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Destination: Central Texas

Lower costs, high quality of life make the Austin area an appealing alternative for companies seeking to grow.

Sunday, December 04, 2005

Last year, ArthroCare Corp. CEO Mike Baker moved the headquarters of the surgical device company to Austin from Sunnyvale, Calif.

"We keep a company presence in California," the East Texas native said. "But I moved here. I have a house here. I even voted this morning."

Mark Matson

ArthroCare Corp., a surgical device company, moved its headquarters to Austin last year from Sunnyvale, Calif. 'It's one of the few places you can convince Californians to move (to) willingly,' CEO Mike Baker said. At the rate ArthroCare is growing, staying in California would become too expensive, he said.

ArthroCare still has 170 employees at its California research facility, compared with 30 at its downtown Austin office. But Baker said the pace of the company's growth meant that staying in California would become too expensive.

So like a handful of companies, in industries from food to fitness, Baker transplanted ArthroCare's roots to Texas.

Most of the companies that have decided to call Austin home are small and privately held. ArthroCare is an exception. The 12-year-old company is traded on the Nasdaq National Market and has a market value of about $970 million.

The company designs surgical instruments that use plasma technology, which makes them more precise than traditional tools. The technology allows surgeons to operate on tiny joints and helps improve recovery times for common surgeries such as tonsillectomies.

As noninvasive medical procedures have become more popular, ArthroCare has reaped the benefits.

Sales have jumped from $6 million in 1997, when Baker took over the company, to $225 million this year. Two years ago, the company opened a Costa Rican manufacturing plant to handle its growing sales. Then Baker brought ArthroCare to Austin to grow its administrative staff.

In a bid to cut costs, companies have moved customer call centers and manufacturing plants to cheaper locales, even overseas. But companies had been reluctant to shift their headquarters because they often are entwined with their home cities for reasons both symbolic and practical.

"Historically, corporate headquarters were off-limits," said John Boyd, president of The Boyd Company, a Princeton, N.J., firm that advises corporations on relocations. "Now all bets are off."

And Austin probably will be sitting pretty in the coming corporate relocation game. That's because Austin "fits the profile of an emerging headquarters city," Boyd said. "It's smaller, more manageable, less costly, less congested."

The limited number of nonstop flights from Austin-Bergstrom International Airport has been a disadvantage in the region's corporate recruitment efforts.

But since Sept. 11, 2001, that has changed. Security measures have created long lines and delays at major hubs, but Austin's airport is relatively easy to get in and out of, Boyd said. And the city is getting nonstop service to New York and Boston.

Though Austin wasn't the cheapest place that ArthroCare looked at, the city's quality of life made it an ideal spot to recruit employees, Baker said.

"It's one of the few places you can convince Californians to move (to) willingly," he said.

About five employees moved from California, and the rest of the Austin staff mostly has been hired locally. Baker hired one employee from Detroit who would not have made the move to California.

"You couldn't pay them enough to go to California and buy a house," he said, adding that within two years, the size of ArthroCare's Austin operations could rival its California campus.

Buying homes

Matt Schankel bought his first house within a month of moving to Austin from San Diego when his employer, Liberty Fitness Holdings LLC, relocated this past September. At first, the company's 28-year-old franchise operations coordinator was hesitant to leave Southern California, where he had lived most of his life.

"I was in absolute shock. I thought I was going to have to find a new job," he said. "Then I weighed my options."

Even though his entire family lived in the San Diego area, Schankel figured that he would never be able to buy a house there.

Four employees moved from Southern California, while two stayed behind, said Liberty CEO Linda Burzynski. And she expects to add three to five employees a year over the next five years as the women's health club pursues its ambition to balloon from 60 franchises to 1,500, including one soon in Austin.

Corporate headquarters may not bring the same level of investment as a manufacturing plant, but they are still important for a city, said Andy Carlson, director of corporate recruitment at the Greater Austin Chamber of Commerce. But the jobs they do bring typically require skilled employees and pay high wages.

"Also (a move) adds a stature to Austin," Carlson said. "Frequently, once they get to a decent size, they are a contributor to the society" with internships and donations.

Burzynski already plans to kick off a campaign with the American Heart Association.

When she became CEO in July 2005, Burzynski was living in Austin as a major owner of CM IT Solutions, a computer support franchise. Liberty Fitness, founded in 2001 by entrepreneur Liberty Harper, sought investors including Concentric Equity Partners to help it grow rapidly. Familiar with Burzynski from CM IT, the group asked her to take over as CEO.

At first, Burzynski considered moving, flying back and forth between Carlsbad, Calif., and her home in Austin. But when the company's office lease ran out, she made the company come to her.

"It's cost-prohibitive to do business in California," she said.

She estimates that her workers' compensation costs are 10 times lower in Texas and that rent is about 35 percent less. Plus, the move had other benefits. Because Liberty has franchises all over the country, being in the Central time zone made it easier to talk to franchise owners.

Moving makes sense

Even the company's founder, Liberty Harper, moved to Austin last month with her new husband.

"At first, I did the whole hesitation thing, but only for an evening," she said. "All the reasons for moving the company made sense."

Such moves still remain relegated to the ranks of smaller, growing companies. Large companies are much less likely to consider a headquarters move unless they are looking to jazz up their image, Boyd said.

He points to Newell Rubbermaid Inc., which moved from a Chicago suburb to Atlanta in 2003, and Boeing Co., which shifted from Seattle to Chicago in 2001.

Two of Austin's Fortune 500 companies, Dell Inc. and Whole Foods Market Inc., were founded in Austin. Another, Temple-Inland Inc., moved its headquarters from Diboll, in East Texas, to Austin in 2000 after University of Texas graduate Kenneth Jastrow was promoted from chief financial officer to CEO. Jastrow had been running the financial operations in Austin and wanted to consolidate the headquarters operations here.

Austin had to fight to hold on to its fourth Fortune 500 company, Freescale Semiconduc- tor Inc., which considered moving to Chicago or another location earlier this year. The new CEO, Michel Mayer, eventually decided to keep Freescale in Austin.

With its relatively lower-priced real estate and highly educated work force, Austin has been an ideal location for companies considering a new branch or plant, said Chris Engle, vice president and senior analyst at AngelouEconomics.

"As Austin grows in size and stature, we will naturally become a more viable option for corporate headquarters locations," he said.

Mirabel Medical Systems Inc. choose to leave the biotech and pharmaceutical hub of New Jersey for Austin in 2002. CEO Ronny Ginor looked at other traditional medical device hubs such as Massachusetts and California, but settled on Texas one year later.

"We wanted to make a smaller, efficient patient-oriented product," he said. So we moved to "Austin, the bastion of well-made gadgets. They know how to make small, robust, computer-driven technol- ogy."

Since 1997, Mirabel has sold its machines in Europe with Siemens AG. The device, which measures electronic signals across a patient's breast to see whether she needs to consider a mammogram, is mostly used for young, healthy women as a low-risk way to prescreen for cancer.

But Ginor realized that in order to be successful in the U.S., Mirabel needed to shrink and refine the product, focusing more on the technology than the medical aspects.

While looking to relocate, Ginor spoke with Dell Inc., one of the few computer makers with certification to make medical devices. Now Mirabel is testing a new device built around a customized Dell computer.

It's expanded from four employees two years ago to 22 mostly local hires now. In Austin, the company could attract employees with high-technology experience for a fraction of what it would cost on the East Coast, Ginor said.

If the Food and Drug Administration approves the device, which could happen within 18 months, Mirabel plans to expand its staff to 100.

And being away from a biotechnology hub actually made it easier to attract patients to Mirabel's study.

"Physicians in Austin are not inundated with other trials," he said, adding that they are open-minded about trying new treatments.

About half of the 2,000 patients in Mirabel's study live in Austin, including 350 patients of one doctor.

Ginor still laments not having more nonstop flights to the Northeast, which has given the company trouble hiring qualified consultants.

Now with the added flights, "I can fly to Boston and back in a day."

Drawn to Austin

Some other companies that have recently moved their headquarters to Austin:

Caseta Technologies Inc.

President: Glenn Deitiker

Founded: 1995

Moved: November 2005

From: New York

Electronic toll collection

ETS Global Chauffeured Services Ltd.

CEO: Michael Dunne

Founded: 1999

Moved: May 2005

From: San Antonio

Limousine operators

Fuddruckers Inc.

President: Scott Nietschmann

Founded: 1980

Moved: Early 2005

From: Beverly, Mass.

Burger franchise



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