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Bay Area Start-Ups Find Low-Cost Outposts in Arizona

The company’s Scottsdale, Ariz., office has Silicon Valley perks like catered lunches and a massage room, along with some local touches, like a “No Weapons” sign to remind employees that open-carry laws do not extend onto company property.

Wages, taxes and energy cost about 25 percent less in Phoenix than they do in San Francisco, according to an index of business costs compiled by Moody’s Analytics.

Housing is much cheaper. The median home price in the Phoenix metropolitan area is $ 221,000, according to Zillow. In San Francisco, it is $ 812,000.

For Ms. Rogers and others, that is a far bigger perk than an extra vacation or a raise in California. Instead of renting a rundown house in Redwood City and commuting an hour or more to work, she now lives 10 minutes from the office in a house that is twice the size — with mortgage payments that are half the cost of her California rent.

“When I had a kid, it forced the decision for me,” Ms. Rogers said.

Hordes of young dreamy entrepreneurs still flock to the Bay Area each year in search of venture capital. Silicon Valley is to tech entrepreneurs what Hollywood is to actors, and the region continues to significantly outpace the nation in creating engineering jobs.


Kate Rogers, director of people operations for Weebly, at its offices in Scottsdale, Ariz. Credit Caitlin O’Hara for The New York Times

But as companies grow and add large numbers of sales and customer service jobs, “it’s less about survival and having everybody in the same room,” said Lawrence Coburn, chief executive of DoubleDutch, a San Francisco maker of software for live events that recently laid off a quarter of its staff to try to become profitable sooner.

This year, the company opened a downtown Phoenix office with sales and customer service jobs. “San Francisco is a terrible place for entry-level people,” Mr. Coburn said, because the infrastructure and housing are “failing.”

Local economic development agencies and real estate developers are doing what they can to keep the movement going. Take, for instance, the downtown Phoenix offices of Gainsight, a Redwood City company whose software helps companies track and retain customers. In November, Gainsight opened its 12-person Phoenix office, with modernist touches like exposed ceilings and concrete floors in the hallways, along with the crammed desks and open floor plan favored by tech companies.

The only private spaces are a handful of conference rooms, including one that has a Ping-Pong table and is decorated with posters with famous quotes by luminaries including Mother Teresa.

Most of the building’s floors have a more traditional layout full of offices and carpet. But the building’s owner, Ironline Partners, renovated the more open floor with an eye toward software companies, of which there are now three, including Gainsight.

“Since those guys moved in, we’ve blown out the entire 15th floor and the entire fifth floor to do more of the same,” said D. J. Fernandes, an architect at Ironline Partners who designed the spaces.


Scott Salkin, left, and Kyle Burnett, founders of Allbound, in their Phoenix offices. Credit Caitlin O’Hara for The New York Times

The Bay Area has never been especially cheap, and tech companies have a long history of moving their more expensive and labor-intensive functions to second-tier cities where land and labor are less expensive. Intel, the semiconductor giant, was founded in the Silicon Valley in 1968, and by 1979, it had manufacturing facilities outside Portland, Ore., and Phoenix.

But as the latest exodus gathers steam, these outlying cities hope some of the higher-paying engineering jobs will start moving as well.

“We don’t want to be San Francisco’s back office — we need more creators here,” said Scott Salkin, a founder and the chief executive of Allbound, which is based in Phoenix, makes sales software and has offices down the hall from Gainsight’s.

Chris Camacho, chief executive of the Greater Phoenix Economic Council, says better-paying jobs will follow, since companies prefer to expand in cities where they already have offices. That has been true for Intel, which over the last few decades has added a number of different positions to its original manufacturing hubs.

This is why part of Mr. Camacho’s strategy is to focus on Bay Area start-ups just as they reach a growth spurt. “The reality is all of these companies are going to hit a pain point once they hit more than 50 employees,” he said.

But while Phoenix is recruiting companies, its technology scene lacks some crucial elements. Mr. Salkin, from Allbound, said he still flies to the Bay Area once a month for networking or other events. “We’re doing amazing things here,” he said, “but we’ve got a way to go.”

Mr. Salkin added that for technology companies, which hire people from all kinds of backgrounds, Arizona’s socially conservative politics can be a form of cultural baggage. For example, the former governor, Jan Brewer, signed one of the nation’s toughest immigration laws in 2010, and same-sex marriage was illegal until a federal court overturned a voter-approved ban in 2014.

In San Francisco, “you can come from any walk of life and feel pretty much accepted and safe,” Mr. Salkin said. “You struggle to say that here right now. I think that’s changing, but it has not been the case in Arizona, and I think that’s a big thing.”

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