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The 10 Top Small Cities To Start A New Business

Entrepreneurs who want to go big on a startup should consider these smaller cities.

The 10 Top Small Cities To Start A New Business
[Photo: Flickr user Doug Anderson]

Startup founders take note: In entrepreneurship, as in real estate, location matters. A lot.

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According to a new study by consumer finance site NerdWallet, smaller cities provide just as much fuel for startups as larger metro areas. Crunching Census data on 463 U.S. cities with populations between 50,000 and 100,000 revealed that would-be business owners have options and resources in places from Alpharetta, Georgia, to Corvallis, Oregon, that aren’t necessarily on everyone’s radar.

To rank the cities, NerdWallet calculated a score based on business climate (65%—which includes combined company revenues, percentage of paid employees, and number of businesses per capita) and local economic health (35%—which factors in median annual income, housing costs, and unemployment rates).

The top 10 were:

  1. Alpharetta, Georgia
  2. Redmond, Washington
  3. Wilmington, Delaware
  4. Troy, Michigan
  5. Minnetonka, Minnesota
  6. Waukesha, Wisconsin
  7. Newport Beach, California
  8. Bethesda, Maryland
  9. Greenville, South Carolina
  10. La Crosse, Wisconsin

The Allure Of The Bedroom Community

It should come as no surprise that seven of the 10 small cities listed here are suburbs of thriving metro areas. NerdWallet’s economics writer Jonathan Todd tells us, “We have seen that communities that are geographically close to larger cities do well in many of our studies—on both the state level and national level.”

Todd notes that Atlanta proper has a population of around 450,000, but the metropolitan area includes 5.5 million. All the necessities to support a large economy are there, including a world-class airport and a downtown core that is home to some of the largest companies in the world. “However, most people live outside the city boundaries, which means there are plenty of opportunities for businesses to serve those residents,” he says.

Topping the chart, Alpharetta is 26 miles from Atlanta. While it is true that many denizens of this metro area regularly endure lengthy travel times in traffic to commute to Atlanta’s central business district, the survey notes that multinationals such as McKesson and Hewlett-Packard have satellite offices in Alpharetta as well as a thriving local business environment. With around 15 businesses per 100 people, Alpharetta boasts 65% more than the average 9.14 businesses per 100 residents of the other cities analyzed.

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Ditto for Troy, Minnetonka, and Bethesda. The suburban Detroit city hosts Automation Alley, a business accelerator and association of tech companies that aims to diversify the economy from its dependence on automotive manufacturing. Cost of living is relatively low here compared to what you can earn. Troy’s median annual income of $72,333 (just above the scientifically proven level that makes people happy) pairs neatly with a housing cost of $1,366 a month, meaning people would spend just under a quarter of their paycheck to put a roof over their head, the second lowest proportion in the top 10 cities.

Bethesda, MDPhoto: Flickr user Matthew Straubmuller

Located 14 miles from Minneapolis, Minnetonka enjoys a similarly strong economy with help from Carlson Industries (one of the largest private companies in the U.S.), and has the second highest number of businesses per capita on this list.

Bethesda, Maryland, a suburb of Washington, D.C., has one of the healthiest local economies in the nation, according to Todd. A median annual income of $111,281 is among the highest in the U.S., and a local unemployment rate of 2.7% is the lowest in the top 10, he says.

Standalone Cities Can Be Strong, Too

Wilmington, Newport Beach, and Greenville have decidedly different strengths because they are not cozily situated to a big city. As Delaware’s largest city, Wilmington has one of the strongest local business communities in the country all by itself. Todd points out that Wilmington’s 8,500 companies have revenues of about $6.75 million each on average, and 42.18% of companies have paid employees, the second highest proportion in the top 10.

Newport Beach, located in Orange County, California, has the highest concentration of businesses, 21.33 per 100 residents. Pacific Life and PIMCO have been major economic players, but the city also supports a growing technology cluster.

Newport Beach, CAPhoto: Flickr user mbtrama

Greenville, South Carolina, is different in that it is its own economic entity, home to Michelin’s North American headquarters and GE’s Power and Water division, says Todd, but it is close to the two largest cities in the region, Atlanta and Charlotte. “Greenville has the second highest number of businesses per 100 residents in the top 10,” he says. “I interpret that as Greenville having the best of both worlds–there are plenty of opportunities to serve the local population, but also reach into those large nearby markets.”

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It also helps that Greenville has an incubator that supports entrepreneurs by connecting them with funding, talent, and a space to cowork as they develop their businesses. NEXT is a nerve center for startups in Greenville. President and CEO John Moore isn’t surprised that the city made the list of entrepreneurial communities.

“The Greenville area has experienced a tremendous surge in entrepreneurship in recent years, and we’ve seen that in our growing portfolio of companies,” Moore says. In 2014, 145 companies added 552 full-time direct and indirect jobs with total annual payrolls exceeding $29.6 million, and attracted over $40 million in new capital, according to data from NEXT. “The vibrant ecosystem of capital, talent, and facilities that NEXT and others have developed is helping our existing ventures succeed and is attracting new entrepreneurs to the Greenville area,” he says. A median monthly housing cost of $808, the second lowest in the top 10, doesn’t hurt, either.

The Collaborative Potential Of Clusters

The Seattle suburb of Redmond is the home base for Microsoft, the technology juggernaut. Todd points out that in the book The New Geography of Jobs, economist Enrico Moretti makes a case for the overarching impact and value that tech companies can have on a local economy. Moretti posits that each job in the technology sector creates an additional five jobs in the local economy.

“With this kind of anchor in Redmond’s business community, entrepreneurs are likely salivating at the opportunities,” Todd writes. Businesses in Redmond raked in an average of $7.4 million in revenue, making it the highest of all the cities on the list.

But can a city like Redmond become too dependent on such a dominant startup? Todd says that is a bit out of the scope of NerdWallet’s study. However, based on Moretti’s work, Todd says cities that have job growth capture that momentum and continue to build from it.

“Businesses tend more and more to cluster around cities like Atlanta, Seattle, and Washington, D.C., to the benefit of their surrounding communities,” he says. “Over time, these cities have become diverse enough to avoid being too dependent on any one business or segment of the economy.”

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About the author

Lydia Dishman is a business journalist writing about the intersection of tech, leadership, commerce, and innovation. She is a regular contributor to Fast Company and has written for CBS Moneywatch, Fortune, The Guardian, Popular Science, and the New York Times, among others.

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