If you grew up in Arizona, the Five C’s of Arizona — copper, cattle, cotton, citrus and climate — have been drilled into your head as the first mainstays of Arizona’s economy since elementary school.
Arizona’s economic base has morphed over the years, transitioning into a more knowledge-based economy. In the 1990s, after an economic analysis of the state’s main industries Arizona found itself as home to two technology-based high-wage industries: software development and optics and photonics.
“To Arizona’s surprise, one of the 11 clusters driving Arizona’s economy was software,” says Steven G. Zylstra, president and CEO of the Arizona Technology Council. “And this was sort of a big surprise to a lot of people.”
People were starting software firms out of their garages, or as off-shoots from larger companies operating in Arizona.
The state’s optics and photonics industry has been here since the 1950s and 1960s. The industry grew due to Southern Arizona’s dark skies, large concentrations of telescopes in the state and the world-renowned University of Arizona College of Optical Sciences, Zylstra says.
For years, many legacy sectors have been getting into emerging technologies. It’s hard to have any piece of hardware that doesn’t utilize some form of software, and just about everything — from your cellphone to medical imaging devices — rely on optics.
These national trends, relying on emerging tech, have driven Arizona’s technology industry growth, especially in software, says Chris Camacho, president and CEO of the Greater Phoenix Economic Council.
Arizona also excels in talent production. ASU has one of the largest engineering schools, with more than 5,000 students in its computer information systems programs, Camacho notes. A large portion of Grand Canyon University’s student base is on STEM-related career paths, he notes.
“This concept of sheer production of talent is not only drawing companies from outside the market, but also supplying organic growth for our current industry,” Camacho says.
From Zylstra’s recollection, software is one of Arizona’s key industries that bootstrapped itself into existence. There were people in Arizona who were working at larger companies and started to write their own software, Zylstra recalls, and there were other folks who wanted to live here and they worked in software.
As software has become a key component for any business’ success and a key component to successfully and efficiently utilizing hardware, Arizona has had its fair share of software companies starting and operating here, Zylstra says.
With a base ecosystem in place, economic developers like Camacho and the folks at GPEC started to focus on convincing more software firms to call Arizona home.
Camacho says there’s been a national shift in which intellectual property is initially created in California. When those firms developing the intellectual property look to grow their business, they turn to places like Arizona to go to scale. Companies like Uber, Yelp and Weebly have set up offices in Phoenix when they were looking to grow outside of their California offices, Camacho says.
The state’s low cost of business, access to affordable living for employees and the state’s reduced regulations make it ideal for expansion compared with California, Camacho explains.
Not to mention the state’s talent availability, as many parts in the country struggle to fill engineering positions.
“Most people think of Denver and Austin as great software and IT hubs, but actually Phoenix has a larger depth and breadth of software talent in the market,” Camacho says.
Just ask the companies themselves. Infusionsoft CEO and Co-Founder Clate Mask says Arizona has great talent, a great business environment and a great entrepreneur community that has helped his firm grow from an idea into a $100 million software and small business service company with 600 employees.
Optics and photonics
Many folks only think of optics in terms of imaging systems — things with lenses — but they don’t think about the Internet, integrated circuit industries and beyond, Koch says.
“In a lot of ways, it’s hard to get your arms around how broad optics is and how impactful it is,” he adds.
But the industry is here and it’s been working hard to boost the state’s economy. The College of Optical Sciences has been working closely with the optics industry, giving students opportunities to work with local firms on projects and working on federal research projects, Koch says.
The school’s students don’t have a hard time finding work, either. But the optics and photonics industry hasn’t really been at the forefront of conversation.
Dr. Bob Breault has been the optics industry’s chief evangelist in Arizona for 24 years. Breault is president of the Arizona Optics Industry Association, which is one of the only industry associations whose members work completely on a volunteer basis, Breault mentions.
In the early days of the industry, Arizona’s prominent aerospace and astronomy industries fueled optics in Arizona. The Tucson area has even been called “Optics Valley,” a play off of Silicon Valley. Breault says when the UA’s College of Optical Sciences is called the best in the world, it isn’t bragging, it’s a well-known fact.
Even though optics has been a major player for many years in Arizona, it has been under the radar without much support, Breault says, noting that the 1990s were the prime years for optics.
The Arizona Optics Industry Association has been meeting regularly since its 1992 inception, but there hasn’t been much conversation between the industry and the state’s foundations, banks, state infrastructure and convention centers. The optics industry has been dying to have a world-wide convention in Tucson, but Breault says the Tucson Convention Center isn’t big enough to support one.
“You need this interface,” Breault says. “Over the last eight years or so, (the optics industry) has had no interface with organized foundations.”
But that’s starting to change. The Arizona Optics Industry Association recently signed a collaborative agreement with the Arizona Technology Council to form an Arizona Optics Industry Committee to reinvigorate the state’s industry.
“We believe by joining forces, we’ll be in a strong position to help take the optics industry to the next era of impact and success,” says Alex Rodriguez, vice president of Arizona Technology Counicl’s Southern Arizona branch.
The partnership plans to bring everyone to the table — government officials and key stake holders in the optics industry — to help promote the industry and let it flourish, Rodriguez says.
The partnership will also establish a clear view for how big of an economic impact the industry has on the state, as well as examine the state’s workforce availability for the next generation of optics, he says.
That all sounds great, but where’s the money?
Whether you’re in software or optics, everyone seems to agree on one thing: where is the risk capital?
In an email statement, Axosoft Founder Hamid Shojaee states there isn’t anything preventing software firms from succeeding in Arizona, but “that’s not to say that more capital investment in tech companies wouldn’t help.”
Even though there are prominent venture capital firms like Desert Angels and the state has its fair share of millionaires and billionaires, Zylstra says, many startups are having to look out of state for capital.
Every vibrant tech community has successful entrepreneurs acting as angel investors, helping boost the next generation of startups, Zylstra says.
“We’re pretty youthful in that regards, so it takes time for that kind of thing to happen, but reinvestment from the successful companies is going to be necessary to take Arizona to the next level in technology,” he says.
When firms have to look outside of their home state for capital, their investors like to have them close by, which means companies might end up leaving Arizona, which has happened.
Camacho says that is changing. Firms like Infusionsoft and WebPT received outside capital and they’re both operating successfully here in Arizona.
Despite lack of access to capital, groups like the Arizona Technology Council, GPEC, the Arizona Commerce Authority and more have been working to keep and turn Arizona into a tech hotspot. The success of many initially small firms like Axosoft, Infusionsoft and WebPT are just a couple examples of the state’s thriving technology industry.
“As the larger companies have successful exits, you’ll continue to see more of them not only start here, but stay here and grow here,” Camacho says.