The definition of a startup depends on who’s answering. The general consensus does seem to be a new, small company. The threshold of being a startup and a young business can be defined by revenue, company size, an acquisition or a new office space. What’s more important, experts say, is the environment that comes with having a “startup culture.”
It’s a burden multiple cities are shouldering, from Chandler’s Gangplank to SkySong in Scottsdale. A classic example is Infusionsoft’s expansion through different locations in Gilbert before landing its most recent location in Chandler. Heliae, which started at ASU Tech Park before relocating to SkySong and finally Gilbert — in a span of three years — is another example of cross-city commitment to retaining a startup. Gangplank co-founder Derek Neighbors says that even though one city lost the company to another, there’s still an idea that at least Infusionsoft stayed in the East Valley. Cities are now collaborating just to keep companies in Arizona. Once a startup company leaves Arizona, Neighbors says, it probably won’t come back. It’s just less expensive for a company to move to its chosen headquarters when it still only has a few employees.
Tanga.com, which made the 2014 Inc. 500|5000 list of America’s fastest growing private companies, is now moving into a business park in Chandler. The company, which has grown about 220 percent over the last few years, has increased its employee base from six to 35. For Neighbors, it comes back to culture.
While local success stories pave the way for growing companies, Neighbors says about 30 percent of the companies that use Gangplank’s educational resources, business services or co-working space leave Arizona. While some of the motives include a perceived lack of knowledge capital or lack of understanding of tech-related products, there are also a few real estate-related issues at play.
“There are many reasons a startup will chose to expand, but those reasons are outside of the control of the community,” says Gilbert’s Economic Development Director Dan Henderson. The city is hoping that the 3.3MSF mixed-use development Rivulon will attract more venture capitalists to Gilbert, and thus money to invest in the start-up culture.
“Our citywide goal is to attract, retain and grow business and industry. Working with entrepreneurs and developers, we’re able to meet needs of early stage startups to Fortune 500 companies. In that community development focus, there is a diversity of real estate options,” says Henderson.
One issue developers and brokers should keep in mind, Neighbor says, is that these startup companies are looking between 2KSF and 6KSF of office space — not 40KSF. The other issue, he says, is that startups can’t sign five-year leases. There is no telling how fast a company will grow and how real estate demands will evolve over the time of a five-year lease. It’s much easier to find that space in San Francisco, Portland or Seattle, says Neighbors. Developers here, he says, don’t understand startups.
“It’s about having a full ecosystem,” he says. “Whether it’s co-working places or incubation places for two-person companies to start and grow and having a place for them to move into their next stage of 30, then 100 or 200 employees. As a region, we need to have that full spectrum to be collaborative as cities and commercial real estate partners.”
Henderson says Gilbert has looked at offering incubating, co-working and accelerator models to help entrepreneurs during different stages of their growth. It has also made the SizeUp tool available to companies that want to evaluate a product’s competitiveness and target market.
About half of ASU SkySong’s incubator businesses are startups. Developed by Plaza Companies, SkySong has become one of many East Valley hubs for the startup culture.
“Our region as a whole will be well-served by the kind of economic development that takes place organically within our community, and that’s what the startup culture provides,” says Plaza Companies President and CEO Sharon Harper. “SkySong has played an important role in establishing that culture as well as providing a destination for out-of-state businesses to consider.
“Helping companies grow through incubators has widespread benefits to the economic environment, including job creation and economic impact. Commercial real estate is a component of that — when we are growing companies from within our state, we are creating economic impact without having to rely on companies coming in from outside our state. So it’s another important pillar in our community’s economic growth with significant impact on commercial real estate.”
One brokerage has recently taken a keen interest in placing tech startups. Ryan Bartos, associate director of tenant advisory at Cushman & Wakefield, is a Millennial heading up the Phoenix office’s new C&WTechBeat effort. He and his partner at Cushman & Wakefield, Matt Coxhead, helped place Weebly, from San Francisco, as well as New York-based startup LearnVest into SkySong.
“It’s fun to work with these companies; they have great energy,” Bartos says. “They don’t want traditional office space. They need someone who understands and a landlord who is creative and flexible.”
Sometimes that flexibility comes in a special termination clause or trading abatement requests for lower rent.
“I think it’s great time for Phoenix, and we’re going to see more firms from California relocate to the Valley,” he says. “With firms moving from the Bay Area at an enterprise level, like Weebly, it further validates that our market is able to sustain that industry.”