Why Texas is Overtaking California as a Tech Business Hub

Written By: Jess Reed

For a few years now, a narrative has been building that Texas is nipping at California’s heels as a leading state for tech businesses. While California still remains king in most people’s eyes — and Silicon Valley in particular still holds a lot of sway — there is at this point little doubt that Texas is becoming a legitimate competitor. In April of 2019, in fact, an article looking at state tech employment noted that by raw data, Texas had ascended to the number two spot behind California. The article did note that California remained fairly far ahead (employing 1.8 million in tech in 2018 to 983,000 in Texas). But its main point was that tech employment in Texas was up 20.9% since 2010 — not too far off the 25.4% rate for California.

Given this data, the persistent chatter about Texas potentially overtaking California as a hub for tech business and innovation is more than understandable. As to why this is happening though, we’d look to a few significant factors.

1. Affordability. One of the main factors in the emergence of Texas as a dominant force in tech innovation is undoubtedly the fact that the state offers a relatively low cost of living. In zooming in on tech opportunities in California and Texas a little while back, this was actually one of the key differentiating notes we focused on. Despite higher salaries in tech, California has a very high cost of living. By contrast, Texas offers slightly lower salaries — but has a significantly more affordable cost of living and no state income tax. That combination, of reasonably high salaries in tech jobs and less living expense, is thought to be one of the main drivers of tech talent to Texas.

2. Ease & Incentive. The ease of starting an official business in Texas is not likely enough of a draw to directly pull people from other states. But it certainly helps young entrepreneurs in the state to get started, and also helps incoming talent to set up more sustainable businesses. Specifically, registering an LLC in Texas is an almost shockingly simple thing to do. People starting businesses and opting for this structure — which is oriented for owner stability and company growth — only have to complete a few online forms concerning the name, control, and registration of the business.

Beyond this sort of structural ease, there are also incentives related to new businesses in Texas. We mentioned the lack of income tax already, but Texas also has a very low (1%) corporate tax rate, which further improves conditions for new small businesses. This, plus a thriving environment for grants and startup funding, makes for a fairly powerful incentive for people to try starting their businesses in Texas.

3. Positive Examples. There are also positive examples that are helping to draw attention to the rise of Texas in the tech world. The most notable such example comes from HP. This tech giant, which literally started Silicon Valley, has actually migrated to Texas. In doing so, it has become a sort of flagship for the broader narrative of established tech companies moving to the state in order to take advantage of the aforementioned favorable tax situation.

From headliners like HP to successful new, small businesses, the appeal of Texas is only becoming clearer thanks to positive examples. Aspiring entrepreneurs both in Texas and elsewhere see what’s happening and believe in the opportunity the state is coming to represent.

All of these factors, as well as the abundance of thriving industries and the massive population of young talent in Texas, combine to make the state a serious competitor to California. Whether or not it will overtake California by the numbers remains to be seen, but things to appear to be trending in that direction.