Choosing a location is one of the key steps to starting a business. In the United States, both the state and the city where you launch your business have an impact on your financial outlook. Different tax structures and costs of living can raise or lower your operating costs. Market size also plays a role. In a smaller city, your business may be a big fish in a small pond, with lower overhead costs, a greater chance of success, and stronger customer relationships. On the other hand, larger cities tend to have more diversity in customer bases and larger talent pools.
But there’s more to consider than economic factors. It helps if you enjoy and feel connected to the city where you live and run your business. For example, Jonathan Grahm, founder and CEO of the Los Angeles–based Compartés Chocolates, credits LA with influencing his company’s branding and packaging. “I’m inspired by everything around me,” Jonathan says on Shopify Masters. “We have such a great melting pot of different ingredients, flavors, restaurants, art, and fashion—all those things are incorporated, with the chocolate being the canvas, but really, the story that I’m telling is the story of LA.”
What to consider when choosing a US city to start a business
While a ski rental shop or winery might be limited in their location options, ecommerce startups have more flexibility when it comes to their home city. If you have the freedom to choose where to set up, here are some factors to consider:
Cost of living
A lower cost of living often means lower operational costs, such as warehouse rental space, utilities, inventory, and wages. Cost of living indicators include:
Gross domestic product (GDP) growth
GDP measures the value of goods and services produced for sale in a given market and can show an economy’s strength. The rate of GDP growth over time can indicate that a city’s economy is expanding at a steady rate, which suggests healthy growth that could support a business.
Cost of living indices
These indices offer a more nuanced view of how much it costs to maintain a certain standard of living in different cities. Although there is no official cost of living index, sources like Numbeo and RentCafe create indices using data from government institutions and other reputable sources and comparing them to a national average.
Median income
Median income can give you an idea of your potential customer base’s purchasing power by indicating how far a salary will stretch in a given city.
Unemployment
High unemployment rates often indicate a struggling economy. With fewer people employed, the general population tends to shy away from spending money. On the other hand, high unemployment also means there is a larger available workforce, which can present opportunities for employers.
Tax codes
Personal and corporate income tax structures vary from state to state in the US, and since lower taxes can leave you with more cash to reinvest in your company, states with business-friendly tax codes tend to attract startups. Texas, for example, doesn’t levy a corporate or personal income tax. Similarly, Florida and Tennessee also do not have personal income tax obligations, though both levy a corporate tax. Depending on what type of business you open, you may also want to consider the impact local property taxes and sales taxes will have on your operating costs.
Entrepreneurial culture
Small businesses and entrepreneurs are crucial drivers of the US economy, creating new jobs and stimulating the kind of competition that inspires innovation and provides consumers with high-quality goods. The number of new business applications a city receives can indicate a business environment that’s welcoming to aspiring entrepreneurs. Examining the rate at which the number of applications changes over a period of time can show whether a city’s economy and entrepreneurial culture are growing and will continue to be a good place to set up shop.
Workforce
Not only does a large workforce often point to a robust economy, but it can also provide new businesses with a sizable pool of workers. This can reduce hiring expenses by eliminating costly recruitment work.
Access to skilled workers is just as important as a large workforce, especially in industries like ecommerce, which require employees with skills in web development, data analysis, programming, SEO, and copywriting. College towns and cities with one or more universities are hubs for talented workers, including recent graduates.
Survival rate
According to data from the US Bureau of Labor Statistics, 85% of small businesses in the United States survive their first year of operation. By the end of the third year, that number declines to 60%. But that’s just the national average; city-level BLS data shows that some places are more conducive to long-term business success.
10 best cities to start a business
- Atlanta, Georgia
- Austin, Texas
- Boise City, Idaho
- Los Angeles, California
- Nashville, Tennessee
- New York, New York
- Orlando, Florida
- Raleigh, North Carolina
- San Francisco, California
- Scottsdale, Arizona
The best city to start your business is a strategic decision that depends on your company’s needs and goals. Learn how these 10 popular US cities measure on the factors listed above:
| City, state | GDP growth (2020-2023) | Cost of living index compared to the national average | Median income | Unemployment rate (metropolitan statistical area; MSA) | Annual growth rate for business applications (by county) | 3-year survival rate (since 2021, by state) - 59.2 = average | Labor force size (by metro area) | Population with a BA | State’s personal income tax rate | State’s corporate income tax rate |
| Atlanta, Ga. | 27.8% | 4% lower | $81,938 | 3% | 10.8% | 54.7% | 3,287,498 | 58.4% | 5.39% | 5.39% |
| Austin, Tex. | 50.6% | 4% higher | $91,461 | 3.1% | 14.3% | 60% | 1,533,003 | 58.2% | N/A | N/A |
| Boise City, Idaho | 46% | 2% higher | $81,308 | 3.2% | 6.7% | 52.6% | 453,804 | 46.6% | 5.7% | 5.7% |
| Los Angeles, Calif. | 21.5% | 49% higher | $87,760 | 5.6% | 8.9% | 65.6% | 6,736,397 | 35.5% | 13.3% (top rate) | 8.84% |
| Nashville, Tenn. | 41.4% | 1% lower | $75,197 | 2.5% | 11.7% | 57% | 1,190,728 | 46.9% | N/A | 6.5% |
| New York, NY | 22% | 74% higher | $79,713 | 4.1% | 6.5% | 58.9% | 10,247,826 | 41% | 10.9% (top rate) | 7.25% |
| Orlando, Fla | 41.6% | 4% lower | $69,268 | 3.3% | 14.6% | 57.1% | 1,547,298 | 42.2% | N/A | 5.5% |
| Raleigh, NC | 39.4% | 3% lower | $82,424 | 2.9% | 13.1% | 61.8% | 847,145 | 52.9% | 4.25% | 2.25% |
| San Francisco, Calif. | 27.6% | 67% higher | $141,446 | 4.4% | 7.5% | 65.6% | 2,508,905 | 60.1% | 13.3% (top rate) | 8.84% |
| Scottsdale, Ariz. | 41.6% | 14% higher | $107,372 | 3.1% | 12.6% | 56.9% | 2,730,037 | 61.5% | 2.5% | 4.9% |
Atlanta, Georgia
With a population of more than six million in the greater Atlanta metro area, a steady growth in business applications, and a cost of living below the national average, Atlanta is an attractive option for small startups that want access to a large market. Georgia also has a business-friendly tax structure with two job tax credit programs and a low corporate tax rate that only applies to goods sold in the state. Atlanta is also becoming an important technology hub, thanks in part to the strong engineering programs at Emory and Georgia Tech Universities.
Austin, Texas
Over the past two decades, Austin has boomed from a college town to a center for tech startups, drawing talent and venture capital funding away from Silicon Valley. While the city has experienced high economic growth since 2020, Austin’s cost of living is only 4% above the national average. And Texas doesn’t levy personal or corporate income taxes. Entrepreneurs seeking a vibrant cultural scene are drawn to Austin’s legendary music festivals and the annual SXSW festival, one of the country’s biggest conferences celebrating music, film, interactive media, tech, and culture.
Boise City, Idaho
A city poised to become a hotspot for entrepreneurship, Boise’s GDP has been growing at a lively 46%. Idaho recently lowered its corporate tax rate by almost 0.4%. And in 2013, Boise State University opened Venture College to nurture local entrepreneurship and attract outside talent. But livability tops the list of why Boise is attractive to new business owners. The city’s cost of living hovers around the national average, and outdoor access rivals that of cities like Portland and Denver.
Los Angeles, California
While Los Angeles often conjures thoughts of Hollywood, the city’s massive metropolitan area is home to a huge workforce that supports a variety of flourishing industries. Local business owners trade a high cost of living and high personal and corporate tax rates for a diversity of ideas. (It helps that Los Angeles is one of the top five metro areas for venture capital investment.)
According to Jonathan Grahm of Compartés Chocolates, Los Angeles is inspirational enough to impact product packaging design. “[When] you look at the aesthetic and packaging, it’s really inspired by LA culture. LA is such a melting pot of different cultures and different things. I think you can see that translated into the packaging and the taste, and really all things Compartés.”
Nashville, Tennessee
For the past decade, Nashville has repeatedly appeared on various top 10 lists of the fastest-growing cities in the United States. The city boasts high GDP growth and a very low unemployment rate while maintaining a low cost of living and median annual income, which makes it particularly appealing to employers. It’s also attractive to ecommerce businesses due to Tennessee’s central location, which facilitates fast shipping times across the country.
New York, New York
For Charlotte Palermino, founder of Dieux Skincare, New York’s network of experts and entrepreneurs is one of the city’s key attractions. “I don’t think we would have been able to do what we’ve done if it wasn’t in New York,” she says. “I just don’t think I would have been able to access the people that I had access to here, which is really what helped catapult my career.”
New York’s proximity to some of the country’s top business school programs—including NYU, Columbia, Harvard, and Wharton—means that an abundance of skilled talent feeds its diverse economy. Additionally, located on the Eastern Seaboard and with two major airports, New York is a popular choice for entrepreneurs who need to travel.
Orlando, Florida
Florida is considered one of the tax-friendliest states in the US, with no personal income tax and low corporate tax, as well as incentives like the Quick Response Training grant program, which helps fund customized training of new hires for new or expanding businesses. Orlando has a rapidly expanding economy, but the cost of living remains below the national average, which helps keep business costs low. That—and the accessibility to beaches on both of Florida’s coasts—may be part of the reason that Orlando claims the highest growth rates for new business applications among the cities on this list.
Raleigh, North Carolina
Located in the Research Triangle—an area that includes North Carolina State University, Duke, and the University of North Carolina at Chapel Hill—Raleigh teems with opportunities for innovative new businesses. The higher-than-average three-year survival rate of Raleigh businesses may be due to the city’s growing economy and low cost of living, coupled with North Carolina’s low tax burden. Raleigh also has easy access to shipping infrastructure, including four international airports and two major seaports.
San Francisco, California
“The beauty of the Bay Area is the talent that exists here,” believes Jake Miller, founder of Fellow, which makes gear for the home coffee connoisseur. The city may have one of the highest costs of living in the country and a high tax burden, but the quality of its skilled tech workforce is unparalleled. “Fellow is now a team of about a hundred people,” says Jake, “The people that we have working on our products today, our product designers, our engineers, are all ex-Apple, Tesla, Google. Now they’re at Fellow helping us design great things.”
Jake credits his time studying at Stanford’s design school (d.school), which focuses on challenging students to tackle urgent, real-world problems, with landing him in the Bay Area. And like Jake, many students from Stanford, nearby UC Berkeley, and Cal Poly choose to stick around after graduation. It’s one of the reasons Silicon Valley has become an important tech hub. In addition to top-tier talent, San Francisco also has a thriving venture capital culture, hosting about 40% of the country’s VC market.
Scottsdale, Arizona
Despite having a higher-than-average cost of living, Scottsdale, Arizona, maintains an impressive 12.6% growth rate of new business applications. It also boasts the most educated workforce on this list, with 61.5% of its population holding a bachelor’s degree. This attractive labor market can be attributed to various sources, including the area’s network of universities and community colleges and a no-cost talent acquisition assistance program run by the Arizona Commerce Authority. Scottsdale’s pleasant climate, access to outdoor activities, and dining culture also boost the city’s quality of life and make it an attractive place for workers to settle.
Best cities to start a business FAQ
Where is the best city to start a business?
The top cities to start a business depend on your requirements. If you’re looking for strong economies with low tax burdens, cities like Austin, Texas; Orlando, Florida; and Scottsdale, Arizona, might be attractive options. Access to venture capital and skilled tech workers makes San Francisco a strong candidate for tech-related startups, while companies looking for a diverse pool of workers and customers might consider Los Angeles and New York top choices.
What is the cheapest state to own a business?
The statistics that determine the cheapest state to own a business change from year to year. However, states like Utah, Florida, and North Carolina, which have low income and corporate taxes as well as lower costs of living (comparatively), tend to be the cheapest states to own a business.
What is the best city for startups?
San Francisco ranks high as a city that encourages and supports startups. It hosts a highly skilled workforce, 40% of the country’s venture capital, and a thriving startup ecosystem.
