Want to Hire the Best? Stop Paying Local Wages
One of the excuses I hear all the time from founders, investors and others outside of Silicon Valley about why startups in their ecosystems “aren’t succeeding” is the claim that it’s impossible for them to compete with Silicon Valley salaries. Founders use it as an excuse for why they lose out on top talent. Community builders point to it as the reason why more young people aren’t building. Politicians use it as a scape goat for brain drain.
Here’s the thing: the only thing stopping you from paying a higher wage…is you.
Before your mind starts racing with all of the reasons why the above statement is laughably wrong, let me set the foundation for my claim: First off, I’m not trying to argue that wages can be (or should be) identical the world over. I’m also not suggesting that startups in Moose Jaw, Memphis or Manchester have a chance of competing on salary against “Big Tech” — especially when Meta starts throwing around $100M bonuses.
But guess what? Startups in Silicon Valley can’t compete on that either.
For as long as startups have been starting up, they’ve had to attract talent in the face of big incumbents with big treasuries. This report from ReadWriteWeb (circa 2013) provides insight into the hiring challenges faced by startups a dozen years ago:
“The toughest challenge facing most new technology companies these days isn’t getting funded – it’s hiring the best, most skilled employees. Heavyweights such as Google and Facebook can lure top talent with six-figure salaries, lucrative stock packages and lavish perks, including sushi buffets and free laundry service.”
You know what else came out in 2013? This post from Open AI CEO Sam Altman about how to hire, which he wrote while a Partner at YC:
“If you don’t hire very well, you will not be successful—companies are a product of the team the founders build. There is no way you can build an important company by yourself. It’s easy to delude yourself into thinking that you can manage a mediocre hire into doing good work.”
(If you want to go back in time even further, check out the “People” section of this 2005 post from YC Founder Paul Graham on How to Start a Startup.)
So let’s put to the side the talent battle of startup vs. incumbent and instead focus on the battle between startups. Specifically, let’s compare equivalent-stage startups in Silicon Valley and elsewhere in the world. Can startups based outside of Silicon Valley employ the same tactics (including salary ranges) as their Bay Area brethren to attract and retain talent?
In today’s world, the answer is unequivocally yes.
You’ve been spending too much time at Grateful Dead concerts…
Historically, startups outside of Silicon Valley have behaved a lot like sports teams in small markets — trying to win championships by squeezing the most out of a roster of lesser-known, lower salaried players. Twenty years ago, that approach made sense, as the majority of startups generated their early revenue locally (and, thus, were beholden to the economic realities of the ecosystems in which they operated). But things have changed significantly since then.
Today, many startups sell their products globally from day one. At the same time, their founders — emboldened by the realization that they hold more power than ever before — are increasingly unwilling to limit their fundraising goals simply because of the limitations of local VCs. Which means the most promising startups around the world are following Silicon Valley revenue trajectories and raising Silicon Valley-sized funding rounds. So why shouldn’t they be able to compete with Silicon Valley-based startups for talent?
Still don’t believe me? Let’s look at some numbers…
I used OpenAI’s o3 reasoning model to research the following two questions:
What is the average salary of a software engineer at a Seed stage startup in <city>?
What is the average number of employees at a startup that has raised USD $3M in <city>?
Let’s look at the results for some major startup ecosystems:
San Francisco
According to o3, the average salary of a software engineer at a Seed stage startup based in San Francisco is $150K. On average, startups that have raised $3M in funding have 6 - 8 employees at the time their funding was announced (although recent reports, such as Carta’s 2024 State of Startup Compensation Report, suggest that this number has fallen in recent years).
Toronto, Canada
Given the identical prompt, o3 reported that the average salary of a software engineer at a Seed stage startup in Toronto is CAD $125K - 135K (roughly $90K - 100K). Upon raising $3M in funding, the average Toronto-based startup has 10 - 12 employees.
London, UK
For London, o3 determined that the average salary of a software engineer at a Seed stage startup is £75K (approximately $100K). London-based startups that have raised $3M in funding have, on average, between 9 and 12 full-time employees.
What’s the point of all of this…?
Here is the average amount that Seed stage startups are spending on employees after raising $3M (assuming all of those employees are software engineers):
San Francisco: $900K - $1.2M
Toronto: $900K - $1.2M
London: $900K - $1.2M
There are obviously a bunch of assumptions baked into the above (it doesn’t take into account differences in taxes, benefits, actual employee roles, etc.) but, roughly speaking, Seed stage startups in San Francisco, Toronto and London all spend approximately the same amount of money on salaries.
How can this be possible, yet so many founders (and investors and community builders and politicians) outside of Silicon Valley remain convinced that they can’t compete on salary?
For years, founders outside of Silicon Valley have been sold a narrative that goes something like this:
Hustle hard and show early traction
Raise VC funding from Silicon Valley investors
Leverage that funding to build a higher-margin company in your home town (i.e. hire more employees at a lower average wage than what Silicon Valley startups can do)
The problem is, quality (and experience) matter. Both in building companies and winning championships.
So what we’re really talking about isn’t so much of a financial shift as it is a mindset shift. And I suspect it starts with torpedoing the (imho very bad) advice pushed by many investors outside of the US that startups should hire CFOs, COOs and other non-product employees before achieving PMF (though I’ll save that rant for another post).
For now, I’m going to keep the punchline simple: if you raise Silicon Valley funding and/or are generating revenue primarily from US-based customers, there is fundamentally no reason why you can’t pay employees Silicon Valley salaries.
That doesn’t mean you have to (you certainly don’t have to follow the Silicon Valley playbook by any means). It also doesn’t mean that you should spend recklessly or pay high salaries for the sake of paying high salaries. But it’s time to retire the excuse that startups in <city> can’t compete on salary with Silicon Valley startups.
Which means if you’re an early-stage startup that’s playing to win, your salary benchmark shouldn’t be set by other companies in your city (even the locally-famous ones 😉). If you find someone you believe to be a game changer for your startup, you should be willing to pay them up to the current benchmark for startups at your stage based in Silicon Valley. Even if that amount is considerably higher than the local norm.
I'm sure that plenty of folks will argue with me on this, but IMHO there is simply no reason for a startup to lose talent to an equivalently-funded startup anywhere in the world based on salary alone. Even Silicon Valley.
