The Best and Worst Cities to Start a Business

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Are you looking for the perfect place to launch your new business?  Then be sure to check out WalletHub’s annual analysis of the best cities to start a business. WalletHub compared the startup environment in the 150 most-populated U.S. cities (unlike many such studies, the analysis focused on the city proper, not the surrounding metro areas).

Each city is ranked across three dimensions: business environment, access to resources and costs. Business environment includes factors such as the number of startups, the average growth in number of small businesses, the average growth of small business revenues, the five-year business survival rate and the variety of industries represented. Access to resources included factors such as the ease of getting financing, the availability of employees and the percentage of employees with a college degree. Finally, costs included labor costs, cost of living, corporate taxes and the affordability of office space.

Based on these factors, the top 10 cities to start a business are:

  1. Sioux Falls, South Dakota
  2. Grand Rapids, Michigan
  3. Oklahoma City, Oklahoma
  4. Lincoln, Nebraska
  5. St. Louis, Missouri
  6. Salt Lake City, Utah
  7. Charlotte, North Carolina
  8. Springfield, Missouri
  9. Tulsa, Oklahoma
  10. Amarillo, Texas

Does this mean you should pack your bags? Of course, you'll need to take into account all the factors involved in the ranking and how they relate to your needs for your particular startup. In general, high scores in one category are typically offset by low scores in another category. For example, Salt Lake City boasts a very low score in business environment, but a high score in terms of access to resources. Sioux Falls, South Dakota, on the other hand, ranks high in terms of business environment but only moderate in terms of access to resources.

In addition, some of the cities best known for startup culture — such as San Francisco or San Jose, California — are hampered in the rankings by factors such as high costs. And some of the places with plentiful resources, such as affordable labor or office space, are in economically depressed regions that may not offer the best quality of life.

Making the best decision for you requires deciding what matters most to your startup. Do you need a highly educated or specialized workforce? Then you may have to make a trade-off by locating in an area with higher costs. If finding financing is of urgent importance, you might want to locate in some unexpected places, such as Lubbock, Texas, or Madison, Wisconsin. And if being part of a thriving community of rapidly growing small businesses matters to you, you'll find you’re most at home in Grand Rapids, Michigan; Charlotte, North Carolina; or Austin, Texas. (Check out the full list and explanation of methodology for more information.)

In short, only you can say what city is the best for your startup. Perhaps the best choice is staying put where you are, even if your city isn't among the top 10 or 25 on the list.

Wondering which cities to stay away from?

Again, no ranking is absolute, but you may want to think carefully before choosing to start a business in one of these locations, which ranked as the bottom 10 among the 150 cities analyzed (though I know many happy and successful entrepreneurs in some of these cities):

  1. Rancho Cucamonga, California
  2. Albuquerque, New Mexico
  3. Fremont, California
  4. Gilbert, Arizona
  5. Philadelphia
  6. Jersey City, New Jersey
  7. Portland
  8. Washington, DC
  9. Providence, Rhode Island
  10. Ontario, California

No matter what city you’re starting up in, be sure to find out the location of your nearest SCORE office, where you can get free business consulting from experienced entrepreneurs. Even if there isn’t an office in your town, you can visit www.score.org to get mentoring online 24/7.

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SCORE is a nonprofit association dedicated to helping small businesses get off the ground, grow and achieve their goals through education and mentorship.