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The State of Small Business: Massachusetts

The State of Small Business: Massachusetts

As part of our yearlong project,"the State of Small Business," Business News Daily plans to report on the small business environment in every state in America. In this installment, we asked a few of Massachusetts' more than 600,000 small business owners about the challenges and opportunities that come with operating in their state. Here's what they had to say.

Small business owners in Massachusetts are highly optimistic. Overwhelmingly, entrepreneurs in the Bay State reported favorable and consistently improving conditions. Whether it's the talent that's churned out by the state's many colleges and universities, the communities that embrace small business, or the thriving tech industry and the opportunities it provides, most small business owners give Massachusetts a big thumbs-up.

In fact, two of the largest challenges cited by the entrepreneurs who spoke to Business News Daily — a highly competitive labor market and the rising cost of real estate — are directly related to the state's economic growth. Unemployment is down below 5 percent and Massachusetts' economy, which is the 12th largest in the United States, grew on pace with the national average, at 2.1 percent in 2014. Right now, entrepreneurs said, things seem to be trending in the right direction and the future looks bright for Massachusetts.

[See Business News Daily's complete coverage of the State of Small Business in the U.S.]

One of the biggest advantages to small business owners in the state of Massachusetts is its ongoing economic growth. Many entrepreneurs noted that the state has recovered strongly from the 2008 financial crisis, and the environment is such that people and businesses are willing to spend money. Growth is commonplace, they said, and a rich startup culture, particularly surrounding the tech industry, is contributing to the healthy economic outlook.

"The state of the economy over here is pretty good … mostly because a lot of the companies here are in the tech sector, either traditional or biotech industries," Tim Lynch, CEO of high-powered computer manufacturer Psychsoftpc, told Business News Daily. "The talent pool that we have is attracting a lot of business. Massachusetts is sort of on the rise as far as economic development is concerned."

Another strong indicator that confidence is back is that more and more companies, both established and startups, are planning to bring more employees on board in the near future. Warren Armes, a district manager at the Boston office of the human resources company Insperity, said most of the company's clients have expressed plans to hire new employees in the coming year.

"I think the economy is good," Armes said. "The unemployment rate is much better. And a lot of companies we work with, at least this year, are planning to hire more people. A few years back, there was reluctance to take that leap, but 50 to 60 percent of our prospects plan to hire more employees now."

When asked about the benefits of operating in Massachusetts, nearly every entrepreneur who spoke to Business News Daily immediately cited the state's education system and institutions of higher learning. Of course, there are the big names, like Harvard and MIT, but there are also myriad other colleges, universities and technical institutes that churn out well-educated students every year, who are eager to enter the workforce. Especially for a rising tech industry, highly educated labor is a must, and so the academic community offers small businesses a young, diverse pool of talent from which to recruit.

"Massachusetts is home to a lot of universities and colleges, so we are constantly participating in various recruiting events in different schools," Alex Kesler, founder and president of marketing agency inSegment, said. "There are so many graduates coming out of local educational institutions every year."

In a growing economy that is home to an increasing number of startups, there is a lot of stiff competition in the labor market. While recent graduates are eager to find work, employers are also eager to find qualified employees. The regular injection of recent graduates, many of whom choose to remain in Massachusetts after college, is a welcome boon to entrepreneurs in the Bay State.

"There are a lot of hungry young people being turned out of great universities on an annual basis," Dale Calder, a serial entrepreneur and the CEO and co-founder of tech startup RevTwo, said. "Massachusetts has some of the best school systems in the U.S. and some of the best universities."

Cambridge and Boston might well be the Silicon Valleys of the East Coast. The tech industry in these cities is robust and growing, spawning new startups and innovative ideas. Not only does that create new, well-paying jobs, but the growth also spills over to other businesses, which see an increase in demand for their goods and services. As more jobs, and therefore more employees, flock to the thriving tech community in Massachusetts, other small business owners can expect more patronage and more disposable income in their communities.

"Massachusetts is a good place to be if you're [in the tech sector and] not going to be in Silicon Valley," Lynch said. "We have access to a lot of colleges and universities, we have a decent talent pool and we also have a decent customer base in all of the colleges, because all of those students and the folks who are founding tech companies would be the ones to use our high-end computers."

"Massachusetts is probably one of the top five places for tech in the country," Calder said.

A company that owns and manages co-working spaces, cove, is one example of a nontech startup that directly benefits from the tech boom. A lot of cove's clients are founders of early-stage tech startups. While cove is based in Washington, D.C., it operates locations in Massachusetts; that decision was in no small part due to the state of the tech industry and the promise of more innovative ideas coming from the state's very active academic community.

"In general, what we see here is the advent of technology," Adam Segal, CEO of cove, said. "When you have a highly educated population like you do in Boston and surrounding areas, that's a convergence of a lot of opportunity and a breeding ground for small businesses and new ideas."

Another big plus for small business, especially new startups, is that existing support networks are everywhere. Whether it's public grant programs or incubators and development organizations, Massachusetts entrepreneurs rarely feel as if they're all alone. There are also plenty of opportunities to connect with mentors or other members of the same industry through meetups that are organized online.

"The support is terrific," Calder said. "There are quite a few incubators for entrepreneurs to come in and start the next great business. Boston in particular now is a very vibrant startup scene. There's also a very active meetup scene. There's always a good opportunity to meet other people — both prospective employers and employees, prospective startups to join, and opportunities to learn about the process of starting the company. It's a supportive and vibrant community."

Massachusetts, for all of its attractive qualities for big businesses, is also a state where buying small and local is on the forefront of peoples' minds. Not only do consumers often try to stay local or regional when they're purchasing, entrepreneurs said, but a lot of small businesses also prioritize sourcing their needs from other Massachusetts-based companies.

"A great thing about Massachusetts is you can source a lot of your ingredients here," Helen Coates, owner of Copper Kettle Bakery, said. "And a lot of people who live and buy here are addicted to the local movement … it seems to be a very big push."

Coates added that she feels plugged into an extensive support network as well; not only does that support exist, she said, but she cannot even find the time to attend every entrepreneurial event that various organizations invite her to.

Of course, with all of the growth and optimism, even a highly educated and well-stocked labor market is bound to be competitive. As more and more companies look to expand, potential employees have more options to consider. The high demand for workers is driving up the cost of labor and making recruiting and retaining top talent a difficult prospect.

"Every industry is trying to find the top people, and they have to separate themselves from the competition," Armes said. "[What attracts and retains talent] might be the product or service itself, it might be the company culture or it might be what they're offering to future hires. There's fierce competition to get the right people up front."

Segal, of cove, said that the company is continuing to hire people in the Massachusetts area to satisfy the high volume of business that his organization is doing. He attributed the difficulty in keeping up with the pace to the low level of recognition that the company's brand has in the area and the competition it faces from other startups.

"We are doing a lot of hiring, and hiring when you're new is a challenge for any small business or startup," Segal said. "It seems like a pretty tight hiring market. It seems like there are more positions than people. Maybe it's that we're competing with a number of other startups, because it's that type of thriving ecosystem in Boston."

Even established small businesses are feeling the squeeze in the labor market. Mosquito Shield, which specializes in exterminating mosquito and tick populations in residential communities, is especially impacted because its work is seasonal in nature. When people have other employment options, it's not always a given that last year's employee will be there when the active season rolls around again.

"There's always the challenge of the labor pool and the available skill sets," Michael Moorhouse, vice president of Mosquito Shield, said. "For a seasonal business like us, there's also an emphasis on retention and employee quality. We need to hope employees will go on unemployment in the off-season, but then come back that next year. It's one thing to do refresher training, but starting from scratch every year and retraining is an added expense and burden."

Another consequence of a growing economy is that the price of real estate, and therefore the cost of living, is steadily increasing. Not only are rents higher for businesses, but employees' housing costs are going up as well. That increases the demand for better compensation and, in a tight labor market, if that demand isn't met, a business risks losing those employees or potential hires.

"The challenge that we are seeing is very high real estate costs, especially for rentals," Kesler said. "The rental market is very expensive, so this drives up everything, from salaries to cost of living in the state, particularly in the greater Boston area."

Natural side effects of rising property and real estate values are that the cost of property taxes increase and businesses think twice before expanding to new locations. Increases in those costs also might get passed on to the consumer, which may affect how much purchasing a business sees over the course of a year. If customers are more hesitant to buy because of price increases, a small business's bottom line might take a hit.

"If you talk to people in particular neighborhoods, they're seeing that boom in terms of value of real estate, which is now impacting property taxes," Segal said. "It's getting passed through to small business owners, and that's having a real, material impact on the downtown areas."

While most entrepreneurs reported that state regulations and taxes aren't prohibitive or overwhelming, several small business owners said complying with regulations can be an unnecessary headache. Many called for reform, but most added that the tax rates aren't exorbitant, and the state and local governments are generally willing to work with entrepreneurs to help them navigate the legal framework.

"There's still some red-tape issues as far as trying to get stuff done," Lynch said. "It's just sort of in general, like trying to deal with getting on state buying lists, for example, or dealing with zoning regulations, which isn't exclusive to Massachusetts."

And when it comes to taxes, it's filing that is the issue, and not so much the rates. Entrepreneurs who cited taxes as a challenge typically said they didn't feel overtaxed, but that they either had a difficult time figuring out how to properly file or have just resigned themselves to hiring a professional to handle it for them.

"Regulatory policy and taxation go hand in hand for me. Taxation is always complicated. That's probably the worst part, for me, of being a business owner," Alexandra Daniel, owner of ZephyrPR, said. "I would say it's more the compliance is less manageable than what I'm actually paying. I don't even try to do my own taxes, because I'm fearful I'll screw everything up."

Currently, Massachusetts imposes an 8 percent corporate income tax rate, a 5.1 percent personal income tax rate and a 6.25 percent sales tax rate.

If you're a small business owner in Massachusetts looking for resources to help you move forward, here are a few organizations you might want to learn more about.

Massachusetts Score

Score's volunteer business professionals and expert "mentors" give counsel and guidance to entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in Massachusetts. 

Northeast Massachusetts Score

Boston Score

Worcester Score

Southeast Massachusetts Score

Merrimack Valley NH Score

Providence RI Score

Massachusetts Association of Business Incubators

If you're looking to apply to an incubation program, or you are an incubator looking to join a network of others, the MABI is an extremely useful resource. The association lists dozens of incubators throughout the state, along with links to their websites and a short description of their focus.

Massachusetts Association of Business Incubators

U.S. Small Business Administration (SBA) District Offices

The U.S. SBA offers financing and grants, as well as consultations and counseling services. There are also opportunities to apply for federal government contracts through the SBA and avenues for obtaining assistance in the wake of natural disasters.

U.S. SBA District Offices for Massachusetts

Massachusetts Office of Business Development

The state's Executive Office of Housing and Economic Development maintains a website replete with resources for businesses in the state. You can find the appropriate contact numbers for any departments or agencies you might need to deal with, as well as explore some of the programs and incentives that the state makes available to entrepreneurs.

Massachusetts Office of Business Development

Maine Small Business Development Centers

Massachusetts hosts scores of development centers for small business. Each is dedicated to supporting the development and retention of small business, helping entrepreneurs do everything from crafting business plans to navigating the state's tax code. You can find your region's small business development center at the link below.

Massachusetts SBDC Network

Adam C. Uzialko
Adam C. Uzialko

Adam received his Bachelor's degree in Political Science and Journalism & Media Studies at Rutgers University. He worked for a local newspaper and freelanced for several publications after graduating college. He can be reached by email, or follow him on Twitter.