With National Small Business Week approaching and many employers still struggling to hire new workers, a new report may help you decide where to set down business roots. called 2023’s Best Small Cities to Start a Business.

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 accessibility of financing to investor access and labor costs.

And 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 accessibility of financing to investor access and labor costs.

Top 20 Small Cities to Start a Business
1. Washington, UT 11. Eagle Mountain, UT
2. St. George, UT 12. Coeur d’Alene, ID
3. Cedar City, UT 13. Cheyenne, WY
4. Bozeman, MT 14. Missoula, MT
5. Logan, UT 15. Midvale, UT
6. South Bradenton, FL 16. Redmond, OR
7. Post Falls, ID 17. Windsor, CO
8. Fort Myers, FL 18. Winter Park, FL
9. Lehi, UT 19. Altamonte Springs, FL
10. Morrisville, NC 20. American Fork, UT

Key Stats

  • Bozeman, Montana, has the highest number of startups per 100,000 residents, 360.68, which is 8.1 times higher than Muncie, Indiana, the city with the lowest at 44.45.
  • Bethesda, Maryland, has the highest share of the population with at least a bachelor’s degree, 87.90 percent, which is 20.9 times higher than Wasco, California, the city with the lowest at 4.20 percent.
  • Kentwood, Michigan, has the most affordable office spaces, at an annual rate of $9.06 per square foot, which is 6.8 times lower than Mountain View, California, the city with the least affordable at an annual rate of $61.85 per square foot.
  • Isla Vista, California, has the lowest labor costs (median annual income), $22,386, which is 11.2 times lower than in  Altos, California, the city with the highest at $250,000.
  • West Odessa, Texas, has the longest work week, 45.90 hours on average, which is 1.9 times longer than Isla Vista, California, the city with the shortest at an average of 23.90 hours.

What are the pros and cons of starting a business in a small city?

“Pros are generally the cost of living is cheaper and for businesses starting lower costs for rent, insurance, etc. A pro is that the city may not have a business that you are going to start or there may be less competition than in a larger city.

“Cons are that the small city may be lacking a startup culture or adequate infrastructure. If you are not familiar with the city before moving there you want to make sure that you can successfully start your business in this particular city. Learn about what types of businesses have been and are currently successful and why others failed. If you are coming from outside, you may not know the history or culture of the city,” said Patrice A. Luoma, professor; director for the M&T Bank Center for Innovation & Entrepreneurship, Quinnipiac University.

“The biggest advantages of starting a business in a small city are reduced costs and less competition. Small cities are great for startups because they typically have a lower cost of living and are much more affordable than larger cities. Businesses can save money on labor and real estate expenses in small cities. Compared to large cities, small cities should have fewer competitors for business startups or even potentially no competition if you are starting something unique to the area … Another advantage of small cities is it is easier to establish a brand than in a larger city. Fewer people mean that you can quickly build brand recognition in a small city…Unfortunately, there are also negatives to starting a business in a small city. While small cities have less competition, they also have fewer customers. Fewer customers mean businesses must have enough appeal to either capture a wide share of the market or have profitable enough products that they can still thrive with a small customer base. Small cities are going to have fewer resources than those found in larger cities. Talented employees, commercial space, and suppliers are all going to be more limited than what a business will be able to find in a larger city,” said William I. MacKenzie, Ph.D., SHRM-SCP – executive editor for The Journal of Social Psychology, associate professor, University of Alabama in Huntsville.

What tips do you have for an entrepreneur starting a business in a small city?

“Get to know the community well before trying to launch a business in a small city … small cities are tightly networked, and aspiring entrepreneurs must learn the nuances of community interactions and relationships before striking out. Sometimes entrepreneurs leap before they look, and this can be highly problematic in a small community where things like positive word-of-mouth can have an outsized influence on business success. I would also advise entrepreneurs to discuss their business ideas with other entrepreneurs in the community and get feedback directly from potential customers before launching a new business. Keeping the idea ‘hidden’ is a poor strategy in general and is especially problematic in small cities because the size of a local target market can be relatively small. It is important to validate there is a need for the product or service you plan to offer within the target market,” said Matthew S. Wood, Ph.D., professor and chair in entrepreneurship, University of Oklahoma.

“Conduct market research: Understand the local market, competition, and customer preferences before launching a business. Build relationships with the community: Foster relationships with residents, organizations, and other businesses to build trust and support. Offer unique value: Differentiate the business by offering a unique value proposition, such as personalized customer service or specialized products. Leverage online channels: Utilize online channels to reach a broader customer base and establish an online presence,” John Xavier Volker, MBA, Ph.D., professor, Austin Peay State University.

What can local authorities do to encourage entrepreneurial activity in their small city?

“First and foremost is to engage in activities that build the reputation of the city as a friendly place for start-ups. Having tax incentives and other support for entrepreneurs is part of this, but it is broader in the sense that when local authorities make things easy for start-up businesses to launch and gain traction, that feature becomes widely known. We have documented in our research that there is a regional contagion effect to entrepreneurship, such that as rates of entrepreneurship increase it leads to an upward spiral of venture creation. The finding indicates that people embedded in environments where there is a lot of entrepreneurial activity are more likely to ‘catch the bug’ of self-employment, as they use already-established entrepreneurs in the region as a roadmap for their thinking and action. This suggests that local authorities should highlight successful entrepreneurs in their cities as they can serve as both inspirations and as a roadmap for how to build a business within the small city,” Wood said.

“Successful startups require talented people. If small cities wish to increase entrepreneurial activity they must develop, attract and retain talent. Human capital is a critical resource for most companies. Investing in education to develop a capable workforce, creating and maintaining an infrastructure for startups and companies of all sizes, and making investments to improve quality of life will all benefit small cities looking to increase entrepreneurial activities and attract talent and future employers,” MacKenzie said.

To view the full report and your city’s rank, please visit here.

Source: WalletHub