When one of my best friends was just getting started in his career, he wrote a paper arguing that Nevada has the most business-friendly laws in the U.S. He’d just moved there to take a position as head of marketing for SuperPawn, the world’s second-largest chain of pawnshops. Now he runs business development for one of technology’s hottest startups, based in the city and state with the worst business laws, San Francisco, California.
I thought of him recently because some folks from Mayor Mike McGinn’s office recently invited entrepreneurs from around Seattle to contribute ideas to a threaded discussion on how to nurture Seattle’s technology scene. We’re getting together Tuesday.
Some of the best ideas have been about education, especially Amy Bohutinsky’s proposal to create a technology-focused university campus at Magnuson Park. But others focus on lowering taxes for startups, or providing free office space and Internet access. Further south in San Francisco, Twitter, Zynga, Square, Uber and AirBnB have been asking for special tax breaks and rule concessions.
I for one am glad to see government and business working together. I don’t have much patience with folks who simply view business as evil, or, for that matter, who view government as evil. And I agree that Seattle’s taxes on revenues rather than profits aren’t especially helpful to new businesses of all stripes.
But I’m always surprised when high-tech companies lobby for tax-breaks or special treatment, a new phenomenon in an industry long remarkable for its spirit of self-reliance.
After all, Mark Zuckerberg flew over 30 states with lower taxes than California to locate Facebook’s headquarters in Silicon Valley — a decision now costing Facebook and its employees $1.5 billion in taxes. If he had to do it all over again, Mr. Zuckerberg has said he’d stay in Massachusetts, another notoriously high-tax state.
The reason of course that Mr. Zuckerberg prefers states like Massachusetts and California is mostly because of their abundance of educated citizens. When local governments and universities fail, Taco Bell gets more employees. When they succeed, Twitter gets more employees. Tax breaks and rule concessions don’t have much to do with it.
And venture-funded startups can afford the taxes. We don’t need special treatment from the government, because we’ve already already got it from computers and investors. A thousand years from now, historians will marvel that the cost of capital hit historic lows sometime around 2012.
This is why I have a hard time with the usual line: that startups deserve special treatment because we play a special role in creating jobs. If AirBnB is such a great deal – and let’s face it, it really, really is – then the people using it to rent rooms should be able to pay the tax that San Francisco levies on tourists who stay in every other type of bed & breakfast or hotel.
If one of my favorite online services, Uber, believes the rules that govern taxi medallions are twisted and wrong – I’ve met dozens of immigrants who have saved their whole lives to buy one, and dozens more running the most desperate gypsy cab outfits without the benefit of a beautiful iPhone app — then let’s dispense with medallions entirely. When anyone, not just Uber, can offer door-to-door service without a license, believe me, consumers will benefit.
And if Amazon is going to become the world’s largest retailer, it’s going to have to charge its customers sales tax, just like all the bookstores and Best Buys it has put out of business. I will happily pay it.
The idea of fairness, which studies have shown even a dog can understand, is so powerful that most writers sidestep it entirely, arguing instead that hot startups can make the rules, even unfair rules, because they’re the ones with the money. This is the take-our-toys-and-go-home argument that the great Sarah Lacy has, with her usual panache, perfected:
You want to say companies [like Twitter and Zynga] are greedy and just not “paying their share”? Fine. Then if you believe they are greedy, believe they’ll move. Do you want the jobs or not? Because a neighboring city will take them. Any city in the country would take them.
The problem with Ms. Lacy’s tough talk is that startups aren’t actually that tough. As the co-founder of one of the first-generation San Francisco startups that went public, and the CEO of another company with a big San Francisco office, I know the costs and benefits of staying in San Francisco as well as anyone. Yes, Ms. Lacy is right that half of San Francisco’s Kafkaesque laws should be thrown out; but even if they aren’t, I am certain that Twitter, Redfin and other growing startups won’t move.
No founder considers the tax climate when deciding where to start a company, only where he and his fellow engineers and product managers want to work. And once a company is up and running, no one except Eduardo Saverin would move the team just to save on taxes. If Twitter absconded to Burlingame or Pleasanton, half the company would quit rather than commute.
A business-friendly government like those of mayors Ed Lee and Mike McGinn can certainly make cities more business-friendly, but the trend today is already their friend. Now that so few technology companies actually manufacture chips, wafers or gadgets — and now that money is cheap, recruiting is paramount, and rent is a tiny fraction of a startup’s overall costs — we are entering the age of startups and the city, not the suburb.
If you want to hire young, brilliant people, especially the designers now in shortest supply, you have to be in a city, or operate a private shuttle service to and from a city. We could dismiss San Francisco as a fluke, but just look at the startup scene in New York. Startups are in cities because that’s where the smart people are, and the startups are willing to pay for it.
My real issue with our demands of government, however modest those demands may be, is fundamentally aesthetic. At a time when some cities can’t pay to pick up the garbage and Facebook went public for over $100 billion — you hear charges that Occupy Wall Street is simple class warfare, but if it were, someone would be Occupying Facebook even as we speak — why ask for more? The whole reason I was drawn to Silicon Valley was that it seemed like an enclave from a culture of entitlement. Everyone else complained about something at the school I went to, U.C. Berkeley, but startups actually changed it.
Now we characterize anyone who opposes our request for special treatment as participants in a sinister lobby, and cast ourselves, the economy’s primary beneficiaries of state-subsidized education – and the controllers of the most powerful communication channel in world history — as powerless. It’s easy to get in the habit of nursing injuries and sticking your hand out, but we’ll be better off if we avoid it.
Some day, I hope technology companies can invite governments to a forum, asking not what our country can do for us, but what we can do for our country.