SXSW: How a Small Festival Brought Austin Big Business For the city of Austin, and especially its growing cohort of tech entrepreneurs, South by Southwest has become the little festival that could.

Back in '87, the first South by Southwest Music Conference and Festival (SXSW) barely made an economic blip for its host city of Austin, Texas. There were only 700 registrants, after all.

But a lot has changed since then.

Last year, there were more than 41,000 registrants—and 155,000 participants who attended at least one activity—during SXSW, which has grown to include events for filmmakers as well as interactive sessions that are especially popular among entrepreneurs. The event's financial impact on Austin has also grown significantly, and it brought in more than $129 million during the event last year through the sale of items such as concert tickets, film screenings and access passes for the interactive sessions—plus another $88.3 million from the year-round operations of SXSW, according to an economic analysis from Greyhill Advisors.

"It's more than just a festival now," says Mike Rollins, president of the Austin Chamber of Commerce.

"Clearly, it has helped create a global recognition of what happens during [SXSW] Interactive," he adds. "A lot of the speakers draw interest, and because it's bylined in Austin it also helps us with the media recognition that we couldn't afford to purchase. The event happening in Austin, at least perception-wise, caused the city to be a place that companies looked at."

Austin is now ranked as the most business-friendly city in the United States, according to a survey conducted in 2013 by the tech-service firm Thumbtack.com and the Kauffman Foundation, a private foundation that studies entrepreneurship. That reputation, which has been building over the years, has helped attract numerous companies to a city known for its oddball charm and attempts to "Keep Austin Weird," as a slogan that debuted back in 2000 says.

Several years ago, when Eric Kuhn was creating the FoundersCard as a membership community for entrepreneurs, he turned to New York City to launch the new business. But as the start-up grew, from 100 members to 15,000, Kuhn and other growing ventures had to compete against much bigger tech companies as well as financial firms when it came to recruiting new employees. Eventually, he decided to move FoundersCard's headquarters to Austin.

"You don't lose the ability to attract top-tier talent in Austin," says Kuhn, who employs a mix of 10 full-time and contract workers. In fact, at the Austin Technology Council, the majority of its 200-member companies leverages SXSW for recruiting purposes, and they've filled a "significant" number of positions during the conference, says Julie Huls, the group's president. "The most direct link to SXSW for our companies is really on the recruiting side—they know it's a cost-effective opportunity for them to recruit outside of the market," she says.

All told, the greater Austin region is now home to nearly 4,700 technology companies, with payrolls from these businesses amounting to nearly $11 billion for employees in this sector, according to the local chamber of commerce. That's up from around 3,300 enterprises in this sector, and less than $8.5 billion, in 2005, though the chamber doesn't have comparable data from the early days of SXSW.

Of course, business owners note, there are other benefits to relocating to this warm locale. "There's a wonderful mix of "work hard, play hard,'" says Kuhn, who plans to hold FoundersCard's third event at SXSW this year. He adds, "Texas also has a great business environment—there are tax advantages." Unlike most places around the country, Texas has no state property tax, or individual income tax, "which appeals to many executives and entrepreneurs on the rise," says Huls. And while many treps have seen the opportunities available within Austin by attending SXSW, "they move to Austin because they know it is a place where they can grow their companies in a cost-efficient way (cheaply) and quickly," says Huls.

Some entrepreneurs in Austin have certainly seen a positive ripple effect as SXSW has expanded and helped grow their businesses. Cindy Lo, president of the event management firm Red Velvet Events, says her venture has developed to include 15 full-time employees since it started in 2002, "and it has definitely grown with the growth of SXSW in Austin."

Others have even created entirely new ventures to take advantage of gaps between Austin's ability to keep up with SXSW's expansion. RideScout, a local firm that debuted at SXSW last year, launched a mobile app that provides real-time info on how to get around the city by bus, bike or taxi. "From our perspective, SXSW is great for Austin, but really tough on the city's transportation infrastructure," says Rachel Charlesworth, a spokesperson for RideScout. "We just can't move people as efficiently as we'd like, though we think RideScout can help in 2014."

Still, with the festival's increased popularity comes an increased cost of doing business during SXSW. The average nightly hotel rate during the festival last year jumped 20 percent, to $255, "fueled by limited capacity and an overall increase in spending by registrants," Greyhill Advisors says. Meanwhile, prices for access passes have also been climbing—from $35 to $55 when the event first started—and now range from $495 for a film badge (but only if you purchased it back in September) to $1,695 for a "walkup" platinum badge. "Yes, all of us wish we were paying prices that were from 20 years ago," says Rollins, "but it's a matter of value. The platinum badges are growing—that tells me there's a return on investment that is now recognized."