Anatomy of a Startup Scene: What Austin Can Teach Other Growing Tech Hubs

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A lot of cities are laying claim to the title of “Next Great Tech Hub,” but what does it really take for a town to grow into a hot startup scene? Entrepreneur and investor Sam Decker, founder and former CEO of Mass Relevance (now merged with Spredfast, where Sam is a board member), unveils the factors he thinks make up the DNA of a tech hotbed.

When hardware powerhouses IBM, Dell Computers, and AMD chose to set up shop in Austin in the late 1980s, the moves ignited the Texas capital’s aspirations of growing into a tech hub. It wasn’t until 30 years later, however, that Austin would begin to truly gain international attention as one of the hottest startup scenes east of Silicon Valley.

What was the tipping point?

While IBM, Dell, and AMD gave the city the kick-start it needed, Austin-based entrepreneur and investor Sam Decker says the founding of little-known Trilogy Software actually made the biggest impact on Austin’s emergence as one of the hottest startup software hubs in the world.

“There were some big companies in Austin, but the city really hadn’t hit its startup stride in the 90s,” explains Decker, a former executive for Dell, founding CMO of Austin-based SaaS business BazaarVoice, and partner at Austin-based startup incubator and accelerator Capital Factory. “When Trilogy came to Austin, it infused the city with a lot of top shelf talent.”

That talent ultimately paved the way for startups like HomeAway and BazaarVoice, which both set up shop in Austin 2005 and achieved successful IPOs in 2011 and 2012, respectively.

The wealth and entrepreneurial culture created by those exits, among other things, has given Austin the infrastructure, capital, and mentorship necessary to evolve into a full-blown tech hub. Throw in Austin’s emergence as an attractive cultural hub — thanks, in part, to events like SXSW and Austin City Limits — and you have the recipe for what VentureBeat called “tech’s new destination of choice.”

What Makes a Great Startup Scene?

So, what can other burgeoning tech cities learn from Austin’s incredible growth?

According to Decker, there are some foundational building blocks that cities must have if they’re going to develop a thriving startup environment:

  1. Access to top talent: This one’s obvious — without enough of the right talent, it’s nearly impossible to cultivate a tech startup scene. Austin benefited from the early successes of Trilogy, BazaarVoice, and HomeAway, which collectively infused the city with the kind of entrepreneurial and technical talent that has since founded numerous other tech companies.
  1. Availability of capital: While outside investment isn’t a pre-requisite to startup success, capital is a key driver of scale. Typically, the more robust a startup scene’s investor pool is, the more likely it is that city will turn into a vibrant tech center. Just look at the incredible growth of tech hubs like Boston and New York — cities rich with established VCs and other capital sources — in recent years.
  1. Willing mentors and advisors: Very few successful startups reach the top of their markets without the help and mentorship of some key advisors. Thus, for a startup scene to thrive, it must have access to mentors (in the form investors, incubators, accelerators, networking groups, etc.) who are willing and able to guide early-stage businesses down the right path. This is one of the reasons Decker says he and his partners created Capital Factory in 2009.
  1. Affordable work spaces: While Silicon Valley is the unarguable king of the startup scene, one thing that isn’t in its favor is affordability. Because the cost of living is so much higher there, startups often deal with higher operational costs than software companies located in smaller (but growing) startup scenes like Austin. Access to co-working spaces — something Austin has in spades — certainly eases those concerns.
  1. Supportive state and local government: While it’s not a major factor in startup growth, Decker says the fact that Texas has no state income tax and provides as much as $19 billion per year in incentives to emerging companies doesn’t hurt Austin’s ability to attract talented entrepreneurs and investors.

Ultimately, Decker says each of those ingredients work harmoniously to create an ecosystem that’s attractive to the types of people who build and invest in successful tech companies.

“Where you have a bunch of talented people, you’ll typically find eager investors,” Decker explains. “And where you have eager investors and a vibrant startup environment, you’ll find an influx of talent. They’re all critical components of a startup scene’s infrastructure. Without one, the others aren’t as strong.”

What City Will Become the Next Great Startup Scene?

Cities like San Francisco, Austin, Boston, and New York have clearly established themselves as thriving startup scenes, but as barriers to entrepreneurship continue to fall it seems inevitable that a new hub will rise.

Two years ago, Fast Company suggested it might be Philadelphia, while other publications have predicted Miami or Washington D.C. could claim that title.

What city do you think will emerge as the next great tech hub? And which factors not listed above do you think are critical to establishing a vibrant startup scene? Share your thoughts below.

Image courtesy of John Rogers