Published by Inc Magazine, the Inc. 5000 is an annual compilation and ranking of the fastest-growing private companies in America. In order to make the list, applying companies must meet growth and revenue qualifications and provide verifiable proof.
America’s most expensive cities have seen a dramatic decline in the number of Inc. 5000 companies calling them home in the last five years. Subsequently, less expensive metros are seeing dramatic increases in their presence on the Inc. 5000. With growing numbers of millennial entrepreneurs and the exorbitant housing prices in coastal metros nationwide, it’s no surprise that expensive urban centers are seeing their numbers of America’s fastest-growing companies decline.
This trend is plain nation-wide, and is expressly manifested in California.
Based on data from the 2017 Inc. 5000 report, the percentage of companies on the Inc. 5000 from California has stayed relatively consistent in the last five years — at 13 percent — however, there has been a notable shift in which California metros house those companies. Most pronounced, is the fact that the greater Silicon Valley (including both SF and San Jose) has seen a collective 32 percent decline in the number of companies represented on the Inc. 5000.
This distribution trend — from most expensive to more affordable metros — is exhibited in all industries, but most acutely in tech. In the last five years, Silicon Valley proper (the San Jose metro area) has seen a nearly 60 percent decrease in companies represented on the Inc. 5000. San Francisco is not far behind, with a 31 percent decrease. The San Jose metro alone dropped from being ranked 11th overall to 26th.
While the network effect provided by Silicon Valley has historically been a powerful draw, the numbers of California residents abandoning expensive metros is a more influential contributor to where fast-growing companies are choosing to headquarter.
America is still overwhelmingly dispersed among urban centers — with vast majority of companies on the Inc. 5000 headquartered somewhere within 100 metros. The mobility between these urban centers paints a clear picture of where companies are choosing to head their operations.
This is not a urban to rural (or suburban) migration story, but rather a tale of growing numbers of fast-growing companies setting up shop in cities with affordable housing, and diminishing numbers of companies willing to duke it out over limited real-estate, high labor costs, and dubious affordable housing options (for founders and employees alike).
Of the top 10 (11 including Seattle) U.S. metros, all but two typify this trend. All but one city that experienced a growth in Inc. 5000 companies has a median housing price below the national average. Meanwhile, all but one city that saw a decline has a median housing price well above the national average.
Nationwide, expensive metros (including two of the big three — San Francisco and Boston) are seeing notable declines in the number of companies on the Inc. 5000 that call them home.
Median listing prices data and map courtesy of Trulia
This pattern of metro mobility continues into the top 50 metros. Of the top 50 metros that have seen a decline of ten or more companies. 70 percent of them have housing prices above the national average. The outliers, Milwaukee and Detroit have home prices well below the national average and are not representative of the pattern seen elsewhere.
Median listing prices data and map courtesy of Trulia
Of the metros that saw growth between 2013 and 2017, only L.A. and Portland do not follow the metro mobility pattern seen elsewhere. Important to note in both of those cases: L.A. is below the average housing price in California, and Portland has seen a massive influx of Californians.
In 2014 alone, the U.S. Census Bureau found that 30,500 Oregon newcomers originated from California. The influence of Californians relocating to Portland is dramatic, resulting in a strong anti-Californian sentiment. The belief is that Californian migration is responsible for the increased real estate prices.
According to data from Redfin, San Francisco saw the greatest number of people leaving in 2016. The #1 reason they identified? “California Leavin.’”
“We found that some of the most expensive metros had the largest net outflow—the number of local users searching for a home in a different metro minus the number of users from another metro searching for a home in the subject metro. The San Francisco Bay Area topped the list of places with the largest net outflow.”
Of the one million users sampled for this Redfin analysis, San Francisco topped the list with a net outflow of 15K. Where are they going? Sacramento, Seattle and Portland, respectively.
Availability of affordable housing is clearly a driver of where America’s fastest-growing companies are heading, but why the sudden shift over the last five years? One primary reason could be attributed to millennials occupying a substantially greater portion of the workforce and growing numbers becoming entrepreneurs themselves.
In 2011 29 percent of all entrepreneurs were 20 to 34 years old, and last year, only 20 percent of millennials moved. With expensive metros accounting for the vast majority of this migration, how will these metro -migration patterns affect those expensive cities losing fast-growing companies in the five years to come?
For more information, download the full Inc. 5000 analysis.