Money

Why Houston Is an Entrepreneur’s Dream

Trong Nguyen / Shutterstock

Houston has a lot going for it: An active professional sports scene, two international airports, delicious Tex-Mex. The fourth-largest city in the US (2.3 million residents) has also long held a reputation as a center for big business, boasting 20 Fortune 500 companies. But in recent years, it’s quietly been building one of the most extensive startup ecosystems in the country, too.

The city’s economy (as with much of Texas) is intrinsically linked to oil, which means it’s faced its share of adversity. Houston got hit hard in the 1986 oil collapse -- though the silver lining is that it escaped the 2008 recession relatively unscathed (it was the first major city to regain all its lost jobs, and then some). Credit the benefit of experience. “Thankfully, our financial system learned valuable lessons during the oil crash in the 1980s and resulting glut of speculative building,” says Rob Todd, a former Houston City Council member and founder of the telecom company Amplified Solutions.

Houstonians’ spirit of perseverance means that during the current oil downturn (which started in mid-2014), while sectors such as energy, manufacturing, and residential real estate were hit hard, according to Todd, others -- particularly tech and medicine -- have proved more resilient. Take TMCx, the business accelerator of the city’s enormous Texas Medical Center, which has fostered more than 75 health care startups over the past three years.

So what exactly makes Houston such a hotspot for budding entrepreneurs? Here’s a primer for would-be hustlers.

It’s a business-friendly state

When people talk about everything being bigger in Texas, well, that also applies to its business opportunities. One factor working in H-Town’s favor? No state income tax. And when it comes to encouraging entrepreneurship, less bureaucracy counts, according to Andrew Wyly, author of the book Texas Got It Right. “No state income tax, period. Over and out. That is what companies look for -- the ability to pay employees more and the government less,” he says. “[That means] more left over for the entrepreneurs to invest in their own businesses, workforce, futures, and their families.”

Another perk? Houston is also the only major city in the country without zoning laws, which is a big deal for business owners. “I recall a former city attorney estimating the cost to Houston of a sudden switch to zoning would be astronomical -- in the billions,” Todd says. “Our minimal land-use regulation and favorable system of taxation results in entrepreneurs and investors having less risk to analyze in deciding whether to open doors, expand, or relocate here.”

Stephanie A Sellers / Shutterstock

A dollar goes further here

Any aspiring entrepreneur worth his or her elevator pitch can tell you that high rents can kill a burgeoning business. In Houston, the overall cost of living is 21% below the average among the country’s 20 most populated metro areas, according to the 2016 index from the Council for Community and Economic Research. Last year, Forbes ranked Houston second among US cities where paychecks stretch the furthest. Plus, residents don’t have to sacrifice quality of life for cheaper living (an important factor in recruiting and retaining top talent). Houstonians benefit from access to four professional sports teams (go Astros!), free city events such as movie screenings and yoga classes, plus a vibrant food scene -- all at a cost way lower than New York or San Francisco.

And while Silicon Valley gets knocked for its diversity problem, Houston’s affordability has also made it a leader in cultivating minority-owned businesses. The city’s diverse population (36.5% Hispanic, 16.9% Black/African American, 7.5% Asian, according to 2015 Census data) has translated to 31% of the metro area’s businesses being minority-owned.

Co-working spaces are booming

Accelerators, incubators, and co-working spaces aren’t just about Free Beer Fridays and office slides for “sparking creativity” (though they have those, too): They’re valuable places for start-ups to collaborate and network -- while keeping overhead low. Such buildings have been booming in Houston in recent years, offering budding entrepreneurs cheap, short-term office space, a coveted downtown address, and infrastructure -- like IT support staff -- that you couldn’t otherwise afford as a small business (as well as motivation to work in something other than two-day-old pajamas).

One of the biggest such spaces in the city is the Houston Technology Center, which opened as a business and tech incubator & accelerator in 1999 and now has four locations in the metro area. HTC plays a crucial role in connecting startup founders with funding partners -- according to the nonprofit, its entrepreneurs have raised $2.8 billion in capital and created more than 600 jobs. Perhaps the best example of Houston’s new economy is Republic Square, located in the former ExxonMobil Chemical campus in the Energy Corridor. Plans to redevelop the property with office towers, a hotel, luxury apartments, shops, and restaurants got scrapped during the latest oil bust. Instead, it was reborn a year ago as a 35-acre co-working space and has already attracted 70 new tenants – many of them entrepreneurial, including incubators like Pink Petro and an HTC branch. (They’ll next add dog-friendly office space and artist studios.)

cheng / Shutterstock

Its colleges are churning out startup CEOs

One thing that never hurts a city’s business prospects? A steady supply of smart people. Rice University (whose graduate entrepreneurship studies program ranks third nationally) and the University of Houston (which ranks sixth for its similar undergraduate program) cultivate a feeder system of business-minded young adults -- and encourage them to stay in the city after graduation. Both even house their own startup accelerators, UH’s RED Labs (which has launched 24 companies since 2013) and Rice’s OwlSpark (33 startups launched since 2013).

The universities can also serve as a connection to funding: The Rice Alliance supports early-stage tech ventures in Houston and the southwest US with networking and education (the 1,800 companies who have participated in its programs since 2000 have raised $3.6 billion in early-stage capital). The university’s annual Rice Business Plan Competition awarded more than $1.9 million in cash prizes last year alone. “We’re really interested in ‘real’ start-ups -- ones that have a disruptive technology in tech, IT, life sciences, and more that have viable marketing and that can be commercialized,” says Mary Lynn Fernau, Rice Alliance’s director of marketing. And given Houston is home base for oil and gas industries, and the Texas Medical Center, “There’s no better place to be in energy and life sciences,” she notes.