Should Early Stage Startups Move to Austin because of Competencies?
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 Competencies?
Starting and scaling a company requires execution, and execution requires skills. In the earliest stages, these skills relate to what any good founding team should bring to the table — an acumen for business strategy and product development coupled with great engineering. As the product stabilises and gains traction, however, the business needs to ramp up talent that can handle not only design and development, but also sales, marketing, customer support/success and ops. Eventually the company should graduate to hiring senior expertise across these functions. With that in mind, ventures at any stage of development should indeed do very well in Austin, but might hit a few ceilings as time passes.
First of all, Austin has a young, educated and growing population. In fact, Austin has been among the fastest growing cities in the US, having doubled in size over the past 20 years. The newcomers often come for jobs in tech — or come for college and stay for jobs in tech. There are ~25 high education institutions in the area. The University of Texas in Austin is particularly strong in fundamental research, even if it doesn’t have the track record of MIT or Stanford in commercialising intellectual property. The talent, however, cuts the mustard. For instance, Dell was once founded — and is now being re-founded — in Austin. IBM’s global research lab packs a lot of cognitive computing power, including AI/ML solutions for elderly care and composing music.
In addition to providing research labs with technical talent, Austin is also great for engineering, sales, marketing and customer support/success functions. All these universities mean that there are thousands of hungry graduates looking for entry-level jobs every year. In addition to Dell and IBM, global brands such as Amazon, Apple, Oracle, Facebook, and their mother have set up sizeable offices in Austin. This kind of talent pool also means that the labor market is less competitive for employers. For instance, Cloudera set up their inside sales office in Austin to ensure that their up-and-coming Sales Development Representatives would not jump ship after just a year on the job — something that goes without saying in Silicon Valley.
Austin is also home to creatives of all stripes. The talent pool of musicians and visual artists runs deep, which has put the city ahead in the $91 billion dollar gaming industry. The playful children of Austin have helped create many, if not most, of the global blockbusters in gaming history, including the likes of Doom, Call of Duty, Halo, The Sims, EA Sports, etc. The magic happens everywhere — at independent game studios as well as outsourcing companies and development offices connected to major publishers. In addition to home-grown gaming companies, Austin can also serve international startups. The Jordanian startup MENAVR is relying on Austin as source of technical expertise to develop its own VR platform, but more importantly, to connect with American VR publishers and license content to its home region, i.e. Middle East and North Africa. A brilliantly simple and powerful reason to have one finger in the Austin pie.
Ultimately, you can grow many kinds of businesses in Austin, and do so at any scale — but there are certain limitation. According to Kevin Koym of TechRanch, Austin has talent to scale companies, but if you get lucky, you’ll have to bring in seasoned experts from the coasts. Alternatively, it may be inevitable to move your HQ to one of the major business centers, especially if other decision-makers in your vertical are based there. The latter is not a shortcoming of Austin itself, but simply a consequence of how the economy functions. The other restriction that startups should reckon with is the growing cost of talent. As discussed in the post on capital, tech salaries in Austin may be 60–70% of their coastal counterparts for now, but the gap is closing quickly. And if Amazon’s HQ2 lands in Austin, everyone else will be late to the party.
