These are the best places to launch a small business in America

Small Business

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Alec Manfre co-founded the tech start-up Bractlet as a student in Atlanta where he went to college, then ran it from an incubator in Santiago, Chile. But it was Texas where he and his two co-founders ultimately put down roots.

They got hooked on doing business in the state after moving the start-up to Houston to participate in an accelerator there. Bractlet makes a technology that helps commercial real estate owners evaluate their buildings’ energy infrastructure. The entrepreneurs were excited about the deep expertise in energy that existed in the city.

Twenty-person Bractlet has since moved to Austin, where its lead investor, a venture capital firm, is located. Thanks to the presence of schools such as University of Texas, the company has been able to find plentiful skilled talent, both within Austin and from cities such as Dallas, Houston and San Antonio, says Manfre.

Adding to the lure of doing business in Austin, he says, is the active start-up crowd; community groups centered on energy efficiency; and events like the movie, music and tech festival SXSW.

Alec Manfre co-founded Bractlet and moved the start-up to Texas to tap the state’s talent pool.

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“There are always connections to be made and communities being built — and there’s a strong emphasis on technology and investment,” says Manfre. “That’s a really powerful combination for us.”

Oh, and the active outdoor culture doesn’t hurt, either. “Yesterday we were doing wakeboarding on a recreational lake 15 minutes away,” he says.

It’s not surprising that Manfre has found a lot to love about doing business in Texas — which finished second in CNBC’s 2019 America’s Top States for Business ranking. Known for its low-tax environment — there’s no personal income tax or corporate income tax — business-friendly regulatory climate and innovation-focused economy, Texas has many champions in the business community.

“It’s simply easier to do business in Texas than any other state,” says Bob Harvey, president and CEO of the Greater Houston Partnership, an economic development organization.

But it’s not solely a low-tax, low-regulation environment that makes a state great for business. Some states have a completely different playbook for success that works for them. High-tax, highly regulated environments haven’t kept California’s Silicon Valley, the Rte. 128 Tech Corridor in Massachusetts or New York’s Silicon Alley from spawning innovation or attracting venture capital. These states owe their economic health to other factors, like excellent access to capital for their start-ups and dominance in particular industries. California, for instance, has its thriving film and aerospace industries.

“California gets away with a horrible business climate because it’s got such strong industries,” says Steve King, a partner at Emergent Research, which studies small business trends out of Lafayette, California.

Recognizing there’s no magic formula for building a thriving business community, CNBC’s 2019 America’s Top States for Business scores the states on 64 metrics across 10 main categories: their economy, workforce, infrastructure, cost of doing business, quality of life, education, technology and innovation, business friendliness, access to capital and cost of living.

Here is a look at some of the qualities that are helping states foster entrepreneurial business growth.

Abundant talent

States with a strong university system have an edge in an increasingly knowledge-based economy. Florida (No. 12 on the list), for instance, has more than 60 universities around the state churning out well-educated graduates, among them the University of Florida, University of Central Florida and University of South Florida.

The strong talent bench is fueling the growth of sectors such as cybersecurity, technology and finance and attracting venture capital, according to Craig Richard, president and CEO of the Tampa Hillsborough Economic Development Corp. “They are cranking out a lot of innovation and patents around cybersecurity,” says Richard. “That’s one of our fastest-growing tech sectors.”

It’s not the only technology niche where Florida’s economy is percolating, thanks to the state’s deep pool of STEM-educated talent. Luminar Technologies, a fast-growing Silicon Valley-based start-up backed by Peter Thiel makes lidar-based sensors for vehicles. It established its R&D and manufacturing base in Orlando last year — and now about 265 of its roughly 370 employees work out of Orlando, according to the company’s chief business officer, Scott Faris.

Luminar’s co-founder Jason Eichenholz knew there was a concentration of specialized engineering talent in the area as an alum of the University of Central Florida’s Center for Research and Education in Optics and Lasers. Many engineers in the state’s aerospace industry had already worked on similar technology for laser-guided missiles. The company wanted to take advantage of that knowledge base.

“There is no place in the universe where you have the density of talent in the lidar and sensing space that you do in Orlando,” says Faris. “It’s got a rich history and density of people who understand all aspects of this. We’re able to attract those folks into the organization.”

Quality of life

With unemployment at record lows and the talent wars accelerating, many business leaders realize it’s easier to recruit if they open their offices in places where workers want to live because of fantastic schools, a great arts scene, hot restaurants or easy access to parks and outdoor activities.

“More companies are looking at the quality of life and eco-friendliness,” says attorney Andrew Sherman, a partner in Seyfarth Shaw in Washington, D.C., who advises both entrepreneurs and corporate businesses and is author of many books on entrepreneurship.

“The state of Washington, for instance, has done a nice job of marketing their assets to small and midsize businesses, saying, ‘Not only do we have good universities and human capital but we have beautiful cities with access to the Pacific. “

Similarly, employers in Colorado have found that it’s not hard to entice recruits from other states to move to up-and-coming outdoor-oriented cities such as Denver, Colorado Springs, and Boulder, known for its thriving tech and natural-foods industries.

Denver’s economy is solid, and it has a strong, educated workforce. It also has the nation’s fourth-largest concentration of science, technology, engineering and math (STEM) employees.

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“I think our quality of life is an important contributor,” says Dirk Draper, president and CEO of the Colorado Springs Chamber and EDC. “Entrepreneurs and innovators may be working on their own or in small groups where they can make a decision more on a quality of life factor that adds spice to our community mix. They come here for the lifestyle.”

Taxes

Taxes usually aren’t the only factor businesses consider when choosing where they will open up shop, but a state’s tax burden can make a real difference in how much a business or company can reinvest in growth and how affordable a state is for workers.

“Generally speaking, if you have a low-tax, low-regulatory state, then you start off with a big advantage relative to other states,” says King. “Right off the bat, Texas attracts a lot of business with low taxes, no personal income tax and a regulatory environment that’s very pro-business — and its economy gets stronger.”

However, just because a state has low taxes, it doesn’t mean it’s automatically a great place to do business. “Some of the lower tax states happen to be places with struggling economies,” says Max Gulker, senior research fellow at the American Institute for Economic Research, a free market think tank. “They will lower their taxes in an effort to attract businesses.”

The Tax Foundation’s 2019 State Business Tax Climate Index found that the states with the best tax structure for business are (1) Wyoming, (2) Alaska, (3) South Dakota, (4) Florida, (5) Montana, (6) New Hampshire, (7) Oregon (8) Utah, (9) Nevada and (10) Indiana.

The worst 10 (with number 50 being the lowest), are (41) Vermont, (42) Ohio, (43) Minnesota, (44) Louisiana, (45) Iowa, (46) Arkansas, (47) Connecticut, (48) New York, (49) California and (50) New Jersey.

States that don’t impose one of the major categories of taxes — such as the individual income tax, state sales tax or corporate income tax — fared best on the Tax Foundation’s ranking. Among those with no corporate or individual income tax are Wyoming, Nevada and South Dakota. (Nevada does have a gross receipts tax.)

Alaska does not have an individual income tax or state-level sales tax. Florida doesn’t have an individual income tax. And there’s no state sales tax in New Hampshire, Montana and Oregon.

The contrast between these states and those with higher taxes is stark, when it comes to what it costs employers and employees who live and work there. For instance, New Jersey not only has some of the country’s highest property taxes but it also just added a corporate tax with the second highest rate in the country. Beyond that, it imposes an inheritance tax, and its individual income taxes are some of the worst structured in the country, the Tax Foundation noted.

A favorable regulatory environment

As technology upends many industries, a regulatory climate that allows for innovation is essential, say many business leaders. Tim Giuliani, president and CEO of the Orlando Economic Partnership, points to the bill Florida Gov. Ron DeSantis signed in June on autonomous vehicles. It allows the Florida Turnpike Enterprise to fund, construct and operate test facilities to advance autonomous and connected transportation technology. That will be a big advantage for businesses in this field, he believes.

“It sends a signal that Florida is willing to continue to change its regulatory environment to adapt to new technologies,” says Giuliani.

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That’s not to say that the business community wants a zero-regulation environment. “Sometimes government regulation can be a positive — but if it’s done too much, I’d be concerned,” says Elie Rieder, founder and CEO of Castle Lanterra Properties, a firm in Suffern, New York, that invests in multifamily real estate around the country and is affected by regulations such as rent stabilization laws.

Infrastructure

Time workers spend navigating potholes is time they’re not producing, and employers are well aware of that. “No one wants to come to a city where workers are going to have to lose two to three hours a day commuting,” says Sherman, the attorney. “The more open roads, the better.”

Public-private partnerships like the one behind the Dulles Greenway, a privately-owned 14-mile road connecting Washington Dulles International Airport with Leesburg, Virginia, are important in making a state attractive to business activity, says Sherman. The Greenway makes it easier to commute while bringing in toll revenue, he notes.

“A lot of the tech companies concentrated near Dulles Airport only came out there because the roads were expanding,” says Sherman.

Rieder, at Castle Lanterra Properties, pays close attention to the infrastructure in the cities where his firm invests, favoring those where commutes are not too long and airports are easily accessible.

“Localities that invest in, expand and maintain good infrastructure allow businesses to grow, and apartments, by correlation,” he says.

Great connectivity is essential, too. “They need enough internet and 5G to run their businesses properly,” says Sherman. In today’s fast-moving economy, no employer has time to waste battling technology that isn’t keeping up with the pace of growth.

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