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San Francisco has gotten so expensive, some tech companies can't convince employees to move there

CNBC logo CNBC 4/8/2017 Michelle Castillo

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When Australian digital media marketing and commerce company Rokt decided to start its U.S. outpost in 2014, it first headed where most tech startups find their footing: San Francisco.

But it struggled with the fierce competition for tech talent in Silicon Valley, and the lack of nearby advertising companies made it hard to find customers.

There was one other point of contention: employees didn't want to move overseas to go to San Francisco.

"It's hard to get someone to want to come there," said Rokt CEO Bruce Buchanan.

"They're young and single, and want to be where people with a like-minded lifestyle want to be," like Chicago and New York. Rokt decided to make its existing office in New York its U.S. headquarters.

San Francisco's start-up culture makes it a hotbed for tech talent. It also means every company is competing for the same people, meaning higher salaries and more perks to stay competitive. But it's also getting harder and harder to convince candidates from outside San Francisco to move there.

"Consistently we would reach out to great candidates," said Vevo's chief people officer Colleen McCreary. "If I can't find them living here (San Francisco) already, we look for that great candidate in Kansas City or Idaho. Then, they run a cost of living calculator."

McCreary has first-hand experience with Silicon Valley's insane housing market. Before moving into her current Bay Area home, she lived in a two bedroom San Francisco condo she owned with her husband, son and sister. McCreary and her husband split their bedroom with their son, while her sister took the other room. They stayed in that set-up for two years.

"It's especially challenging for people with families," McCreary said. "If you are young and single, it's a lot easier to get out there and be in the center of technology. But if you are a more established person, that lifestyle is a little more difficult."

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Leaving Silicon Valley

One alternative for tech companies is to build out in other cities like Seattle, Austin or Chicago that offer a fun lifestyle but might not be as expensive. Not only are salaries cheaper, office rent and other expectations are lower as well. (The only exception was New York, which was mostly on par with San Francisco according to the companies surveyed.)

Vevo is now expanding offices in cities like Portland. It's a highly educated market with high unemployment rates, McCreary said. It also has the added bonus of being in the same time zone as Vevo's San Francisco headquarters.

"I'm almost afraid to tell people," she joked.

Employment recruitment startup Purple Squirrel CEO Jon Silber, who used to be a strategist at Google, used the model-building skills he learned at Google to figure out whether he should move from San Francisco to Los Angeles.

He discovered that he could get 30 percent more house, spend 15 percent less on food and have a 20 percent lower overall cost of living in Southern California. Even Uber cost 30 to 40 percent less, he discovered. In addition, there were more universities in southern California producing computer engineers in than San Francisco.

"We figured if we moved from San Francisco to Los Angeles, we could extend our company's runway by 30 percent because there were more engineers and rent was cheaper," Silber said.

Digital ad tech company Integral Ad Science is also building out offices in places like Seattle and Exeter, England. It found that relocation package costs to San Francisco were so high, it was easier to start offices where potential employees were. For instance, an Austin office was jump started after Ad Science hired one employee there, who knew eight other friends who he brought on board as well. 

"No question you have to find people outside of San Francisco and New York if you want to scale," said CEO Scott Knoll.

Integral has found that there are not as many tech workers outside San Francisco, but it's possible to fill those roles by hiring people from other professions and retraining them, especially as data scientists. It's hired people who were previously working in biotech and finance, as well as astrophysicists, theoretical physicists and neuroscientists.

"One guy had spent six years understanding the movement of a mouse's whiskers," Knoll said. "He thought (ad tech) was really exciting because he could explain it to other people."

Plus, there's the refreshing change of pace from the culture of San Francisco.

"In Los Angeles, you don't have to have your entire life to be about tech," Purple Squirrel's Silber said. "Not every single conversation has to be about tech."

"San Francisco is almost like an insulated bubble," said employee training platform Grovo's vice president of people, Joris Luijke.

But some just can't give it up

Despite the higher costs and potential alienation of employees, some companies simply can't find who they want anywhere else.

San Francisco just has more senior level tech talent, admits Grovo's Luijke. The New York-based company just opened up its San Francisco outpost.

"I understand what those other companies are saying, but I'm focused on engineering and product leadership," said Luijke. "Our vice president of products, we had that job open for New York City for over a year. We extended to San Francisco, and we filled it in four months. They (interviewees) didn't want to leave San Francisco, and the pool was bigger there."

And while employees complain about San Francisco's high housing costs, the city's casual culture means they don't have to spend as much on clothing.

Vevo's McCreary said she has an unlimited Rent the Runway subscription to rent clothes to wear when she's in New York for work. She doesn't need them at the office in San Francisco.

Virtual reality media company Upload co-founder and CEO Taylor Freeman, who recently left San Francisco for Los Angeles, found that investors expected people to be a little more dressed up in southern California.

"I have been urged to get a nice jacket like a cool Rag and Bone... If you don't believe in having nice shoes or a handbag, it still matters to the people you do business with (in L.A.)," he said.

But, Purple Squirrel's Silber said he carried over one piece of San Francsico's casual attire mentality to his Los Angeles office: No one wears shoes.

"I literally interviewed a guy and went boogie boarding with him," Silber said. "The guy showed up in board shorts, a tank top and sandals. He didn't get the job, but he's still allowed to come to all our parties."

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