Last week Forbes named San Diego the best place in the country to launch a startup.
There are many different ways to evaluate this claim, and the comments section for the article proves there are some skeptics. So, is San Diego really No. 1 for startups? Let’s take a deeper look.
The Case for No. 1
Eric Otterson thinks the label is deserved.
“The momentum is amazing right now. The companies that are being created and funded are growing at a rapid pace,” he said.
Here are some of the highlights Otterson pointed out.
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Yes, San Diego is one of the business-friendly cities. However, there are also other good cities in the USA, where you can laugh your business and won’t regret about it. For instance, this article https://rentberry.com/blog/best-city-to-launch-startup states that San Francisco one of the best places in the country to found a company.
@sandiegoian Stone Brewing World Bistro & Gardens – Liberty Station
Fascinating comments. I guess some people can only focus on the hurdles while others sail over them as they stay focused on the finish line.
Great piece Blair. Bet fair assessment as well.
Ultimately San Diego may or may not be the "best" place for tech start-ups, but it's exciting to see the energy that people like you, Kelly Abbott, Eric Otterson and other local tech entrepreneurs are bringing to the scene.
And while Forbes may not register as a credible source to all the folks commenting here, I'll certainly take them ranking us as the "Most Inventive City in the Country" in 2013 and the "Best Place to Launch a Start-Up" in 2014.
I'll also take MIT researchers ranking San Diego-based Illumina as the "Smartest Business in the World." And I've got no problem with National Geographic choosing San Diego as the one of eighteen global cities (and the only one in the US) to highlight in its upcoming "Smart Cities" documentary series.
So we could spend the rest of the weekend defending San Diego and CA to those who spend most of their waking hours bashing both, or we can go out and enjoy some time in one of the most beautiful, innovative, diverse, entrepreneurial and smartest places on the planet. I think I know where I'm headed.
See you around fellas.
And to all the real tech/start-up entrepreneurs in this exchange...keep up the great work and thank you for all that you are doing in putting and keeping the SD tech scene on the map.
@Mark Cafferty Thanks for the comments. San Diego IS a great place for business. We need to turn the corner and work together to improve the established programs that we have, build great companies that can add jobs and keep talent in San Diego. What is the EDC doing to improve the programs like SDVG, Connect or Commnexus and attracting more like TechStars, Plug and Play or Y-Combinator?
@Kelly Abbott If I didn't like San Diego, I wouldn't live here. But to pretend that this is finest place in America for a STARTUP company is beyond delusional.
@Richard Rider I don't buy your reasoning. Fear of taxes/fees is an absurd rationale for not starting a business. Avoiding taxes is not a wealth strategy. Innovation is. Add value, be successful. Simple. Spend zero energy complaining that taxes are unfair because it's a fool's errand. There's no competitive advantage on taxes that can't be out-performed by putting yourself in a creative environment with tons of talent and resources to bear.
That said, I also don't buy the premise the Forbes article was based on either. While not entirely vanity metrics, things like Percentage of Facebook Pages Set Up is a bit soft to conclude SD has the best startup climate.
My rationale for starting up in San Diego was simpler: San Diego! Who wouldn't want to put out their shingle here? We have it all, everything you could want for business and life.
Bonus: I have done business in several cities. Nowhere has it been easier to meet people who could help (as employees, customers or mentors) than here.
@Kelly Abbott BTW, I'm DEEPLY offended by your caricature of an upset Hispanic.
@Kelly Abbott @Richard Rider Here's some additional reasons not to prefer California or San Diego as a good place to start a business.
CA public school teachers the 4th highest paid in the nation. Yet CA students rank 48th in math achievement, 49th in reading.
poverty rate (the new census bureau standard adjusted for COL) is by far the
worst in the nation at 23.8%.We are 48.8%
higher than the average for the other 49 states.Indeed, the CA poverty rate is 20.2% higher
than 2nd place Nevada.
California has 12% of the nation’s population, but 33% of the country’s TANF (“Temporary” Assistance for Needy Families) welfare recipients – more than the next 7 states combined. Unlike other states, this “temporary” assistance becomes much more permanent in CA.
California firefighter paid 60% more than firefighters in other 49 states. CA cops paid 56% more. THEN we calculate the pensions off that inflated figure -- an unsustainable payout to our almost ALL our public employees -- state and local.
California ranks 48th worst for credit card debt and 49th worst for percentage of home ownership.
@Kelly Abbott @Richard Rider -- I realize that no amount of factual rebuttals will dissuade you (you're in "cheerleader" mode -- how come that makes you the "moderator"???). That being said, let me provide readers with some documented reasons -- including NON tax reasons --why most businesses (NOT all) should avoid CA.
CA has the highest state sales tax rate in the nation. 7.5% (does not include local sales taxes).
CA has the nation’s highest gas tax at 71.6 cents/gallon (October, 2013). National average is 49.5 cents.
http://www.api.org/statistics/fueltaxes/ (CA also has the nation’s 3rd highest diesel tax – 76.2 cents/gallon. National average 54.8 cents)
CA has now instituted the highest “cap and trade” tax in the nation – indeed, the ONLY such U.S. tax. Even proponents concede that it will have zero impact on global warming.
California is one of a handful of states (maybe four) that requires "tip" employees to also receive IN ADDITION the full minimum wage -- a "pass through" cost to consumers which inflates prices at restaurants, etc. And this cost is rising rapidly.
The American Tort Reform Association ranks CA the “worst judicial hellhole” in U.S. for 2nd year in a row – most anti-business. The U.S. Chamber of Commerce ranks CA higher – “only” the 4th worst state (unfortunately, sliding from 7th worst in 2008).
CA driving tickets are incredibly high. Red-light camera ticket $490. Next highest state is $250. Most are around $100.
CA has 2nd
highest annual cost for owning a car – $3,966. $765 higher than the national
Southern California has a remarkably unreliable water supply. In addition, a 2011 survey of home water bills for the 20 largest U.S. cities found that for 200 gallons a day usage, San Diego was the highest cost. At 400 gal/day, San Diego was third highest. http://www.circleofblue.org/waternews/wp-content/uploads/2011/05/allstats590.jpg
@Kelly Abbott @Richard Rider -- Consider California’s net domestic migration (migration between states). From 2000 through 2009, California lost a NET 1.5 million people. Net departures slowed in 2008 only because people couldn’t sell their homes. But more people still leave each year -- in 2011 and again in 2012, we lost about 100,000 net people to domestic out-migration. Again, note that this is NET loss.
These are not likely the welfare kings and queens departing. They are primarily the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods) – and retirees seeking to make their nest-eggs provide more bang for the buck.
@Richard Rider If I can boil your arguments into a single phrase, it's this: California costs more.
Is that it? I won't disagree. On any of it. But costing more isn't the same as having a pool of energetic, talented producers and consumers to build with and sell to. That's what San Diego and California has in spades.
The next big thing won't be built by tax-dodgers.
Taxes is only ONE factor. The anti-business regulatory climate is FAR more important. As is the anti-business litigation climate (documented in another of my comments).
Utility costs and reliability are also important factors to any business trying to manufacture something (I presume you're in a high rise or office park, not getting your hands dirty).
Then there's the departing businesses and more affluent population -- customers (you DO have customers, right?).
California has much to offer, but it's NOT a good place for a startup. If high tech, CA IS better than many places (at least in SD and Silicon Valley). But there are other more enticing choices -- starting with Austin, Texas.
And BTW, taxes ARE important -- there's a pretty consistent migration of wealth and businesses from high tax states to low tax states. You may not LIKE that, but it's true.
@Kelly Abbott @Richard Rider OF COURSE there are other factors -- you continue to post straw man arguments -- perhaps the result of too often banging your head against the wall (just hope CalOSHA doesn't hear about your edgy proclivity).
But you seem to deny that taxes and regulation have any meaningful effect on where is best to establish a business.
BTW, it may surprise you to know that many states are SAFER than California.
I'm not addressing CA vs. other COUNTRIES -- I'm addressing what the "study" addresses -- CA and its cities vs.. the cities in the OTHER states. You should do the same!
@Richard Rider There's no straw in my arguments. I just don't understand how anyone can honestly look at their new big idea and determine that they won't do it because they have to do it here. The upside to building a new, new thing (here) is much greater than the downsides you're outlining. Sorry, but you're never going to convince me that invention is stymied here.
@Jim Jones Now we agree on something. VC drying up is a problem WRT attracting new startups. My straw man applauds you.
@Richard Rider @Kelly Abbott Sure their are a lot of negative aspects. As Kelly said there are places that might beat all your article links like Afghanistan. The opportunity in San Diego and California is like NO other. Where can you grow up with future rock stars and future business leaders or meet them very easily if you just moved here. The opportunities are all around you in California. California is NOT a save your way to riches place. It's an opportunities place. If you can't take advantage of them. Try somewhere else or better yet, reinvent yourself. California and San Diego welcome it.
@Kelly Abbott @Jim Jones @Eric Spoerner I am the owner of a small 3 person business. We work across the US for some of the largest companies in the world. The reason they hire us is because we provide tools which allow them to complete their core business quicker, faster and better.
California has been and and will continue to be the home to the most innovative companies in the world. Apple, Google and Qualcomm have drastically changed the way we do business and live our lives. The tools they provide make us more effective at what we do every day. This isn't a legacy. Facebook and Twitter chose to be here also. Any of these companies could move or open somewhere else, but they don't.
Those of us focused on disruptive technologies (the foundation of most startups) realize that taxes aren't going to make or break our businesses. Sure, if you want to open a McDonalds or a widget factory then yes Texas has a better taxation and regulatory climate, but if you are interested in innovation then there is no where better place in the world than California. California's only challengers are from Seattle (Microsoft, Amazon) and South Korea (Samsung).
Some attitudes expressed in the comments are toxic. It is just too easy to sit on the sidelines and complain about taxes. As a small business owner, I expect my employees to understand and overcome obstacles-not point out how big they are. This attitude isn't welcome in my office.
“As California goes, so goes the county” has been true for some time, especially with regard to technology. The argument that innovation is fueled by lower taxes and regulation is a red herring. California is and will continue to be the indisputable worldwide innovation champion and it is either silly or misinformed to suggest otherwise.
@Ari Isaak Agree. Not only "silly to suggest" but downright irresponsible to assert. You can't claim our regional standing in the world is anything but strong.
residential electricity costs an average of 27.6% more per kWh than the
national average. CA commercial rates are 44.4% higher. For industrial use, CA electricity is 74.4%
higher than the national average (October, 2013). NOTE: SDG&E is even
There are many reasons why a (sane) entrepreneur might want to think twice about picking San Diego (or any California city) for their startup.
Income tax, for instance (assuming you are in business to make a pile of money).
Prior to Prop 30 passing in Nov. 2012, CA already had the 3rd worst state income tax rate in the nation. Our 9.3% tax bracket started at $48,942 for people filing as individuals. 10.3% started at $1 million. Now our retroactive (to 1/1/2012) “millionaires’ tax” rate is 13.3% – including capital gains (California’s total capital gains rate is now the 2nd highest in the civilized world! Denmark is #1.). 10+% taxes now start at $250K.
CA now has by far the nation’s highest state income tax rate. We are 21% higher than 2nd place Hawaii, 34% higher than Oregon, 47.8% higher than the next 2 states, and a heck of a lot higher than all the rest – including 7 states with zero state income tax.
CA is so bad, we also have the 2nd highest state income tax bracket. AND the 3rd. Plus the 5th and 7th.
http://taxfoundation.org/sites/taxfoundation.org/files/docs/ff2013.pdf Table #12
One “rule” to remember if you want to start a business in California. Never, EVER think of making something tangible. This state is EXTREMELY anti-manufacturing. Manufacturing = byproducts = dirty business = drive ‘em out of the state. Consider:
From 2007 through 2010, 10,763 manufacturing facilities were built or expanded across the country — but only 176 of those were in CA. So with roughly 12% of the nation’s population, CA got 1.6% of the built or expanded manufacturing facilities. Stated differently, adjusted for population, the other 49 states averaged 8.4 times more manufacturing growth than did California.
http://www.cmta.net/20110303mfgFacilities07to10.pdf — prepared by California Manufacturers and Technology Association
On the off-chance that your California startup survives and start making good profits, remember this:
http://taxfoundation.org/article/2013-state-business-tax-climate-index Table #1 – we are 5th highest in nation in per capita corporate tax collections.
While a small startup is QUITE different from a major corporation, it's instructive to see what the big boys (with all their lobbying power) think of the California:
736 top U.S. CEO’s surveyed rank California “the worst state in which to do business” for the 9th straight year (May, 2013). 24/7 Wall St. ranks CA the “worst run state” for 3rd yr.
If you move to SF, San Jose, or San Diego to start a business, bring a bundle of cash for housing. SF has the nation’s MOST EXPENSIVE housing market. San Diego is 5th. San Jose’ is 6th. The size of a median affordable middle class home in San Diego? — 1,056 sq. ft.
CA is NOT a very business friendly state:
CA needlessly licenses more occupations than any state – 177. Second worst state is Connecticut at 155. The average state is 92.
Starting a business that hires employees? Check out the CA worker compensation rates:
CA has the 3rd highest state workers compensation rates, up from 5th in 2010. CA had a 3.4% rate increase in 2013.
San Diego/California has high taxes. But the FEES are far worse — especially for a startup. Plus overlapping and sometimes contradicting agencies from which approval is needed all too often (with fees levied for getting the approval, of course).
Perhaps the "Golden State" sets the example with it’s onerous corporate franchise tax “fee.”
California has a nasty anti-small business $800 minimum corporate income tax, even if no profit is earned, and even for many nonprofits. Next highest state is Oregon at $150. A few others under $100, with most at zero.
The truth is, this "survey" is the most bogus nonsense I've seen in a legitimate publication. It might as well use as criteria the number of ping pong tables the startup has in its office.
But in fairness, it's just the gonzo opinion of a blogger columnist -- NOT the ranking by Forbes itself. It appears to be an infomercial for the survey company.
Most of the "criteria" for this startup business survey uses truly bizarre data:
1. "Percentage of small businesses that accept credit cards."
2. "Percentage of small businesses with Facebook pages and websites."
3. "Percentage of businesses with online reviews."
It’s great that 3 of the top 12 startup-friendly cities are (supposedly) based in California. But gee, that must mean the REST of California must be even worse than the studies indicate. Consider:
California small businesses failed in 2011 at a rate 69% higher than the national average — the worst state in the nation.
http://money.cnn.com/2011/05/19/smallbusiness/small_business_state_failure_rates/index.htm (based on Dunn & Bradstreet study)
In 2012, our supply of California businesses shrunk 5.2%. In ONE year. NOTE: That’s a NET figure – 5.2% fewer businesses in CA in 2012 than were here in 2011. Indeed, in 2012, CA lost businesses at a 67.7% higher rate than the 2nd worst state!
Know the best way to have a successful small business in San Diego [Kalifornia]? Start with a successful LARGE business![rim-shot]
"For all of the same reasons that so many choose to live here over L.A., New York and other more densely populated cities. And now you can actually make a living, change the world and thrive here in San Diego."
People are not choosing San Diego over other metros. At least, young people aren't. San Diego's been shedding more Millennials by raw number than any metros except New York and LA since the recession began (given our relative lack of population compared to these two metros, the raw numbers are shocking). Young people make startups go - they're the ones who will work the appalling hours for limited (intiial) pay.
If San Diego is serious about having a culture hospitable to startups, it needs to also be serious about having a culture that appeals to luring and keeping Millennials. That means, above all, walkable/bikeable infrastructure, affordable housing, and public transportation.
@Jim Jones @Eric Spoerner Stop referring to bicyclists as "hobbyists". Bicycling is not a hobby for many people these days. It is increasingly a preferred method of transportation for people. The notion that a $200 device is somehow a "hobby" while a car is not is patently absurd. Get out to North Park one of these days and tell me how many of the people on bikes there look like "hobbyists." Or better yet, ask them.
Additionally, note that I'm not talking about the entrepreneurs themselves - I'm talking about people with the energy, relative lack of familial obligations, and drive to work brutal hours to help someone else's idea get off the ground. These are typically millennials.
Additionally, note that Boomers are starting to express the same preferences for high density and alternatives to cars that Millennials are.
@Eric Spoerner let's start asking for those.
For our startup, proximity to but not emersion in both LA and San Francisco made it easier to focus and win. We would dip in when necessary which was inexpensive and convenient. Otherise we stayed heads down building a great product and team.
Important to also note that San Diego is tops in some things that make it attractive to startups: lifestyle, weather, great networking, smart creative class in abundance, military presence, regular influx of tourists, rents are relatively low, great beer. Good stuff, Blair. Thanks for raising the banner for us continuously.
@Kelly Abbott thanks for the comment Kelly. It's going to take everyone. I'd like to have the leaders of the tech startup community to spot talking about what we don't have and start asking for what we need.
Thanks Blair. Worth pointing out the real people that get credit for making San Diego a great place for starting a company are the many entrepreneurs and mentors - whether they support via CONNECT, CommNexus, EvoNexus, SDVG, BIoCom, Startup San Diego (my favorite), any of the many incubators, accelerators or co-working space, OR those taking the risk to start companies. There are great things happening here. I'd also add, thanks to Cooley LLP for their generous support of my work.
@Eric Otterson It takes everyone getting involved and working together. I think there should be a way for all the incubators to work together as a complete process that leads to success. FI or CyberHive then to EvoNexus or Connect then to Plug and Play or HardTechLabs. Also getting the established companies to look to these startups as their own technology R & D lab but for a fraction of the price they would spend with no corporate structure to destroy the product.