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Innovation in Austin Is Just Getting Started

Michael Hendrix

Senior Director, U.S. Chamber of Commerce Foundation

Local Austin entrepreneurs see themselves as being just at the beginning stages of making their city a tech hub. Other cities may have more startups or more capital and talent, but few of them have Austin’s combination, and even fewer have organized them quite so well.

Over decades, the SxSW festival gradually has taken prominence and put the city’s tech scene on the map. Tech incubators have come alongside the festival, such as Austin’s Capital Factory, and many more industry associations. The tech community is clearly very well organized.

Most of the entrepreneurs in Austin know each other. It’s remarkably easy for them to call up the city’s luminaries and get coffee with them. Local startup leaders say time and again that what stands out to them is the city’s inclusive community. It’s not weird to hear people say, “It’s good to meet you—how can I help?” There’s a “we” and not “I” focus to the city.

Austin has been laboring for roughly 30 years at building a vibrant tech community. This may sound like a lot of time, but when you consider that Silicon Valley got started in the 1950s it becomes clear that the city may still be in its infancy as a tech hub.

Education: Connection Between Homeschooling and Innovation

This city’s large and dynamic homeschooling community may be one of the key drivers of the city’s ed-tech startups.

It’s unclear just how many homeschoolers are in Austin, as official numbers are fuzzy. But ask local tech leaders and it’s clear that they are large in number and well organized in Austin.

The area’s relative density and talented workforce (who may sooner or later be parents) really seems to set Austin apart among other homeschooling hubs.

In 1776’s Innovation That Matters roundtable, local entrepreneurs say that homeschooling families are willing to experiment with new ways to teach and learn. If ideas work among homeschoolers, often a group with high expectations, then ed-tech companies can see opportunity for it as a product in public and private schools.

Austin has effectively encouraged the creation of an experimental ecosystem for ed-tech that’s unique in the country. Few others in the ed-tech space seem to see homeschoolers as a source for innovation in education technology, but if Austin’s entrepreneurs are right, that may change.

Energy: Monopoly Stifles Innovation in Austin

Central Texas’ energy economy boasts 250 companies making $2.5 billion a year and employing some 18,000 employees. Not bad for a region in the shadow of the nation’s energy colossus, Houston. Yet there’s just one problem: monopoly. And not just any monopoly. A city-run energy utility that stifles innovation in the region’s largest city, Austin.

Austin’s retail energy market is controlled by one operator: the aptly named Austin Energy. Startups view the monopoly as helpful when they’re in their infancy, but costly when they look to “grow up.” Austin Energy has little incentive to innovate and at time seeks to protect itself from potentially disruptive technologies developed by local startups. Local energy firms can get by comfortably at best, but as one local entrepreneur attested, “We need more fire in our belly.”

Meanwhile, Dallas and Houston, nearly alone among America’s major cities, adopted retail electric competition years ago. The upshot is that customers can “fire” their energy supplier whenever they’d like. Austin’s startups say this leads to an incredible innovative retail energy market.

As an energy startup, if you can effectively compete in Houston you can compete anywhere. This means that Austin’s energy startups want to expand and operate in competitive markets like Houston first, rather than in Austin’s coddled marketplace where there is no good channel to market locally. While Austin sometimes boasts of its “enlightened” energy monopoly, as one startup leader attests, “Monopoly wins every time.”

Ironically then, a monopoly meant to protect consumers may in fact leave them worse off relative to their Texas neighbors.

Health: Austin’s Next Big Thing?

“What is our moonshot?” Austin’s medical technologists realize that their city is on the precipice of being a leader in the healthcare space. A new medical center is opening up. An innovation district is coming along. Capital is appearing and talent is plenty. There’s an intangible but real density of ideas. But they still wonder: What is it all for, and how will these new players align their efforts?

The consensus from 1776’s Innovation That Matters roundtable in Austin is that every city with a strong healthcare marketplace needs a central player setting a mission for coordinating its disparate resources. The ideal coordinator is the local university with a medical research function. In Silicon Valley, Stanford achieves this function by virtue of the public role of their medical researchers.

For Austin, the health tech community is starting to see their moonshot existing at the intersection of healthcare delivery and enabling technologies. Local entrepreneurs want some entity, likely UT-Austin, to bring cohesion to all of the resources available to make a moonshot happen. Then investment can be directed into research and development to bring about a signature technology; the safe bet would be some sort of medical device.

Nearly every industry expert in Austin talks about how they grew from nothing. They had no central plan or leader. Healthcare had a similar history, though one of the recent mayors played an outsized role in twisting the necessary arms to get the city’s new medical center built. This begs the question then: Will Austin’s healthcare industry balk at a centralizing plan or outspoken leader, chafing at the sort of top-down direction they’ve been without for so long?

One thing is worth keeping in mind: No other leading healthcare city grew overnight. For most of them, it took roughly 30 years. Austin is only beginning.

This article originally appeared as a series of blog posts on the U.S. Chamber of Commerce Foundation’s website. You can view the posts here, here, here & here. The posts stem from a recent roundtable discussion with startup leaders and officials in Austin, TX. The roundtable was hosted by the U.S. Chamber of Commerce Foundation and Washington, D.C. startup incubator 1776, as part of its Innovation That Matters series. 

Michael Hendrix

Senior Director, U.S. Chamber of Commerce Foundation

As the director for emerging issues and research at the U.S. Chamber of Commerce Foundation, Michael Hendrix manages the Foundation’s research, programming, communications, and publications. He is project director of…

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