With National Small Business Week approaching and many employers struggling to hire new workers, a new report on 2022’s Best Small Cities to Start a Business, offers insight into the current landscape.

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, according to a news release.

Top 20 Small Cities to Start a Business
1. Washington, UT 11. Morrisville, NC
2. St. George, UT 12. Cheyenne, WY
3. Bozeman, MT 13. Missoula, MT
4. Cedar City, UT 14. Lehi, UT
5. Fort Myers, FL 15. Altamonte Springs, FL
6. South Bradenton, FL 16. Redmond, OR
7. Williston, ND 17. Bend, OR
8. Logan, UT 18. Greenville, SC
9. Eagle Mountain, UT 19. Sarasota, FL
10. Winter Park, FL 20. Pleasant Grove, UT

Key Stats

  • Bozeman, Montana, has the highest number of startups per 100,000 residents, 332.13, which is 8.2 times higher than Danville, Illinois, the city with the lowest at 40.42.
  • Bethesda, Maryland, has the highest share of the population with at least a bachelor’s degree, 86.70 percent, which is 26.3 times higher than Coachella, California, the city with the lowest at 3.30 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), $21,018, which is 11.4 times lower than Los Altos, California, the city with the highest at $240,094.
  • Fort Hood, Texas, has the longest work week, 47.30 hours on average, which is two times longer than Isla Vista, California, the city with the shortest at an average of 23.70 hours.

Experts Weigh In

In the context of the ongoing pandemic, what are the pros and cons of starting a business in a small city?

“There can be some advantages to starting a business in a small city: less competition for talent, lower rents, and generally lower costs of living and overhead. There can also be downsides: restricted talent pool; inadequate or inferior infrastructure; limited transportation options. I do not believe the pandemic has changed these considerations,” said Robert Sprague, professor, at the University of Wyoming.

“When the pandemic led to widespread quarantines in 2020, many local news outlets highlighted the impact on small businesses. I believe this increased awareness of the vulnerability of local businesses which led to more people trying to support them. As a result, the timing is positive for starting a business in a smaller town. Further, as we see the spread of a more reliable technical infrastructure, starting a business in a smaller city becomes more viable. However, if your business relies on only a local market, you need to make sure that the local economy is strong enough to hold up your business during downtimes. If you rely on a specific geographic area as a market, a negative event in that area can impact the viability of your business,” said Lori K. Long, Ph.D., Burton D. Morgan Endowed Chair in Entrepreneurial Studies; professor, Baldwin Wallace University.

Would some types of small businesses – i.e., a retail store, restaurant, or tech startup – do better than others in a smaller city?

“Services do well but they may be a ‘crowding effect’ where many compete for a limited market. Early-stage tech start-ups can do extremely well in small cities, especially because of their improved ability to attract particular types of human capital. They can also use these towns to test their ideas and sharpen their focus,” said Shaker A. Zahra, Robert E. Buuck Chair of Entrepreneurship; professor, University of Minnesota.

“This all depends on local demand. Retail stores and restaurants, absent an e-commerce arm, are very dependent on their local markets for both customers and labor. The more highly specialized the business, the more likely these constraints could meaningfully impact their business. Tech start-ups are less tethered to their local markets and, if they leverage remote workforces, they might find smaller cities to offer benefits in terms of office costs, certain labor costs, and quality of life for local employees,” said Richard Ryffel, professor, Washington University in St. Louis.

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

“RESEARCH! Find out as much as possible about the city profile, using the state economic data. Connect with the local Chamber of Commerce, the local Small Business Development Center, any business network, or meet-up groups. Walk around the neighborhoods, and visit local restaurants and service businesses to see who is being served. Check with real estate brokers to find out where people are (re)locating,” said Pauline Assenza, professor, at Western Connecticut State University.

“Many of the cautions I would offer to small-city entrepreneurs are the same I would offer to others. Do your research to ensure the local demand for your product or service is adequate and that your company is sufficiently differentiated from both current and potential future competitors (especially rapidly expanding national chains, in the case of retail businesses). Take your worst-case scenario for opening, break-even, and success, and add a cushion of both time and money to allow you to respond to unexpected issues that may arise,” Ryffel added.

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

Source: WalletHub