The Start-up Hall of Shame (America's 10 Worst States for Entrepreneurs)
BY Bill Murphy Jr.
New research reveals the least-friendly states for start-ups. Where does your state fall?
Where's the best place in the country to start a business? For that matter, where's the worst? Thanks to the U.S. Chamber of Commerce, we now have some pretty good answers.
The Chamber released its Enterprising States report recently, which "takes an in-depth look at the priorities, policies and programs of the 50 states that are vital for job growth and economic prosperity," including "entrepreneurship and innovation."
That gives us a unique, data-driven opportunity to rank the states by how friendly they are to new ventures. Today, I'll take a look at the 10 worst of the bunch. In a future column, I'll examine the states that are doing a better job.
It's fair to say that the University of Wisconsin-Madison probably saved the Badger State from an even worse ranking. Wisconsin ranked 11th in "academic research and development as a share of gross state product," which is one of the six criteria of innovation and entrepreneurship in the study. The downside? A very low "business birthrate," and a small percentage of high-tech firms as a share of all businesses.
#42: South Dakota
A middling percentage of self-employed and a big jump in the percentage of science, technology, engineering and math (STEM) jobs are the silver linings for South Dakota. The problem is just that there aren't that many high-tech firms now. (Remember when Gateway was there?) The state does better in its overall business climate ranking, and it "continues to highlight its lack of personal and corporate income taxes to attract new and expanding businesses."
A low "business birthrate" knocks the Hoosier state toward the bottom of the list. Its other entrepreneurship ratings are all in the bottom half of the country, but the overall business climate isn't too horrible. Indiana "has embraced a job creation strategy focused on holding taxes in check, investing in infrastructure, offering targeted support and incentives to job-creating industries, touting the state's low cost of living, and capitalizing on its crossroads position," the report said.
There aren't too many people even trying to start businesses in Iowa, at least according to the study. (Iowa came in 49th for "business birthrate.") But, there are some real bright spots. Ranked 12th for "academic research and development" and 14th in STEM job growth, there's good reason to think Iowa will be doing a lot better on the list in the years to come.
The Volunteer State did no better than #30 in any entrepreneurial category. There just simply aren't that many STEM jobs, which is either the cause or effect of having a low percentage of high-tech ventures to begin with. "Tennessee's strengths are in exporting (ranking 11th overall) and in its 12th-ranked business climate," the report said. "The Volunteer State ranks 29th in overall economic performance but 17th in short-term job growth, a sign that growth may be accelerating."
With a significant growth in the percentage of self-employed people, and a respectable #18 ranking in terms of academic R&D, what is it that sends Mississippi to the bottom of the list? An absolute dearth of high-tech jobs and firms. Mississippi was dead last in the concentration of STEM jobs, and it ranked #49 in the report's overall economic performance category. Bright spots: The state is betting its entrepreneurial future on the health care industry, according to the report, and it ranks high when it comes to exports.
It's not dead last in any of the innovation and entrepreneurship categories, but Kentucky doesn't really shine anywhere either. Its best showing is a #23 for STEM job growth, although that may be more of a function of not having many STEM jobs to begin with. That said, the report credits Kentucky with marked signs of increasing economic activity, including job creation (apparently, just not the kind of STEM jobs that are seen as an indication of entrepreneurship).
A lack of STEM jobs, the second-smallest percentage of high-tech firms, and a tiny percentage of people reporting they were self-employed sent Arkansas to the bottom of the list. Paradoxically, it ranked right in the middle--25th--in "business birthrate." (Of course, starting a business is no guarantee of actually growing one to success.) Possible bright spot: "One of the largest private investment projects in state history, a $1.1 billion steel mill, was announced in early 2013."
Very few STEM jobs and the fact that Maine came in dead last in number of self-employed combined to push the state near the bottom of the list. Overall, Maine is just in rough shape, according to the report. Looking for bright spots, the report cited the state's "Business Friendly Communities initiative to encourage communities to review their economic development and business services."
#50: West Virginia
West Virginia ranked dead last in "business birthrate," and no better than #33 in any other innovation and entrepreneurship category. The state has a "strong emphasis on creating jobs in manufacturing," the report says. Want more statistical proof? West Virginia ranks near the bottom in terms of broadband Internet speed and connectivity. It's tough to start a high-tech firm in the 21st century (or any business, really) if you can't count on reliable broadband.