It’s no secret that Texas continues to do well in job creation, even during our slow emergence from the recession. And the standout city in Texas for luring jobs from elsewhere is, arguably, Austin. With its mix of an educated workforce, a tolerant and creative culture, and overall high quality of life, Austin ranks at or near the top of every list of best cities to live in, do business in, and grow in.
Texas CEO wanted to hear from the heads of companies that relocated to Austin from other places. A business roundtable at The Austonian was moderated by Jason Myers, Editor At Large, Texas CEO Magazine, and included Andrew Allison, Co-Founder & CEO, Main Street Hub; Matt Stuart, Co-Founder & President, Main Street Hub; Gregory O. Welch, President and CEO, Cenoplex; Paul DeHart, Chief Operating Officer, Fallbrook Technologies; Ed Trevis, President/CEO, Corvalent; John Kinzell, Ph.D., CEO, Xeris Pharmaceuticals; and Andrew Westmoreland, CEO, Ad Revolution.
While a number of factors influence a company’s decision to move their headquarters or operations, a qualified labor pool emerged as one of the key drivers for this group.
“We knew we wanted out of California,” said Corvalent’s Ed Trevis. “Austin, by far, was the choice. With Dell and AMD here in the same space, we found that larger qualified labor pool we wanted.”
Gregory Welch of Cenoplex said things are starting to boom in the San Francisco Bay area again, and his contractors can’t fit him in anymore. He decided to find talent pools outside of California. “I’m now an advocate because we’ve found talent here that’s half the price of what we paid in California who want to do business with you – it’s refreshing,” he said.
Main Street Hub’s Andrew Allison said the labor pool isn’t limited to just one sector.
“We thought Austin had the best talent to meet all of our different needs,” he said, “both technology and non-technology. It’s also highly livable and affordable. We also think it’s a great place to attract talent from around the country.”
Paul DeHart of Fallbrook Technologies noted that his company’s headquarters, as well as its investment community is still in San Diego. Fallbrook’s technical, engineering and manufacturing are in Austin.
“The primary reason we’ve grown here is the quality of people we can attract,” he said. “About one-third of our people are native Texans who went to UT and are mechanical engineers with Master’s Degrees. We’ve also done a lot of recruiting from Michigan because we’re in the automotive space, too. There’s an attraction to move people here, and it makes our recruiting much easier. The quality of labor both at the blue color level and the technical community is what works.”
Mention of Michigan and California inevitably brought up comparisons between their governmental and regulatory environments with those of Texas.
“I got to the point where I could no longer support what was happening in Sacramento,” said John Kinzell of Xeris Pharmaceuticals. “In the bio-technology space, the California legislature is creating literally hundreds of pieces of legislation a year in the form of taxes, workplace and environmental regulations that impact our industry.”
Andrew Westmoreland, who moved Ad Revolution from Oregon to Austin in 2003, said he liked the lack of a state income tax in Texas. “Ten percent of my money not going to the state? I know that individuals can better deploy cash than the government can,” he said. “To help stimulate the economy, Texas has done an incredible job ensuring businesses can keep as much of their money as they can so they can hire people.”
Westmoreland likes the pro-business climate of Texas, as does Trevis: “I came to realize that I was in a state [California] that was not very business friendly, had a high cost of labor, and a high cost of living. Now, I’m competing with China, so you have to find middle ground. I found the city that has a lifestyle and that necessary middle ground without having the government as my taxing partner.”
“We’re having the ultimate teachable moment right now when you look at California,” Kinzell pointed out. “It’s a political culture wedded to the public unions and it goes around and around by creating regulations and hiring people to police them that vote for the incumbent political party. California has about 18 percent of their public workforce unionized – Texas is approximately two percent unionized.”
But some of the participants pointed out that things are not all rosy in Texas on the regulatory front. Trevis used the so-called “Freeport Exemption” as an example.
“The Freeport Tax is an exemption to companies when dealing with inventory, like hardware” he said. “You don’t pay an inventory tax on your products if you ship them out of the state. If you’re selling products to Texas companies, you will be paying taxes on that inventory. If I’m paying a tax and selling to a Texas company that’s also going to pay an inventory tax, it’s a double taxation.”
For a business-friendly state, he said, it doesn’t make any sense.
Westmoreland would like to see the franchise tax scrapped and rewritten. “In 2008 our company went through a rapid decline in revenue and we lost money,” he related. “The Fed gave me a lot of money back, and I ended up writing a $35,000 check to the state. That’s insane.” He said every year when he pays his franchise tax, he also writes a letter to the state, protesting it.
“Giving the state money when you’re losing money is crazy,” he asserted.
Allison took a somewhat contrary view to the pro-business, small government, low-tax emphasis of some panelists.
“When we look at our own competitive landscape, we think about barriers to entry,” he said. “Low taxes are not a barrier to entry and a low cost workforce and affordability are not barriers to entry. It’s much harder to build up a strong infrastructure or a university with high quality instruction – those things are barriers to entry. I would focus on education, infrastructure and transportation. Those things are much harder to replicate and have drawn us all here.”
Still, most saw an upside to being here. Several participants cited quality of life. Welch said he and his wife had many discussions about where they wanted to go to raise their small children.
“Los Angeles is a great place, but as we got to know Austin and what it had to offer from a business standpoint and the personal standpoint, it hit all of our requirements,” he said.
Matt Stuart of Main Street Hub said Austin is an easy place to move employees.
“Everyone has been completely satisfied with the move,” he said. “About 75 percent of our employees moved here, all of whom had strong ties to the Bay Area.”
Trevis said so many of his employees wanted to move to Austin that he couldn’t afford the relocation costs. “I had employees who came into my office who said they would pay for their own relocation if they could have a job once we moved here,” he said. “Of course, I said yes.”
Access to capital is still more difficult in Austin than in other cities, but most said that’s improving.
“Investors are willing to put money into Austin-based companies, and there’s capital here,” said Kinzell. “This city has active life science focused VCs and a very active angel group in the Central Texas Angel Network. With regards to funding, NIH SBIR grants are like ‘pixie dust.’ They’re very helpful in the current capital environment in attracting investors – they provide non-dilutive funding and to some extent validate your technology.”
But he added that in the life sciences sector, to get the big funding of $10-$30 million, companies still had to go to Boston, New York, or San Francisco.
Stuart said there’s a misconception about raising capital from Silicon Valley investors – it’s assumed they want to keep their money in the Bay area. “But Austin is a community that they are comfortable investing in,” he noted. “Almost all our investors are from Silicon Valley.”
Trevis said a VC monopoly in Austin has been broken, and he sees things moving a lot faster in the investment community. “Over the last three years I’ve been working with the investment community on merger and acquisitions and they are open to diversifying their investments – especially from the energy sector,” he said.
Welch said it’s up to entrepreneurs to produce in order to attract funding. “I won’t get any of my capital from investors in Texas in the foreseeable future,” he said. “All my money will come from the West Coast because that’s where my connections are. We entrepreneurs have to get out and meet the local investors, and show them how to make money, and they too, will come. The entrepreneurs have to stay together, work together and build the community of entrepreneurs.”
Kinzell agreed that the presence of a strong research university is important. “The metro area must have a nationally recognized research university because it’s the third leg of innovation – you need money, people and universities,” he said.
Welch said he has dealt with many commercialization officers at universities, although he doesn’t yet have much experience with UT. “It’s one of the things that needs to happen,” he said. “Commercialize inventions that give back to universities to help them grow. I am excited to learn more about UT’s efforts and plans.”
Kinzell said UT needs to improve in its commercialization efforts: “UT-Austin is very successful at garnering hundreds of millions in NIH grants, but less successful in turning that into patents that in turn can be licensed to start-ups or established companies that then drive the sustainable economy and provide a return on taxpayer investment.” He said UT’s recent hiring of Dr. Richard Miller from Stanford to head Texas’ technology transfer program should cause things to change. Miller is a serial entrepreneur in the biosciences.
Besides talent and technology, the third “t” possessed by cities that attract a creative class is tolerance. Kinzell touched upon that: “Austin is a business-friendly city with this progressive, liberal vibe and it’s a fun place to live and people want to be here and relocate here.”
But Westmoreland indicated that there could be some improvement: “When I’m recruiting and there are same sex couples considering a move, Texas politicians have left the perception that Texas is not a place for them and they are not welcome, which isn’t true. This has a negative compounding effect on recruiting. Politicians need to watch their rhetoric and focus on what really matters – keeping the state financially healthy and independent.”
Still, the buzz at the table about Austin was overwhelmingly favorable. Gregory Welch summed it up: “When you come from the West Coast, you do feel like a kid in a candy store here in Austin. There’s a great vibe and I’m telling everyone to move here.”
Our CEO Roundtable was proudly sponsored by The Austonian: