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The Pros and Cons of Being a Rural Startup

4 months ago - Eric Solie

Disclaimer: I am by no means an authority on this topic. I only know what I and my company have experienced through founding, running, and growing a technology startup in Fairbanks, Alaska. I’d love to have the experience of founding startups in both rural and urban hub environments in order to compare them, but unfortunately, that’s not the case. I am instead forced to compare our experiences with those I read about, and conversations with startup founders from Seattle and San Francisco, to Portland, Boston, and Washington DC, and abroad from Beijing and Shanghai to Helsinki and beyond.

So, I know what it's like to run a rural startup (but it's all I know), and I've only heard what it's like to run an urban startup. So, a pinch of salt, if you please.

In this post I'll address the following questions:

  • How does our experience starting a high tech startup in rural Alaska compare with starting a similar company in a technology hub?

  • What have we learned that could help entrepreneurs who wish to create something beautiful and meaningful in their own rural community?

  • What drawbacks (location risks) from our location should they be aware of and try to mitigate in advance? What benefits have we found?

I'll share what we've learned, for three reasons:

  1. For you, the entrepreneur in a rural location (or in a hub considering a move to a rural town), I hope that you can learn something here that helps you to either avoid or overcome the location risk that you’re assuming.

  2. For transparency, to demonstrate to both our current and future employees and investors that we're aware of the risks we're running, and to present our understanding of them.

  3. As a reminder to ourselves that, while we are in rural Alaska (for now), our location is not without its benefits—and that some of them directly impact our bottom line. This helps me make more considered decisions about if, when, and where we should relocate our offices.

Since we founded Attently a year ago, the rate of our learning has been rapid- and seems only to increase. If it doesn’t, there is no way we will succeed in building a strong company. Some of that learning has come from the books, interviews, blogs, conversations, podcasts, and courses that we have inhaled, but most of it has come from doing.

Yet, as we've built our team, raised money, made sales, built product, tested and iterated and grown, there have been many times that we've wondered why the world doesn't seem to behave for us the way it does for others. That's normal, of course. Things never unfold like a Jack Dorsey keynote speech (to steal a line from Peter Thiel’s book, Zero to One).

But in very few cases, it seems clear that something else was going on. Controlling for industry, team, development, market, and other risks, it’s clear that there are differences in how we are able to operate which are a direct result of our location. In other words, by founding our company in Fairbanks, we assumed significant location risk.

Fairbanks is a town of 20,000 people (although with outlying neighborhoods, distant cabins, and settlements included that figure grows to 100,000) located just south of the Arctic Circle in Alaska. Temperatures here vary wildly, from a sweltering 90°F in the summer to -60°F in the winter. (-60°F is actually not so bad. Anything colder than -20°F all feels the same, but when it’s -20°F for three weeks straight, with only a few hours of daylight each day, and the vast expanse of wilderness outside your door feels unfriendly and oppressive rather than freeing… that sucks).

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So what's it like doing business here? In many ways, not that different from doing business anywhere else. The electricity works (except when snow-laden trees take down the power lines). The roads work (except when heavy snow renders them impassible). The internet works (though latency is often measured in hundreds of milliseconds).

Cost of living is high, and goods must be trucked in from further away so that produce is quite expensive. Wage rates are very high for manual labor, if you’re in a brick and mortar industry (in fact I made far more as a laborer cutting concrete than I currently do as a CEO). But what's it like as a young, high-tech startup company?

Pros:

Access to talent at low cost

Whether for love of the outdoors, or love of a spouse who's finishing graduate school, there are many reasons other than a job why someone would choose to live here. Some of those people happen to be excellent software developers. (It also doesn't hurt that the nearby University of Alaska Fairbanks churns out some two dozen computer scientists each year, some of whom can be reformed into software developers.) Most of those are probably underemployed. It's amazing how willing developers will be to interview with you after they've spent the last six months rewriting old Perl scripts.

So while many tend to leave, attracted by the sexy logos and even sexier pay scales of startup hubs like San Francisco, some of the best stay for other reasons. If you come calling with an offer to work on very cool problems in a company that has the potential to make a big difference on the world (or even become one of those sexy logos itself, possibly making them very rich in the process), you may be able to attract some of them at a fraction of the pay that an equivalent developer in SF would demand.

Cheap Office Space

This is of much less importance, as salary (not rent) eats up the lion's share of most startups’ early capital. However, cost for office space in startup hubs is nothing to sneeze at and rural locations are known for inexpensive real estate. Your internet may suck, and the roads may be smitten by seasonal frost heaves, but at least you'll have all your people in one place, putting their heads together to tackle problems no one has ever solved before. And that’s pretty cool.

Access to the (local) Elite

Have you met with your state governor? We have. Your senators? We have. How about the CEOs of the largest companies in your state? We have, and we're not exactly Amazon. Whether your company is B2B or B2C and does government contracting or not, it never hurts to have access to powerful politicians, business leaders, and influencers. They could become clients, advisors, advocates, investors…or allow you to pivot through them to elites in major hubs.

We don't talk about our network to brag, but instead to make a very specific point- it's easier to get in the room with elites in smaller ponds than bigger ones. If you want to meet with a senator of California, you're one of 12 million people. In Alaska? You're one of 720,000. Yet they both have similar power at the Federal level. Of course, the elites in a small pond are often not nearly as influential as those in a larger one, but some are.

Are you in a small town? You can almost certainly get an audience with the mayor. Use that to your advantage.

Less competition for Investment Capital

Investment falls both on the pro and the con side, but for the 'pro' it follows nicely on the tail of the previous point. While there aren't likely to be many angel investors in your area, and their sophistication is probably less than in SF, there is probably even less deal flow.

Instead of being one of twenty startups pitching a local angel investor today, you might be the only one. You might even be the only new deal locally that she sees this week. If she has a preference for investing locally (and many investors do), use this to your advantage.

Less Headhunting (locally)

Headhunters aren't bound by any regional borders, but your star employees aren't likely to be rubbing shoulders at the local bar with people recruiting (or working) for a hotter startup. Hopefully, you believe that your company truly does offer the best opportunities for it’s people - it will just take time to prove it.

You’re way more likely to actually survive that long if key people aren't being poached by Airbnb down the street, or the young(er), hot(ter) startup across town. (Keep in mind, though, that there’s a corollary in the 'Cons' section. It involves Amazon).

Unique draws for employees

The best developers often end up in SF or Seattle or New York because that's where they perceive the hottest companies to be. Many of them, though, abhor city life, miss communing with nature, crave mountains, and love extreme sports. Maybe you can offer them quality of life (and work-life balance) that is lacking in major cities. Some of them value that much higher than you might imagine- not everyone is going to be single-mindedly focused on your company as you are.

Working on cool problems with other smart people, changing the world, high levels of autonomy, and fresh powder all 15 minutes from home (and world-class mountain climbing, kayaking, rafting, trail running…)? Offer all that, and they might be willing to work for a rate even you can afford.

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Harder Working (maybe)

This sounds strange coming off talk of work life balance and the majestic outdoors, but comes straight from some of the most successful founders of tech startups that I know. I'll talk more about it in a future post, but they've had some interesting conversations with me about how long nights (and short days) and cold weather encourage indoor activities, like… programming.

These founders went so far as to predict the future rise of Alaskan tech industry as global warming shifts balmy weather through SF and Seattle, displacing those legions of developers from their offices and out into the great outdoors…. leaving us northerners to pick up the slack and gain market share. To my knowledge, no test has been done to prove this theory. Perhaps that's what we're doing right now.

Cons

Far from Markets (and Networks, and just about everything else)

If you do anything that involves shipping actual product, this is a huge drawback. The costs of shipping anywhere in the world from Alaska are 3x what they would be from Seattle. Though we are a software company, these costs still affect us in that it is expensive to visit clients outside of Alaska, and any hardware we order takes more time and costs more money to reach us here.

High costs (except rent)

This is true of Fairbanks Alaska, though not necessarily your neck of the woods. While office space here is cheap, food, gas, and utilities are very expensive, and it only gets worse as you move out to the villages (though understandably so, some are only accessible by dogsled and snowmachine in winter.).

Access to talent

Notwithstanding everything said before, the best minds often do leave. Brain drain is a common occurrence in rural areas. Cities are exciting: there is nightlife other than dive bars (here, we only have dive bars, so we just call them bars), and that's where the best jobs are perceived to be. No matter how much you can afford to pay, they're just not going to want to leave the hubs where talent, capital, and world-class research institutions are all colocated.

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Can't feed off of bigger companies

I've spoken to startup founders who relocated to Seattle specifically to feed off the top-tier developers who moved there to work for Amazon, were burned out by their culture, and quit. Great developers, seasoned by Amazon, far from home, and out of work? It's like a hiring manager's dream. That's not commonly the case in rural areas.


Conclusion:

This list is by no means exhaustive. I’m sure that, with continued experience, some of these issues will rise or fall in perceived importance, while new ones will appear. If you’ve had experience running a startup in a rural location (defined fairly loosely above), and issues arose that I failed to mention which you think would help other entrepreneurs, post them in the comments below.


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