2018’s Best & Worst Small Cities to Start a Business

Size matters when choosing a city in which to launch a startup. As many veteran entrepreneurs — and failed startups — understand well, bigger is not always better. A city with a smaller population can offer a greater chance of success, depending on an entrepreneur’s type of business and personal preferences.

Every small city offers unique advantages and disadvantages to new business owners. Some benefits include lower overhead costs, stronger relationships with customers and the potential to become a big fish in a little pond. But there are plenty of drawbacks, too. For one, entrepreneurs who want to build a large professional network aren’t likely to make as many connections in a town with fewer residents. Other restrictions might include limited industry options, a less diverse customer base, and difficulty attracting and keeping top talent.

To determine the best small cities to start a business, WalletHub compared the business-friendliness of more than 1,200 small-sized cities. Our data set of 18 key metrics ranges from average growth in number of small businesses to investor access to labor costs. Read on for our findings, insight from a panel of business experts and a full description of our methodology.

Main Findings

 

Best Small Cities for Starting a Business

Ask the Experts

Entrepreneurs who lack expert guidance are more likely to struggle. For insight into starting a business in a small city, we turned to a panel of experts for their thoughts on the following key questions:

1. What are the pros and cons of starting a business in a small city?
2. Would some types of small businesses (e.g., a retail store, restaurant, or tech startup) do better than others in a smaller city?
3. What tips do you have for an entrepreneur starting a business in a small city?
4. What impact do you think the Trump administration’s recent policies will have on entrepreneurs?
5. What can local authorities do to encourage entrepreneurial activity in their small city?

Methodology

In order to determine the best small cities in which to start a business, WalletHub compared 1,261 cities across three key dimensions: 1) Business Environment, 2) Access to Resources and 3) Business Costs. For our sample, we chose cities with a population of between 25,000 and 100,000 residents. “City” refers to city proper and excludes the surrounding metro area.

We evaluated each of the three key dimensions using 18 relevant metrics, which are listed below with their corresponding weights. Each metric was graded on a 100-point scale, with a score of 100 representing the most favorable conditions for launching a business.

We then determined each city’s weighted average across all metrics to calculate its total score and used the resulting scores to rank-order our sample.

Business Environment – Total Points: 50

• Average Length of Work Week (in Hours): Full Weight (~5.56 Points)
• Average Commute Time: Full Weight (~5.56 Points)
• Average Growth in Number of Small Businesses: Double Weight (~11.11 Points)
• Startups per Capita: Double Weight (~11.11 Points)
• Average Revenue per Business: Full Weight (~5.56 Points)
• Average Growth of Business Revenues: Full Weight (~5.56 Points)
• Industry Variety: Full Weight (~5.56 Points)

Access to Resources – Total Points: 25

• Financing Accessibility: Double Weight (~5.56 Points)
  Note: This metric was calculated as follows: Total Annual Value of Small-Business Loans / Total Number of Small Businesses
• Investor Access: Double Weight (~5.56 Points)
• Human-Resource Availability: Full Weight (~2.78 Points)
  Note: This metric was calculated by subtracting the “unemployment rate” from the “number of job openings per number of population in labor force.”
• Higher-Education Assets: Full Weight (~2.78 Points)
  Note: This metric is based on WalletHub’s 2018’s College & University Rankings.
• Workforce Educational Attainment: Full Weight (~2.78 Points)
  Note: This metric measures the percentage of the population with at least a bachelor’s degree.
• Working-Age Population Growth: Full Weight (~2.78 Points)
  Note: “Working-Age Population” includes those aged 16 to 64.
• Job Growth (2016 vs. 2012): Full Weight (~2.78 Points)

Business Costs – Total Points: 25

• Office-Space Affordability: Full Weight (~6.25 Points)
  Note: This metric measures the per-square-foot cost of commercial office space.
• Labor Costs: Full Weight (~6.25 Points)
  Note: This metric measures the median annual income.
• Corporate Taxes: Full Weight (~6.25 Points)
  Note: Data for this metric were available only at the state level.
• Cost of Living: Full Weight (~6.25 Points)

 

Sources: Data used to create this ranking were collected from the U.S. Census Bureau, Bureau of Labor Statistics, Federal Deposit Insurance Corporation, AreaVibes, Yelp, Indeed, Tax Foundation, LoopNet and WalletHub research.