With National Small Business Week approaching April 28 – May 4, 2024, and 20% of new businesses failing within the first year, a new report on 2024’s Best Small Cities to Start a Business, may help entrepreneurs find a place where their startup can not only survive but thrive.

To determine the most business-friendly small markets in the U.S., WalletHub compared more than 1,300 cities with fewer than 100,000 residents across 18 key metrics. The data set ranges from small business growth rates and the accessibility of financing to investor access and labor costs.

Top 20 Small Cities to Start a Business
1. Cedar City, UT11. Bozeman, MT
2. St. George, UT12. Eagle Mountain, UT
3. Fort Myers, FL13. Winter Park, FL
4. Washington, UT14. Midvale, UT
5. Post Falls, ID15. American Fork, UT
6. South Bradenton, FL16. Helena, MT
7. Morrisville, NC17. Sarasota, FL
8. Lehi, UT18. Casselberry, FL
9. Altamonte Springs, FL19. Springville, UT
10. Coeur d’Alene, ID20. Bradenton, FL

Key Stats

  • Bozeman, Montana, has the highest number of startups per 100,000 residents, which is 8.5 times higher than in Galesburg, Illinois, the city with the lowest.
  • Bethesda, Maryland, has the highest share of the population with at least a bachelor’s degree, which is 19.1 times higher than in Coachella, California, the city with the lowest.
  • Kentwood, Michigan, has the most affordable office spaces, which is 6.8 times lower than in Mountain View, California, the city with the least affordable.
  • Isla Vista, California, has the lowest labor costs (median annual income), which is 10.8 times lower than in Los Altos, California, among the cities with the highest.
  • Fort Hood, Texas, has the longest work week, which is 1.9 times longer than in Isla Vista, California, the city with the shortest.

Pros and Cons of Starting a Business in a Small City

“There are a lot of opportunities in smaller cities like lesser competition, lower costs, and stronger community ties, that are often overlooked so indeed quite a few pros to starting a business in this setting. But the most significant I think would be the community and cost aspects. It is usually much cheaper to rent space and utilities tend to be much cheaper too. So, it is much more cost-effective if you need large physical spaces like a storefront, office space, or storage space. Salaries tend to be much lower too as often the cost of living is lower, so workers expect and are satisfied with a lower salary than typically seen in large cities. A strong sense of community is another major benefit of starting a business in a small city. Positive word-of-mouth can spread rapidly, and it is easier to build closer relationships with customers and capture that elusive customer loyalty all businesses seek. In terms of cons, sometimes it can be hard to find specialized talent or skills as the talent pool can be limited. All the businesses are competing for the same limited pool of employees so it can be challenging to get the people you need. To some degree, if there is the opportunity for remote work for certain positions, this issue can be mitigated,” said Vallari Chandna, B.A. LL.B (Law), M.B.A, Ph.D., professor, University of Wisconsin-Green Bay.

Pros: Many small cities have funding initiatives for new businesses. Many small cities have established business and commerce organizations that welcome new businesses. You will get lots of advice and recommendations. Small cities want new businesses that will attract new residents and growth. You will have less red tape to do the legal work for setting up the new business. Less competition.
Cons: Fewer potential customers. Preconceived ideas in residents of ‘this is where we shop/do business/etc.’ You will have to do a lot more local networking and friend-building than you may have to do in a larger city,” said Susan L. Luck, Ph.D., professor; and program director, Graduate Schools of Business, Pfeiffer University.

Types of Small Businesses that Do Better than Others in a Smaller City?

“Tech startups tend to be high-growth ventures that need a national or global market to succeed. But, retail stores (such as boutiques), restaurants, or hotels that tap into the local context can do well. Also, many other service businesses such as pet care, adult care, hair salons, architects, construction firms, etc., should be able to do well,” said Anil K. Gupta,  Chair in Strategy and Entrepreneurship, University of Maryland at College Park.

“Indeed, certain businesses do better than others in a smaller city. Stores that sell specialty goods such as locally-produced or unique niche products, tend to be more popular. If the city is in a tourist location, products targeting the visitor population may be a popular choice of enterprise. Restaurants do tend to do well especially if the concept is unique or they offer ethnic cuisine or they focus on local sourcing of ingredients. Many small towns have very successful upscale restaurants. A lot of tech startups, particularly those with a mix of remote workers, can also find it easy to build a hub in a smaller city with lower rents and costs,” Chandna said.

Can Local Authorities Encourage Entrepreneurial Activity in Their Small City?

“Think about what you want your city to have in a few years. That may not be a certain business. But if you want entrepreneurs who have new young families, you will need bookstores, arts and sports opportunities for children, and other businesses that will attract these entrepreneurs. You also will want to invest in a mentorship program for new business owners, pairing an established business owner with the entrepreneur to help with networking, civic engagement, and knowing where to go for what license or supply. Often only an established person knows the local sources for what the new business needs – make it easy for the entrepreneur to find that guidance!” Luck said.

“Many local authorities across the country already do some of these but things like (1) tax incentives and reduced regulatory burdens help. It does not mean regulations need to be lax but rather anything unnecessary can be revised; (2) streamlining the permit process is always appreciated by new businesses. For many new businesses, this can be a very challenging process so making it as smooth as possible can help reduce some barriers to entry; (3) networking and recognition events for local businesses and entrepreneurs are very important as well. It helps them get some publicity for their businesses so can certainly motivate them; (4) infrastructure investments and revitalization efforts are conducive as well; (5) shop local or small business days also indicate support. Encouraging locals to support their local businesses, creates a better community as well as economically benefits the businesses and the city,” Chandna said.

Source: WalletHub