Twitter CEO Jack Dorsey San Francisco comments a warning sign

When Twitter CEO Jack Dorsey told investors this week that he’s planning for a future with a more distributed workforce, his Bay Area peers could easily relate.

“Our concentration in San Francisco is not serving us any longer, and we will strive to be a far more distributed workforce, which we will use to improve our execution,” Dorsey said on Twitter’s fourth-quarter earnings call on Thursday, adding that he expects to spend time traveling this year.

San Francisco, while always posing a unique set of challenges, has become an unmanageable place for many companies as they look to expand. It commands the highest salaries of any U.S. city and has some of the most expensive real estate, both commercial and residential. Meanwhile, there are hundreds of nearby companies, including the most valuable in the world, ready to poach your top developers and sales reps.

The tech talent in the Bay Area is undeniable. But with cloud infrastructure, faster internet speeds in more remote areas and a new generation of communications and collaboration tools, more companies are finding it advantageous to hire elsewhere. Online lender LendingClub slashed its San Francisco workforce last year and moved jobs to Utah, and Stripe announced in May that it was hiring over 100 remote engineers in 2019.

Even Facebook CEO Mark Zuckerberg is having second thoughts, recently telling an audience in Utah that if he were starting a company today, he wouldn’t do it in the Bay Area.

“The Bay Area is a bloodbath when it comes to talent,” said Armon Dadgar, co-founder of HashiCorp, a cloud data center company that’s based in San Francisco but has 85% of its employees in other locations. “It’s very competitive, very hard to retain people and the compensation packages are all out of whack.”

Dadgar moved to Connecticut last year from the Bay Area because his husband got a job at Yale. His co-founder, Mitchell Hashimoto, lives in Los Angeles. CEO David McJanet is based in San Franciso.

HashiCorp describes itself as “remote first and fully distributed.” Its 900 employees are scattered across the U.S. and about a dozen other countries, working from home, local coffee shops or at desks in co-working locations.

Similarly, open-source software developer GitLab calls itself a “remote-only company.” Co-founder and CEO Sid Sijbrandij lives in San Francisco, but GitLab has no offices for its 1,100 employees in more than 65 countries.

Sijbrandij says the company shaves off 10% of operating expenses by not renting physical space and another 40% because it focuses on hiring outside of the most expensive areas in the world. Dadgar estimates HashiCorp saves $10,000 to $15,000 a year per employee by steering mostly clear of real estate.

“You have access to a way broader talent pool if not everyone has to show up to a specific building in San Francisco,” said Sijbrandij. “A lot of people who work for GitLab get paid well — at or above the market rate in their area. And they get to intersperse work with activities,” whether it’s going to the gym or supermarket or picking up their kids, he said.

HashiCorp and GitLab were both founded in 2012, a few years after San Francisco’s tech scene ballooned from the rapid growth of Twitter, Square (Dorsey’s other company), Uber, Dropbox, Airbnb and Stripe. Prior to that era of sizzling tech start-ups, almost all of the notable tech companies except Salesforce were located to the south in Silicon Valley, where they could occupy large campuses in quieter cities and suburbs.

Twitter, founded in 2006, was planning to move south of San Francisco and only stayed in the city because of a 2011 tax break that was carved out for the company, and then expanded to others, as part of a plan to redevelop a rundown area of town called mid-Market. That’s where Twitter opened its current headquarters in 2012.

The neighborhood hasn’t improved much despite the booming tech market. Homelessness and drug use remain rampant.

Meanwhile, Twitter has grown from about 1,100 to about 4,000 people and housing costs in the city have skyrocketed. The average rent for a two-bedroom apartment in San Francisco has jumped 73% since early 2011 to more than $4,500, according to Rent Jungle. And it’s become the highest-paying city in the world for salaries, Deutsche Bank said last year.

Dorsey said he hasn’t made concrete plans for what the expansion will look like, but he sounds like a guy who’s open to the HashiCorp and GitLab approach, especially after tweeting in November that he’s moving to Africa.

“I do think that we need to figure out how to build a company that is distributed, that is not burdened by time zones, but is advantaged by them,” he said on Twitter’s earnings call with analysts. “And I think, it’ll give us a lot more perspective into markets that continue to emerge and are growing extremely quickly, and to the point where even our peers are looking very, very deeply within those markets and within those continents.”

Brandon Borman, Twitter’s vice president of communications, echoed that sentiment, tweeting that, “We remain committed to SF, but hiring global talent shouldn’t require them to uproot their lives, leave their communities, and move to where we have an office.”

Dorsey’s other company, payments processor Square, hasn’t made any similar announcements, even though it has almost as many employees as Twitter and is located less than a block away. Square has a large satellite office in St. Louis and is opening a facility in Oakland, across the Bay from San Francisco, this year for up to 2,000 employees.

A Square spokesperson declined to provide further comment.

Advances in technology over the last couple of decades mean the remote model can work, thanks to cloud-based tools like Zoom for video, Slack for messaging and Google Docs for document sharing. HashiCorp and GitLab executives have put in place additional processes for asynchronous work, so employees on opposite sides of the globe can communicate and collaborate.

They also have annual events for which they fly the whole company to a particular spot — HashiCorp’s event is coming up in Atlanta — and team members are encouraged to meet up with a little more frequency. Some of the savings they realize from office costs and salaries are redirected towards higher travel budgets.

To keep new employees in the mix and up to speed, GitLab last year hired Darren Murph as the head of remote. Murph works out of his home, in a North Carolina town of 300 people, and handles tasks like onboarding and inclusivity.

While lauding Dorsey for recognizing the benefits of a distributed workforce, Murph said there are different challenges for companies that maintain big offices while simultaneously encouraging remote work. A large headquarters building will naturally be viewed as the mothership, and employees there will have the advantage of being in front of executives and raising their hand in meetings.

“You have it easier if you start from the beginning so you don’t introduce the idea of a second-class citizen,” Murph said. “When hallway conversations don’t exist, everyone is on the same playing field.”

Niko Bonatsos, a managing director at venture firm General Catalyst, has been looking for remote-first start-ups to back for the last couple years, as well as developers of new services focused on things like productivity and payroll for distributed teams. He said that Silicon Valley entrepreneurs are finally learning what their counterparts figured out a long time ago — that having a distributed workforce is the best way to run a lean operation.

“For all of us who have been on boards of Silicon Valley companies the last two to three years, this topic is a reoccurring one,” said Bonatsos, whose firm is an investor in GitLab. “In an environment where fundraising may become trickier, with a distributed team costs are smaller and you have a much longer runway.”

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