2018’s Best and Worst Places to Start a Small Business

The Charleston, South Carolina, metropolitan area comes in as the number one least-favorable place to start a small business for a number of reasons. In the first place, office rents are a sky-high $23.60 per square foot, well above the national average of $17.15 per square foot. Second, housing costs are above the national average for both renters (median monthly rent is $975 versus $803 nationally) and owners ($1,367 versus $1,217). Third, public transit is infrequent and underutilized, with only 1 percent of Charleston area commuters using public transportation. And finally, the area business ownership rate is below average, in the 8th percentile, with a very low percentage of startups (0.89 percent), and a below average five-year survival rate of 48.32 percent.

The Florida Panhandle region, including both the Tallahassee and Pensacola metropolitan regions, is the second least-favorable location for small businesses — and the absolute least favorable one for startups, which make up only 0.86 percent of all businesses. Although office rents are average to below average ($13.53 to $17.21 per square foot), there are few vacant units to be had (4.1 to 5.29 percent vacant). Population growth has been and is projected to be sluggish, at a 0.875 percent annual growth rate. Finally, while the area has a relatively well-educated population, median household incomes and net worths are well below average, ranking in the bottom third nationally.

Outside of the Bay Area and the Los Angeles-San Diego corridor, California presents a rather inhospitable climate for small businesses and startups alike. Of the three regions that rank third through fifth least propitious, Bakersfield and the Inland Empire region takes the cake. More office space stands vacant here than the national average: about 9.4 percent of all units. The area is home to a population with a decidedly low level of educational attainment, with only 9.84 percent of Bakersfield-area residents holding a bachelor’s or graduate degree. Despite higher home values and household incomes in the Riverside-San Bernardino area, only 13.29 percent of residents have a four-year degree or graduate education. Furthermore, small business density is below average, and those startups that launch here fail more frequently than average, with a five-year survival rate of only 47.25 percent.

The long stretch of coastal California between the Los Angeles area and Silicon Valley that extends from Santa Barbara to Salinas is likewise a poor choice for a place to start a business. Nowhere else in the country is office space both more expensive and hard to come by: average rents range from $23.13 per square foot in Salinas and San Luis Obispo to $30.62 per square foot in the Santa Barbara area, where only 2.85 percent of units are vacant. Public transportation is used by 2 percent or fewer of commuters, which combined with high fuel costs, results in an average household spending $14,420 on commuting costs per year. Housing costs are likewise high for renters and homeowners alike, with yearly housing expenses coming out to $15,524 for renters and $21,612 for owners.

In fifth place we have California’s Central Valley region, an unbroken stretch of inhospitable terrain for the prospective small business owner running from Fresno northward to Stockton. The reasons here are in many ways opposite to the coastal region to the west: office vacancy rates are high, between 9.26 and 12.45 percent, and rents around the national average ($15.77 to $20.31 per square foot). The unemployment rate in the Central Valley is well above average, standing at 8.575 percent, as compared to the national rate of 4.52 percent. Educational attainment in the region is low, with an average of only 10.91 percent of adults having a bachelor’s or graduate degree, which ranks in the bottom decile of metropolitan areas nationally.

There are a wide range of factors that land the Huntington-Ashland, West Virginia-Kentucky, metropolitan area on our list of the least favorable locations to start a small business. The area’s economic, educational, and demographic profile is generally not conducive to business success: median household incomes in the region are in the bottom decile of all metropolitan areas, while education ranks in the bottom quartile, with 14.64 percent of residents having at least a bachelor’s degree. While small business density is higher here than the national average, the rate of business ownership is among the lowest, in the 3rd percentile, which implies that many small businesses are owned by the same people.

Coming in as the seventh least favorable place in the U.S. for small businesses and startups is the Provo-Orem, Utah, metropolitan area. As a state, Utah is the only place in the U.S. to post a net negative startup growth rate in 2017. This is perhaps due to its exceptionally low five-year startup survival rate of 45.49 percent. Small business density and business ownership rates are low, with only 0.06 percent of residents owning a business (11th percentile), and few businesses in high growth industries. Topping it all off,the average small business here employs fewer individuals after five years than it did at the outset (6.84 employees at five years, compared to 7.72 employees in the first year).

The state of Mississippi as a whole has the dubious distinction of being the state with the least venture capital investment in the U.S., with a total of four deals completed since 2017, worth only $1.16 per capita. This is in spite of a favorable corporate tax rate of only 4 percent. Median household incomes are significantly below average, as is educational attainment, and projected income growth in the area is a low 1.9 percent annually. The retail marketplace here is sluggish, with per-business sales coming in at the 24th percentile.

Coming in at ninth place is Port St. Lucie, Florida, where household incomes and home values are around the national average, despite having educational attainment rates in the top quintile nationally. This is perhaps due to the area’s higher-than-average unemployment rate of 4.4 percent. Office space is on the pricey side, averaging $21.03 per square foot, as is housing, with median rents of $893 per month. Finally, like every other area in the bottom ten, transit is used by less than 2 percent of commuters, making the region less than attractive to small business founders.

Finally, rounding out our list of the ten least favorable metropolitan areas for small businesses and startups is the Clarksville, Tennessee-Kentucky area. In spite of a suite of business incentives, as well as healthy startup growth, one would do well to be wary of starting a business in this area: only 46.51 percent of startups survive for five years. The state of affairs is no better for retail businesses: total retail sales per capita in the metropolitan area ranks in the 13th percentile, and the number of retail businesses per capita ranks in the 11th.