We all hear about the critical role that businesses play in the competitiveness and economic growth of our cities. But it’s important to note that the reverse is also true: Your city has a tremendous impact on your bottom line. Your city means more to your business than just an address on the front door. Your company’s location drives business formation, strategy and performance. It’s called economic geography – and it’s a two-way street.

I’ve challenged my graduate students – all of them entrepreneurs and small business owners – to consider the question of place: How does your city support your business growth?

City industry clusters help businesses thrive.
If birds of a feather flock together, so do similar businesses: biotech companies gather in Cambridge, energy companies gravitate toward Houston, athletic apparel is huge in Portland, Ore., and finance clusters in New York City. The close proximity creates a synergy that enables companies within the cluster to easily collaborate, influence local policy investments, share specialized training programs and partner with service providers.

Industry clusters are a driving force both economically and socially for your business. As Harvard Business School Professor Michael Porter explains, industry clusters provide each business with a sense of greater scale, as if it “joined others without sacrificing its flexibility.”

Talented workers are moving to cities in droves.

For the first time ever, more than half of the world’s population – that’s a staggering three billion people – live in our urban cores. People are returning to the city, and the trend is expected to continue. An estimated 60 million additional people per year will move to cities in the U.S. and around the world.

Your people – not your products or technology – are the driving force of your business, and talented workers go where the opportunities are: to the city. And the people living in cities are younger and more diverse than the rest of the U.S. population. The generous talent pool in cities, often specialized and concentrated, offers business owners the opportunity to find the brainpower and specific skillsets they need for their companies.

Urban anchor institutions drive innovation and business development.

Urban anchor institutions, such as universities and hospitals, produce research and technology and have a tremendous impact on an industry’s markets. And anchors are big customers: Nationwide, hospitals spend $320 billion annually on goods and services, and 7,000 colleges and universities collectively spend another $200 million each year. The opportunity to bid on procurement contracts is just one of many benefits enjoyed by businesses located near these institutions—especially as more anchors commit to purchasing locally.

Proximity to colleges and universities also enables local companies to take advantage of the continuous stream of young talent entering the workforce. Area businesses can have an impact on the front end of higher education as well, connecting with learning institutions to create workforce training programs and curricula that meet hiring needs.

Capital moves to entrepreneurs, and entrepreneurs move to capital.

We’ve heard the stories: X Company was founded in Y City… but then moves to Silicon Valley! Why? Entrepreneurs must go where they will be funded, and venture capitalists prefer to be close to the businesses in which they invest.

A whopping 40% of venture capital flows to Silicon Valley, followed by Boston (11%) and New York City (8.6%). Cities that have a strong entrepreneurial cluster also tend to have a greater access to capital and related resources.

Moreover, Community Development Finance Institution (CDFI) lending is highly concentrated: Just 10 cities account for 82% of all CDFI lending to urban businesses. If one of your 2012 business goals is to access funding, then consider how your business location affects your ability to garner these well-known sources of funding.

Work matters, but quality of life matters too.
As a business owner, it’s important that you consider how your location impacts your – and your employees’ – quality of life. Do your employees have to drive to work? Can you walk down the street and grab a cup of coffee? Can you easily meet with like-minded entrepreneurs to share ideas or conduct business deals?

Where you locate your business hinges on more than economics. A city might be good for your bottom line (i.e. low cost of rent, ease of parking) but unappealing to your workers. If your business is unable to engage in the local cluster, you may find it difficult to attract and retain a talented workforce.

Cities have different assets, cultures, values, demographics, aesthetics and opportunities. Finding the city that matches your personal values and those of your brand is the key.