Does putting your business in the right city increase its chances of success? If so, which are the best cities for startups? Chances are, your new business will do well if you put it in a town where most of the existing businesses are thriving. That's the logic behind a new study from LendingTree that compares the percentage of money-making and money-losing businesses in the 50 biggest metro areas in the U.S.
The most surprising thing about this list is some of the areas that didn't score well. Beginning with Silicon Valley. We think of that region as a fount of successful startups and yet San Jose, the heart of Silicon Valley ranked 40th in the list of 50, with only 62.89 percent of its businesses turning a profit. San Francisco didn't do much better, at 35th place with 63.76 percent of its businesses turning a profit. And New York came dead last on the list (behind even Buffalo), with only 57.38 of its businesses turning a profit. It was the only city to dip below 60 percent.
But consider that New York has more than a quarter of a million businesses. Every other town on the list has fewer than half as many, except for Los Angeles, which still comes in a distant second at 179,000. It's worth noting that New York, San Francisco, and of course Silicon Valley are all startup hubs, and startups are known for being unprofitable during their first several years.
So the presence of a lot of startups could explain the relatively low percentage of successful businesses. On the other hand, these are all areas where costs, especially real estate costs, have spiraled completely out of control. It could just be that you're better off putting your business in a place where both you and your employees can actually afford to be.
Fortunately, you have some good options. The top five cities on LendingTree's list have much more manageable cost of living than New York or Silicon Valley. Here they are:
An impressive 70.93 percent of businesses in Seattle are turning a profit. As LendingTree notes, the Washington State economy in general is doing well--it grew 5.8 percent during the third quarter of 2018, compared with 3.4 percent for the nation as a whole.
Although Seattle's cost of living is decidedly lower than those of Silicon Valley, New York City, and especially San Francisco, real estate costs are rising. It will be interesting to see whether or not that affects the percentage of profitable businesses.
2. Louisville, Kentucky
Tourism is a big economic driver in Louisville, and the entire world comes to town two weeks every year to watch the Kentucky Derby. This city has only 13,404 businesses, but 69.98 percent of them are turning a profit.
In Indianapolis--another town famous for an annual race--69.92 percent of businesses are profitable, putting it just behind Louisville. Finance and real estate seem to dominate the local industry, along with manufacturing and health care.
4. Portland, Oregon
Locals say that the TV series Portlandia really does capture the culture of this decidedly offbeat city. Still, 69.85 percent of its businesses are profitable, even if meaningful portion of them are likely to be food trucks.
Denver owes some of its economic might to its geographic location. Not only is it, famously, a mile above sea level, it's also located at the foothills of the Rockies, just East of the Continental Divide, a conveniently central location without another major city within a radius of 500 miles. In Denver, 69.37 of the businesses are turning a profit.