Why are so many startups heading to Texas?
Everything's bigger in Texas, especially small businesses! WalletHub recently released 2019's Best & Worst States To Start A Business report that compares all 50 states to determine which ones are best for starting a business in the United States.
If the opening sentence didn't already tip you off, Texas earned the top spot as the overall best state to start a business. Methodology for the report examined conditions that make for ideal business creation. Some of these factors were capital access, available talent in the workforce and affordable office space. Texas narrowly edged out Utah with a total score of 61.05 and earned an additional No. 1 ranking in the category of business environment.
WalletHub's study aside, I've spent a few years writing about which states are great for starting small businesses. As time has progressed, I've noticed that traditional "corporate darlings" like Nevada and Delaware are starting to take a back seat. Entrepreneurs are still forming businesses there, of course, but they are also seeking new places and spaces for their companies. Up-and-coming states like Florida, Wyoming and – you guessed it – Texas are on the rise with startups.
How did that shift start to take place? What makes the Lone Star State so enticing for today's entrepreneurs? Here are four reasons why Texas is so popular for new businesses:
- The talent pool is deep, thanks to major metropolitan areas and local universities.
- There are tax benefits for doing business in Texas.
- It embraces innovation quickly.
- Texas has a small business-friendly climate throughout the state.
Let's take a closer look at the reasons why entrepreneurs are heading to Texas to launch small businesses.
1. Texas has an abundance of talent.
One of the keys to a successful startup is the company's team. From human resources to engineers, it takes a village of talented individuals to lead a startup to success.
However, some startups make the mistake of hiring too quickly. Maybe the candidate isn't completely the right fit or lacks key skills necessary for the role. The small business may decide to hire and onboard them anyway. After all, it's a priority to fill the position – and your business might have struggled to find interested, available candidates.
Texas brings endless amounts of talent to the table for entrepreneurs forming startups. According to The Best States for Small Business 2019, a recent study from Guidant Financial, Texas is one of the top two states for boomer and millennial entrepreneurs to open up shop. (California ranks as the other top state.) The reason is simple: Texas boasts a large state population, made all the more appealing due to its educated residents hailing from local universities.
CNBC recently tracked tech startup Bractlet and told the story of why its co-founders decided to do business in Texas. One of the advantages of starting a Texas-based business was the power of its schools and their students. Local universities, like the University of Texas, made it possible for the company to find and hire talented team members. Bractlet, which is now based out of Austin, was even able to find skilled employees beyond the Austin city limits. The startup attracted attention and talent from other Texas cities, including major metropolitan areas like San Antonio, Houston and Dallas. The combination of city hotspots plus educated graduates seeking new jobs is a win-win for startups ready to go above and beyond in their first year in business.
2. Starting a business in Texas has significant tax benefits.
There was a time, not too long ago, when many entrepreneurs flocked primarily to Delaware and Nevada to do business. Delaware has a reputation for being "the incorporation capital of the world" because of its business-friendly corporate tax laws. These laws have allowed the state to become the legal home to more than 1 million business entities. Nevada also has a reputation as a tax haven, since the state does not have corporate or personal income tax.
Beyond Delaware and Nevada, more states are passing tax laws that benefit small businesses. Texas is one state to watch. The Tax Foundation's 2019 State Business Tax Climate Index revealed that Texas does not have an individual income tax or corporate income tax. A lack of income tax, along with a thriving economy, continues to make Texas an attractive location for a startup.
3. Texas is open to innovation.
What states come to mind when you think of innovation? You're likely to think East and West Coast – specifically Silicon Valley in California and Manhattan (or Brooklyn!) in New York.
But consider events and conferences like South by Southwest (SXSW), held in Austin every year, that celebrate the changing landscape of tech and media.
More than 380 airports call Texas home, bringing new faces in every day to check out the sights and sounds (including a lively music scene) throughout the state. You might even be surprised at some of the industries thriving in Texas:
- Advanced tech and manufacturing
- Aerospace, aviation and defense
- Biotechnology and life sciences
- Information and computer tech
- Petroleum refining
Remember when we mentioned the tech startup Bractlet earlier? That company is part of the innovation being seen throughout Texas right now. Thanks to a large population, and one that also works hard to serve minority entrepreneurs, Texas is able to put itself on the map with its diversified economy. That same economy, as the Texas Economic Development Corporation points out, allows Texas to pave the road forward in creating new jobs. Texas now leads the nation in job creation – and plans to continue the trend throughout the next decade and beyond.
4. Texas has a consistently friendly climate for small businesses.
Each year, I like to revisit Thumbtack's United States Small Business Friendliness Survey. This survey examines how states and cities throughout the U.S. receive small businesses. From 2012 through 2019, the survey examines key components like overall friendliness, ease of hiring, regulations, tax code, training programs and more to grade each state.
How does Texas fare for overall state friendliness? Texas received an "A" in 2019. Interestingly enough, 2018 marked the first year since 2014 that Texas dropped from an "A+" to an "A" grade.
I hovered over some of the "overall friendliness" responses to see if there was a culprit for the (slight) drop in grade. As it turns out, there wasn't much to dispute. The comment that stuck out the most to me was an anonymous response from a home-security specialist in Lubbock, Texas. Their complaint had less to do with the state and its offerings than with the day-to-day nuances of being a small business owner.
As noted by the Texas Economic Development Corporation, there isn't a guarantee of success for anyone who starts a business, Texan or not. The best way to succeed is to plan and prepare – as is true for any business that wishes to get off the ground. If you need help figuring out the next step you need to take to start a business, the website explains the "why" for choosing Texas, the state's advantages and resources entrepreneurs may utilize for their companies. You can go big or go home in Texas, but you don't have to feel alone or lost on the journey to entrepreneurship.