Part 3: Is It Small Business Friendly?
Thumbtack.com worked with the Kauffman Foundation to assess Friendliness to new startups over the years by state and city. It measured states over a variety of topics to determine if small business owners were happy with their location or not. Idaho consistently scored in at the top while California was at the bottom.
Ease of starting a business:
Each state has a different process for incorporating a business. Colorado, for example, can allow for an individual to incorporate their business entirely online in a matter of minutes. Wyoming, on the other hand, will require you to draft legal papers and fax/mail them to the State Secretary's office and can take upwards of a week for the paperwork to process before you get an Employer Tax ID number. Once you have narrowed down a list of possible locations to start up in, do a bit of legwork to see how each state handles their incorporation process, or if there are any special regulations for starting up.
If you want to start a non-traditional business structure like an L3C, (charitable low-profit LLC) which is meant to bridge the gap between a non profit and a for profit company (in social or charitable entrepreneurship ventures) you will be limited to 9 states and 2 Native American Nations that recognize that structure. Knowing that Illinois, Kansas, Louisiana, Maine, Michigan, North Dakota, Rhode Island, Utah, Vermont, Wyoming, and the federal jurisdictions of the Crow Indian Nation of Montana and the Oglala Sioux Tribe are the only places you can incorporate without using a proxy will help you decide where to file.
Ease of hiring:
How well developed is your workforce? Are they skilled and looking for employment? Can you find a candidate for the job? These are questions every company will have to answer if they are looking to expand their workforce. Colorado ranks number 1 in this area in several studies. Skilled labor looking for hire can be tough to come by.
One place to look is for areas that have a fairly high collegiate or trade/vocation school population. Students will be entering the workforce or interning while in school. They have already learned important skills and can be a strong asset for any startup, especially a tech focused one. Additionally, take a look at what the general cost of living is in an area. In areas where it is very high, the chances of finding strong candidates for hire will be lower. They have likely already been snagged by a high paying job that allows them to make ends meet.
Health and safety; employment, labor and hiring; tax code; licensing; environmental regulations; and zoning and land use regulations. This can put a halt to your business depending on the industry you are in. I work in the nuclear engineering field. I can not work in most of California or Oregon. Many cities have passed ordinances disallowing mid to high grade radioactive materials to be used in those areas. To get a permit would be inordinately expensive, while a yearly license to mine radioactive source material in South Dakota will only run around a few hundred dollars. Environmental code enforcement is getting stronger and stronger as new legislation is passed (such as the Clean Air, Clean Water Act). Know your EPA region, where the office is located, and the regulations you have to follow.
More and more, small businesses are worrying more about red tape over taxes. Most business owners have no problem with the idea of paying taxes or complying with best practice regulations, the thing that gets the goat of every Main Street shop is that it is a time consuming hassle to jump through all the mandated hoops. Try and find cities and states that have streamlines processes for various services such as licensing, taxation, or regulatory compliance. Texas, Idaho, Utah, and Virginia are usually topping those lists.
Training and networking programs:
Does the state sponsor helpful small business training and networking programs? These can be economic development programs, events, or other ways the government helps the small businesses in their states. Buffalo, NY has a business pitch and incubator program, 43 North, that gives $5 million each year in investments to a select few businesses to have them relocate to the Buffalo area. The SBA has Small Business Development Centers all across the US. Additionally, take advantage of any other resources such as SBIR/STTR for state and federal grants and training programs for applying.
Rocky Mountain Innosphere is an example of a locally zoned entrepreneurial hub. They host industry cluster meetings on different businesses that bring together industry, government, and academia to promote small business growth and development. Look for additional resources that the government gives as incentives to move to their location. Depending on what your goals are, you may find it worth your while.
The bottom line:
The weight of the different aspects to consider is up to you, the founder. Do you care most about quality of life, access to funding, and networking opportunities for your software publishing company? If so, you may look to California in the Silicon Valley. If you are involved in research and need access to specific laboratories or look to work under a Dep. of Defense contract that may bring you to the East Coast or New Mexico. Each factor is unique to your company and has the potential to change the patterns of growth. It may come as a surprise that many California cities are ranked fairly low in these surveys. There is no reason to choose a city that will put you at a greater disadvantage while another will help you succeeded. A little research can go a long way when deciding where to start up.