CEO Commentary HR Challenges Playbooks

Size doesn’t matter. Location does.

Location matters. Nothing becomes more clear the more you think about it. (Why size doesn’t matter is a bit further below 😉 ).

But why?

A Random facts – Warmth, Extraversion, and Intellgience and Productivity

First of all, people become less productive when its warm (not judging, just reciting dubious research and it’s a great evil opener allowing me to reference Arnold Toynbee). But smart people prefer to go to cool warm places. You have to generally choose to go to cold places and work with highly productive bores with a higher chance of employing dumb people, or you go to a warm place with lower productivity but chance ot attract more non-bore talent.

Don’t get me wrong. You might attract some really smart people that like cold weather, and attract them at scale in a cold region. But, you know, less likely you get the whole mix of smart people you need ranging from r&D to sales, etc. You might get the R&D guys. Not the smart sales guys.

B Low cost of living, talent density and growth expectation

The next thing is that people prefer ot waste less money on cost of living if all else is equal. So if you rebuild San Francisco somewhere else for half the price, all else equal, this will be a preferred location. But this can’t abandon income security, progression and overall growth as a person – which increases stability of income. And as the saying goes, this has to do with competition and density of talent around you. A copy of San Francisco with dumb people will not work.

There is a critical mass required if the overall environment and climate is nice, and cost of living must be a function (an inverse one?) of talent density, to make sense for smart people. This is why Portugal doesn’t work. But Tel’Aviv Jaffa works.

C Summarizing A + B

Yeah, so both combined, the best mixes are in warm regions. But cold regions are good for R&D monocultures. Just look at the Nordics or the Russian Cyber Capability. Warm regions have more diverse blends of talent.

Talent density matters to achieve sufficient competition and growth expectation correlating with income security and growth. But then again,it must be nice enough and cost of living must be decent. Otherwise people go from the Valley to Boulder or Southern Cali. Etc.

D. Cultural Affeliation

Next is the big question, what kind of culture and personality you want to attract. If you want cultures that favor local talent, some ecosystems in China and India probably better than the US, Germany or Dubai. If you want Banking Culture with cut throat authority etc. probably not working in Berlin, Portugal or Sweden. If you need low cost labour in a sweat shop environment, some part of India and CEE more suited than Nordics, Paris or San Francisco. If you want highest calibre talent, Israel, NYC, London, Vally more likely suited than Istanbul, Rome, Buzan or Kyoto.

Depending on what you need and at which scale you need it, different hubs play different roles. Different mindsets and belief systems needed to build a local tribe, followership and ultimately company culture at scale are going to require different local ecosystems to be tapped into. Relationships into local ecosystems can typically NOT be bought or simply obtained by moving there. It requires sophisticated partnering, C-Level Hiring and other strategies. And a vibrant culture.

Don’t do a hippie spirituality-inspired Blockchain start-up in lower Manhatten. Don’t run a weed and nudity friendly culture in Seoul. And don’t do Banker culture in Berlin. (Ok, didn’t Rocket try that?)

E. Really think scale

The concept of real scale is quite simple. When things hit the fan and you need people, how fast can you hire decent quality people to manage the load? How many high qualitypeople can you hire to create the required minimal viable processes quickly? And how fast can you ramp down HR cost to a cruising altitude level without losing quality of service and delivery after you coped with peak load? I think Benchmark Kapital and Reid Hoffmann with his Blitzscaling class ( and I think now even Book ) did a decent job in describing these issues and showcasing why the Valley has a tiny advantage here for scale. You pay a lot of money, to get highly talented people, to cope with lots of upcoming load quickly and efficiently, and then scale out ops to low cost ecosystems and replicate the working process. A decently working system. In other ecosystems, a decently talented Ops manager might want 20% of equity or attempt his own terrible startupidea. In the valley, you slam 400k total compensation, 1-2 % equity which will expected value far higher than 20% of equity of your shit startup, and you get a tier 1 guy / gal to deliver. And then they leave and you lower the entire cost base.

These kind of plays you don’t have elsewhere. People aren’t smart enough. If they are they go to the valley or they do their own startups. Or they are too greedy. Or the legal environment is weird. In many cases, it just doesn’t work.

Location matters for scale, incentives, and talent access.

F. A world full of evangelists and early adopters and investors

The consumerization and empowerment of early adopters and evangelists in the US and/or Israel is far beyond what you can see in Europe, APAC or most other ecoystems. If you want scaling land-and-expand and low or affordable CAC for a superior product, you will get it more likely in the US market or Israel than anywhere else.

Just accept it. It’s a fact. And if you add the funding environments outside the key areas in the US, you are even more screwed.

G. Final words on start-ups

So overall, while it was considered irrelevant where you started in pre 99 dotcom crash era, or naive young folks still think you can make it anywhere, the mere expected value or expected ROI equation (r = E(f(t, d))) leads to lower expected r in most cases if you are in the wrong location. And that impacts everything. From funding, cost of customer and talent acquisition, to speed of market discovery and competitive positioning. Just everything.

Location matters. Size does not.

F. Size doesn’t matter.

Finally, size doesn’t matter. Because the same problems are existing for corporates. Yes, talent supply by university and education systems is limited. But talent supply by crushing and draining competitors and sucking out talent from other corporates shouldn’t be limited that much. *headscratch*

Question here is if it is a stochastically dominant solution if you want to max out your expected NPV on future Cash Flow if you (a) increase your spending on innovation and talent acquisition with your current local hero strategy, or (b) you pay a sizable multiple on current cost to relocate and compete in the relevant ecosystems; and what the expected reaction function on your mid-term competitive positioning is. What is the real multiple of expected NPV (uncertainty!) over expected cost expansions (quite certain) and how does this validate thinking more about location?

I think the location issue isn’t restricted to start-ups. It’s something to ponder about independent size. Not aware of any PE plays in this direction. Interested in feedback! Know anyone using re-location of this kind in a value-oriented long play? Let me know! If you know a mid cap or corporate relocating itself entirely for talent access even more interesting and drop a note.

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