Phoenix attracts West Coast tech companies
Thursday, March 31, 2016
In the 1980s and ‘90s, most of the tech jobs in Phoenix focused on back office and customer care centers for companies with headquarters elsewhere, city officials said.
Now, places like downtown Phoenix, Tempe and Scottsdale are buzzing with entrepreneurs and new companies in the tech space. There are an estimated 132,000 high-tech jobs in Arizona, according to a TechAmerica Cyberstates report.
“We’re beginning to gain a reputation that there’s a real tech community here,” said Steven G. Zylstra, president and CEO of the Arizona Technology Council.
Officials in Phoenix have worked hard to boost the city’s brand and reputation among the tech community, which has contributed to the new business growth, Economic Development Director Christine Mackay said.
Organizations like the Greater Phoenix Economic Council also have actively recruited companies to the 32 communities within the metro area.
“Here in our market, we’re seeing a significant increase in companies that are catering to financial services, the insurance industry and the lending industry,” said Chris Petroff, senior vice president of business development with economic council.
Since 2009, Petroff has specifically focused on attracting software companies out of the Bay Area in California.
Teams from the council visit San Francisco at least once a month – sometimes twice a month – to talk with companies looking to move or expand. The trips can be relatively concise, but packed with meetings, Petroff said.
Zylstra said the Arizona Commerce Authority, southern Arizona’s Sun Corridor Inc. and the economic council have targeted California. “You have a lot of California companies in general leading an exodus including in the tech sector,” he said.
San Francisco-based tech company DoubleDutch is one of the most recent to announce expansion to the Valley, making the information public in February. According to a blog post by DoubleDutch CEO Lawrence Coburn, the company chose Phoenix because of the area’s access to a new wealth of talent, the city’s proximity to their headquarters and Phoenix’s growth as a tech and startup community. The company plans to initially hire 50 people in the Phoenix area.
From the Bay Area, the economic council has been involved in multiple tech companies moving and expanding to Phoenix, including DoubleDutch, Gainsight, Uber, Prosper Marketplace, Yelp, Weebly, BoomTown and Shutterfly. Silicon Valley Bank moved its operations to Phoenix five years ago as well.
The increasing taxes and cost of living in California forced Prosper Marketplace elsewhere, Zylstra said. “For the price of a beautiful home here in Arizona, you’d live in a cardboard box essentially up in Silicon Valley,” he said.
Phoenix’s rise in the tech world
Phoenix’s tech industry has fluctuated over the years. In the 1940s, ‘50s, and ‘60s, legislative leaders in Washington, D.C., worked on attracting tech companies to Arizona, Mackay said. In the 1980s and 1990s, the tech industry in Phoenix was mostly focused on back office jobs.
“It became a market so focused on back office and customer care centers,” Mackay said. This was because of the low cost of doing business and daylight savings not affecting those markets.
“These things really led into Arizona being branded as a call center market,” Mackay said.
However, at the time, Arizona did have some large tech companies, including Intel and Motorola. Motorola employed 30,000 people at one point in the state, Zylstra said.
But employees at these larger companies wouldn’t have necessarily stayed in the Valley if they decided to branch off into their own companies.
“We had these great tech giants that are here, and you have these individuals who are with these great big companies who have conceived their own technologies, concepts and ideas and are interested in starting their own companies,” Mackay said. “For so long, they’d leave us and go to California or the East Coast to start their own companies.”
This began to change in the early 2000s. Between 2005 and 2007, the Arizona Commerce Authority started the Arizona Innovation Challenge, coworking spaces began to pop up across the Valley and accelerators like the Center for Entrepreneurial Innovation at GateWay Community College began to attract entrepreneurs and startups.
The Arizona Innovation Challenge is a business competition that awards $3 million annually to entrepreneurs with technology-based solutions. Other tech funding includes the Arizona Innovation Accelerator Fund and the AZ Fast Grant, according to the commerce authority.
Tech companies from other states like Denver-based Galvanize and Cleveland-based Gabriel Partners also have opened Phoenix offices in the past few years.
“It was the talent”
Technology company Gainsight, headquartered in Redwood City, California, moved its marketing headquarters to Phoenix in late 2015.
Director of Marketing Mike Manheimer, who has been in the state for 13 years, said when he first started in the tech industry, there were just one or two big tech companies here. Now there’s a much larger volume of companies, he said.
“It was an ‘If you build it, they will come’ scenario,” Manheimer said about the move. “It was the talent. Gainsight was looking for someone to fill a particular role. We found that person and more people in Phoenix.”
Nationally, Arizona is known as “a top state for workforce quality and availability, ranking No. 2 in the country and No. 1 in higher education degree opportunities,” according to an article the commerce authority wrote for azcentral.com .
Gainsight launched in 2008. Its move to Phoenix was in part driven by the startup friendly environment.
“We really liked what we were seeing in the Phoenix ecosystem,” Manheimer said.
Manheimer said his company will continue to grow in Phoenix as long as they can find talent. “We definitely want to grow here,” Manheimer said. “But I would say part of our culture is to grow where the talent takes us.”