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Case Study: H.E.R.O.S. finds lower costs & regulations in AZ

H.E.R.O.S. Inc. leaves California and finds new home in Greater Phoenix

 

    • H.E.R.O.S. Inc., a helicopter engine repair and overhaul company, realized in late 2018 that the cost of operating out of California necessitated a move. The company considered Tennessee, Texas and Nevada before deciding on Greater Phoenix. H.E.R.O.S. opened a facility in Chandler, Ariz., on April 1, 2020, and has so far created 20 new jobs in the community.
    • H.E.R.O.S. was unable to grow its operations in California due to taxes, regulations, cost, and the salaries employees require to earn a livable wage. In Greater Phoenix, the company hopes to hire one new employee a month and has already noticed the state’s commitment to workforce development.
    • Vice President Raffi Kajberouni said Chandler officials work alongside the company in a way those in California never did. While needs as simple as phone calls for code checks would often go unanswered in California, Greater Phoenix officials have shown the habit of connecting the company to assistance immediately.
    • H. E.R.O.S. is now the contractor for helicopter repair with the Mesa Police Department, but the majority of their business still comes out of California. Despite moving away, Kajberouni said H.E.R.O.S. did not lose any business during the move.

The difference in cost

If the company hadn’t moved out of California, Vice President Raffi Kajberouni said, H.E.R.O.S. Inc. would have had to shut down this year.

“At the end of the day, California made us move. The family didn’t want to pick up and move from a place that we’ve been all of our lives, but they forced our hand,” he said. “If we stayed, we would not have been able to stay in business.”

Kajberouni lamented about California’s high taxes, complicated human resources and employment laws, and the high rates of unemployment insurance.

With the company struggling to stay afloat in California and unable to expand due to cost and stringent regulations, H.E.R.O.S. started looking for states that were pro-business with competitive tax rates. Kajberouni said the final four states were Texas, Nevada, Tennessee and Arizona.

Tennessee was too far away. Las Vegas lacked the surrounding infrastructure and communities that Greater Phoenix boasts. Texas had the opposite problem of Nevada: The state was already overcrowded, which wasn’t advantageous for market entry.

 

“At the end of the day, California made us move….If we stayed, we would not have been able to stay in business.”

 

In Greater Phoenix, Kajberouni found a community for his business to operate, employees to live and proximity to vendors to work with. Arizona’s business-friendly corporate income tax rates and lack of overbearing regulations allow operational costs of businesses that come from California to decrease by as much as 42%, allowing the company to survive COVID-19 despite moving to Chandler as coronavirus restrictions went into effect.

“It’s obviously cheaper to do business here. We’ve been able to breathe and it couldn’t have come at a much more critical time with COVID. The amount of vendors we’ve been able to work with has been astounding, and the local outreach has been extremely positive,” Kajberouni said. “It’s fun to be working again.”

Arizona vs. California

42%

operational costs decrease as much as 42% in AZ compared to CA

75%

shipping costs from AZ to CA are up to 75% lower than other western markets

100%

expedited permitting offered by local cities 100% of the time

The difference in government

In H.E.R.O.S.’ short time in Chandler, local leaders have shown an interest in the company that Kajberouni doesn’t remember seeing during the company’s 35-plus years in California.

“It was a different type of workmanship that we had never experienced before,” he said. “Chandler has been able to really reach out and help us with so many things.”

Differences were apparent in areas as simple as making sure building codes were met. When H.E.R.O.S. wanted to do repairs on their new location’s roof ducts, the team reached out to its economic development contact in Chandler and were pointed to the fire marshal. The marshal showed up the next day and walked H.E.R.O.S. through the process.

“Our jaws dropped,” Kajberouni recalled. “Like, ‘Wow, you’re actually here?’”

In general, Kajberouni found that the municipality would get involved to help, and then back off to allow the company to do business. Leaders in California would get involved to regulate.

When Kajberouni would make a call to a city hall in California, he might get the run around. Maybe the person who answered the phone would direct him elsewhere. Maybe he wouldn’t hear back at all.

“I couldn’t pick up the phone and call city hall and expect somebody to answer me,” he said.

In Chandler, the local government set the company up with a temporary certificate of occupancy and recognized its status as an essential business, allowing H.E.R.O.S. to get established in its new market quicker. Greater Phoenix cities enable speed-to-market by offering personalized service and expedited permitting 100% of the time.

“We have a feeling here that this is business-oriented. They basically let us do work. And that’s the important thing. Just stay out of our way and let us do what we do best,” Kajberouni said.

“They’re alongside us. They’re not against us.” 

“They’re alongside us. They’re not against us.” 

California customers remain

H.E.R.O.S. may have left California, but it didn’t leave behind its partnerships from the Golden State. Shipping costs from Greater Phoenix to California are as much as 75% lower than other Mountain West Markets.

“We haven’t lost any business at all on the California side,” Kajberouni said. “California still remains our biggest state with customers.”

When H.E.R.O.S. was located in Santa Clarita, about 35 miles north of Los Angeles, companies would ship equipment that needed repairs to the shop. That process has stayed exactly the same – the only difference is that the companies ship to the bordering state instead of into the city.

 

“We’ve been able to find local vendors within our aviation industry, which is very big in the Chandler area.”

 

At times, H.E.R.O.S. employees would need to make visits to clients or partners. That’s not an issue from Greater Phoenix, which is only six hours away from Los Angeles by car or an hour and a half by flight. There are 1,200 flights out of Phoenix Sky Harbor International Airport a day, enough to fly 33 million people.

“Instead of shipping it to our California address, they’re shipping it to our Arizona address,” Kajberouni said. “If it’s something huge where we need to go over there, or something happens that our presence is required, it’s a six-hour drive. It’s not that big of a deal.”

Not only did H.E.R.O.S. not lose its California business, it is now able to pick up new Arizona clients. H.E.R.O.S. has already obtained a contract from the Mesa Police Department to do its helicopter repair work.

The area itself is particularly conducive to H.E.R.O.S. because of the industry it is in.

“Here in Arizona, we’ve actually been able to improve processes because we’ve been able to find local vendors within our aviation industry, which is very big in the Chandler area,” Kajberouni said.

“We haven’t lost any business at all on the California side.”

The ability to scale

In California, H.E.R.O.S. had an issue. It could not expand any further. Taxes were stunting its growth, overbearing regulations made hiring new employees extremely complicated, and the steep salary it would require for an employee to even have a livable wage in the area limited the potential to bring aboard new team members.

Its move has given the company freedom.

“We don’t feel like we’re on a constant microscope looking around the corner to see what new California employment regulation they did, how many types of overtime we have to keep track of, the rising cost of payroll tax, and workman’s comp and property tax, and regulations … rather than trying to focus on those items that killed our business — and it almost did — we can now focus on things to expand our business,” Kajberouni said.

The company employs 20 people and hopes to hire a new employee each month. Kajberouni expressed a cautious, responsible approach as his company looks to grow.

The workforce’s skill set and attitude in Greater Phoenix makes it enticing to bring on more help sooner, though.

“Everybody who we’ve hired here has been an extremely hard worker — and loves to work — and they work hard. It is unbelievable how committed the Arizonan people are when it comes to their work. The mentality and the privileged attitude in California is … it’s different,” he said. “The skill sets, the mentality and the pride of people of Arizona’s workmanship is much greater than California.”

H.E.R.O.S. is one of more than 800 businesses that the Greater Phoenix Economic Council (GPEC) has supported over the last 30 years. To learn more about how GPEC can support your business expansion or relocation plans, or to receive a complimentary market analysis and operational cost comparison, contact us today.