July 1997
“Boom” Is a Four-letter Word
Thanks to high tech, the Texas economy is surging—just as it was in the early eighties. So how come nobody wants to talk about it?
JOE LIEMANDT HAS BEEN DOING PRETTY well lately. Last year, at the age of 28, he became the youngest self-made member of the Forbes 400, a list of the wealthiest people in the country. He is worth a sweet half a billion dollars. What is most remarkable about Liemandt’s achievement is that he did not make his money the old-fashioned way: drilling for oil or developing real estate. He didn’t even make his money assembling computers. Liemandt is the founder of Trilogy Development Group, based in Austin, and he made his money designing software programs. As the Industrial Age wanes and the Information Age waxes, high tech is usurping the place of oil, just as oil once supplanted agriculture. Next year for the first time economists are predicting high tech will contribute more to the state’s economy than oil. The rise of technology began with Texas Instruments, grew with Michael Dell, and has now reached maturity with Joe Liemandt. In the past Texans commonly made their fortunes from the land—first with cotton, then cattle, then oil, then real estate—but Liemandt’s success proves that the state finally has a truly modern economy.
The surge of high tech has also coincided with an upswing in all parts of the economy, making the prosperity of people like Liemandt emblematic of the prosperity of Texas as a whole. For ten straight years the state has experienced steady economic expansion. Not every region has benefited equally—thousands of jobs have been lost along the border and in the oil patch—and in the past two years the pace of growth has slowed down somewhat, but the length of the expansion is still exceptional. This period of sustained growth is nearly as long as the eleven-year stretch that culminated with the oil craze. In other words, we’re in the middle of something akin to a boom. So how come we can’t admit it? Well, it isn’t a boom in the old sense. The expansion has been gradual, not jet-fueled. But compared with the debilitating bust of the eighties, the nineties have been good times indeed. Nonagricultural employment in the state, the most widely used indicator of economic growth, has been climbing at an average of 2.58 percent (as opposed to an average of 5.38 percent during the oil boom). Yet Texans feel a widespread aversion to the very word “boom,” which only conjures up thoughts of its corollary—“bust.” “A boom is such a thing as is apt to terminate and go backward,” says Dallas developer Trammell Crow, who nearly lost his real estate empire to his bankers after the bottom fell out of the market in the late eighties. Texas Department of Commerce analyst Branner Stewart adds, “‘Boom’ almost has a negative connotation.”
The current expansion does possess many of the hallmarks of a boom, however, such as increased productivity and low unemployment. After a decade of steady gain, even oil and real estate are once again showing signs of health. Call the cheery good feeling permeating the state the New Boom. It is a cautious, thrifty, highly disciplined, sometimes mean-spirited phenomenon that bears little resemblance to its freewheeling, free-spending older cousin. During the bust, cars displayed bumper stickers that read “O Lord, Please Send Us Another Oil Boom—We Promise Not to Screw It Up This Time,” and the New Boomers tend to make money with exactly that kind of wariness. Joe Liemandt earned his money by designing “sales configuration software,” a tool that allows companies to buy and sell products more efficiently—basically he made a mint by helping others pinch pennies. Despite his net worth, which could easily support several homes, Liemandt doesn’t even own one. He rents an apartment near his office, an austerity he explains by saying real estate isn’t a wise investment.
The New Boom also differs from the old in scale: The biggest winners last time were behemoth companies that employed armies of people, while this boom involves a large number of start-ups that employ just a handful of people. But the biggest difference of all lies in the prevailing attitudes. The Old Boom made us think we were better, smarter, luckier, and richer than the rest of the nation. The bust popped the great balloon of our narcissism; if anything, it seemed to say that we were dumber, unluckier, and poorer. This time around we are prospering in tandem with the nation, and what we have learned is that we are only a little bit better than everybody else.
Boomtown
AUSTIN HAS BECOME THE EPICENTER of the New Boom in the way that Houston was the epicenter of the old one. From 1990 to 1995 Texas led the nation in the creation of high-tech jobs, surpassing California to become the country’s leading producer of computer chips last year. Laid-back Austin is now ringed by factories that process silicon 24 hours a day, 365 days a year. Motorola has become the city’s largest private employer, and the factories have attracted more than 150 equipment suppliers to the area as well.
Austin is also the headquarters of several leading producers of personal computers. There is no more prominent example of Austin’s new afßuence than Michael Dell, the 32-year-old billionaire who became an industry legend by manufacturing cheap computers and selling them directly to consumers. As profits at Dell Computer climbed to $518 million last year, Dell began building himself a Bill Gates—style palace—reportedly a 33,000-square-foot estate with ten bedrooms, twelve bathrooms, and two pools. Perhaps more typical of the New Boom, however, is the austerity of cybermogul Stephen S. Kahng. Four years ago Kahng’s Power Computing Corporation, based in suburban Round Rock, became the first company to manufacture Macintosh clones. No fancy architecture here: When the company ran out of space, he leased a building that had previously held a Wal-Mart. Never mind that Power Computing has been called the country’s fastest-growing start-up; revenues are predicted to hit $700 million this year.
A bevy of smaller firms has sprung up alongside these large operations. Austin now has 1,100 multimedia companies, at which the average number of employees is fewer than five. And the proliferation of start-ups has attracted eleven venture capital firms to the area, as well as additional money from venture capital firms on the West Coast. In 1996 Austin companies received $66 million in venture capital, a 62 percent increase over 1995.
Increased reliance on high tech brings perils as well as gains, of course. Last summer’s dip in orders for chips caused a sharp contraction in the semiconductor business, and nearly all chip manufacturers were forced to put expansions on hold; some, such as Motorola, even imposed layoffs. Statewide, the slump contributed to a slowdown in the growth of nonagricultural employment—that rate dropped to 2.3 percent last year, down from 4.2 percent in 1994. In other words, while it was once true that the best indicator of the health of the Texas economy was the price of a barrel of oil, today a more significant figure is the so-called book-to-bill ratio, which is the ratio of orders to sales in the chip business.
Still, the less hectic pace of growth should give Austin’s infrastructure a chance to catch up with its population. More than 100,000 jobs were created in the city during the past six years, boosting its population by 20 percent, putting 170,000 more cars on the roadways, and setting off a surge in construction projects. Downtown development includes the glass-and-brick extravaganza for GSD&M (the largest advertising agency in the Southwest), and scores of subdivisions have transformed the city’s periphery.
Big D Gets Bigger
THOUGH AUSTIN GETS THE CREDIT FOR THE CYBERBOOM, Dallas was really its birthplace—the single-chip microprocessor was invented at Texas Instruments. Dallas still produces large numbers of computer chips, but the area has expanded into telecommunications, as opposed to software. The advent of fiber optics, the deregulation of the phone business, and the exponential rise of traffic on the Internet have combined to swell profits in this sector, and Dallas has not suffered the same sort of slowdown as Austin. Last year Dallas led the state in job creation, and in December its unemployment rate dipped to 3.4 percent, the lowest since 1990.
Emblematic of the New Boom is 49-year-old Kenny Troutt, the founder of Excel Communications. Troutt grew up in an Illinois housing project, but today he’s a billionaire. After losing his shirt in oil and construction, he made his money in the long-distance business. In the past four years Excel’s revenues have exploded from $20 million to $1.4 billion. True to the spartan spirit of the new era, Troutt eschews opulence. “I’ve seen people build a business by living, thinking, eating, and sleeping for the business,” he says. “Then, as soon as they start making some cash, they start buying a ranch and taking vacations, and the business suffers. I don’t ever want to do that.” You never heard talk like that from Don Dixon, the real estate developer who ran Vernon Savings and Loan Association in the eighties. Dixon got around Dallas in his Ferrari “company car” and around the country in his ßeet of five planes.
