Joe's Road Trip 2011

Road Trip Day 5: Starting Up

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Lynsey Addario / VII for TIME

Joe Klein interviews two 24 year-olds from UCLA: Mario Feghali and Chuck Gordon at Sparefoot, a start-up venture capital company, in Austin, Texas, on September 13, 2011.

Austin, Texas

Chuck Gordon couldn’t find anyplace to store his stuff. He was a UCLA art major, about to spend junior year abroad in Singapore. He checked out the regular storage places in LA and it was going to cost something like $1000, which his father said was just too expensive. But his girlfriend had a garage, and she could take half his stuff; and his roommate, Mario Feghali, a psychobiology major, had some space available, too.

And then he had an idea.

Why not start a business on the internet matching people with stuff to store with people who had some space and wanted to make some money storing it? Soon they were up and running, “and a weird thing happened,” Chuck told me, “Some of the mom and pop storage places asked us if they could list their space with us, too. We realized there was no way to consumer shop for self-storage on the internet. There was no storage equivalent of We called our site”

It seemed a major business opportunity, but he and Mario didn’t know all that much about business. So they shopped their idea to Capital Factory, an Austin, Texas incubator. “We run a competition every year,” said Capital Factory’s founder, Josh Baer. “We get about 300 business plans and choose 5.” The winners get $20,000 in seed money and come to Austin for a 10 week, intensive startup course. “The $20,000 isn’t the big thing,” Baer said. “We have a team of 20 mentors and we give them the equivalent of $100,000 in professional services–legal, financial, marketing.”

Lynsey Addario / VII for TIME

Sparefoot was chosen by Capital Factory 2 years ago. Chuck and Mario moved to Austin and decided they loved the place–it was far less expensive than LA, the weather was warm, the food and music were great, and there was the beginning of a high-tech community. They took office space a floor down from Josh Baer’s office in the Omni Center. They now have 16 employees, who work ridiculous hours and live on snack foods that are piled up in the hallway outside the office. They are planning to hire 50 more this year–the jobs will range from high-tech developers to low-tech call center workers.

Sparefoot is just one part of the tech boomlet that’s beginning to happen in Austin. A local entrepreneur name Bryan Menell took me on a tour of Austin’s silicon gulch, which is located in a 3 or 4 block radius downtown. We had lunch with a local venture capitalist, Kip McClanahan, who specializes in funding startups like Sparefoot. “I think we’re on the brink of some real growth here,” he said. “We’re in the second or third year of a new wave of startups. The pace is up about two, three times this year and we’re coming to the stage in the business cycle where you’re going to see some real growth.”

The rule of thumb is that only one in ten tech startups survive. It’s not a lifestyle for the risk-averse. And there’s no way of knowing whether this sort of thing will have a major effect on the sour American economy. But there are some grounds for hope: we certainly have learned how to nurture young entrepreneurs with good ideas. Dozens of cities are developing high-tech incubators. “I think we’re in the midst of a revolution, the largest commercial shift in history,” says Jeff Dachis, one of the founders of Razorfish, the internet advertising agency. Jeff moved from New York to Austin to raise a family and start a new internet venture that helps companies market to social networking sites. “We are changing the way companies deal with their customers It’s becoming far more interactive–and that is changing the socio-political and technological landscape of the country. I’m an optimist. I think that in the long run, this is going to change everything–look what happened in Egypt.”

Jeff might have added: look how you’re crowd-sourcing your road trip, Joe. True enough: my customers–you, dear readers–have a major hand in determining where I’m going this month on the road. And I’d love to be as optimistic as Jeff Dachis and all the other entrepreneurs I met in Austin yesterday. Their risk-taking and energy are certainly a far cry from the wall-to-wall anguish I encountered on last year’s road trip. But I simply don’t know if internet commerce can create enough jobs to help save us (nor do I know whether the social media revolutionaries in Egypt will wind up running that country or in jail).

“Austin is a bit of a bubble,” said Kip McClanahan. “We’re in great shape.” That’s always been true–the state government, the University of Texas provide stability. There’s always been a sophisticated and wildly creative arts community here. Dell Computers–started by a University of Texas student, Michael Dell–launched the possibility that Austin could be a high-tech center as well. There is a spirit to this city–open, informal, wild-ass–that makes it one of my favorite places in America. It would be nice to think that spirit could be fruitful and multiply, but this is a complicated country and a complicated economy, and I just don’t know.

The National Federation for Independent Business conducts a Small Business Optimism Index each month. In August, it was down for the sixth month in a row. “Poor sales” was the most common problem cited, and only 11% said they plan to increase employment over the next three months. Which means Sparefoot is at the head of the class in this economy. –KS