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Start Your Business Entrepreneurs

The State of Small Business: Vermont

The State of Small Business: Vermont

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 Vermont's roughly 80,000 small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.

Entrepreneurs in Vermont may have to contend with a tight labor market and an elevated cost of living, but they also have access to strong, entrepreneurial communities and operate within a stable economy. And while recruiting new talent within the state can be a challenge, small business owners in Vermont are often easily able to attract people from out of state because of Vermont's natural beauty and recreational opportunities. Small business owners in Vermont are generally content with the direction in which the state's economy is heading.

Still, tax relief is on the minds of many "Vermontrepreneurs." Vermont has high corporate and personal income tax rates, as well as moderately high sales taxes. Add in the high cost of living, expensive real estate and high employee compensation, and small business owners are looking at significant barriers to entry. Startups, in particular, often find these challenges unworkable, and, in order to succeed, have to be particularly creative in how they manage expenses.

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

Virtually every entrepreneur who spoke with Business News Daily for this report said there is a strong network of community support throughout Vermont. Thanks to loyal customers, development opportunities, networking events and chances to connect with investors, small business owners in Vermont said there are plenty of places to turn for partners and advisers.

"Vermont, and Burlington in particular, has a very active network of investors, incubators and entrepreneurs," said Cameron MacKugler, founder and CEO of gardening company Seedsheet. "There are events every month in and around Burlington to facilitate networking with all."

Even among competitors, the atmosphere in Vermont tends to be more collaborative than competitive, said Lori Lustberg, owner of Lori Lustberg, Esq. LLC, a divorce financial planning company in Shelburne.

"There are so many available resources, mentorship programs, [and] understanding and helpful people, with a general sense of cooperation that, for me, overshadows any sense of competition," Lustberg said.

Vermont's reputation for outdoor recreation and healthy living brings tourists to the state and helps businesses attract customers and out-of-state talent. The state's government and local residents have worked hard to evoke feelings of natural beauty, local small businesses, and organic, healthy living. In addition, the opportunities for outdoor leisure and recreation are plentiful, and that provides a boost to Vermont's economic fortunes year in and year out.

Entrepreneurs say Burlington, in particular, gives startups a boost in community support and legitimacy.

"Burlington is a great place for startups and entrepreneurs, with a very strong, supportive network," said Warren Wilson Jr., co-founder of CleverFoodies, which creates ready-to-eat vegetable cups to mix in with eggs. "Also, when selling our product throughout the New England region, seeing Burlington, Vermont, on our label adds a degree of authenticity to our startup."

Vermont's economy is the smallest in the nation in terms of gross domestic product, but it's stable and reliable, which translates into an ideal climate for operating a business. The enemy of an entrepreneur is uncertainty, and Vermont's economy does a good job of mitigating that. While the ratings agency Fitch noted that Vermont's economy is slightly less diversified than would be desirable, in late 2015, the agency bestowed an AAA credit rating on the state's bonds, and acknowledged that Vermont's economy has incrementally become more diverse.

Shannon Falvey, communications director at Acquire Real Estate, cites recent data indicating that Vermont's economic future is looking particularly bright.

"According to [the commercial real estate firm] CBRE, the only states projected to experience overall economic and employment growth at the same pace as the U.S. average through 2018 are Connecticut and Vermont, both of which are forecasted to average 2.7 percent gross state product growth per year," Falvey said.

It's fairly expensive to live and do business in Vermont. The high cost of living leads to higher employee compensation, so entrepreneurs should expect significant overhead, not to mention Vermont's considerable business taxes.

"The cost of living is high, so it is hard to find and attract good employees," said Kathleen LeSage, owner of New Life Hiking Spa. "In ski areas, it's almost impossible for a Vermonter to buy [real estate], and in other areas, it's still very expensive, and house taxes are high."

Still, according to data compiled by the U.S. Bureau of Economic Analysis, the state's per capita income was $47,864 in 2014, which is significantly higher than those of many other states and even eclipses the national average by a few hundred dollars per person. But, of course, many people consider the high cost of living worth it for the benefits of living in the state, Lustberg said.

"If you can afford the cost of living here, the peace, the natural beauty, the sense of community and support in Vermont — and, of course, the beer — can't be beat," Lustberg said.

Vermont's taxes are relatively high. The state's corporate income tax, for example, is a progressive, three-bracket system that tops out at 8.5 percent. The personal income tax, which is a five-bracket progressive system, maxes out at 8.95 percent. The state sales tax stands at 6 percent and can vary from locality to locality. Plus, there are municipal property taxes, which Vermont-based entrepreneurs say can sometimes feel excessive.

"State income taxes are extremely high, and property taxes tend to be also," Lustberg said.

There are also the administrative costs for licenses and permits. Some small business owners complained that the cost for these regulatory necessities have gone up recently, making it more difficult to budget around them.

"Taxes are high, and licenses for running a hospitality business have doubled," LeSage said.

Still, as far as the regulatory framework goes, most entrepreneurs said they were able to get up and running in compliance with state law fairly easily.

"[It was] very straightforward and easy to set a company up," Wilson said.

The labor market in Vermont is incredibly competitive. In a state with fewer than 1 million people and where the unemployment rate is less than 4 percent, entrepreneurs can have a hard time recruiting. Complicating matters, Vermont's labor force has been decreasing steadily since the start of 2011, when it hovered around 360,000 people, according to the Bureau of Labor Statistics. It has since dropped to fewer than 345,000 people, in part due to Vermont's aging population. With so few people in the labor pool, the vast majority of whom are already employed, entrepreneurs in the state inevitably run into hiring problems.

Many small business owners told Business News Daily that they often have to look outside the state's borders when hiring. Luckily, MacKugler said, it's still fairly easy to attract talented employees from out of state, thanks to a high average income and the natural beauty of Vermont.

"The small population makes finding local employees difficult, but the scenic landscape and sense of community help facilitate out-of-state recruitment," MacKugler said.

One potential workaround is to hire freelancers to fill in the gaps when necessary. That's exactly what CleverFoodies does, Wilson said. He said there is an abundance of freelancers in Vermont who are ready and willing to lend their talents to a young company in need.

"We hire many freelance specialists to assist us with various tasks," Wilson said. "As a startup, we cannot afford to have a large team, but in order to scale, we need to find skilled professionals within areas such as accounting, legal, graphic design and event specialists. Vermont has a lot of talented people and firms that are willing to grow with small companies."

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

Vermont 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 Vermont. 

Montpelier SCORE

Champlain Valley SCORE

U.S. Small Business Administration District Offices

The U.S. Small Business Administration (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 Office

Vermont Center for Emerging Technologies

The Vermont Center for Emerging Technologies is an incubator dedicated to boosting startups, entrepreneurs and technology professionals. The center connects businesses with mentors and investors, as well as education programs and co-working spaces.

Vermont Center for Emerging Technologies

Peak Pitch

Peak Pitch is an annual event sponsored by FreshTracks Capital that brings entrepreneurs and investors together at a ski trip at the Sugarbush Resort every March. Small business owners have the opportunity to deliver an "elevator pitch" to investors on the ski lift, join in a networking luncheon and take part in a "pitch off."

Peak Pitch/FreshTracks Capital

Vermont Small Business Development Centers

Vermont hosts a number of development centers for small business. Each is dedicated to supporting the development and retention of small businesses, 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.

Vermont SBDC Network

Are you an entrepreneurial organization or resource for small business owners, but are not listed here? Let us know. Contact the author at auzialko@purch.com.

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.