Rx For Attracting Companies: Tailored Strategies Essential

By Sam Newberg

May 16, 2010

The slogan – “Keep Austin Weird,” launched by Austin’s Independent Business Alliance — has caught on as a way to celebrate the Texas capital’s artistic, “hip” side. Indeed, in today’s “flat” world, any appeal to the so-called “creative” classes gets lots of attention.

But are companies really attracted to such culture-public art-music-park focused cities as Portland, Boulder, Minneapolis and Austin for those qualities? Will those attributes actually attract companies?

The answer, of course, is “it depends.” “There is no perfect location. There are always tradeoffs,” says John Boyd, founder of The Boyd Company, a site selection consultancy with over 30 years of experience helping firms make location decisions. Boyd explains that in addition to the bottom line considerations like cost of labor, cost of real estate, and taxes, there is also availability of qualified labor, proximity to transportation, infrastructure, proximity to suppliers – competitors with “quality of life issues.”

Plus, there are actual incentives (tax breaks and the like) cities may offer footloose firms. Although as Boyd cautions, “Incentives last five or ten years, and then you better be in the right location.”

One example from Austin provides some insight. Michael Wilford is CEO of Twisted Pixel, a company that develops games for Xbox and Nintendo. Twisted Pixel recently moved its operations from Madison, Ind., to Austin. “Ultimately we settled on Austin because it had everything: great weather, quality of life, low crime, (low) cost of living, (low) cost of doing business, talent pool, substantial digital media scene, university interest and collaboration, incentives for our industry, and industry support from the governor,” says Wilford. He notes that other places his firm considered had many of these things, and some others were sometimes better than what Austin offered. But, he says, “Austin was the only place that had a respectable score on every single one of these factors.”

So Austin, for being “weird” and having a great quality of life, indeed attracts companies. Of course, Texas is one of very few states with no income tax, which doesn’t hurt. It also explains why Austin isn’t the only Texas city doing well through the recession. Dallas or Houston may be equally attractive for someone (or some company) not endeared to Austin. “Keep in mind, qualitative factors are highly subjective,” says Boyd. “Some of our clients like vanilla, some chocolate when it comes down to lifestyle considerations. Cost structures, however, are real, unbending, and go straight to the bottom line.”

Of course, for every Twisted Pixel that chooses to move there, there are probably several that were created in Austin in the first place. Joe Cortright, president of Impresa Economics, a Portland, Ore., based consulting firm specializing in metropolitan economies and knowledge-based industries, points out that chambers of commerce and economic development agencies often look at it the wrong way. The key is to find the right entrepreneurial environment that supports new growth, not necessarily the one with the lowest taxes or best incentives – when a company chooses to move or expand it is because it has already achieved success, not the other way around.

“The trouble is, the world isn’t flat,” says Cortright. “Companies have different needs.” The private sector is proving that quality of life almost always enters the discussion at some level, but it is rarely the primary reason for a company to move or expand. Firms must carefully balance the issues of taxes, real estate, transportation/infrastructure, and quality of life, as if pieces of a pie, when choosing if or where to move.

It is true that some cities attract companies due to their low taxes, location, incentives or infrastructure. A company relying on imported goods and proximity to a strong transportation network may choose a warehouse in the Inland Empire to be near the Ports of Los Angeles and Long Beach, while a car company may choose rural Georgia for a car plant due to the right incentive package, and yet another company with time sensitive shipping needs can choose between Louisville and Memphis because of their air cargo hubs.

But a word of caution to those who might think a silver bullet solution like low taxes is perhaps the only thing necessary for a successful city: Fred Smith, founder, chairman, president and CEO of FedEx, stated last year in the Memphis Commercial Appeal that quality of life is the biggest issue facing the future of Memphis. Mr. Smith’s comments should not be taken lightly.

So where does that leave us? Not every city can be home to a major port or air cargo facility. As well, not every city will be “weird” like Austin. Still, elected officials would be wise to learn from the example of Twisted Pixel in Austin. Low taxes matter. But so does financial support for industries, and the right partnerships between government and the private sector. A strong university that can not only educate people but effectively put research in to the marketplace is important. Also critical, of course, is overall quality of life. It is finding that right balance that is tricky, as every city has unique strengths and weaknesses. The cities that truly excel in the global economy will be those that not only create an environment where businesses can succeed, but where people experience an opportunity-rich environment.