Bruce Cowan is a California native. He graduated from the
University of California, Los Angeles, and started electronics chip
and computer products distributing company Acclaim Electronics five
years ago in Carlsbad, California.
But his state of mind changed as California enacted legislation
he felt was increasingly anti-business. Eventually, Cowan, 38,
reached a breaking point. In November 2003, he moved the
20-employee company to Las Vegas. "I'm a political and
economic refugee from California," says Cowan, who contends
California has "created a hostile environment toward
businesses."
"Entrepreneurial refugees" such as Cowan seek greener
business pastures, and many states paint them a pretty picture.
Last fall, Oregon's governor sent 250 letters to small and
midsize California companies. Nevada is bombarding California with
billboards and newspaper ads. South Dakota's economic
development site--www.sdgreatprofits.com--lets entrepreneurs compare the
state's tax rates, crime index and educational statistics to
those of other states.
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Interstate tug-of-war over companies isn't new--in fact,
it's been going on for decades. But the IBMs aren't the
center of attention anymore. It's become politically attractive
for budget-strapped states to lure nonpolluting, profitable
entrepreneurial companies that create jobs locally. Entrepreneurial
firms, meanwhile, are looking for a margin boost and less
paperwork. "Even a small tax incentive providing a little more
cushion here or there can make the difference for a firm,"
says Peter Rodriguez, who studies economic development issues and
is an associate professor of business administration at the
University of Virginia in Charlottesville.
Somer Hollingsworth spends his days courting entrepreneurs as
CEO of the Nevada Development Authority (NDA), a nine-person Las
Vegas office that sells out-of-state companies on Southern Nevada.
NDA generates comparison data within 24 hours of a company's
inquiry, and it's working: Between 2003 and 2004, 38 California
companies relocated or expanded operations to Nevada, creating
1,500 new jobs. "California has been a happy hunting ground
for us," Hollingsworth says.
Charleston, South Carolina, sells entrepreneurs on incentives
such as waived fees for building renovations. "I'm very
optimistic, very bullish," says Ernest Andrade, executive
director of the Charleston Digital Corridor (CDC), an economic
development initiative launched in 2001.
CDC has attracted 22 companies since 2001, including Digital Lifestyle
Outfitters, a 4-year-old firm that produces computer and
digital music player accessories, with annual sales of $20 million.
The company relocated its eight-employee headquarters from Raleigh,
North Carolina, to Charleston in August. Its 33-employee warehouse
and distribution center stayed in Durham, North Carolina.
The move was mostly about life-style for CEO Jeff Grady, 36. He
talks about the thrill of working in a vibrant downtown, then going
boating at the end of the day. He also thinks the move increased
the company's visibility. In Raleigh-Durham, "you can
easily get overlooked," he says.
For Cowan, Nevada's tax and regulatory structure was the big
draw. The state doesn't collect corporate taxes, franchise,
capital gains or inventory taxes. Workers' compensation costs
in California are at least twice those in Nevada. The move has
saved Acclaim Electronics 40 percent in annual operating costs.
But a move could mean rebuilding relationships from scratch.
Cowan lost a few employees in the move. Grady had to adjust to a
smaller city with fewer service providers to choose from.
Before moving, ask yourself hard questions, Rodriguez advises.
Will moving solve problems, or simply mask strategic decisions
surrounding the product or service? Are the hidden costs worth the
tax savings? How will the company communicate its brand and
reputation in a new place?
As far as reputation goes, California has work to do. Barbara
Hayes, executive director of the Sacramento Area Commerce and Trade
Organization, thinks California's business climate is
improving with Gov. Arnold Schwarzenegger in office.
"There's a very supportive environment in the state of
California for entrepreneurs," Hayes says.
But Cowan isn't California dreaming--far from it.
"You'd have to be brain damaged to go back," he says.
Looks like what happens in Vegas stays in Vegas, at least for
now.