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The 3 best and worst U.S. cities for startups

Posted by Grace Townsley

November 8, 2021    |     3-minute read (544 words)

Thinking of starting a new business? Where you launch your business can have a major impact on its long-term success. Factors like the tax rate, local unemployment rate, average education level, and average age of people in your city can make – or break –your business. Read on to learn about the best and worst cities for new businesses.

These three cities top the list

Raleigh, North Carolina: Lending Tree, the online lending marketplace, ranks Raleigh as the best city for startups. It has a low unemployment rate, a well-educated pool of workers, one of the lowest corporate tax rates, and fairly inexpensive housing. Plus, over half the city is between 24-55 years old. That's the prime age to join your startup team. 

Austin, Texas: In 2021, the U.S. Census Bureau recognized Austin as the fastest growing metro area in the US. In the past 10 years, Austin has seen a 34% population growth. While housing costs are quickly increasing in Austin, currently residents spend only about 21% of their monthly income on housing. That’s lower than much of the country. Nearly 80% of small businesses launched in Texas survive at least a year, aided by the state’s low corporate tax rate and no personal income tax. 

Boulder, Colorado: In addition to being one of the healthiest cities in the country, Boulder is a great city for startups. The city has an outsized concentration of tech companies and a high number of patents applied for in the last two decades. Those are two signs of a strong startup environment. Boulder is also home to a large university drawing highly qualified talent to the city and making it a vibrant ecosystem for new businesses. 

Think twice about these three cities

Bakersfield, California: Bakersfield has a high unemployment rate, lower proportion of working adults with at least a bachelor’s degree, and a challenging tax climate. The city also has high housing costs and a low number of residents currently self-employed. Because of the high taxes and cost of living, many businesses in the area are forced to look for outside funding, which limits the businesses that can successfully launch there. 

Toledo, Ohio: Toledo has one of the lowest proportions of residents in their prime working age of 24-55 years old. That factor, coupled with a lower education rate and proportion of currently self-employed residents means this city has been difficult to launch a successful startup in. 

Honolulu, Hawaii: Honolulu was hit particularly hard by the COVID-19 pandemic. The pandemic most severely impacted hospitality, tourism and recreation businesses. The local economy of Honolulu, and Hawaii as a whole, rely heavily on these income sources. Unsurprisingly, a report by QuickBooks showed Honolulu ranked as the fourth most-impacted city. Hawaii is the only state yet to recover fully from the past year’s revenue drop, making it a challenging city to start a business in. 

Takeaway

It goes without saying, your new business can become a successful venture in any city or state with the right mix of product quality, hard work, marketing, and a pinch of good luck. But in many cases, starting a business in a small to medium-sized city, like the first three cities listed here, gives you a better chance of success. 

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