Knowledge-based service industries, because they are geographically 'footloose', have the potential to contribute to small town and city economies. The university town of Stellenbosch, identified as having a high growth potential, is the location of a growing IT and knowledge-based service sector. Data from questionnaires completed by 104 Stellenbosch companies provided some insight into why they chose this town. Most said that, provided sufficient IT is available, they would be able to function as effectively in another town. This implies that they locate in Stellenbosch as a matter of preference rather than necessity. The paper provides insights into the reasons for the spatial clustering in South African non-metropolitan areas and how companies decide where to locate.