If you had to pick one place to launch a new business, your best option would be Austin, Texas.
But it wouldn’t be your only alternative… not by a long shot!
Austin emerged from a new American City Business Journals study with the nation’s highest score for small-business vitality.
ACBJ analyzed 106 major metropolitan areas across America. But several other markets also did extremely well in the study, which used a 16-part formula to assess their small-business climates.
Three Florida metros took the runner-up slots behind Austin — Miami in second place, Cape Coral-Fort Myers in third and Sarasota-Bradenton in fourth. The complete rankings on the 106 U.S. metros is available for purchase.
These and others near the top of the standings earned high marks for being fertile metros for the creation and development of small businesses, defined as enterprises with one to 99 paid employees.
Here are the five vital qualities these small-business hot spots share, in descending order of importance:
1. Local Count Of Small Businesses Growing Rapidly
It’s logical that the clearest indication of a positive climate for entrepreneurs would be a strong increase in the number of small businesses.
A 16-part formula was run through a statistical correlation test and it was found that the formula’s two most important categories were small-business growth rates over three- and one-year intervals. That explains why Austin was ranked as the nation’s best market overall. The number of small businesses there grew by 9.7 percent during the most recent three-year period, which was nearly three points better than anyplace else.
Provo, Utah, came next with a three-year growth rate of 6.8 percent, followed by four metros in the range between 5 and 6 percent: Miami, Houston, McAllen-Edinburg, Texas, and Cape Coral-Fort Myers, Florida. All of these markets finished in the upper third of the overall small-business rankings.
2. Population Expanding Briskly
This is a chicken-and-egg proposition. Does an increase in the number of small businesses (and hence in the number of jobs) attract more people to an area? Or does an upswing in population create more opportunities for entrepreneurs? It’s impossible to isolate a single answer, but no one can deny that population growth is an important predictor of small-business success.
Austin led the group again. Texas’ capital region added 161,210 people during the most recent three-year span, the equivalent of 147 newcomers each day. Its growth rate of 9.1 percent was a point-and-a-half ahead of the runner-up, Cape Coral-Fort Myers. Rounding out the top five for population growth were Houston; Raleigh, North Carolina; and the Charleston, South Carolina, region. The five leaders in this category all ranked among the best 18 metros in the final standings.
3. Deep Stock Of Budding Entrepreneurs
A small business, by definition, must have at least one paid employee. But the U.S. Census Bureau also tracks what might be called smaller businesses, the kind that people operate by themselves, often out of their own home.
These are known as “nonemployer businesses” because they lack payrolls. But they carry the potential to become small businesses. If their products or services become popular, many of these tiny enterprises could begin to hire workers. The formula analyzed each metro’s ratio of nonemployer businesses per 100,000 residents. This factor scored high on the correlation test, proving to be a strong indicator of small-business vitality.
Miami was the clear champion of this category, with 13,372 nonemployer businesses per 100,000 people. Three other markets were above 9,000: Atlanta; Bridgeport-Stamford, Connecticut; and Los Angeles. Miami took second place in the overall small-business rankings. The other three areas listed here were all among the top 32.
4. Key Economic Indicators Trending In A Positive Direction
Here is another common-sense conclusion: If employment and economic output are increasing at a nice pace, small businesses will almost certainly prosper.
The two economic indicators that correlated most strongly with small-business vitality were growth in private-sector jobs and gross metropolitan product (GMP). The latter is a measure of the annual output of goods and services within a given market, essentially the local version of the nation’s gross domestic product.
Five metros saw private-sector employment grow by at least 14 percent between 2012 and 2015. Cape Coral-Fort Myers topped the nation with a three-year job-growth rate of 15.9 percent. Others were Provo; San Jose; Riverside-San Bernardino, California; and Austin.
Some of these same metros emerged on the GMP side, where Dallas-Fort Worth led with a jump of 20.4 percent in three years. The runners-up were Austin, San Jose and Houston. All of the markets with strong growth rates for private-sector employment or gross metropolitan product finished in the upper 40 percent of the small-business vitality standings.
5. Strong Concentration Of Small Businesses
You might expect to find little or no deviation between local ratios of small businesses per 100,000 residents. But the variations are actually quite substantial.
Portland, Maine, historically has been the leader in this category. Nobody seems to know why, not even the entrepreneurs of Portland.
The latest count, which was taken in 2013, found 16,928 small businesses and 520,363 persons in the Portland area, which translated to a ratio of 3,253 small businesses for every 100,000 people. Only one other market was above 3,000: Miami at 3,025 small businesses per 100,000 people.
The next three metros in this category were Bridgeport-Stamford, Sarasota-Bradenton and New York City. The top five markets in the concentration category all ranked among the 35 best metros overall for small-business vitality.
Warmer parts of the country tend to be the most promising regions for entrepreneurs. The South contains 12 of the nation’s top 20 metropolitan areas for small businesses, while the West has seven. The only outlier hails from the East: New York City is 16th in the overall rankings.
But a sunny address doesn’t guarantee business success. The two metros with the worst small-business vitality scores can also be found in the South — last-place Augusta, Georgia, and next-to-last Memphis. Both of these tail-ending markets lost more than 2 percent of their small businesses during the past three years, and their remaining concentrations are exceptionally low.
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