Entrepreneurship is a tough slog no matter where you live, considering that 51% of all new businesses fail within five years, according to the U.S. Small Business Administration. But location still matters, despite what the digitized nature of contemporary commerce might lead you to believe.
Sure, the Web has helped to democratize business, making it possible for people from all corners of the globe to achieve success. But that hasn’t robbed the actual places where we sow our start-up seeds of their incubatory role.
It’s about more than the vibe of a given city or space, though that can be important. It also comes down to dollars and cents, which we all know are far too scarce early in entrepreneurship. Here are five prime examples of what I’m talking about:
Cost Of Living & Working: This one’s pretty obvious, but most people probably don’t realize just how significant the disparity between the most and least expensive cities actually is. So consider the fact that it costs roughly 167% more to live in New York City than Laredo, Texas, according to WalletHub’s analysis of Census Bureau data. Take note that office space is 755% pricier per square foot in San Francisco ($99.42) than in Toledo, Ohio ($11.63). And ponder the implications of the 182% chasm between the cities with the highest and lowest median monthly starting salaries: San Jose, Calif., ($5,194) and Brownsville, Texas ($1,840).
Those last two factors, in particular, are paramount as real estate and payroll are the two largest expense categories for many new businesses.
Local Business Incentives: In the interest of sparking their economies, many areas – states, cities, counties, etc. – offer attractive incentives to business owners who set up shop within a designated development zone. Such a deal could save you a few years’ income taxes and perhaps even cover the cost of your office space in the process.
For example, my company moved to downtown Washington, DC in large part to take advantage of the city’s high-technology development program, which provides tax benefits for operating from a designated area.
Talent Availability: This obviously doesn’t matter if you’re a one-man (or woman) show, but you’d better care about the local talent pool if you’d like to avoid always having to do everything yourself. After all, educational attainment and industry-specific skills vary geographically just as much as expected starting salaries.
For example, roughly 66% of people in Irvine, Calif., have a bachelor’s degree or higher, compared to just 12% in Laredo, Calif. Furthermore, there are about 65 engineering grads per 1,000 residents in Fremont, Calif., yet just one per 1,000 Cape Coral, Fla., residents.
Lifestyle, Energy & Work Ethic: This is perhaps harder to quantify than many geographic considerations, but we do know that folks in America’s most fastidious city, Fayetteville, N.C., work nearly seven more hours each week, an average, than their slackest counterparts, those in Tallahassee Fla. That matters, whichever side suits you best. So too do the types of people who reside in a given area, what they like to do for fun, how stressed they tend to be and more.
Not only do such factors speak to the tenor of your everyday environment, but they also figure to form the foundation of your company’s soul.
Growth Potential: Success in business requires a long-term view with a short-term focus. You therefore have to wonder whether an area that suits your venture’s current needs will be able to handle its coming growth.
How quickly will you be able to scale with the resources at your disposal? Does your location fit your supply chain, your target market and the future areas you would like to enter? These are essential questions with geography at the heart.
Finally, it’s important to touch on the many ways in which location affects everyone’s personal finances, which are separated by the thinnest of barriers from an entrepreneur’s business books. Where you live impacts everything from the rates you earn on checking and savings accounts to your credit score’s role in car insurance pricing.
None of this is to say that you should move, or that it’s decidedly better to start a business in one city or another. After all, how do you really value happiness, or something as simple as a waterfront view after a long, hard day? But you should at least consider these matters if you’re unsure where to put down use.
Odysseas Papadimitriou is an entrepreneur and the founder of WalletHub, a website that offers free credit scores, full credit reports, 24/7 credit monitoring and customized money-saving advice.