Is Our Technology Drought Over?

Arizona is fertile ground for new tech hub
by Eric Jay Toll

Not long ago, disco was king and typewriters shared desktops with personal computers. The Valley of the Sun was known as the “Silicon Desert.” Chandler was its oasis. Motorola and Intel were its bedrock. People were still looking for the way to San Jose and Silicon Valley didn’t exist.

“We were once the Silicon Desert,” reminisces Barry Broome, president and CEO of the Greater Phoenix Economic Council. “Back in the 1970s and 1980s, that’s what we were called.”

“It died,” Mesa Mayor Scott Smith says pointedly. “It was ours, but the ball was dropped. The Silicon Desert concept dried up about the same time Silicon Valley captured its name.”

Even as Arizona held a leading position in the evolving world of microprocessors, the state still clung to its mid-century economic vision of Five C’s — cattle, citrus, climate, copper, cotton — and never made room on the list for “computers.”

Fast forward 40 years and the Valley of the Sun economy leaves the Five C’s in the dust.

Gone with the Wind

The late 20th century wasn’t pleasant for Metro Phoenix technology sectors. Elsewhere, tech companies were hiring thousands of workers in the 1990s — and Silicon Valley was the capital. In Arizona, Motorola was cutting back. Oregon surpassed Arizona in tech hiring. The Valley shed one of every three technology jobs.

In Arizona, there was a laissez-faire approach to recruiting technology businesses. As the metro sprawled, the desert opened to logistics, services and call centers. Retail became job king. There were still technology jobs, but more back office than innovation. In 2008, the Great Recession shook Arizona’s economy — entire job sectors were nearly extinct.

Diversification Breeding Success

More recently, there has been a tremendous rethinking in business diversification. The types of business landing in the Valley and the local businesses growing here are not locked into any one technology sector. The recently announced technology companies moving to or growing their base in Arizona include aerospace, automotive, software, semiconductors, Web applications, data centers and biotechnology.

Although the Arizona Department of Administration projects a modest 4.5 percent growth in technology jobs through 2014, its numbers could be jostled by recent wins for the Valley. General Motors Information Technology Innovation Center alone is adding 1,000 jobs. Four local business expansions are creating a like number of new jobs among them.

Phoenix Rising from Old Tech Ashes

Across the Valley today there is a focus on the right kind of economic development activities. There are no longer any giveaways; cities and the state are measuring return on investment and the focus is on new and expanded local business with high-value jobs. Metro Phoenix is competing on the big stage.

The technology revolution in the Valley of the Sun started quietly in 2002. Shoots started poking up while the economy was flaccid. Market assets attracted an entirely new business sector: data centers. IO Data Centers took over a massive former water bottler near Sky Harbor in 2009. A year later, Phoenix NAP opened its colocation facility in the same neighborhood. Others followed. Last year, Cyrus One built a 1-million-square-foot data center in Chandler.

“We’ve changed,” notes Chandler Mayor Jay Tibshraeny. “Home-grown and new facilities opened. It’s not just semiconductors. We have all types of technology businesses today. It is obvious that this is a great place for a technology business to succeed.”

Led by technology hiring, the Valley’s recovery grew faster than elsewhere in the nation. In March, online job search site Dice.com reported that Phoenix ranked fourth of all U.S. metropolitan areas in year-over-year technology job offerings. In the months on either side of the Dice.com report, the Arizona Commerce Authority snagged new technology employers, pumping more than 2,500 jobs into the Metro market.

Everyone wants the high-value companies that TechAmerica Foundation says are paying double Arizona’s median wage (tech workers in the state average almost $90,000 a year). In building the technology economy, Phoenix is in hot competition with “brand name” markets: Silicon Valley, Calif.; Highway 128 Corridor, Mass.; Seattle, Wash.; Atlanta, Ga.; and Austin, Texas. Say their names and people think “technology.” When you say “Phoenix” or “Arizona,” there just isn’t the same brand-name sizzle — not that the market is unknown.

The Phoenix Market Measures Up

“Phoenix has a strong reputation,” says Daniel Kah, a partner with Greyhill Advisors, a corporate relocation consultancy located in Austin, Texas. “[It] has performed well by any metric.”

Kah says there are hundreds of evaluations in business relocation, but it comes down to one objective: Facility success and profitability. To win a business, a market has to top the list in five essential metrics: workforce quality and availability; cost to relocate, operate and make a profit; timeline from decision to operation; market attractiveness for living and working; and regulatory structure. “There could be 20 metros on the first shortlist,” Kah says. “We start analyzing metrics to narrow it to three to five specific sites.” The bottom line, he adds, comes from considering the question, “Where are we going to have the best success?”

Announcing recent relocation wins for the Phoenix area, Governor Jan Brewer touted Arizona’s taxes, regulations and incentives as the draw. Mayor Smith sees it slightly differently. “We can offer attractive tax packages, keep regulations under control, but that just gets us into site selection. What gets us over the top is answering a CEO’s challenge, ‘Tell me I can find the people who will make my business succeed.’”

Kah agrees with Smith’s view, saying that economic incentives and tax breaks sweeten the pot but they are not going to move an underperforming metro up the list. “A high-value company is not going to pick a location just because some money is dangled in front of them,” he says. “Incentives might be a tie-breaker, but they want to move to a location where they will succeed.”

Observing that some are just not aware how well the Valley measures up against the brand name markets, he adds, “It’s impressive that local leaders are thinking about the need for Phoenix’s brand image.”

Goodbye Five C’s; Hello to a New Alliteration

Learning, labor, location, lifestyle, legal — the five L’s could be coined as Arizona’s new alliteration to replace the five C’s. They are creating a positive buzz about technology
in Arizona.

“What breeds success in a market is a cluster of highly creative, critical thinkers,” observes Dennis Hoffman, Ph.D., director of the L. William Seidman Research Institute at ASU’s W. P. Carey School of Business. “There appears to be a direct correlation between technology market success and educated workforce clusters. You see it in Boston, San Diego, the Bay Area; and we’re seeing it here.”

Learning

“A lot of what’s driving this market comes out of ASU,” Broome says. He notes ASU president Michael Crow, Ph.D., is aiming for the school to have a $750-million research budget by 2020, but believes that’s not ambitious enough. “He should hit that by 2016, and a billion dollars a year by 2020. That makes this market very attractive to technology business.”

“I like Barry’s enthusiasm,” responds Dr. Crow. “We are putting a lot of effort into our status as a Tier One research institution. It would be nice to achieve those goals.” The research dollars are growing small technology businesses. “ASU has had a lot of success with transferrable research,” he continues. Transferrable research is an idea, design or product created at ASU and then patented, sold or licensed for a private company to bring it into the marketplace. It takes academic theory and makes it real. ASU, the creators and the Valley benefit from the results.

“We expect to aggressively compete and win those research dollars because we’re generating results,” says Dr. Crow. The success is palpable. Since 2002 — when Dr. Crow started his new model for an American research university — ASU says its research directly created 51 start-up companies, received 207 patents, inked nearly 400 license and option agreements and generated $21 million in licensing revenue.

All these efforts drove the college into the top 20 of non-medical school research universities in the U.S. This ranking puts ASU at the same height as M.I.T., University of Texas – Austin, University of California – Berkeley and Georgia Tech. Coincidentally, all are research universities in the “brand name” markets competing for the same high-value tech jobs as Metro Phoenix. “A major attraction in a high-value tech firm relocation is a strong research university,” notes Kah.

While ASU seems to be the epicenter as technology successes rumble out of its research and development programs, other institutions are also contributing to Metro Phoenix’s strength in this sector. These include Grand Canyon University and numerous business incubators such as the Center for Entrepreneurial Innovation at GateWay Community College.

Labor

“[Businesses] looking at Phoenix ask me, ‘Who’s like me in town?’ I am now able to point to similar businesses in almost every technology sector,” reports Phoenix Mayor Greg Stanton. “They want to know that there are other successful businesses similar to theirs — because it affects their ability to recruit and keep employees. Smart public policy encouraging diversity makes a big difference in site selection.”

Internet start-up ZocDoc, headquartered in New York City, put its second location in the Valley. Enumerating the reasons he picked this metro, CEO Cyrus Massoumi says there was “…most importantly, a large, educated pool of potential employees; Phoenix fit the bill.”

Clate Mask, CEO and co-founder of Infusionsoft, recalls there used to be a perception that the Valley did not have a strong labor pool to serve businesses in the technology sector. But, he states, “That’s just not the case. We have a remarkable, educated work force.”

ASU is working to turn out a small city of graduates every year. “Our Valley-based W. P. Carey MBA graduates earn over $1 billion a year in salary,” says Dr. Hoffman. “That’s doesn’t count our BBA graduates.” Significantly, 70 percent of ASU’s W. P. Carey graduates retain Arizona addresses, he reports.

Lifestyle and Location

“Companies look at lifestyle with corporate headquarters relocation,” says Kah. “For a satellite, they assume that, if the market is growing with good workers, people are picking a place with a lifestyle they like.” There’s an assumption that similar workers will want to live there as well, he adds.

ZocDoc’s Massoumi hit additional location-related advantages. “We realized that ZocDoc needed an office in a different time zone with predictably pleasant weather, a low likelihood of natural disasters and an abundance of direct flights across the U.S.” Combine the way people live with convenient geography and climate and there’s a major appeal.

Characterizing Arizona as, essentially, a West Coast state, Kah considers this to be a plus. “Phoenix is close and has excellent modes of transportation to get people and goods into California,” he says. “The Arizona regulatory climate is favorable, development is far less expensive and facilities go up fast.” Despite all its challenges, California is still a top 10 world economy. Easy access to that market without the cost or regulatory issues makes Arizona very attractive to businesses needing a West Coast location, he says.

“We’ve opened two offices in California,” explains new Arizona Commerce Authority CEO Sandra Watson. “We believe that this is the market from which it’s easiest to move new business [into] the state.” Wins with Silicon Valley Bank and UBS Bank and snagging Stealth Software UV’s U.S. headquarters support that contention.

“California looks at Arizona and says, ‘It’s a lot like us,’” says Broome. “Our cultures and lifestyles are similar, and that’s an attraction for a business seeking to succeed with a new facility.”

Legal, Collaboration, Results

The Valley’s image got a big boost from an unlikely source last year. On the morning after his 2012 State of the Union address, the President wanted a backdrop of American technological achievement and job creation. He chose Intel’s Chandler plant as the prime example of how U.S. manufacturing is leading the way for the local and national economy by, he says, “investing in start-ups. They’re supporting science and math education; they’re helping to train new engineers.”

“When President Obama spoke in front of the new Intel $5-billion FAB42 facility, a lot of people started looking at Arizona differently,” says Mayor Tibshraeny. “We’ve gotten a lot of traction from his visit. We’re getting calls and CEOs are rethinking Arizona.”

As recently as five years ago, Valley cities scratched and clawed to give the biggest deal to any new business siting a facility within their borders. The recession, a couple of embarrassing incentive payouts and legal action chilled the financial handouts. Now, cities are working together against other states and adopting regional attitudes. “If it’s good for the Valley, it’s good for Phoenix and all of us,” says Mayor Stanton. “Of course, I’d like business in Phoenix, but a good employer locating anywhere in the Valley has benefits for everyone here.”

GPEC has carried the load with local economic developers for a number of years. The cooperation between cities and the state grew exponentially during the recession. The job to cohesively sell Arizona to new technology companies lands on the shoulders of ACA’s Watson. “We’ve got a great story to tell,” she says. “Arizona has the know-how to be a technology center.” The ACA is unwrapping a multi-million-dollar marketing campaign to get the word out.

The success of small local businesses thriving and outside businesses finding a strong work force, welcoming environment and a lot of reasonably priced land and buildings all combine to make growing companies take a hard look at Arizona. But while these factors are important, they don’t make a technology company move to the Grand Canyon State.

Time is of the essence when a corporation wants to locate in the metro, says Kah. The state’s legal environment makes it possible for businesses to get a facility opened more quickly than in many other states. To close deals, Valley civic leaders and the governor open their doors and meet businesses to talk about company needs. Local governments are pushing streamlined approval processes. Mesa uses a project manager approach, locking in an approval date and working the review process backwards to meet that deadline. Other cities have implemented or are putting similar processes into place.

“We’ve seen a unique opportunity to use the variety of technology businesses to attract other types of technology into the market,” says Watson. “It really comes down to Arizona know-how.”

The Phoenix market is a strong competitor when ranked against the “brand name” metros in those high-value business deals. The result: Valley of the Sun is snagging those high-value jobs. Leaders are doing what’s necessary to continue winning technology jobs for the desert. The sectors are broadly diversified. Valley economic development is proving to be a job well done at a time when a job done well is just what this market needs.

Related Article — Tick Tock Tech: Our Place in Time

Trackbacks

  1. […] the second of two by Toll. A story on the end of the Valley’s technology drought appeared in the June […]

Speak Your Mind