What is the Best Place to Locate a Tech Company?

There are many great places in the world where software and technology companies thrive.


Outside the US, India has a rich history and deep resources in software development.

Brazil, China and Eastern Europe also are emerging, low cost development centers. All of these areas are better know for outsourced software development services, however, and are only slowing emerging as homes of actual product-based companies. China and the "tigers" of Southeast Asia are known as low cost manufacturing (and in some cases low-cost development) centers.

Canada is promoted by many as the best place in the world to conduct software development, due to aggressive tax credits and other government incentives.

Israel has become an important center of networking and security development.

The point is, I could probably write a book on the many places tech companies thrive. But in the interest of brevity, I'll use US-based locations as examples in this article, while discussing what regional attributes in general are important to consider when locating a new operation or complete company.

Labor cost considerations
This is obviously, very, important. But I contend that it's not everything, especially in the tech business. You still need access to all of the key components that make a software or technology company successful--regardless of cost. Having said this, where in the country you locate can have a pretty major effect on your cost structure, and therefore your competitiveness over time. If for example you decide to locate in the Bay Area, you will be paying the highest salaries, rent, etc when compared to just about everywhere else. You may believe it is worth it, and of course there are strategies such as outsourcing that can be used to reduce some of that cost disadvantage. But it is important to understand what effect location will have on your cost structure, and plan for that effect.

Product development resources
Generally the most important consideration with respect to product development resources is to locate in an area where there is access to the talent flowing out of engineering colleges. This might be a major metro area, but it also could be a smaller city (with the advantage of lower overall costs) which is the home of a major university. For example, most of the Big Ten Universities have small tech clusters located in their regions, even though they are mostly located in smaller cities. It also helps to be located in an area where developers WANT to live--warm weather and recreational opportunities tend to dominate this aspect of discussion. Another factor is what type of developer you're looking for. For example, if you're involved in the wireless business, you will be hard-pressed to find a stronger preponderance of development talent than you will in San Diego. If you decide to locate in any area where your access to developers is limited, outsourcing is no longer an option but a necessity, and will play an important role in your success or failure.

Management resources
Access to management resources is strongly correlated with whether or not a region has a critical mass of tech companies. As a result, the Bay Area is superior to anywhere else with respect to the overall depth of management talent. But I think this is often overplayed (especially by those residing in the Bay Area!). There is arrogance by some in the technology business that says if you don't live in one of the major tech centers, you couldn't possibly be a top-notch tech executive. The reality is that not every talented person wants to live in the Bay Area or Boston, so they executive talent be found everywhere. If you're putting together a startup, only a small cadre of senior executives is needed to launch successfully.

Lifestyle preferences
This is an important consideration, and a highly variable and very personal factor. I contend that it's important to be happy if you're going to be successful in business, at least in the long run. If you're a skier, it might be great for you to locate operations in Boulder, CO. If you love the beach or are a tri-athlete, San Diego is a great choice. If you love cultural activities New York or San Francisco might be ideal. If you're all business all the time, you can't beat Silicon Valley. Know who you are and what you like, and set yourself up somewhere you won't regret in the long run.

Outsourcing
Outsourcing today is a factor that can be the great equalizer with respect to locating your company. For example, you strongly desire to locate in the Bay Area because of the overall tech business climate, access to capital and senior management talent, but are worried about development or manufacturing costs. Done correctly, strategic outsourcing can overcome those issues.

Where do the traditional high tech centers of the country rank for you?

Here's my ranking:

Tech Center  Costs       Developers Management Lifestyle

Bay Area       Worst       Highest         Highest            Good

Boston           Worst       Plentiful        Plentiful            Good

Southern Cal  High         Good           Good               Great

Austin             Moderate Good           OK                  Good

N. Carolina    Moderate Good            OK                  Good

Small-Metros Lowest    Scarce          Scarce              OK

Before anyone screams that I'm short-changing their area, this is obviously VERY subjective. This is my take, and what is important is that you create your own grading system before deciding where to locate your operations. Some may consider a smaller area which isn't a traditional tech center to be an IDEAL location. Others might feel that Bay Area is a great place to live. A lot of this is simply personal taste.

What's the most important location attribute?
The one most important consideration is the preferences of you or your team! What's key to keep in mind as you make this decision is to think globally and long term about what's important. The beginning of a new company business unit is an opportunity to start with a clean sheet about what's important for the business, as well as the founders personally. Don't just start up you new business in a location because "you're already there", maybe because the parent company is there, or you just lost or quit an employee position. This decision will have many implications down the road, and once you make it, your flexibility to overturn it will be much more limited in the future. The bottom line is that while geography should play a role in your decision, no place is perfect; you can start up and successfully run a tech company just about anywhere is you plan up front.

What's your view on where's the best place or most important attributes to starting a new software or tech business? Leave a comment and clue us in.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

The End of Customer Service

No one answers the telephone anymore.

At least, technology companies in the US surely don't. With big companies, you are either presented with an endless phone tree--"press 1 for a company directory"--or the newest innovation in communications technology: the cheerful "automated voice attendant". In many cases these attendants, and several other "innovative" service options, can lead to a great deal of frustration for customers and prospects.

As a consumer and business buyer I've found this frustrating, not to mention an incredible productivity sink. As a High Tech industry executive and consultant with a strong marketing background, I find this practice curious at best--and insane at worst!

Think about it--how many BILLIONS of dollars companies spend trying to get the attention of potential new customers--most of who are going to need to contact the company at some point. Yet it seems that once we've got their interest, or God forbid, they've signed up as an actual customer--we are doing everything possible to keep them away. Doesn't anyone remember the old marketing adage about current customers being your best source of additional business? Management guru Peter Drucker once said "The purpose of business is not to make a sale, but to make and keep a customer." Apparently not many people agree with this, or have forgotten it, because "modern" customer service practices are doing there best to drive these folks away. Let's examine some of the new customer service approaches:

OUTSOURCED CALL CENTERS IN OTHER COUNTRIES

This may be everyone consumer's favorite new "pet peeve"--calling an American company based in Chicago, or Iowa or San Jose--only to be connected to some call center somewhere in India. Often this leads to a very, very frustrating experience. Companies are going this route for support as an expense driven decision--to obtain cheaper labor. But the reps on the end of the line are often poorly trained, probably aren't employees of the company that you are calling, and often don't speak English with an accent that is easy to understand for most Americans. Are there good reps who give great service available in these call centers? Certainly, I have spoken to more than a few. But compared to the "good old days" of local support, the average caller experience has degraded significantly. Add this to the initial frustration that the caller who is dialing has because of a problem with his or her new $1200 PC--and you don't get a prescription for a happy customer.

PHONE TREES

This one has been around a while, but the increasing complexity of the tree, and well as the difficulty of exiting it to get to a live person, has continually made the situation worse. You can literally spend 5-10 minutes just navigating the phone tree these days. Oftentimes, callers just give up--which appears to be what companies want. I'll discuss below why companies shouldn't.

AUTOMATED ATTENDANTS

As I discussed above, this is one of the more recent scourges of the besieged customer with a problem. Ironically, Automated Voice Attendants have been made possible by a really nice leap forward in voice recognition technology. And there is no doubt that these products have come a very long way from the days in which they were first implemented. But talking to a machine is at this point still inherently inferior to speaking with a real human. I endorse the use of these Automated Attendants, but they should be used judiciously. I would still utilize them only at the very beginning of calls, and not require them to take a customer too far down the line of getting their problem addressed. Also, please make it easy to get away from them to a live human. With the high market share of some of the Automated Attendant companies, I am having far too many conversations with the same perky, Stepford Wife-ish-sounding artificial female voice. It's getting a bit creepy. While we're at it, let's talk about my biggest customer support pet peeve. With all of the sophisticated software available today, why is it that I have to give my account number and god knows what else to this robot lady, and then repeat all of the same information to the first live person that I speak with, as well as everyone that they transfer my call to? I understand security concerns, but geez! Hasn't anyone heard of data sharing and company firewalls?

"INTERNET COMPANIES"

The advent of the Internet has allowed for the creation of the ultimate small company: one man or woman, behind an Internet site. These companies invariably list no contact phone number or physical address. You can only email them for support, or if you're really lucky, IM them. Unfortunately, potential customers figured out that this is likely a one man operation long ago. They will be reluctant to buy your product as a result, because they don't believe you are "for real", or at least they won't be able to get good support. If you have the capability of offering real support, I urge you not to present your company in the image of one of these "Internet companies". If you do, it will cost you business.

FEE-ONLY TECH SUPPPORT

I won't deny that is some cases tech support fees are justifiable, and necessary. Even for consumer tech products. But in most cases tech support, and least at some level and for some period of time, really needs to be bundled into the base product offering. This trend came about with the intention of making tech support a "profit center". While I believe that tech support can drive profits, in many cases it shouldn't be done by attempting to extract additional money from customers (especially upfront or on the initial call) for the right to call in to get product issues fixed. There is a standard of care that most customers believe is fair: Help them get the product installed, up and running. Take care of any bugs or product defects. If you don't meet this standard, you will likely pay for it yourself--in reduced customer satisfaction and loyalty.

I want to emphasize that I am not a racist, market protectionist, political isolationist or technophobe. I have nothing against a man or woman working in a call center India, doing their best to do their job. I'm also a tech guy, and certainly love the idea of using technology to increase labor force productivity. But as a marketer, above all else, I believe in the old axiom: THE CUSTOMER IS ALWAYS KING. Customer service today is not treating the customer as King, but like the lowest creature on the food chain. It's possible that we are just undergoing a period of "growing pains", implementation issues, and the new customer service methods discussed here will be the way to go in the long run. Maybe technology maturity and some additional training for the folks in those faraway call centers will correct the current painful situation.

BIG OPPORTUNITY TO GAIN AN ADVANTAGE

But my guess is that those corrective measures are a long way off. In the meantime, there is a big opportunity for savvy software and tech companies to use this "gap" that has occurred in most company's customer service, to gain a strategic advantage in their market segment.

Unfortunately, in my Software and High Tech Practice at PJM Consulting, I find that customer service operations are usually an afterthought to senior management--especially in early stage companies. It's understandable, since it doesn't appear to be part of the strategic core that will mean the difference between success and failure for a young company. But in today's world, used properly, customer and tech support can indeed be a strategic weapon.

Not only can good support cement the relationship with the customer and build long term loyalty, but don't forget that you've got a customer on the line! Remember the old adage I mentioned above about your current customers being the best place for incremental business? Once you've satisfied the caller's concerns, you have an opportunity to educate them about new offerings, present them with a special offer, etc. The possibilities are nearly endless to profit from this customer interaction. This interaction by the way REQUIRED NO INCREMENTAL MARKETING EXPENSES TO INITIATE. Companies don't realize the opportunity that they are leaving on the table, both to increase customer loyalty, and sell incremental offers to existing customers.

DIFFERENTIATION FROM COMMODITIES

Let's talk about a specific example: HP & Dell in the PC business. I'm an old HP alumnus, and until recently, a long time Dell customer. Over a long period of time, customer support, specifically technical support-- has gone from a major strength, to a nightmare for customers of both companies. At various stages of the customer ownership lifecycle, both of these companies throw every obstacle I've discussed in this article at you--Endless phone trees, automated voice attendants, email-only or IM-only tech support, and clueless representatives in foriegn call centers. PCs are as close to a commodity as anything in the High Tech business these days. These two market leaders, along with their competitors, are pretty much slugging it out on price (and brand, which means less and less in a standards-driven market like PCs). This is certainly not the way to achieve high gross margins, let alone customer loyalty.

Personally, I'd pay 10-15% more to buy a computer from a company who guaranteed good, local tech support. I run my business on my PC; when a problem occurs that I can't fix on my own, it is often excruciatingly painful. I'm sure that these companies don't believe that I, or many others, would pay more. But if a PC company put forth a well-developed marketing message touting their emphasis on technical support and customer service--and stuck with it--they would obtain a customer for life. Now, I may not have been willing to pay such a premium 10-15 years ago, before real customer service "ended". I may have gone for the lowest price. But with personal service and support nearly gone the way of the Dodo bird (become extinct), things are different. Since good, personalized tech support has become a scarce commodity--it is therefore an opportunity that some smart company can exploit.

SUMMARY

There's a big opportunity out there for smart technology companies to go against the current trends in customer service and tech support. Make it easy for people to reach you, using whatever method they prefer. I'm suggesting short phone trees, live operators, and an adequate number of representatives to eliminate long waits. Focusing completely on expense control or technology solutions, not personal service, is a mistake for tech companies. Savvy, "forward-thinking" software and tech companies can increase market share and customer loyalty with an "old school" approach--personalized customer service and support.

That's what I have to say about the state of customer and tech support today--what's your opinion? Post a comment if you'd like to discuss this further.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/