Lesson 1 - Follow The Crowd.

The common saying of "location location location" doesn't just apply to real estate; it applies to careers as well. Rising housing prices often result from rising income. A hub has its own network effect. A city with many talents will attract many new employers, which will attract many new talents, and so the virtuous cycle continues. Just like a go-to platform that attracts both buyers and suppliers, a metropolitan city with an inherent scale advantage will attract both employers and talents as well.

Consider the following thought experiment:

Assume one city has a total addressable market (or TAM) of 300 people and another city only has a TAM of 30, and that an employer will only need to hire one employee to develop a product to sell to the entire city. For the same skill set and experience level, assume it will cost $250 in city A (the city with a TAM of 300 population) to hire the employee and only $50 in city B (the city with a TAM of 30 population). Which city should the employer establish its business, assuming everything else is equal?

The key is to spread the fixed cost. Assuming equal or $0 variable cost, then city A can sell the product at $250/300 = $0.83 to breakeven, whereas city B needs to sell the same product at $50/30 = $1.67 just to break even. That's more than double the cost in city A! Even though it cost 5x more to develop a product, the TAM in city A is also 10x larger. That's why city A can afford to pay an employee up to 10x what city B pays.

This simple math explains why larger companies or countries with an existing scale advantage can often maintain their leadership positions; because a larger TAM translates to both a higher pay for the employee as well as a lower cost for the employer!

So next time, consider going where everyone else is going. Whether you are an employee or an employer, you would probably prefer the higher pay and lower cost in city A than the lower pay and higher cost in city B.