A favorable tax climate, educated workforce, and sector partnerships…Denver is primed for tech companies to grow and scale.
Amazon. Google. Facebook.
In the last 20 years, America has seen companies launched in garages and college dorm rooms transform into technology behemoths.
Check almost any list of America’s top or fast-growing companies and you’ll see an assortment of tech businesses. The tech sector is expanding so fast that tech jobs are expected to grow 13.1% by 2026, compared to 10.7% for U.S. employment overall. The tech industry had an estimated $1.8 trillion economic impact in 2018, contributing around 10% of direct economic value of the U.S. economy.
If it seems like a good time to grow and scale a tech company, thank the strong economy. The U.S. economy grew 2.9% last year, its highest growth rate since 2015. Plus, unemployment is low at 3.6%. Favorable tax climates and a growing, educated workforce are also driving business growth in cities across the country. Denver is just one example.
Building a business environment tailor-made for tech
Denver is developing a thriving, tech ecosystem buoyed by state and local resources that embrace business. It’s also part of a state where the tech industry is growing rapidly — Colorado added more than 7,000 tech jobs in 2018, a 2.5% year-over-year increase.
“Denver has always had a very intentional strategy about what we call our ‘start up, scale up, grow up’ ecosystem when it comes to entrepreneurship,” says Deborah Cameron, the chief business development officer for Denver’s Office of Economic Development. “It began by scanning our environment to see what was really needed and studying other successful locations.”
A low corporate tax rate, an educated workforce and a plethora of resources make Denver business-friendly. But it’s also the intangibles, like a collaborative culture and a better work-life balance, that make the city work so well for business.
But Denver— and the entire state of Colorado — still has its challenges, particularly competition for skilled talent amid ever-increasing job growth. Regardless, Denver is undoubtedly undergoing a tech boom and is forging a path for business that other cities may want to follow.
Flocking to Denver
More tech companies than ever before are moving to Denver. Fortune 500 companies like Amazon, Facebook, and Arrow Electronics all have offices there. Denver also has welcomed homegrown companies like SendGrid, an email delivery service recently acquired by the cloud communications company Twilio for $3 billion.
Denver is just one of several cities in Colorado — including Boulder, Fort Collins and Colorado Springs — with a growing tech community.
“Denver is differentiated by its quality of life, pool of young tech talent, and infrastructure,” says Jeff Wilkins, CEO of Motili, a property management technology platform. “The area also isn’t dominated by tech the way the San Francisco Bay Area is. You’ll meet as many people that want to open a microbrewery as create the next great app.”
Several things have fueled Denver’s business growth, including tax incentives, growing infrastructure, and a collaborative environment.
Business incentives and low taxes
Colorado offers a job growth incentive tax program that gives businesses income tax credits for creating jobs the state wouldn’t have otherwise. There are tax credits for new business development, business expansion, relocation, and for job creation in enterprise zones or economically-disadvantaged areas. Companies also benefit from sales and use tax refunds for investments in the manufacturing, biotechnology, renewable energy, and medical and clean technology industries.
Kyle Sherman, CEO of Flowhub, a WeWork Triangle Building member, says his company, which creates compliance and point of sale software for cannabis dispensaries, took advantage of the state’s research and development tax credit. This is a 3% credit for taxpayers and companies who increase research and spending on product development or new lines of business within enterprise zones.
Though Denver charges a head tax ranging from $4 to $5.75 per employee a month, businesses benefit from the state’s low 4.63% corporate tax rate. As of the 2016 fiscal year, for every $1,000 of corporate income, Colorado effectively taxed $2.17, according to the Colorado Fiscal Institute. The rate can be as high as $9.38 in some states. Colorado also is one of nine states with a flat income tax (also 4.63%), ranking the fourth lowest rate in the country.
Infrastructure and business resources
Denver has a robust transportation infrastructure. Along with a rapid transit light rail and bus system, and free transportation in parts of downtown,the city is home to Denver International Airport — the state’s top economic driver. The airport has nonstop service to most U.S. cities, Europe and Asia for easy executive travel.
“We felt that to build a really strong company culture, you’ve got to have diversity and some kind of stimulation around. When you walk outside, there are restaurants, things are accessible, there are parks — you get all of that downtown — there’s life,” Sherman says.
“The local government has invested considerably in mass transportation and cultural amenities like public parks. The local investment in public infrastructure gave us confidence the city would be able to scale along with us,” says Josh Reeves, CEO and founder of Gusto, a human resources, payroll and benefits solutions provider that has grown its Denver team to more than 500 employees in the last three years.
The city and business community also have invested in building the business ecosystem. WeWork has opened 10 locations in Denver to support the growing business needs in the area.
The city partnered with the Colorado Technology Association and the Downtown Denver Partnership in 2015 to create the “Commons on Champa.” The public space, which hosts more than 200 annual events, is “the crossroads for entrepreneurship and innovation in Denver,” Cameron says.
A collaborative, balanced work culture
What differentiates the area from other tech hubs is “one word — collaboration,” says Kristin Russell, president of global services at Arrow Electronics and the state’s former secretary of technology and chief information officer.
“In many other cities and communities in which I have work and lived, there just isn’t the level, interest and intent around collaboration. The concept of ‘the high tide rising all boats’ is never more true than in Colorado,” Russell says.
Patrick Quinlan, CEO of the ethics and cloud compliance platform Convercent, says as more technology companies have come to Denver, the level of collaboration has grown.
“One of the real benefits of starting and building Convercent here is the CEOs are very supportive of each other. When I have a question, thought or concern, I can drop somebody a note or jump on a five-minute call,” Quinlan says. “It’s a helping culture, not a competitive culture.”
That extends to how people work. With easy access to the outdoors, Denver combines urban living with a relaxed culture. For example, across all of its 10 Denver locations, WeWork provides wellness programming to members, including regular yoga classes, meditation sessions, massage and spa pop-ups, various Denver-based wellness brand highlights, and more. Other companies offer employee perks ranging from Yoga Wednesdays to dog-friendly workplaces. Gusto even gives employees a free round-trip ticket to anywhere they choose after their one-year anniversary.
Frannie Matthews, president and CEO of the Colorado Technology Association, says even with this laid-back environment, the tech community is very productive.
“We’ve got a great ecosystem here, but it doesn’t mean we’re out mountain biking on Thursday afternoons,” she says. “It means we love where we live and we love the recreational aspects of it. But this is a work-hard community. I see that ethic across the state.”
Confronting challenges to business growth
One of the main challenges Denver faces is competition for talent.
One of the things that makes the city so business-friendly is the educated workforce. Forty-one percent of residents have at least a bachelor’s degree, compared to 25% of the workforce nationally. But with Denver’s 2.9% unemployment rate, competition for talent is fierce.
“Denver is a small city, but it’s growing very rapidly. It’s harder to scale in a small city because the bigger you get, the harder it is because you have to poach people from other companies,” Sherman says. “We also have virtually a negative unemployment rate. That makes it difficult to scale.”
The key to addressing this challenge, business leaders say, is to build the talent pipeline across the state. The Office of Economic Development has focused on building sector partnerships to bring together higher education and business groups to address the pipeline problem. Cameron says some local schools with two- or four-year degree programs now offer short-term credentials to accelerate upskilling the local workforce.
But the state also isn’t resting on its laurels. Colorado launched a $500,000 marketing campaign in 2018 called “Pivot to Colorado” to lure tech talent from Silicon Valley. State agencies and tech companies collaborated on the effort, but only future numbers will tell whether this self-proclaimed “poaching strategy” works.
Whether Denver’s tech community grows because of this approach or by cultivating homegrown talent, business leaders say the time is right to start, grow and scale the country’s the next generation of great businesses.
“It’s a great time because many problems are waiting to be solved,” Reeves says. “A business exists to fix something, so every problem is an opportunity.”
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This article is part of the “The Way We Work Today” series brought to you by FiveThirtyEight in partnership with WeWork. Together, we are exploring the best places to base your business in 2019.