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Lead Your Team Strategy

The 10 Best (and Worst) Cities for Starting a Business

The 10 Best (and Worst) Cities for Starting a Business
Credit: Gustavo Frazao/Shutterstock

Getting ready to launch a new business? You may think proximity to major cities like New York or Los Angeles would benefit you, but you actually might find the most success by opening up shop in a state in the heart of the Midwest.

Seven of this year's 10 best cities in which to start a business are in states in the middle of country, including this year's top-ranked city, Sioux Falls, South Dakota, according to a study from the personal finance social network WalletHub.

Sioux Falls jumped to the top this year, up from sixth in 2015, for having a friendly business environment and low startup costs. Springfield, Missouri, and Tulsa, Oklahoma, were the only two other cities to be ranked in the top 10 for a second consecutive year.

To help aspiring entrepreneurs maximize their chances of success, WalletHub analyzed the relative startup opportunities in the 150 most populous U.S. cities. Researchers ranked each city on 16 key metrics divided into three categories: access to resources, business environment and cost. [See Related Story: The 10 Best (and Worst) Cities to Start a Career]

Access to resources focused on financing accessibility, employee availability and prevalence of investors. Business environment was judged on factors like average workday length, five-year survival rate, number of startups per 100,000 residents, industry variety and average growth of business revenue. Also considered was office space affordability, labor costs, corporate taxes and cost of living.

This year's top 10 cities for starting a business, and their rankings in each category are:

  1. Sioux Falls, South Dakota. Environment: 9; Resources: 55; Cost: 12
  2. Grand Rapids, Michigan. Environment: 16; Resources 43; Cost: 13
  3. Oklahoma City, Oklahoma. Environment: 7; Resources 81; Cost: 18
  4. Lincoln, Nebraska. Environment: 34; Resources 4; Cost: 66
  5. St. Louis, Missouri. Environment: 55; Resources 11; Cost: 7
  6. Salt Lake City, Utah. Environment: 98; Resources 3; Cost: 26
  7. Charlotte, North Carolina. Environment: 6; Resources 60; Cost: 48
  8. Springfield, Missouri. Environment: 90; Resources 38; Cost: 1
  9. Tulsa, Oklahoma. Environment: 66; Resources 21; Cost: 4
  10. Amarillo, Texas. Environment: 18; Resources 31; Cost: 76

Choosing where to launch your business is a very important step, said Anil Gupta, the Michael Dingman chair in strategy, globalization and entrepreneurship in the Smith School of Business at the University of Maryland.

"It is the eco-system that provides the new company with ideas, team members and early investors, Gupta said in a statement.

Cities in the western part of the country appear to be the worst for entrepreneurs. Six of this year's 10 worst cities for starting new businesses are located in California, Arizona, New Mexico and Oregon.

Ontario, California, is listed as the worst city for startups, as it ranks near the bottom in all three categories: available resources, business environment and cost.

This year's 10 worst cities to start a business in, and their rankings in each category, are:

  1. Ontario, California. Environment: 101; Resources 150; Cost: 118
  2. Providence, Rhode Island: Environment: 149; Resources 29; Cost: 100
  3. Washington, D.C. Environment: 56; Resources 18; Cost: 149
  4. Portland, Oregon. Environment: 105; Resources 103; Cost: 124
  5. Jersey City, New Jersey. Environment: 44; Resources 91; Cost: 143
  6. Philadelphia, Pennsylvania. Environment: 129; Resources 75; Cost: 121
  7. Gilbert, Arizona. Environment: 117; Resources 129; Cost: 107
  8. Fremont, California. Environment: 62; Resources 24; Cost: 146
  9. Albuquerque, New Mexico. Environment: 147; Resources 98; Cost: 64
  10. Rancho Cucamonga, California. Environment: 41; Resources 124; Cost: 133

Patricia Lee, an associate professor at Saint Louis University's School of Law, said there are a number of steps state and local authorities can take to help stimulate entrepreneurship and new business development.

"I would like to see state and local authorities become more innovative, reduce red tape, create inclusive networks that foster leadership and stimulate entrepreneurship," Lee said. "A few good ideas are supporting incubators and taking the lead on identifying successful ecosystems that are actually getting results."

State and local authorities should also aim to reduce the barriers to starting and running a business, said Luke Pittaway, director of the Center for Entrepreneurship and a professor of management systems at Ohio University.

"Consider tax incentives for informal investors, such as those providing love money and angel finance," Pittaway said. "Look to improve support mechanisms, such as accelerator programs, entrepreneurship education in schools and colleges, incubators, business advice and support and access to entrepreneurial mentoring."

The full rankings of all 150 cities studied can be found on the WalletHub website.

Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.