Phoenix Startups, Which City Wants To Be Mob Friendly?

Metro Phoenix municipalities let me start by saying, “you don’t get it”.  You have spent billions on things like light rail and revitalizing your down towns.  You do this to look attractive to large businesses.  You think if you can provide this massive infrastructure, that they will bring their billion dollar industry to you.  “Build it, and they will come.”  This is a fantasy land you live in.  You think far too small.  This mentality belongs in movies not in economics.

Some day you will understand that bringing the operational arm of fortune 500 companies only brings “here today, gone tomorrow” jobs to the area, but an economy it does not make.  If you want to stay a tourist and land development economy you can stop reading now.  Go back to collecting your tourist taxes and your system development fees.  If you want to become a leader in technology, bio sciences and energy keep reading.  You won’t compete with the Midwest, South and foreign countries when it comes to providing cheap operational labor forever.  It’s a bad strategy anyhow.  Call the mayor of Detroit and ask him how being the labor force for American Automakers is working out.  Stop targeting yourself as the call center hub of failing banks or as the fabrication farm of major chip makers.

paypal_mafia03 Instead, let me tell you a little story.  One that reads like the Soprano’s built off real life events.  Let me introduce to you the Pay Pal Mafia.  Several years back there were several great stories written on the “crew”, in reputable places like Wired, Fortune, Forbes and the NY Times, so I won’t rehash that.

They are important because they got it.  The inner circle of Pay Pal founders and executives took the money they received when they cashed out to eBay and REINVESTED it into local startups that their network of peers had been sitting on, just waiting for capital.  They now control much of the economy in Silicon Valley having a piece of action in nearly every major new startup in the last 4 or 5 years.  See the list below to see the reach just 11 guys have in personal investment.

So, you see the trick here is to spend your money and time (ie: invest yourself) in helping the next Pay Pal.  You know that little company that is from Phoenix and loves Phoenix, but will be forced to move to Silicon Valley to get their first round of funding.  The one that when they make it big will give back in spades to the very community that helps them get there.  The startup that is still an idea, looking for the right connections, the one that will spark the culture and economy of dominance for your future.  Quit investing recklessly on the 40 year infrastructure plan in hopes of landing the billion dollar “it company”, instead invest in the 40,000 entrepreneurs already swimming in your pond looking to break out and be the next big fish.  I know it sounds risky, perhaps even foolish, but you need to invest in PEOPLEPEOPLE that ultimately are dying to invest back in you.

Let me break it down for you.  Your next economy will not come from a plane flight out of state to meet with a megacorp CEO.  It will come by going down the street to have lunch with one of your current residents that has some crazy new idea that they are dying to share with you, in hopes that you point them in the right direction or introduce them to their missing contact.  So for the love of your city, please go to lunch with that someone this week!  Please believe in the people you already have.

Some Paypal Mafia Companies

  • Facebook
  • Youtube
  • Yelp
  • LinkedIn
  • Digg
  • Flickr
  • Joost
  • Kiva
  • Ning
  • Geni
  • Tesla (Electric Cars)
  • SpaceX (Space Ships)
  • Room 9 (Movie Production)
  • Slide
  • Palantir
  • IronPort
  • Solar City
  • TokBox
  • Xoom
  • Yammer


  1. Derek, I couldn’t agree more! For it’s size (both geographic and population) the Phoenix startup market is embarrassing! We’re number 5 in population, and probably not top 20 for startups.

  2. Well played sir *standing ovation*

    Phoenix is just way slow to move and so old school in their thinking… (exp: (aside from this post) look at the highways and how they add another 2 lanes every 2 years, and then build a SUPER expensive tiny train that does no good to 95% of the community)

  3. Same thing goes for the overall US economy. If the Federal Government would have invested in thousands of startups instead of bailing out mega-corporation banks, our economy just might be growing instead of continuing to shrink.

  4. Wow. I’m impressed with how this came out after such a brief spur of the moment comment this afternoon. Well played sir. This needs more press.

  5. I wholeheartedly agree. There are so many talented technology “gangsters” here in Phoenix doing their part to make the web a prettier place. After returning from an agency in California, I can honestly say, as much as I loved the people there, most of you guys blow them away. There is so much talent here it is frustrating that it often gets overlooked. Not just in the Interactive and Marketing spaces but, the Software side too.

    Thanks for the post Derek.

  6. Great post! Can’t begin to say how right you are!

    In some of my other projects, I am beginning to encounter the old thinking in government (and business) that just does not fit anymore. It’s not a change, it’s a sea change. It’s big and good and will leave towns, cities and companies that don’t adjust wondering why they are still in the doldrums.

  7. +1

    But I have trouble with the analogy. Are you addressing other local businesses in Phoenix or the state government? Your analogy to Pay Pal and Silicon Valley don’t precisely piece together in my mind yet. Did the California government invest in companies like Pay Pal? What was the governments role in creating a tech mecha in the bay area other from tech workers generally earning a high income and the bay area being a desirable area to live in for those who could afford to?

  8. Jim,

    Yes there is a disconnect in the analogy. The point I was trying to drive home to local municipalities is that luring in an established company isn’t the way to build an economy. Helping start new companies is way to really establish your identity as a city.

    I think what worked for Silicon Valley in the 70’s and 80’s probably wont work in Phoenix, but I think investing in your current residents is always a recipe for win. Look at something as simple as “Fast Trac” put on by stealthmode, where a minimal investment (under $1000) might produce a company that employees 25 people and launches 3 more companies.

    Don’t get me wrong infrastructure is not bad, it is necessary. I just think especially here in Phoenix we have such an inferiority complex that we think we have to do what all the other cities are doing, instead of finding our own identity and making our own culture and economies.

    I plan another post on ARPA, PARC and such that will help explain somethings as well. The government actually did fund at one time most of the masterminds that created the first wave at Silicon Valley. They worked as researchers building their theories and then left to start companies based on this research. What the government did correct was allow them to leave to start these companies. This first wave of companies funded the next wave and thus began the economy of technology in the area.

    See: The Silicon Valley Edge

    See: Garage or Government Lab

  9. Agreed. Contrast the attitude of South Tyneside Council. Yes, they do a certain amount of enticing in big companies (including my own employers, British Telecom). But they also look to “grow their own,” setting up the Quadrus Centre as an incubator building for small, local tech start-ups. The building itself is, IMHO, as ugly as sin (which, of course, means it’s won an architectural award), but the concept can’t be faulted.

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