Where to Start Your Small Business: Here Are 5 Factors to Consider

USA map with states

When you’re thinking about starting a small business, you want to do everything you can to give it the greatest shot at not only surviving, but thriving. But there are a lot of contributing factors to the success or failure of your endeavor.

As you consider how to best build a company that will make it in the long run, it’s sometimes best to look to those who have come before and analyze the choices they made when selecting a home base for their operations. Here are five elements to think about as you decide the best place to start your startup.

1. Most Popular Cities

When you’re first starting out, finding and connecting with other entrepreneurs who are either in the same boat or have been through the trials and tribulations you’re experiencing with your business can be a valuable asset. Built-in networking opportunities and a sense of community can be vital to an overworked entrepreneur, so you might want to settle in one of the locations that are the most popular for startups.

According to the annual report by The Kauffman Index, California is the large state that has the highest “startup density:” the greatest number of startups per 1,000 companies. Nevada boasts the highest startup density overall, with 108.4 startups for every 1,000 firms in the state. But don’t just consider the obvious: many smaller, Midwest cities are becoming known for their entrepreneurial spirit.

2. Lowest Cost of Running a Business

Starting a small business can be easier in a city or metropolitan area. You have the built-in resources, talent pool, and potential clients to pull from in a way that you don’t in a rural area. But cities can be expensive places to live and even more expensive places to establish a company. There’s the cost of office space, utilities, legal costs, and filing fees to take into account. CBS News recently analyzed the data to pull together a list of the 10 most cost effective places to start a business.

California may be the most popular state for startups, but San Jose and San Francisco are the two most expensive places to set up shop. If overhead costs are a concern, you might want to consider a city in Tennessee or Kentucky.

3. Highest Revenue

While it’s important to take into consideration the cost of running your business, equally–if not more–important is the ability to generate revenue. According to Fundera’s analysis of the startups featured on the latest Entrepreneur 360 List, Boston, Massachusetts; Scottsdale, Arizona; and Austin, Texas were the home cities of the startups that generated the highest average annual revenue.

It’s worth mentioning that Austin was the only city that found itself on both the most popular and highest revenue-generating list based on the Entrepreneur 360 analysis.

4. Most Lenient Government Policies

As a small business owner, red tape can be a major distraction and a drain on finances and resources. Selecting a location that is friendly to small businesses and makes it easier to obtain licenses, hire employees, understand tax code, and navigate building permits is important for an entrepreneur with lots of competing priorities.

According to Thumbtack’s assessment of regulation in some of the largest American cities, Austin and Atlanta are very small-business friendly, Boston and Minneapolis are fairly friendly, while San Francisco is challenging, earning an “F” grade from skilled professionals who ranked the ease of dealing with policies in their given locations.

5. Highest Survival Rates

If you’re looking to give your small business the best chance at long-term survival, you may want to consider a city that has a history of housing startups that make it to the five year mark. The Kauffman Index looks at trends in metropolitan areas and analyzes the survival rate of companies, looking at which cities have the greatest number of companies that have prevailed for five or more years.

According to their research, Pittsburgh, Pennsylvania and the Boston Metro area are the two places with the best track record for startup survival rates. More than 53% of companies that have been founded in those areas have gone on to celebrate their five year anniversaries.

As an entrepreneur, your number one priority is creating a business that you’re passionate about and that has a real shot at long-term growth and survival. Taking the factors above into consideration can help you select a location that is business-friendly, cost-effective, and provides the community and support you need to keep your company running well into the future.

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