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Why Waterloo is giving big tech hubs competition

Posted by Waterloo EDC on July 23, 2019

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A couple of months ago, investment advisor Conor Sen wrote a fascinating piece for Bloomberg called “The Year That Big Tech Hubs Got Some Competition” about the “confluence of forces” that have led to “secondary cities” like Columbus and Pittsburgh showing undeniable momentum in the tech industry.

In this case, the term secondary cities isn’t a slight of any sort – these communities simply aren’t Silicon Valley or New York, where the vast majority of tech investment has traditionally landed. And yet, they’re on the upswing, developing startups and growing tech companies at an impressive rate.

Why is this happening? Sen lists four main reasons:

  • The logistical gap is closing, making remote work and close collaboration possible regardless of geographical distance
  • The amenities that have traditionally attracted tech workers are becoming available everywhere
  • The cost of doing business – and living – is much lower in a secondary city
  • Top tech companies – including Amazon (think HQ2), Google and Facebook are signalling that these secondary cities are an option for growing tech firms

It’s a fascinating look by a third-party observer, and as we read through each of Sen’s points the story started to become familiar. These “secondary cities” sound a lot like Waterloo.

Now, we aren’t Pittsburgh or Columbus – their metro areas are 2.4 million and 2.1 million, respectively. The whole of Waterloo Region has a population of just 600,000. But, the similarities outside of size are striking: all three are former industrial powerhouses, have taken significant steps toward remaking their economies in recent decades and have a large tech-centric workforce. In fact, a new report from CBRE – which named Waterloo as one of North America’s fastest-growing “opportunity markets” – listed their tech talent populations at 45,440 (Pittsburgh), 48,600 (Columbus) and 20,500 (Waterloo), which is a lot closer than their total populations might suggest.

So, are the “confluence of forces” that Sen identified responsible for Waterloo’s emergence as a serious option for tech companies? To find out, we took a look at each of his points and compared the conditions in Waterloo.

Geography is no longer a problem

In his article, Sen noted the availability of email and smartphones, ride sharing services like Uber and Lyft and communication tools like Slack and Zoom have made working outside a major centre easier than ever. Co-working communities like WeWork have also made small-scale companies and remote work easier to manage. While all of these services have been around for a while, they have become ubiquitous in recent years.

Does this reflect the Waterloo experience? Definitely. We certainly have smartphones – heck, one of our companies invented them (BlackBerry). We also have Uber, Lyft, Slack and Zoom. Our co-working game is picking up steam, with Workplace One and Workhaus in the tech core and WeWork coming soon. We also have a big advantage over Pittsburgh and Columbus – we’re just 105km/65m from Toronto, which means scheduling in-person meetings in one of North America’s largest tech markets is no big deal.

Does Waterloo have the tools to overcome geographical distance? Yes. In spades. Waterloo gets a checkmark for this criteria.

The amenities that keep talent happy

Another social change that is leveling the playing field between major centres like New York City and America’s secondary cities is what Sen calls the “Brooklyn-ization of America” – consumer amenities are available everywhere. Big cities might still have a greater depth and breadth of choices, but hip coffee shops, bars, Click to download the waterloo at a glance bookletrecreation options and more are available just about everywhere.

This is pretty well true of Waterloo, too. No, we aren’t New York, but we have our share of interesting restaurants, shops and night life. We have a very strong independent restaurant scene and a ton of craft brewers and brew pubs. Waterloo also has the advantage of being exceptionally close to excellent skiing, the world’s largest freshwater beach and all the camping and hiking you could ever want. Oh, and again, we benefit from being close to Toronto’s world-class entertainment. We also just opened a brand new light rail transit system connecting major shopping areas, post-secondary institutions and high-density areas that will almost certainly appeal to those imagining a car-free future.

Are we there? We are so close. In the next few years the Waterloo area will see about $3 billion in new development and a continued influx of new residents – our community is one of the fastest-growing in Canada – which means we’ll close this gap quickly.

Can you keep the cost down?

The third reason for momentum in secondary cities is the most intuitive: they have a cost advantage. This isn’t news, but the difference in cost between New York/Silicon Valley and Pittsburgh/Columbus continues to grow even as the difference in value proposition shrinks.

If there was one place where Waterloo has an uncontested advantage over major centres like New York, San Francisco and Toronto, it’s cost. Our cost comparison infographic (click here for the PDF) was just updated with salary and lease rate numbers and it’s no contest. Our office rates are less than a quarter of the cost of similar space in San Francisco and New York, and half the cost of Toronto. Salaries are the same deal (for an in-depth look at tech salary comparisons, download our Waterloo Tech Talent Guide).

The same is true for cost of living. In late 2018, we did a quick cost comparison to explain why our tech talent cost-to-quality ratio was called “exceptional” by CBRE and a big part of the answer was that condo payments are nearly twice as high in Toronto. It’s even worse in New York and Silicon Valley.

If you’re looking to grow a business, you need to keep overhead low while maximizing the quality of your talent, and Waterloo can do both. This one gets a big checkmark.

Strong signals from tech leaders

The final reason Sen gives for the momentum found in second cities is that top tech companies like Facebook, Google, Apple, Amazon and Microsoft are starting to expand their own operations into smaller tech hubs. The most prolific example is Amazon’s HQ2 search, which shortlisted 20 metro areas, including Columbus and Pittsburgh, as worthy locations for a second North American headquarters. This signalling makes founders and investors alike more comfortable with the idea of Download the Waterloo 2019 AI Cluster Map Now!starting and scaling a business outside of traditional hubs.

In Waterloo, tech giants are sending strong signals. The locally-grown giants – BlackBerry and OpenText – have chosen to maintain their headquarters in our community. Waterloo is also home to Google’s Canadian engineering headquarters, a major Shopify operation and, in partnership with Toronto, was also a finalist for Amazon’s HQ2 (you can download the bid book here!). This has led local scale-ups like North, Vidyard, Faire and ApplyBoard to double-down on Waterloo, and many other scaling tech companies – including Square and Insticator – are also choosing to locate here, too.

So, this last box also gets a checkmark.

 

Does Waterloo deserve to be in the conversation as a great “secondary city” for tech? Let’s put it this way, we should definitely be on Conor Sen’s radar. We have fewer geographical barriers than most secondary cities, similar amenities, very low costs and an incredible local tech ecosystem that includes major investments from tech giants and scale-ups alike.

 

Do you want to learn more about Waterloo’s tech ecosystem? Check out the tech section of our website or contact our team today.

 

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Topics: technology, talent, artificial intelligence