How Do Bay Area Companies Compare to Those Outside It?
This episode might reference ProfitWell and ProfitWell Recur, which following the acquisition by Paddle is now Paddle Studios. Some information may be out of date.
Originally published: April 25, 2019
After spending a ton of time in the Bay Area over the past few years, and having offices in both Boston and Rosario, Argentina, I’ve learned that us operators outside of Silicon Valley love to compare our ecosystems to the Bay Area, but no one in the Bay Area is comparing themselves to Boston, New York, London, or any of the other ecosystems out there.
Silicon Valley is the Mecca after all, so comparisons probably just don’t make much sense.
Yet, as costs of living increase substantially in Silicon Valley, more operators are getting fed up and moving on, which may be a mistake when it comes to growth.
No matter how you slice it, companies in the Bay Area grow quicker on average than companies outside of the Bay Area.
When looking at the journey from $1M to $10M, those companies across different average revenues per user based in the bay area have growth rates anywhere from 15 to 26% higher compared to those companies outside the Bay Area.
But first, if you like this kind of content and want to learn more, subscribe to get in the know when we release new episodes.
There are an enormous amount of lurking variables here as to why we’re seeing this. There’s certainly more funding in Silicon Valley compared to the rest of the world, there tends to be more companies than the rest of the world, and you have many more anchor companies feeding talent to the ecosystem like Facebook, Google, et al.
Yet, with the rise of costs, maybe slower growth is ok for longer term gains. I know that’s a bit of blasphemy, but the growth at all costs mindset is dissipating more and more as our markets mature in the favor of smarter growth and better retention.
On this axis, the Bay Area is actually losing. Take a look at the retention rates of our different groups. Those companies outside the Bay Area tend to have noticeably better retention when between $1M and $10M in revenue, as well as when over $10M in revenue.
Admittedly, the gain isn’t a home run and could be attributed to a whole host of factors, but companies in the Bay Area typically have a culture of spend, spend, and spend, which is the job of a heavily funded company - deploy capital.
This spending can lead to poor unit economics and acquiring the wrong types of customers who then end up churning.
Ultimately, Silicon Valley is Silicon Valley for a reason. It’s our cradle of innovation, spurring almost all of the greatest hits in our industry. It’s certainly possible to build a successful company outside of the Bay Area and we’re seeing the rise of the rest, but until these other ecosystems have the necessary ingredients, the Bay Area will still continue to win out.
Want to learn more? Check out our recent episode: Is All Software Going to $0? and subscribe to the show to get new episodes.
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You've got the questions,
and we have the data.
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This is the ProfitWell Report.
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Hey, Neil.
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Sameen here from Eventable with
a quick question for you about
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how companies
differ by geography.
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In the data that
you guys have seen,
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how do companies in the Bay Area
compare to those outside the Bay Area?
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Welcome back, everyone. Neil
here for the Profitable Report.
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After spending a ton of time
thinking about the Bay Area
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over the last few years,
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but also having our offices here
in Boston and Rosario, Argentina,
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I've learned that us operators
outside of Silicon Valley love
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to compare our ecosystem
to the Bay Area.
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But no one in the Bay Area is
comparing themselves to Boston,
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New York, London, or any of
the other ecosystems out there.
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Yet as cost of living increase
substantially in Silicon
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Valley, more operators are
getting fed up and moving on,
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which may be a mistake
when it comes to growth.
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So to answer this
week's question,
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we looked at the growth data
from just over three thousand
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companies from all
over the world.
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As to not bury the lead,
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companies in the Bay Area
grow quicker on average than
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companies outside
of the Bay Area,
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no matter how you
slice the data.
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When looking at the journey
from one million to ten million,
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those companies across
different average revenues per
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user based in the Bay Area
have growth rates anywhere from
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fifteen to twenty six percent
higher compared to those
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outside the Bay Area.
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Note, though, that these gains don't seem
to correlate with the size of the customer,
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meaning it's not as if SMB
focused companies are better
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than enterprise
companies in the region.
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When you get past ten
million in annual revenue,
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you'll notice that the growth
rates relative to those outside
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of the Bay Area do slow a bit,
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but they're still growing at
a higher rate than those outside
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of the Bay Area with
eight to sixteen percent higher growth
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rates across the board.
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There are an enormous amount
of lurking variables here as to
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why we're seeing this.
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There's certainly more funding
in Silicon Valley compared to
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the rest of the world.
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00:01:53,115 --> 00:01:55,730
There tends to be more companies
than the rest of the world.
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00:01:55,730 --> 00:01:59,810
You have many, many more anchor
companies feeding talent to the ecosystem
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00:01:59,810 --> 00:02:01,810
like Facebook,
Google, and others.
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00:02:01,810 --> 00:02:03,445
Yet with the rise of costs,
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00:02:03,445 --> 00:02:07,025
maybe a bit of slower growth
is okay for longer term gains.
49
00:02:07,205 --> 00:02:08,805
I know that's a
bit of blasphemy,
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00:02:08,805 --> 00:02:11,765
but the growth at all costs of
mindset is dissipating more and
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00:02:11,765 --> 00:02:14,920
more as our markets mature in
the favor of smarter growth and
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00:02:14,920 --> 00:02:16,340
better retention.
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00:02:16,360 --> 00:02:19,080
On this axis, the Bay
Area is actually losing.
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00:02:19,080 --> 00:02:22,125
Take a look at the retention
rates of our different groups.
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00:02:22,125 --> 00:02:25,405
Those companies based outside
of the Bay Area tend to have
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00:02:25,405 --> 00:02:28,125
noticeably better retention
when between one million and
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00:02:28,125 --> 00:02:32,570
ten million in revenue as well as
when over ten million in revenue.
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00:02:32,570 --> 00:02:35,850
Admittedly, the gain isn't a home run
and could be attributed to a whole
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host of but companies in the
Bay Area typically have a
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00:02:38,785 --> 00:02:40,305
culture of spend, spend, spend,
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00:02:40,305 --> 00:02:44,065
which is a job of a heavily
funded company deploy capital.
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00:02:44,065 --> 00:02:46,690
This spending can lead to poor
unit economics and acquiring
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00:02:46,690 --> 00:02:49,650
the wrong type of customers
who then end up churning.
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00:02:49,650 --> 00:02:52,965
Ultimately, Silicon Valley is
Silicon Valley for a reason.
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00:02:52,965 --> 00:02:54,485
It's a cradle of innovation,
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00:02:54,485 --> 00:02:57,205
spurring almost all of the
greatest hits in our industry.
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00:02:57,205 --> 00:02:59,205
It's certainly possible to
build a successful company
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00:02:59,205 --> 00:03:00,450
outside of the Bay Area,
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00:03:00,450 --> 00:03:02,210
and we're seeing the
rise of the rest.
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00:03:02,210 --> 00:03:04,770
But until these other
ecosystems have the necessary
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00:03:04,770 --> 00:03:08,195
ingredients, the Bay Area will
still continue to win out.
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Well, that's it for now.
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If you have any
questions at all,
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send me an email or video
to neil at profit well dot com.
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And if you got value here or
any other week of the report,
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we appreciate any and all
shares to Twitter and LinkedIn
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because that's how we
know to keep going.
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