Entrepreneur and essayist Paul Graham recently argued that every city sends ambitious people a message, and
New York tells you, above all: you should make more money. There are other messages too, of course. You should be hipper. You should be better looking. But the clearest message is that you should be richer.
A few New Yorkers took offense, notably Charlie O'Donnell, who argues that New York is a fine place for startups, especially if you're already connected there.
I think both sides are paying too little attention to the highly distorting effects of New York's high cost of living, and its status as the center of the world's financial system. For startups, the relevant issues are:
- I talk to many programmers who follow the same staccato pattern -- two years of coding for Credit Suisse, a year and a half building a blogging platform, three years at Morgan Stanley, two years creating a new web development framework. Since software developers in the city make so much, they can afford to save up and launch a startup every few years (the flip side is that they don't have to be as committed to their company -- a single-digit percentage chance of a seven-figure payout looks less enticing than a steady six-figure paycheck, especially when rent is due).1
- Finance attracts a huge number of extremely smart, ambitious people, because hedge funds and investment banks are almost by definition the high bidder when it's a cash-only auction. Startups can offer hipness and options, academia can let you in on the prestige Ponzi scheme, but only a big bank or hedge fund will let you pay off a decade's worth of student loans in a few years.
But these smart people don't always stick around. Some of them get bored, and they get bored about when they have enough money never to work again, and a few decades' worth of career time still left. Some of them drop out of sight, but some of them switch to venture capital.
- Finance creates huge subsidies for people who aren't actually involved in finance. Many hedge funds prefer to have a receptionist rather than an automated phone system, and most would really prefer someone polished and articulate, even if there's a premium. So funds act as a sort of infinite scholarship fund for well-educated people with other interests (most do this by accident, but some are explicitly looking for artists, writers, and other creative types). Attracting so many high-IQ right-brained types gives web design shops and music-related startups a natural talent pool.
Rather than talking about cities and ambition, it might make more sense to discuss cities and centers of gravity. In Boston, schools drag smart people out of business (unless those smart people are peculiarly sensitive to when they're doing meaningless non-work. In San Francisco, startups grab them with funky work environments and the possibility of an options-driven payout. And in New York, everything revolves to some extent around the financial industry -- an almost unlimited pool of money that naturally subsidizes smart people. Is there a better place to start a business than a place where the smart people go to get rich?
[1] Credit for this point is due to dpapathanasiou.