Revisiting the Effect of the Dot-Com Bust on Austin

Scott Francis
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What a great retrospective the Austin Business Journal has published on the dot-com bust in Austin, back in 2000-2001. The after-affects were felt through 2004. 

For those who doubt how hot it was: 

  • Unemployment was 2.1% in Austin – it is currently 3.1% – and considered frothy
  • In Q3 of 2000, Austin startups raised $605M across 41 startups.  In recent quarters, a healthy Austin ecosystem has raised around $400M in recent quarters.
  • I recall at the time reading that technology employees were 11% of the population, but represented 33% of personal income in Austin.  By the time the bust hit its nadir, tech employees were 8% of the population or less, and their share of personal income fell to 22%.

I can relate to some of the comments.  The need to shift from sprint to marathon was abrupt.  Established businesses like GSD&M referred to some of these new companies as “dot-cons” instead of dot-coms.  Of course, the younger generation of entrepreneurs thought these older Texas entrepreneurs didn’t understand the new economy. Isn’t that always how the script reads.

Of course, even some companies who “knew better” ran into trouble.  I worked at Trilogy at the time and I mistakenly thought we would be somewhat insulated from the bust because our customers were the marquee names in the Fortune 500 rather than startups – companies like IBM, Sun, HP, Nortel, Lucent, Alcatel, Cisco, Ford, etc.  What I and probably others didn’t realize is that many of these companies were doing a high level of seller financing and a lot of their equipment was being sold to startups that were about to go belly up.  The bust, followed by 9-11, vaporized the telecom industry and its employment, and anyone who was in the food chain that Startups were feeding was soon going to feel the pain.

Another good anecdote that many of us can relate to was from Brian Sharples, CEO of HomeAway (recently agreed to be acquired by Expedia):

Many of today’s corporate leaders are that much better for the experience, including HomeAway Inc. CEO Brian Sharples. He now runs a publicly traded global Internet brand that brought in $447 million in revenue last year, but before the bust he was a tech CEO and investor who lost a lot of money.

“The lesson I learned was a simple one,” Sharples said. “You can never count on a market to stay so robust that you can run your company without profits.”

Sharples and other HomeAway senior executives who weathered the tech bubble have since “locked arms aroudn the notion of generating cash,” he said. “Nothing teaches you to be more disciplined than going through a period of no discipline and getting burned by it.”

Contrast that approach to HomeAway competitors and other large fast-growing startups.  Maybe Brian is too conservative according to some, but he’s created a tremendous amount of value and liquidity for his employees and shareholders, in the billions of dollars.

The ABJ also related the story of the Intel shell. A really depressing marker of the dot-com bust, the block is much improved with the courthouse.  Another interesting tidbit is that BP3 now occupies a significant portion of the old Dr. Koop building in Northwest Austin.  Dr. Koop gets prominent mention in the article and in Austin dot-com-bust lore, partly because it’s name was on the building long after the company shut down.

A sign of how Austin pulls together in such hard times:  SXSW held it’s first job fair during the dot-com bust. Not because they thought they’d make money on it, but to help attendees find jobs.  I can imagine in the next downturn that SXSW will be there again with job fairs and helping people connect with opportunities. Hugh Forrest even acknowledged that their current pricing models wouldn’t survive a market crash. But I get the sense that they are sanguine – that they would just adapt to the change in the market and keep going forward.  Just like Austin did.  Just like those of us who stayed in Austin did.  Looking back, we’ve come a long way. 

If you have any doubts about that, follow the story below.  Since 2001, the Austin sky line has been transformed, starting with Frost Tower, but including the Austonian, 360 condos, Spring, JW Marriott, Courtyard Marriott & Residence Inn, Hyatt Place, Monarch, Colorado Tower, the Van Zant hotel, and many others.  It’s an amazing renaissance.

Austin Skyline