Startups often choose to base their fledgling companies in “tech clusters,” seeking to benefit from these areas’ developed labor markets for technical, sales, and managerial staff — typically arising from a significant presence of large firms. Yet while this proximity to talent can provide access to the specialists a startup may need to scale, it also forces these new companies to offer high wages to compete with the offerings of their large firm competitors. Spending large amounts on salaries can leave less capital for other important initiatives, like experimentation or marketing, which can in turn make it harder for startups to reach a growth phase.
