Silicon Valley has long been considered the tech hub of the U.S., with many of the top companies in the world keeping their headquarters there. However, as housing prices and the overall cost of living have increased in the San Francisco Bay Area, many startups are jumping ship and choosing alternatives, bringing jobs and economic growth to other cities and states.

I've done stories on the scenes in Vegas, Portland, New York City and Austin over the years. People write all the time about Seattle, Denver, Houston, Chicago and more. But one that never crossed my mind was Phoenix, Arizona. Turns out the country's sixth largest city (who knew?) is one of the top metro areas experiencing an injection of innovative companies.

Yelp, Uber, and Shutterfly have all recently opened offices in Phoenix, drawn by lower housing costs and hot weather. City officials hope this draws more new tech businesses to the area. The city has also recently been called one of the best cities for young professionals in the U.S.

"No city in the country has gone through a greater transformation," says Phoenix Mayor Greg Stanton. "Especially in the downtown area where you see this unbelievable building boom, particularly residential. People are moving to the heart of the city in a magnitude that has never happened before."

I spoke to Mayor Stanton about the city's transformation in recent years, as well as two executives who have been part of that change, and have found great success with their Phoenix-based companies.

A diversifying economy

If you haven't been to Phoenix lately, you'd be excused for thinking the city's economy was still reliant on "real estate on the desert's edge," as Stanton puts it. The bustling desert metropolis is seeing transplants arrive at a fast pace from all over the country now, and the economy has diversified along with that. Stanton points to the opening of a new bio-science campus in the heart of downtown, along with the influx of tech companies from Silicon Valley.

"The quality of life (is so high) and the cost of living here is so much less," says Stanton. "So many companies are discovering Phoenix, either moving their entire operations or at least major operations, growing here in Phoenix because they know that they can get a sophisticated workforce at a significantly lower cost than Silicon Valley...That combined with 'hashtag-yes Phoenix,' which is sort of our name for our converging startup and entrepreneurial community. You get those cross-pollinating, our existing startup community combined with all these people moving in from Silicon Valley, we got something special going on here."

Staying close to home

The Valley of the Sun isn't just a place where people bring their companies for a better shot at success. It's someplace where companies get their start and grow. Marketing-software company Infusionsoft is an example of that and is a tech darling of sorts in the area at this point. It started in the Phoenix suburb of Chandler in 2001, with no goal to grow into a large corporation, according to CEO Clate Mask.

They operated in survival mode as they developed customized software for a small list of clients. Mask and his team worked long hours for years before developing the software package that was the predecessor to Infusionsoft. It eventually grew from being a small family business to a thriving startup, to a popular solution now used by companies all over the world.

"I wish I could say we had this grand vision of what we were going to do, but we were just building the business in our backyard because we were already in Phoenix, and that was home to us," Mask says. "So that's why we built it there."

Growing in place

Even as one of the fastest-growing private companies in Arizona, Infusionsoft has no plans to move. The company has about 600 employees and more than 140,000 users. Not only is Phoenix home for Mask and his employees, but he has hired top executives who don't even live in Phoenix. They fly in from Silicon Valley and other locations around the country each week, often doing a four-day work schedule in Pheonix, and a 3-day break back at home.

"It's all about the culture," Mask says. "If you've got great culture fit and people who are totally passionate about helping small businesses succeed. Then, if they've got the right skills, then we want to bring them into the Infusionsoft culture. And they'll travel for that. They'll come be a part of that because they see what we're up to and they have a passion to help small businesses succeed in sales and marketing automation."

Why one company moved to Phoenix from the Bay Area

Popular mattress seller Tuft & Needle is an example of a company founded in Silicon Valley that needed a change of scene. J.T. Marino and his co-founder didn't want to build the typical Valley startup. They realized that they could achieve that more easily in Phoenix.

"We saw it as one of those fundamental problems in the mattress industry that being on the open market really drives towards higher prices, higher margins, lower costs, and sales tactics which has really what got this industry in this conundrum in the first place," Marino recalls. "This is why we set out to solve these issues. So we saw this (moving to Phoenix) as important to essentially, kind of stay pure, stay employee owned."

Like Infusionsoft, Tuft & Needle has seen big growth during its time in Phoenix. Founded in 2012, the company has 150 employees and an annual revenue of more than $100 million. By locating there, the company was able to avoid the high San Francisco Bay-area rents, and they wisely chose to put some of that savings toward purchasing their own building. They've accomplished all of that without taking funding, which is something they likely wouldn't have been able to do if they'd chosen to stay in Silicon Valley.

"I can pay myself and our team members better proportionally here than there," Marino says. "So we have a better lifestyle. It's not like a premium, high sought-after place. There's a lot of weird economic influences that are happening in cities like New York, and San Francisco and L.A. I view it like it's a weight that is holding you down."

A different kind of job applicant

Marino says company turnover is close to zero and during the interview process, candidates are more interested in the type of work they'll be doing and the future they'll have with the company. In Silicon Valley, interviewees are more likely to ask about exit strategies and being vested.

"They're not viewing it like a gamble, like to cash out or something like that versus when I interview people from some other places, the conversation goes very differently so people here are thinking more long term," Marino says. "They're not thinking, 'I'm going to vest, and then I'm going to leave and go join another start-up.' They're thinking, 'Why would I work here? How am I going to grow?'"

Little things like that are a big reason why companies are setting up shop in Phoenix and then attracting knowledge workers. Another reason, according to Mayor Stanton, is that the city doesn't have a lot of "old boy networks."

"Those companies that grow to be Fortune 500 companies in other cities, in older cities, haven't had that chance yet here in Phoenix," Stanton says. "We don't have a lot of old boy networks which means if you come to Phoenix, the only thing holding you back from just killing it in this town is your own work ethic and willingness to build your career. And that's why we keep consistently popping up as one of 'the best of' for starting up a business, 'the best of' for young professionals. The future of the U.S. and the future of Phoenix are one in the same. We have a wonderfully diverse population, soon to be a majority Latino population, so we're diversifying ahead of America and how well we do here is gonna be a real indicator of how well America does. That's another reason of why Phoenix is so important."

Published on: Jun 8, 2017