Go where the talent is

TechCrunch wrote today about two companies opening new geographic outposts: Facebook is planning to open an engineering office in Seattle, and Chicago's Groupon has acquired mobile application developer Mob.ly, which is currently based in San Francisco, and will move it to a new Groupon Silicon Valley office in Palo Alto. In Facebook's case, the company is probably looking to tap into engineers that work at MySpace's Seattle offices, as well as talent from Microsoft and Amazon. Groupon's CEO Andrew Mason made it clear that has company has had difficulty getting talent to relocate to Chicago from Silicon Valley, so Groupon will go where the talent is.

Opening up satellite offices is hardly a new tactic; Google has had a Chicago office ever since it purchased Feedburner, and has large operations in New York, Pittsburgh and other cities. Microsoft's Silicon Valley engineering center is in Mountain View, a couple of miles from the Googleplex. Amazon's A9.com search engine operation is headquartered in Palo Alto, and it designs its Kindle hardware at its Lab126 in Cupertino, not far from Apple's headquarters. The point is that all these companies found it easier or more cost-effective to find the talent they needed in cities other than their headquarters.

You don't have to have a billion-dollar valuation to play at this game. Chicago's 37signals is perhaps one of the best at using virtual offices to get the talent it needs without relocation expenses or physical offices. Probably half of 37signals' team is scattered across the U.S. and Europe; they use the company's own tools to communicate and keep in sync.

VCs often demand that startups relocate to Silicon Valley, New York or Boston so that they can be close to investors and talent. However, it's far more cost-effective to create outposts where the talent is than it is to move everything to a region that quite often has much higher costs of living and doing business.