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 Ohio's roughly 1 million small business owners about the challenges and opportunities of operating in their state. Here's what they had to say.
Ohio's economy has had its ups and downs over the years, experiencing decline long before the rest of the nation felt the effects of the financial crisis. In the years preceding the recession, Ohio's manufacturing sector was hollowed out, contributing to a drop in per capita income and a drastic slowdown in growth. And while the unemployment rate has plummeted, the labor force has shed nearly 300,000 workers since its peak in late 2007, according to the U.S. Bureau of Labor Statistics. And as employment rises, so does the demand for skilled or experienced labor, and business owners find it progressively harder to hire the employees they need at the cost they want.
However, in 2008 — amid the recession — Ohio's per capita income started to gain compared to the national average, and the U.S.' seventh-largest economy has seen some bright spots. Despite a difficult decade — between 2004 and 2014, the compound annual growth rate of Ohio's GDP was an anemic 0.3 percent, according to the U.S. Bureau of Economic Analysis (BEA) — entrepreneurs in Ohio are seeing promise again. For small business owners in the Buckeye State, the sentiment is tepid optimism that a fledgling startup community and the return of manufacturing in the form of tech-focused companies will propel the economy forward in the years to come.
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Ohio entrepreneurs can expect a ringing endorsement from their local communities for opening up shop in the state. Entrepreneurs report that, once a small business is established, it's easy to attract and retain Ohio customers, as long as the business is reliable and professional. The small business owners we spoke with said the prevailing mentality is to "buy local in Ohio."
"I tell people, 'I'm going to die printing in my shop, and it will remain in Columbus because of the community,'" said Zachary Traxler, CEO and founder of Traxler Custom Printing. "In Ohio as a whole, you'll see people speak highly of local businesses. They're going to seek a local business before they go to one that's based out of state."
In addition, there are numerous opportunities to network and find support from other businesses. With scores of incubators and accelerators scattered throughout the state, some of which are located on Ohio's many college campuses, entrepreneurs are never hard-pressed to find useful resources and mentorship nearby.
"Business is all about relationships, and the one thing Ohio has going for it is that we are a very friendly, large community," said Sue Grabowski, owner of tech startup Squawqr and the PR firm Grabowski & Co. "If you do good work and are a good partner, you can retain local business very easily."
Fledgling tech industry
When people from other regions of the U.S. think of the Midwest, they might not envision a tech hub. But Ohio, by all accounts, is an up-and-comer in the world of tech. From small tech startups and accelerators to large aerospace companies, Ohio has seen a recent surge in the level of technology being produced in-state. The big players rely on small businesses for support and professional services, as well as help to raise the level of disposable income in a given area.
"There's a lot of technology-related business happening here," said Roger Riddle, chief curator at subscription box service Unbox Akron. "For example, a group called TinyCircuits is doing a really cool DIY chip thing, where if you want to build wearable technology, they'll supply the chips so you can take them and build it easily yourself."
Although Ohio lost a big chunk of its manufacturing economy over the years, this historically Rust Belt state began reinventing itself out of necessity. Now, manufacturing is coming back, but this time, it's geared up for the 21st century. The tech startups and accelerators mentioned by Riddle complement this new high-tech manufacturing sector that is emerging in Ohio.
"Traditional manufacturing was hollowed out, but now, there's more growth in high-tech manufacturing, which needs a lot of small businesses to support," said Rohit Arora, co-founder of Biz2Credit. "There's not a lot of employment [in high-tech manufacturing] — but they generate good salaries, and that whole demographic of manufacturing is completely changed."
Manageable taxes and regulations
Another advantage of operating in Ohio is that the state government tends to give small businesses the breathing room they need to succeed. All of the Ohio entrepreneurs we spoke with agreed that they don't feel hampered by state-level regulations and that the amount they pay in taxes is far from onerous.
"[Taxes and state regulations are] 100 percent manageable," said Konrad Billetz, CEO of eyewear company Frameri. "All of the benefits definitely outweigh any difficulty that there might be, and I can't think of any specific difficulties."
For business income taxes, Ohio has a top marginal rate of 3 percent on all income above $41,700, which is levied in addition to a fee known as the Commercial Activity Tax (CAT). The top marginal rate for individuals is 4.997 percent on income over $208,500.
"They've streamlined the tax process a lot; they've cut the taxes hugely," said David Watkins, vice president of Watkins Heating and Cooling. "We pay tax on profits to the federal government, but almost nothing to the state as far as income tax."
But Ohio's sales-and-use taxes can be on the higher end. Most counties in the Buckeye State charge a 7.25 percent sales tax, and in at least one county, the rate is as high as 8 percent. The lowest sales tax rate in the state is 6.5 percent.
In Ohio, it can sometimes be tough to get your brand name out to the broader public. Widespread Internet access has made that easier, but when you're a brand-new startup with a limited reach, it can be a challenge to gain a foothold, entrepreneurs said.
"When you're a New York startup, 10 million people might know about you right away," Billetz said. "Kind of getting your name out in Ohio can get difficult. And as a consumer product [like Frameri], you want as many people to know about you as you can."
That loyal community support is all the more important when it can take so long to build brand recognition. For Unbox Akron, it hasn't been easy to expand beyond its original locality, Riddle said. The company wants to bring a taste of local Akron businesses and culture to other residents in the state, but it's been difficult.
"One of the challenges that I see is, reaching a wider audience," Riddle said. "We have a following of people here who love Akron … but it's a bit harder to reach other people, and that's been a challenge for us."
According to some entrepreneurs, even the state itself has a branding problem. For those unfamiliar with Ohio, they said, it seems that stereotypes prevail.
"It's a challenge getting people to think that the state of Ohio is more than just a farm," Grabowski said. "There is a lot of farmland, of course; however, there are some very progressive areas, and the cities and suburbs here are thriving. The perception that Ohio is just all rural might be an obstacle."
Lack of economic diversity
Any investment adviser worth their salt will tell you to diversify your portfolio to mitigate risk. In Ohio, and much of the Midwest, the economy at large is relatively reliant on just a few industries. When much of the activity in a given region is built around the demands generated by a handful of large companies or one segment of the larger economy, it's easier for setbacks to send shockwaves throughout the state.
"One of the key challenges in the Midwest compared to coastal areas is that economies are not very diversified," Arora said. "[W]e find, in the Midwest, one of the challenges is that … these economies are pretty dependent on one or two industries, and if something happens in those industries, that impacts small businesses pretty quickly. There's very little backup."
The same is true when a few third-party vendors dominate the small business landscape. Frank Campagna, managing director at the Cleveland-based CBIZ Risk & Advisory Services office, said small businesses often put all their eggs in one basket when it comes to third-party vendors, which can breed a potentially unstable environment.
"A lot of these smaller businesses rely very heavily on a few key vendors, and you're at risk, at that point, of something happening to that vendor," Campagna said. "In a volatile climate like we are in right now, anything can happen to your vendor."
Tight labor market
Of course, it depends on the industry, but many Ohio entrepreneurs are seeing a dearth of available employee prospects as the employment rate ticks up. Moreover, Ohio's labor force is at a significantly low point compared to its recent history, restricting the job market and keeping things competitive despite the abundance of colleges and universities in the state.
"Even my practice is hiring big time right now, and there is a lack of workers," Campagna said. "We can't find good workers because everyone is employed right now. Large companies recommitting to the area, professionals coming out of school — everyone appears to be working."
But there is reason to be optimistic. Some entrepreneurs, like Watkins, say there isn't enough skilled labor in his field to fill his company's needs, but the state's funding efforts and retraining programs offered by some large companies like General Motors have him looking to the near future.
"I think [the state-backed program] Ohio Means Jobs is doing a good job of providing a lot of tools for employers," Watkins said. "The state and GM have been funding guys to go back to school to learn new trades, too. It's a few years away, though, so for my industry right now, it's competitive."
Resources for small businesses in Ohio
If you're a small business owner in Ohio looking for resources to help you move forward, here are a few organizations you might want to learn more about.
The volunteers at SCORE are professionals and expert "mentors" who counsel and guide entrepreneurs looking to start or expand their businesses. The services are entirely free and volunteer-driven. Here are some of the chapters in Ohio.
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.
Ohio Small Business Development Centers
Ohio's development centers for small business are 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 via the link below.
Launch League is a startup community that helps entrepreneurs and early-stage companies connect with talent, financing and networking opportunities. With marketing assistance, a network of private investors and monthly events, Launch League aims to help bring the small business community closer together. Find out more via the link below.
Ohio Means Jobs
Ohio Means Jobs is a cross between a jobs board and a resource center for both employers and workers. Part of a statewide initiative to assist small businesses and Ohio-based workers, as well as to attract new businesses to the state, Ohio Means Jobs serves as a linchpin between employer and employee. Find out more via the link below.
Are you an entrepreneurial organization or resource for small business owners, but are not listed here? Let us know. Contact the author at firstname.lastname@example.org.