The US has become one of the most welcoming countries globally for motivated entrepreneurs and creative startups. But it doesn’t mean you can start your company anywhere you want and expect to hit the jackpot. When it comes to startups, the formula for success begins with three words you’re probably familiar with: location, location, location.
Throwing a dart on the US map and moving where it lands is never a good idea. For your startup to thrive, you need a welcoming, business-friendly environment that can offer various benefits: a pool of talented, well-educated workforce, reasonable living costs, low real estate prices (for renting or purchasing an office or a home), and various government programs that can aid your company, financially and knowledge-wise, too.
If you’re eager to launch your startup but don’t know where you should start, don’t worry, we’re here to help. Basing our guide on WalletHub’s report that focuses on the best and worst states to start a business, we can pinpoint all the locations that could work for you, offering evidence for our claims with facts and hard data.
So, are you ready to find out the best US states you need to consider?
What to Keep an Eye On?
Although WalletHub’s report analyzes and identifies the best states for your startup in-depth, you also need to do your research before coming up with a decision. You need to consider many things, such as the available workforce, state incentives for small businesses, various programs for startups, multiple laws and regulations, and your industry’s presence and its impact in the area.
First of all, before you move, you need to know the state’s policies and also analyze federal regulations.
According to Peter Lorenzi, professor of management at the Sellinger School of Business at Loyola University Maryland, “Wealth and business opportunities are less anchored to geography than they have ever been.”
Also, you need to build your business on professional people, those who know what they’re doing. So, having a talented workforce at your disposal in the state is a must.
When picking out the location, it’s crucial to analyze the colleges and K-12 schools in the state/city. Look for those that promote an entrepreneurial spirit, a business-minded attitude, and various relevant classes to your industry.
All of this helps you during the decision-making process, and you’ll know if you can truly tap into the experience and skill of people who come from the state’s schools, universities, mentorship programs.
Coming up with the best decision for your startup has to be financial, too. Most often than not, tax incentives are the things that say yes or no to the move and the whole startup. It’s no surprise then that states such as New Jersey, Connecticut, Illinois, or Iowa have experienced a rise in businesses leaving, mostly because they raised taxes on businesses and individuals.
However, as a business owner, you should also consider how fiscally responsible each state is on your list, according to Drew Hession-Kunz, Finance Faculty at Carroll School of Management at Boston College.
Of course, when we’ve put together our list, we were surprised by some of them ranking so well. However, according to Hession-Kunz, it shouldn’t be a surprise at all. The usual spots, such as Silicon Valley, have become too crowded and expensive, so it’s just natural that entrepreneurs and business owners are looking for other places that can help them grow their companies.
In recent years, startup and entrepreneurial culture have spread immensely. Plus, tech and venture capital have become highly affordable, meaning that California’s hub is not the only place where a startup can grow and see success.
Doing Deeper into the Data: Tax Economic Policies and Tax Cuts
When choosing a state, analyzing the impact national measures have on businesses is vital, even though coming up with a conclusion might be tricky. WalletHub’s experts can’t seem to agree on how economic policies affect business growth and development, especially when taking into consideration tax reform legislation.
On the plus side, the past administration’s economic policies have emphasized entrepreneurs and businesses, offering them more capital in the hopes that they will spend it.
According to Al Danto, a lecturer at Rice University, “When the corporate tax rate was cut from 35 percent to 21 percent, it in effect gave businesses a 14 percent increase in cash flow in one fell swoop.”
Not all experts share Danto’s view. Paul A. Pavlou, senior associate dean, Milton F. Stauffer Professor, Co-Director, Data Science Institute, at Fox School of Business, Temple University, points out that tax cuts usually aid large companies, so smaller businesses can’t enjoy them fully. He argues that “lower taxes is not a primary consideration for startups that are generally not profitable [enough] for a few years to pay taxes.”
List of Best US States for Startups
As you’ve probably realized by now, when it comes to launching a startup, the location is critical, so not all states are equal. You don’t want to put your faith, energy, and money in a state where there’s a lack of an educated workforce, an unfavorable economy and taxes, not enough programs and venture capital to aid.
Here are the USA states that you definitely need to consider, ranked in order of favorability, as they can give you a financial, social, and economic boost.
It comes as a surprise and often an outright shock to many that Utah ranks number one on many of the lists, reports focusing on favorable environments for startups. However, it’s no secret why this state tops the lists, as it has excellent marks across several factors. For instance, in the past seven years, Utah’s working-age population has seen a sharp increase of 10%, a little bit above 2 million by now.
Furthermore, the state has an abundance of venture capital, as more than 100 companies have received a total of one billion-plus dollar, meaning over $11 million per firm. As far as funding goes, that makes Utah one of the best in the country, behind New York and just ahead of Maryland.
Plus, companies’ growth rate in the state in the past 15 years put it among the country’s best. However, when it comes to startup job-creations, the state can boast with average numbers.
Another factor that makes Utah a desired place for launching your startup lies in its favorable tax climate. It has a corporate income tax of close to 5%, which is relatively good. However, you need to know that corporations do not pass their losses and profits onto the member’s tax returns, as only LLCs do that.
No surprises here, as Florida has been a powerhouse for startups in the past decades. For instance, corporate taxes have always been beneficial to companies: 5.5% is pretty good. Another good thing about Florida is also good for your employees: there’s no state income tax for individuals. As an owner, you can relish that employees are not as expensive as in other states.
The icing on the cake is that the state has a robust and lively startup environment. Florida boasts the highest rate of entrepreneurs and startups in the US; 0,5% of its population is inclined to start a company, launch a startup, or give a chance to their entrepreneurial ambitions. Another great thing is that startups create a lot of jobs in the state.
Plus, a small business has a great chance of getting off the ground; close to 20% of companies have started with less than $5,000. Now that’s a fantastic number.
Texas remains a top 3 destination for those who want to launch a startup. The state has seen the second-greatest growth in state GDP in the US, experiencing a surge of 5.1% in just a year. And we can’t forget about the state’s notable working-age population, with a staggering increase of 8% in the past seven years, reaching close to 1.5 million people.
What about affordability? Texas excels in this category, too. The overall living costs and real estate process are favorable compared to other US parts that have a great business environment. Plus, Texas invited more than $2.5 billion in businesses in 2018, so venture capital investment is not a problem here.
Colorado has one of the highest rates of startup-survivability in the US, reaching an incredible 81%. Plus, the state’s startups generate many jobs, while business taxes are affordable for a small company. It’s no wonder that Colorado ranks favorably when it comes to states and their corporate taxes.
Of course, we can’t forget about the state’s economy. Colorado is a great place to start a business as it has a booming economy. The working-age population is continuously growing, and it reached an 8% growth in the past six years. This is by far the fastest growth in the US. No wonder many experts see the state as a stellar place for startups.
The Golden State’s lively and robust startup scene is a true magnet for entrepreneurs and ambitious individuals. California has the second-highest rate of new entrepreneurs, only behind Florida, with 0.45% of the population willing to start their own company. Thanks to this mentality, startups generate many jobs while they have a high survivability rate.
Plus, the state has a great flow of venture capital. In the past years, close to 3,000 companies received a total of $26 billion in funding. However, you also have to take into consideration its hostile business tax climate. It’s bad news that California has a high corporate income tax rate, one of the highest in the US at 8.8%
6. North Carolina
If your number one priority is excellent venture capital numbers, then North Carolina is the place to go to. In the past couple of years, close to 180 companies received approximately $15 million each, totaling a stunning $2.62 billion in venture capital funding. Another great thing about this state is that the startup survivability rate is above average, with 81% of companies surviving their first year.
What makes North Carolina a magnet for startups is its corporate tax: it has a relatively low flat tax on corporate incomes. And its economy is getting stronger and stronger, while the working-age population is continually growing. Another interesting fact is that 90% of entrepreneurs started their business out of necessity but by choice. This number is way above the national average, which stands at 86%.
Idaho‘s working-age population has experienced impressive growth of 7.2% in the past five years. This follows a similar trend in other western states as well; however, Idaho performs better. Startups also create an average of six jobs per business. The state also outperforms the national average for new startups’ rate: close to 0.4% of the population launched a business.
Idaho’s low cost of employees is also a great benefit for employers. The compensation of real labor cost for businesses is $32/hour, which means it’s one of the US’s cheapest. Plus, launching a startup in Idaho is considered cheap: 17% of companies started with less than $5,000 and still managed to get off the ground without problems.
With a stellar startup activity, Oklahoma is one of the friendliest and welcoming states in the US business-wise. One of the most apparent benefits for startup owners lies in the high rate of new entrepreneurs, outshining the national average. Additionally, the state has the third-best survival rate for new small companies: more than 81.5% of companies survive their first year.
Even though 12 companies received venture capital funding in 2018, they each received above $4.3 million. When compared to Idaho, this is a higher number, as businesses there received $4.1 million.
Among all the southern states, Georgia has seen the biggest rise, mainly Atlanta and it’s proximity. If you’re looking for a state with great venture capital funding, Georgia’s your pick. 112 businesses were funded with $1.1 billion, meaning approximately $10 million/firm. Without a doubt, that’s the highest in the US.
When it comes to the most crucial entrepreneurship factors and indicators, Georgia performs well. For example, 0.42% of the population started a new company, which is higher than the national average. However, one of Georgia’s downsides for entrepreneurs is the low survivability rate for startups: only 76% of new companies make it through their first year.
What’s the stat that makes Wyoming the number 1 choice for any entrepreneur and individual wishing to launch a startup? The answer lies in the favorable tax climate. Out of all 50 states, Wyoming sits at the top. Plus, there’s no individual or corporate income tax in the state. The same goes for South Dakota.
One thing that can scare some entrepreneurs is the state’s declining working-age population. However, Wyoming makes one forget about this problem with a high rate of new entrepreneurs and a high survivability rate for startups: 0.45% of the population decided to give their startups a try. In comparison, 81% of businesses make it through their first year.
Even though no state ranks the best in every single category and factor we’ve analyzed, you can still easily pick one that suits your needs.