Thought Catalog
April 19, 2016

If You’re Building A Startup You Need To Move To Phoenix (Not Silicon Valley)

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This is not the essay we thought we’d be writing.

In fact, when we first met and decided to create a company, it was in the beating heart of Silicon Valley—the place where phrases like “we should start a massive company” don’t sound totally ridiculous.

At the time, we were both working at an early-stage software company, flush with funding and fantasizing about making millionaires out of all of its employees. On the surface, it was the dream: we worked with a group of like-minded, hard-working people, on an app whose success would, if it didn’t change the world, at least make us rich. We worked more hours per week than seems humanly possible. One colleague joked that we were “burning vats of midnight oil”—and this was a boast, not a complaint.

We were devouring books and blogs about productivity, trying to “hack” an extra hour or minute or precious few seconds out of the day. We lived on Grubhub, and similar apps managed the parts of our lives that we had no time left to manage ourselves. We lived and died with each piece of news of our product’s success or failure. All of this—the camaraderie, the hustle, the lusting after a massive exit, the toil, the effort to make every hour count (and then count some more!)—all of it seemed vintage Silicon Valley. In other words, it felt completely normal because it was the stuff that everyone around us was doing.

What’s worse: We didn’t actually know that we were going to succeed. In our more honest moments, we knew the app was flailing. Money was burning up, and we were throwing resources at a problem that more resources couldn’t fix. Maybe it was an escapist fantasy, but we knew we were hitting a wall. The problem was that everyone around us was doing the same thing, pretending like the money would always be there and that somehow, someway, at some moment, a savior would come and acquire them.

Only now, with the benefit of hindsight, can we fully understand that this was a species of mass delusion. Or, to put it more simply: if everyone else around you is burned out, hanging on by a thread and generally unhappy, that might not be a badge of pride. It might be a sign that something’s wrong.

* * *

Maybe all great companies begin when you first recognize that something is broken. In this case, what was broken was partly our well-being and our sense of doing real work. It wasn’t just that we were tired; anyone can push through a rough patch with enough coffee and Red Bull. No, the real trouble was deeper, almost existential: What were we doing?

When we tried to explain our software work to family and friends, they nodded, smiled politely—and had not the first clue what we were talking about. Those blank faces start to wear on you after a while. We wanted to work on something that we could explain in one-line, with simple language, and without a ton of conversational asterisks and footnotes. That’s a useful lesson for anyone in the working world, or about to enter it: If your actual work is hidden behind layers of needless complexity, it might be time to re-evaluate what you’re doing.

It was in the midst of all that soul-searching and difficulty that Tuft & Needle, our company, was born. We wanted to work on a problem that mattered. And we didn’t want to do it at the price of physical and personal ruin. And it was in suffering together in Palo Alto, dreaming up a company that worked on meaningful things, and looking at the wreckage all around us that we decided not just to quit and begin anew—but to quit and start in a completely different place: Phoenix, AZ.

* * *

If it sounds crazy to you, believe us, it sounded crazy at the time to us too. We were living the California dream, right? But almost from the moment we laid down roots in Phoenix, it became less crazy—and California began to feel like a strange nightmare from which we had woken up.

And we discovered that we had kindred spirits, too. One was an old, odd man from Omaha. Remember: There’s a reason that they call Warren Buffett the “Oracle of Omaha” and not the “Oracle of Manhattan”—he quite consciously made the decision to keep his investment business and his life headquartered in Nebraska, about as far away from the hurly-burly of the financial centers of the world as you could imagine. Nebraska?—our guess is that most people in financial services would be hard pressed to find it on a map, let alone to want to move there and set up one of the world’s most successful companies there. When asked about it, his reasons are simple and revealing: “In some places it’s easy to lose perspective. But I think it’s very easy to keep perspective in a place like Omaha…It’s very easy to think clearly here. You’re undisturbed by irrelevant factors and the noise generally of business investments. If you can’t think clearly in Omaha, you’re not going to think clearly anyplace.”

That was like music to our ears, and a real life example to look to. Look, there are advantages to the culture of Silicon Valley—but there are some significant drawbacks, too, ones which we had experienced first-hand. There’s a kind of consensus thinking about elements of business that infects new ventures. Take, for instance, the deep push to raise VC money. When we, somewhat innocently, asked if we absolutely had to go that route, we had some VCs laugh in our face and derogatorily refer to us as a “lifestyle business” if we refused their massive checks.

We ended up proving that whole thesis wrong—since JT and Daehee’s original $6,000 investment we’ve grown Tuft & Needle to $100 million in revenue and 100 employees with only our month-to-month profits and no outside investors. But that’s less important in itself, and more significant as an example of how Silicon Valley can warp your sense of what’s best for your business, and your life. A place with a pull as powerful as Silicon Valley can lead you to ignore your gut. That’s no single person or institution’s fault; it’s just how cultures work. But whether you choose to live in a place and choose to accept certain cultures and norms is a decision, one that we often make by default.

* * *

One Warren Buffett example and a single experience raising funds wasn’t enough to push us into Phoenix. But it was enough to get us to take the initial step of leaving the Valley and setting up shop in Phoenix. And as it turned out, somewhat to our surprise, Phoenix as a city and as a place to found a business was unusually attractive—and more than a little underrated. There wasn’t one silver-bullet reason, but rather a constellation of them, a whole series of practical, cultural and philosophical things that we wouldn’t have known when we first started out.

Take, for instance, the cost of living. The problem with a lot of start-up-founder-turned-billionaire stories is that they ignore some very basic questions that many of us have when we are first getting started. For instance, what about rent? This isn’t an idle or philosophical question. San Francisco has become, for most people, a prohibitively expensive place to live. There’s no need to rehash the many stories that have been written about it, but it is worth pointing out how obviously inconsistent high rent and living costs are with trying to keep your burn rate low. For most people, housing comprises the biggest chunk of their take-home pay. If you need to pay your people more in order to keep up with inflated housing expenses, well, that’s just less runway for the business.

When we first landed in Phoenix, we honestly couldn’t believe our luck. It felt almost like we were getting away with something, like someone had forgotten to tell an entire city of people what they should be charging for the properties they were renting. For $1,500/month—an amount that would get you an AirBnb for a few nights in San Francisco, and probably not a very nice one at that—you can rent a lovely house or condo for a month. The same place would easily go for $4,000 and up in SF.

It isn’t just rent either—it’s everything! Gas is a dollar cheaper per gallon compared to California. Food is less pricey. Entertainment doesn’t hit your budget as hard. If you have kids like Daehee does, money goes considerably further. They can get a great education and participate in a bunch of after school activities, all without breaking the bank. Moving to Phoenix was like walking into a store you’ve been inside a lot and finding that, suddenly and unexpectedly, everything was on sale.

Then there’s the cost of doing business. Here’s something basic we couldn’t have known before we started: You’ll have more money in your business’s pocket if your tax rates are low. California has almost double the corporate and personal tax rates as Arizona. That’s not abstract: We have more money now because we are headquartered here. Plain and simple. That leaves us more money to reinvest in our employees. Last summer for our team retreat, we shut down the company for a week and took all employees up to Lake Powell on the border of Arizona and Utah, where we rented four houseboats, a speed boat and a couple jet skis. Try doing that while you’re paying almost double in taxes.

Or take our offices. Our first office space was $1,300 for 1,500 square feet. You read that right: $1,300 a month for 1,500 square feet. We’re not sure $1,300 would get us a closet at this point in Silicon Valley. Then, as we were expanding, we paid $7,000 a month for 6,000 square feet in one of the most desired historic brick building spaces in Downtown Phoenix. Three years into the business, we now purchased one of the oldest buildings in Downtown Phoenix, a beautiful 36,000 square foot brick building, to relocate our office and store.

Oh, and don’t forget about the business climate. Want to get a press hit in New York or San Francisco? Get in line…behind thousands of other people. It’s almost unimaginably hard to get a big press coup in a saturated market without a metric ton of momentum and buzz. In cities that have less tech and density—ahem, Phoenix—journalists are eager for tech and business stories. We can make a phone call and land meetings. The same goes for politicians, city leaders, other business figures, investors, heck, even the mayor. People want Phoenix-based businesses to succeed, and they aren’t inundated with countless other people vying for their time. It’s simple: people will take your phone calls and meetings when they aren’t turning down dozens of other phone calls and meetings. Especially if you’re in a relationship-driven business—which, in this day and age, is all businesses—it’s paradise.

Some of Phoenix’s virtues are just intangible. The population is more spread out, so there’s hardly a line at a restaurant, where, we should add, you can get great food for not too much money. After reading all those awful books about how to squeeze more time out of our day, we discovered the ultimate way–and we didn’t have to do a thing! Phoenix has no daylight savings time. That means, in effect, more time in the day when the rest of the country goes through its (somewhat inane) shifts forward and back in time. It’s the ultimate productivity hack!

The people who make Phoenix home aren’t workaholics. They actually care about having a family, having work-life balance, and having something outside of their job that gives them meaning and joy. In the Valley, it was our experience that while people paid lip service to these things, or went to countless yoga or meditation classes to undo the damage their jobs were doing to them, the truth was that no one was achieving anything resembling balance. And everyone was egging each other on, to become more and more absurd about the amount of time they invested in their work.

The people who live in Phoenix aren’t slouches either. It’s been our experience that people here want to build careers and businesses—not resumes. They aren’t hopscotching around, waiting for the latest startup to close a round so they can go off and join the next big thing. No, they’re committed: When equity vests, it’s not time to leave. It’s time to continue to make that equity worth something. They’re fighters, and they’re in it for the long haul. If you’re a founder, you can’t put a price on that kind of loyalty.

* * *

That would all be enough, but here’s more if you’re still not convinced: Predictable weather with no natural disasters, which means no random events that shut business down for days. Four major professional sports leagues, if that’s your thing (NBA, NFL, NHL, and MLB). You can go hiking, cycling, fishing, rock climbing, or tubing—all in a single day if you wanted, and all without having to do months of planning in advance.

There’s an unthinkable diversity in Phoenix—Californians, Midwesterners, East Coast transplants, Mexicans, Native Americans—which adds to the richness of the place and to the crop of people we can recruit from. We’re a stone’s throw from Los Angeles, San Diego, Northern Arizona, Las Vegas and Mexico. Or, if we have more far-flung places in mind, we’ve got the Phoenix Sky Harbor Airport, which offers cheap and direct flights almost anywhere in the US.

Another intangible upside: the total lack of traffic. Phoenix has one of the lightest traffic footprints in the country for the size of the city. As a relatively new city, the local streets are thoughtfully laid out in a neat grid so it’s brain dead simple to find your way around, with two interstates bisecting and three large circular highways surrounding the city so you can get anywhere efficiently. Daehee lives 15 miles from the office, and it takes him less than 20 minutes to drive into work. That’s more time he can spend with his family instead of languishing stuck in a car in traffic. It’s easy to write this off, but commutes are a terrible drain on happiness. Now, we don’t even think about them.

We’re not the only ones to have discovered the gem that is Phoenix. Though the startup scene is still fledgling here, there are some significant players: InfusionSoft, LifeLock, WebPT, Parchment, PureChat, Giftcard Zen. These companies aren’t awash in investment capital per say, and they have their ups and downs, but that makes them resilient. It makes them, like us, more committed to building long-lasting businesses rather than short-term flips.

And these aren’t small businesses either, nor are they competing in a small market. Phoenix has a population of 1.6 million; it’s the fifth largest city in the US. In the metro area, four million people make their homes. So the real and interesting challenge for us has been: How can we corner just this market? If we built a fence around Arizona and didn’t allow any sales beyond the state, we could still be an enormous business (Nebraska Furniture Mart, for instance, is a local furniture company in Omaha and they’re closing on $1 billion–yes billion–in revenue with only one–yes, one–primary store.) Doing so would mean a huge win, and it’s a customer base we never would have approached in the bubble of Silicon Valley.

* * *

Which brings us back to Warren Buffett, and to a central insight of this whole experiment we’ve been running: distance from the noise. Thanks to the internet, we never feel too much removed from all the ups-and-downs of our business and the digital world. But we’re able to step away from all that racket, luxuriate in Phoenix’s weather and calm, and build something that we think will last for decades. We aren’t trying to keep up with the startup down the street; we’re not eyeing all of our friends and VC-backed neighbors with envy. Instead, we’re doing what we wanted to do from the beginning: building a business according to our own rules, our own sense of what we’re after: Building something that has principle.

It’s not often that you get to step outside of yourself and ask whether you’re doing things the way you want to do them. But we were fortunate to have that chance—and to take it. To anyone else aching for the same thing, we have one big piece of advice: come to Phoenix.

The first beer will be on us (and not just because we can amply afford it). TC mark

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