How do I fix this error: License Error: Failed to start hserver or connect to hserver.

Launch the Houdini Terminal either through Spotlight or through Applications>houdini>current>Utilities and type:

hserver

This should start the local hserver client proxy daemon.

The hserver daemon/service acts as a proxy for the sesinetd (license) server and ensures that multiple copies of the same product running on the computer only check out one license of that type from sesinted.