Five Factors Driving Tech Company Location Decisions

Tech companies, particularly those in the Software as a Service (SaaS) space, have historically gravitated to parts of the US that afford access to top talent while also providing employees an unparalleled quality of life. This has led to a clustering of the tech industry in regions such as the Bay Area, Seattle, and New York and increasingly in second-tier markets such as Austin, Denver, and Salt Lake City. The rapid and sustained growth of these places means they are becoming victims of their own economic success as the cost and competition for top talent continues to rise. To minimize their exposure to these issues, tech companies are beginning to look beyond the more traditional tech hubs as a way of gaining competitive advantage.

Many of NKF’s tech clients enlist the services of our Global Strategy consulting team to help develop location strategies that will extend their footprint outside of the more developed tech markets as they seek to alleviate the risks and challenges endemic to their native markets. The issues the Global Strategy team is typically solving for include reduction of labor and real estate costs, identification of qualified pools of talented new employees, access to new time zones and market coverage areas, and discovering less competitive tech environments that allow clients to establish themselves as an employer of choice. Beyond these more obvious business and operational goals, our clients in the tech space are also conducting their site searches based on a variety of lifestyle factors to ensure that a new location will provide a unique, appealing, and accepting local culture that matches that company’s own unique corporate DNA and values. This often means finding locations whose cultural traits and lifestyle are akin to the larger, dynamic, and progressive coastal markets where these companies were usually founded.
While NKF’s Global Strategy team may look at as many as 50 distinct location factors when performing a site search for a tech company, there are several factors that tech companies seem to particularly focus on that differ from the search criteria used by our clients in other industry sectors. For this piece, we’re outlining five of the most common location drivers that are largely unique to our tech clients:
  1. Retention Bonus – Companies in well-established and highly competitive tech hubs such as San Francisco and New York have become accustomed to dealing with high attrition rates among their workforce. This is driven in part by the multitude of job opportunities in these markets but also by affordability issues - which particularly impact junior and lower-compensated employees. Many tech companies are finding that team members are leaving the company to relocate to lower cost markets where they may see a reduction in pay but will trade off for a higher quality of life and better housing affordability. Several of our clients have realized that by establishing an office presence in a highly desirable yet lower cost market they can not only attract new talent in these markets but also offer existing employees currently in the larger markets an opportunity to transfer to the new location and continue to build their career with the company.
  2. Diversity – Many tech companies realize that the diversity of their current workforces is a competitive strength and they have a preference to maintain this in a new location. Building a team that draws from a variety of cultural, ethnic, and linguistic backgrounds is a highly weighted factor driving many of these location decisions. This also includes an LGBTQ presence in a market and increasingly, we’re also seeing an interest in attracting qualified employers from a diversity of ages, life stages, and professional experience.
  3. Politics and Culture – Many companies are asking us to assess an area’s political and cultural environment to determine whether a market will be a match with the company’s home markets and corporate culture. Factors that may fall into this category have included: per capita spending on arts and entertainment, LBGTQ acceptance, local music scene, charitable giving and civic engagement, voting patterns, health outcomes, wellness quotients, density of electric car charging stations, access to mass transit, walkability of downtown environments, etc. 
  4. Eating and Drinking -  A common theme of these site searches is a focus on what life is like “outside the four walls” of the workplace. A large part of this relates to experiences surrounding food and drink. Clients are seeking markets with a wide variety of high quality and inventive restaurants and unique and locally-derived beer, wine, and liquor. Measurable location factors in this category can include density and clustering of full-service restaurants, variety/mix of cuisine types, number of James Beard award-winning restaurants, density of craft/micro-breweries, etc.
  5. Weather and Climate – particularly for California-based tech companies, weather conditions can be a key component of the search for a new location. Many companies look to avoid not only overly cold climates in particular but also those markets that have limited sunshine. Beyond lifestyle impacts, weather also has a business impact as companies prefer not to locate in cities where operations can be regularly disrupted due to weather events (snowstorms, floods, hurricanes, etc.). Some of the specific factors in this category that we measure include days of sunshine, average daily high temperature, natural disaster and severe weather risk, etc.
Fast-growing software companies are using location strategy as a tool to proactively address the increasing costs and competition found in traditional tech markets. While trying to mitigate and solve for these business issues, these companies are also carefully considering new locations that will preserve their brands and match their corporate culture and values. This leads to a set of unique location decision factors that are largely unique to the tech industry.

Chris Volney
Managing Director, Global Strategy

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