The Good, the Bad, and the Ugly of Building a Company in Austin

By Trevor Gilbert , written on May 30, 2012

From The News Desk

As I did with Seattle, the big question that needs to be answered for Austin is whether or not it is a good place to start a company. There are plenty of good companies coming out the area, but is it right for you?


Business friendly

Texas is incredibly friendly towards businesses. It routinely ranks as one of the most deregulated states for individuals and businesses. This is a big deal, especially as Internet-based companies encroach upon more established business models and push into the physical world.

Take the food industry as an example. Austin was the founding city for Whole Foods, and now boasts a number of other food-related startups like Food on the Table and Greenling. According to Food on the Table founder Manuel Rosso, this is because Texas doesn’t have many food regulations, relative to other states.

Outside of specific industries, Texas doesn’t have the knee-jerk reactions of other cities. Consider the reaction that companies like Airbnb and Uber get from local governments and unions when they expand to new places. Uber’s cars are impounded in Washington, and Airbnb has had to lobby to not be fined or taxed in both New York City and San Francisco. Texas doesn’t have a track record of this, and it doesn’t look like it will anytime soon.

In addition to deregulation, Texas does not have a state tax on personal or corporate income. Friendly towards businesses? Heck yes. Friendly enough that Apple was convinced to create thousands of jobs in Austin.

Having a general attitude in a city towards entrepreneurship and new business models is clearly a plus for any startup, as it is one less barrier to overcome. For innovative startups that want to take on larger industries, Texas, and specifically Austin, appear to be one of the best options for a safe haven from cumbersome regulations.

Nice place to live

Austin is, simply put, just a nice place to live. This is a largely subjective point of view, but it does gel with what I heard from dozens of people that live in Austin and are a part of the startup community. The city has a vibrant nightlife, live music, tons of quality restaurant, good weather 11 months out of the year (avoid August), outdoorsy and healthy activities, and a general can-do attitude. These factors are often cited when people decide on where to live.

Of course, whether or not that means you should start a company here depends on the person. If you’re into the idea of a “healthy” work-life balance, where you work hard during the day but then shut the laptop and go do something non-tech related at night and on the weekends, then it is one of the best spots for it. However, if you want to be an extremist with your company like plenty of companies in the Valley, then you’ll probably want to go somewhere, like, you know, the Valley.

In addition to the “things to do” tradition in the city, the city is also relatively cheaper than the Valley and New York City. For an illustration of what I mean, look at this infographic of the cost of cities around the country. As far as tech cities go, Austin is no where near New York or the Valley in terms of cost of living.

Personally, I have the general attitude of wanting to ditch a city after about two weeks -- partly because I live out of a suitcase, and partly because that’s how I was raised. With Austin, though, I wouldn’t mind throwing down my suitcase for an extended stay. I won’t do it, because Sarah would probably kill me, but it is definitely near the top of the list for cities that I would live in.

Economically secure city

Austin is a strong city from an economic perspective. It was largely unaffected by the housing bust, and as a result, the economy didn’t take a nose dive. In fact, looking at the unemployment numbers in the area, Austin currently has an unemployment rate of 5.5 percent, compared to New York’s 8.8 percent and San Francisco’s 8.1 percent.

Roughly a dozen people I talked to, who relocated to Austin for the startup ecosystem, cited the standing of the economy to me as the impetus behind moving. The idea is that if the city can withstand a nationwide economic downturn, it can withstand a smaller-scale downturn of the tech industry in the event of a bubble.

Predicting the future of the economy is a nearly impossible task, but when comparing Texas to California, one state is reportedly on the brink of collapse, and the other isn’t.


Smaller city and ecosystem

The city is smaller. This is an issue, because it raises the question of whether or not it can sustain a billion dollar company for many years. Alongside the actual building of a company is whether or not the city has the general population or the developer talent to sustain it. Austin does have some success with billion dollar companies, but only Dell has managed to stick around for decades.

Aside from the sustaining of a billion dollar company, the ecosystem is just generally smaller for technology. This is good, because according to everyone that I spoke with (and I do mean everyone), a smaller community makes for a more responsive community. Doors open a little quicker, emails answered a little more readily.

Lacks a local voice/blog/paper

A big part of starting a technology ecosystem is having a champion. This means having a blog, a vocal individual, or an outspoken company pushing the ecosystem forward and defending it from attacks. For example, Silicon Valley has a number of local blogs, Seattle has Geekwire, and Chicago has Built in Chicago. Austin? The Austin American Statesman.

The Statesman does cover technology companies, but that might not necessarily be a good thing. One high-level person in the tech community that I spoke with complained that the Statesman doesn’t even link to the companies it writes about, “out of laziness” and “not understanding how the Internet even works." It is by every definition a traditional news organization, and you don’t want someone that isn’t innovating in their own business to be the champion of innovation in a community.

And this means that there is a large market opportunity for someone in Austin. It needs a voice, not only to bolster the local community, but also to defend it when attacked. It’s a key part of a growing community, and as of right now, it’s missing.

Money pool is broken

The funding situation in Austin is broken. There are VCs, and they are large and have money. But VCs aren’t the problem. Angel investors are. Austin doesn’t have a big enough angel investor community. There are people who know what they’re doing, like Joshua Baer, but a handful of knowledgeable angels does not an angel community make.

And this is a bad thing, because angel investors are commonly the most involved investors, the ones that find the early stage startups, and provide a counterbalance to institutional investors.

One entrepreneur that I spoke to, who wished to remain anonymous to not ruffle any feathers in the area, described one of the local angel associations as “a bunch of dentist yahoos.” Hardly a ringing endorsement.

Austin is a great place to start a company. It has money, the city isn’t openly hostile to startups and its a nice place to live.* That being said, if you need angel investors, a bigger talent pool, or a place that welcomes extreme work behavior, it’s probably not the best place for you.

*Also Austin has great barbeque.

[Illustration by Hallie Bateman]