Should Early Stage Startups Move to Austin because of Customers?
In September 2017, I spent 2 weeks in Austin, Texas to understand what makes this vibrant startup ecosystem tick. My visit took place courtesy of the Young Transatlantic Innovative Leaders Initiative (YTILI), a State Department program implemented by the German Marshall Fund of the United States. My primary mission was to learn from the impressive entrepreneurial ecosystem in Austin and draw lessons for developing the entrepreneurship education program for Beetroot Academy. This 4-part story, however, explores the Austin ecosystem based on the 4Cs framework — culture, capital, customers, and competencies. It follows up on my posts discussing why early stage startups should — or should not — move to Silicon Valley.
Should Early Stage Startups Move to Austin because of Customers?
Early adopters, especially those who are willing to pay for novel services, are the lifeblood of lean startups. Building a product around the needs of actual users is the best way to develop something that will actually create value, but also to validate demand ahead of pouring more resources into your venture. Silicon Valley is known for early adopters among both consumer and enterprise customers. The former comprises forward-thinking techies and the latter some of the most progressive companies in the world, including international firms with innovation outposts in the Bay Area. This post looks at how Austin works in terms of getting early traction.
Like in most fields related to starting a company, Austin punches above its weight when it comes to open-minded customers. First of all, what merits mention is Austin’s private consumer base. The city has a young, educated and diverse population. There is a middle class that is growing due to the tech boom. Since Austin is also big on culture and quirks, people are looking for ways to develop and express their unique identities. More broadly, Austin-based companies can theoretically serve an area of more than 5 million people if you throw Houston, Dallas, and San Antonio into the mix. In other words, consumer-facing startups are likely to find a grateful and sizeable audience within and beyond the city limits.
The most notable testament to the early adopters of Austin is Whole Foods — founded in 1980, the company has grown from Austin into more than 460 locations in the US. Launching a supermarket for natural foods may not sound like a winning proposal in conservative Texas, but Austin delivered — to the tune of a $13,7 bln acquisition by Amazon in 2017. Another notable Austin-bred phenomenon is the Alamo Drafthouse — is cinema chain founded in 1997 that is famous for its food and drink service as well as maintaining proper cinema etiquette. Both Whole Foods and the Alamo go to show that Austinites are ready to give a warm welcome to innovative vendors.
In addition to the B2C market, companies in Austin are also in a formidable position to service business customers. Music, art and the more recent gaming industries have bred an infinite number of freelancers. For several years in a row, Austin has ranked #1 in the US for growing a small business. As the state capital, the city boasts a high number of non-profits. Moreover, businesses in Dallas and Houston are both within a driving radius. Considering that these cities are home to more than 50 Fortune 1000 companies and countless others, being based in Austin ensures access to pretty big markets across the board.
Last but not least, it should be pointed out that the City of Austin itself has a sophisticated outlook on working with startups. While the municipality itself is not likely to buy from startups due to the usual set of procurement requirements, the Austin did hire a Chief Innovation Officer in 2014. The city’s role in fostering innovation is to shed light on public sector problems and incentivise teams to come up with market-based solutions. In order to do so, the city can foster open innovation — facilitate collaboration opportunities with its departments and existing vendors, organise design hackathons, and offer cash prizes for the most outstanding companies. In terms of public sector innovation, it’s fair to say that Austin is a leading force in the U.S.
