of your company’s growth is its most exciting one yet.