Startup In Illinois or Texas? What Should A Startup Consider?

In a fight to get more jobs for Texas, governor Rick Perry came to Illinois to talk about the business climate in Texas.  Mayor Rahm Emanuel cracked a pretty good joke about it. Last fall, I was in Madison, Wisconsin.  Their Lt. Governor appealed to Illinois businesses to move north of the border.

The politicians are fighting over existing pie.  What we really need to do is figure out how to make more of it.

If you are a startup, should you start your business in Chicago or a town in Texas?

My answer is, “It depends.”  It depends on a lot of variables.

First, when it comes to taxes, startups generally don’t have a  huge problem.  They don’t pay them because they lose money.  Texas is a low tax/low regulation state and if you run an existing business that has a lot of cash flow it might make sense to move there.  However, it’s not a zero sum game.  There are costs to moving.  Many times businesses fail when you move them.  It can be tricky.

Austin, Texas has a nice startup culture.  I like it there.  There are a lot of cool things about it.  But, Austin isn’t Chicago when it comes to the size and breadth of being a city.  It’s growing-but it’s an inkspot on the landscape when compared to Chicago.

Second, if you are going to pursue a startup, it makes a heckuva lot of sense to start your company where there is a lot of ecosystem support.  Chicago has a very good ecosystem for a lot of startup activity.

There are some startups that might do better in Texas.  Suppose I was doing something that was extremely reliant on the oil and gas industry for innovation or to become customers.  Texas would be better than Illinois.

Conversely, if I was going to do a health care startup, Illinois is better.  The major acquirers are here and there are research labs here that the startup can use to gain traction.

If I had a startup in the financial services sector, I wouldn’t start it in Texas.  Chicago is the worldwide center for financial risk management, and reporting.  There is a huge amount of DNA here and potential customers right out your back and front door.

I don’t think this should be an “us vs them” battle when it comes to where to start.  We need to think in terms of creating an environment where everyone has a chance to succeed.

Now, if we want to talk about the financial management of a state, Texas is way ahead of Illinois.  Our state could use a lot of Texas ingenuity here.  It’s very expensive to start a business here compared to Texas.

The Illinois state government has done nothing to encourage business formation.  As websites WirepointsIllinois Is Broke and the Illinois Policy Institute have chronicled, the state of Illinois has a financial crisis and the Democratically controlled House, Senate and Governor are ignoring it.  Neighboring states like Wisconsin, Indiana and Michigan are taking their issues head on and making progress.

On the other hand, Mayor Emanuel has been one of the startup ecosystems most ardent cheerleaders.  He has done a lot of good for Chicago startups.

Emanuel is trying to change regulations in the city to make it easy and cheap to startup businesses-although that change takes a lot of time.  We have almost 200 years of boodle laws and regs to overturn.

 

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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