I’ve long had an interest in developing a new way of looking at startup communities, based less on the usual government statistics (tax and crime rates, income growth and so forth) than on a cluster effect: that groups of entrepreneurs tend to attract more entrepreneurs. So, several months ago, I turned to Forbes.com contributor Darian Shirazi, founder of Radius, a San Francisco technology company that collects small business data in the U.S. and offers a marketing platform to corporate clients selling to that sector. Radius was the ideal group to generate a list of the best cities to start a business, given its ability to gather scads of information and its novel methodology for sifting the data. The result is a series of guest posts by Lisa Fugere, who manages content strategy and creation at Radius. She has put together the list of best places, along with three other posts on the cluster phenomenon, small businesses shaking up their communities and outlier regions that are mini-hotbeds of entrepreneurship.
The convergence of a number of economic conditions and consumer trends has hatched a business environment in the U.S. that embraces small business, and we are on the verge of revitalized small business communities across the country. To determine which U.S. cities are the most amenable to the wave of small business owners that will establish local roots in the upcoming year, we have developed a unique set of criteria based on data available within Radius.
The Radius database analyzes billions of data points about businesses in the U.S. each day, and from those data we can deduce unique insights about the communities that are most advantageous to small business owners. Based on our analysis of over 27 million U.S. businesses, we believe the next generation of small business owners will flock to cities not because of growing job rates and income levels, but because of community engagement and access to resources.
We evaluated the 50 most populous cities in the U.S. on a number of criteria we have found to evince community engagement and availability of resources to small businesses:
Thanks to the convergence of economic conditions and consumer trends, we are on the verge of revitalized small business communities across the country. To determine which U.S. cities are the most welcoming to small business owners who want to put down roots this year, we have developed a unique set of criteria based on data available within Radius.
To generate this list, we evaluated the 50most populous cities in the U.S. on a number of criteria we have found to evince community engagement and availability of relevant resources:
1. Small businesses as a percentage of total businesses. Cities that boast the highest relative concentration are more likely to offer access to resources that benefit small businesses than those that don’t.
2. Percentage of small businesses that accept credit cards. Such businesses are more likely to stay abreast of new technology—and more likely to earn higher revenues. A 2012 GoPayment survey estimated that small businesses that don’t accept plastic miss out on $100 billion in sales annually; those that do accept credit cards are likely to process more transactions and close more sales than those that do not.
3. Percentage of small businesses in high growth industries. The national economies with the highest median family incomes correlate closely with the nation’s fastest growing industries. Industry growth can predict housing, income, and population booms, and where cities grow, their businesses reap the benefits—a benefit even to startups in businesses outside the key industries. We awarded special weight to cities with high concentrations of businesses in computer software and services as it’s the second most trusted institution–just behind small businesses–according to Pew Research, has grown consistently over a number years, and has been linked to overall community job growth. (According to Sageworks, those fastest growing industries of privately held companies are: support activities for mining; oilseed and grain farming; beverage manufacturing; agriculture, construction and mining machinery manufacturing; other crop farming; computer systems design and related services; offices of real estate agents and brokers; chemical and allied products merchant wholesalers/distributors; personal and household goods repair and maintenance; and employment services.)
4. Percentage of small businesses with Facebook pages and websites. It turns out that Internet-savvy businesses are likely to grow faster than those that don’t, and are also more likely to advertise online. Radius research also found that small businesses that stay active online receive more favorable feedback from customers. Web presence indicates adaptability and likelihood to innovate—creating a network effect for communities dedicated to growth and positive change.
5. Percentage of businesses with online reviews. A recent study from Pew Research Center identified small businesses as the most trusted group in the country. Analysis of online reviews reveals where the most well-liked (and least-liked) businesses in the country concentrate, signaling communities that embrace or reject locally-owned businesses. A concentration of small businesses with high (four- and five-star) online review ratings can also indicate where the most community-oriented business owners cluster.
Based on these criteria, here are our rankings of the best places to launch a new business this year:.
1. San Diego, CA
2. Denver, CO
3. Austin, TX
4. Seattle, WA
5. Portland, OR
6. San Francisco, CA
7. Dallas, TX
8. Boston, MA
9. New York City
10. Chicago, IL
11. Las Vegas, NE
12. San Jose, CA
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