Much love for the folks in Silicon Valley, but lately we've got this series of tubes thing that can ship your code to your customers from just about anywhere. I used to live in St. Louis. Nice place! As of 2004 a roommate and I split a nice two-bedroom apartment, in a safe neighborhood with a nice twenty-something atmosphere, for about $800 a month.
If rent is $800 and your California-ramen-profitable startup is clearing about $3,000 a month then in St. Louis you can probably eat your ramen in a modest house which you bought to have a place to consume ramen in.
I tend to take a more romantic view, one that says that it doesn't matter so much if you don't live in SV or Cambridge, MA even if the current metrics show that your startup will be more successful in those places.
I wonder whether SV/Cambridge will lose a little pull since VC has dried up a lot. Also, buying a home is going to get a lot cheaper in rural places. Of course, not all cheap places are equal, but what if it truly, really didn't matter where you located? There's crucial things to research like infrastructure, high speed network capability, the reliability of the public utilities. The Midwest US could be a great place to found a startup.
It seems to me the desire to reach ramen profitability by operating cheaply can outweigh the cachet of advice and networking in the meatspace.
Interesting idea, though. Seems to me that as more and more people find themselves able to literally work from anywhere, this will happen more and more often. Why move to the end of the world to live cheaply, when you can just move to a cheap city within your own country and enjoy the same benefits, but with a similar culture?