Inc. report on the best locations to own a business.
The truth: There isn't a single best metro area to start and grow new companies, but there's a best place to start yours
Ever feel you're in the wrong city? Bob Freese did.
Freese and three colleagues from 3M Corp., in St. Paul, Minn., set out on their own a few years ago. Their new company's product was a given: optical storage devices for computers, a field their giant employer hadn't been interested in. They figured -- rightly, as it happened -- that they could raise seed money from prospective customers to build a prototype. Even the name, Alphatronix, proved easy to come up with.
But the place, the city that would be the new company's home, was a puzzle. Freese didn't want to stay in the Twin Cities. The cost of doing business in Minnesota was high. And he had learned while at 3M that A-list recruits were reluctant to move to so cold a climate, even for a job with one of the world's premier corporations. How could a start-up attract good people?
Engineers all, Freese and his colleagues began a methodical search for a home base, compiling data on cities all over the United States. The search produced a list of 15 possibilities. By some lights, Freese realized, it was a surprising selection. Despite Alphatronix's high-tech orientation, no city in California or New England made the cut. Neither did population magnets like Las Vegas or Orlando. Instead, the four entrepreneurs found themselves considering locations such as the Kansas City area; Washington, D.C.; and the Raleigh-Durham area of North Carolina. They developed a matrix of five factors and ranked the regions on each. The one scoring best on all five, they decided, would win.
May we have the envelope, please? And may we find out how a less-than-glitzy place like Kansas City was in contention, while Dallas and Boston and San Jose, Calif., were not?
Sure -- in a minute. First, by way of prologue, consider how important and how difficult a young company's choice of location can be.
For one thing, business and economic conditions vary dramatically from region to region in the United States. In one recent month the metropolitan unemployment rate was 9.9% in Detroit and 3.3% in Omaha, only a few states away. Cities differ not only by obvious measures (population growth, cost of living) but by subtler ones as well (the average restaurant in Orlando sells 33% more than its counter-part in nearby Tampa/St.Petersburg and 55% more than an eatery in Detroit). "There's really no national economy," says Mitchell Horowitz of the Corporation for Enterprise Development, a Washington, D.C., organization that tracks state-level trends. "Every state seems to have its own competitive positions and its own strengths and weaknesses." Cities' strengths and weaknesses are even more pronounced; they can make or break a new company.
Trouble is, there's no way of adding up all the virtues and defects into a single good-to-bad scale. Low tax rates? An advantage, so it would seem -- but not if low taxes mean lousy public schools. A tight labor market? A sign of a booming economy -- but a start-up in a tight labor market may have trouble finding employees. Freese wanted a place with a favorable business climate, just not too favorable. "If a community is offering you extra-special incentives, tax abatements, or whatever, there's usually some reason for it," he explains. "Maybe it has really high unemployment. And maybe that's because it has an uneducated work force."
To be sure, the Alphatronix story is unusual. Most entrepreneurs start their businesses where they live and rarely even consider anywhere else. But even homegrown company builders need a working knowledge of business geography. Maybe you plan on franchising your young company or expanding into another region. Maybe your start-up has competitors in other cities who don't face the same costs and constraints you do. Whenever the location issue crops up -- and it will -- you'll find yourself in a position similar to Freese's, figuring out what kind of city makes sense for your particular business.
At that point, you'll have to throw out preconceptions and prejudices about what various cities have to offer entrepreneurs. Some enjoy brighter prospects than others. Some provide better combinations of business inputs -- access to customers, suppliers, employees, money -- than others. Maybe most important, some have learned how to help young companies in ways that spell the difference between success and failure. Growth, it turns out, is not only where you find it, but where you make it.
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The Wealth of Cities
If they were setting out afresh, most entrepreneurs would choose to build their businesses in robust local economies, regions that thrive in upturns and hold their own in recessions. What makes for such economic health? During the 1980s, the key ingredient seemed to be a swelling population. Midsize Sunbelt cities, fed by massive influxes of immigrants, regularly topped the charts on indicators such as job growth and business starts. For a while, they even seemed to be skipping the current slowdown.
Today some of those booms have gone bust. Between 1988 and 1990, according to data compiled by Inc. from the Bureau of Labor Statistics and other sources, the Greenville-Spartanburg region of South Carolina ranked fourth in the nation in job growth. In the past two years its rank has dropped to 109th. That's a story repeated elsewhere in the Southeast (Fort Myers, Fla., plummeted from 10th to 126th) and in parts of California (San Diego fell from 22nd to 120th). One reason, of course, is that growth itself -- in the form of construction, real estate, and all the stores and service firms needed to serve a growing population -- was among those areas' biggest industries. Then immigration tapered off, partly because of the recession and partly because the huge baby-boom generation was growing older and less mobile. That touched off a downward spiral.
