From the October 2000 issue of Entrepreneur

Paris may be great for lovers, and Sydney is the current hot spot for sports, but for entrepreneurs in search of the best cities for their businesses, the names are locales like Fort Worth, Las Vegas and West Palm Beach/Boca Raton, Florida. These cities were among the top 10 large U.S. metropolitan areas in Entrepreneur and Dun & Bradstreet's seventh annual ranking of the best cities in the nation for entrepreneurship. They won their laurels not because of their romantic milieus or skill at lobbying the Olympic committee, but for their ability to inspire business start-ups, encourage expansion of existing firms, attract new jobs and limit the risk of failure.

In the Net age, when communications tentacles reach almost everywhere, it might seem anachronistic to suggest any geographic location is better than another. Yet the strong showings of these top cities suggest there are such things as great cities, and these fit the bill.

Obviously, to be a great entrepreneurial city, you have to have a lot of entrepreneurs. We looked at the percentage of businesses in each metropolitan statistical area (MSA) that were five years old or younger. Las Vegas had the highest score of the 60 MSAs studied, scoring 100 in this category, helping it grab the No. 7 overall ranking. But all the top 10 cities had scores in the upper 80s or better, with one exception: ninth-ranked New York City, where apparently new businesses aren't being started much faster than they are in the average city.

Another measure of growth looked at how much employment expanded from 1999 to 2000 in existing businesses that started the period with fewer than 20 employees. Once again, Las Vegas had a very high score of 99, matched only by New York among the top 10. Florida cities tended to do poorly on this metric, with both No. 8 Orlando and No. 2 West Palm Beach/Boca Raton ranking average or below average.

Economic growth, a parameter based on the change in employment among all businesses as reported by the U.S. Bureau of Labor statistics over the three years ending January 1999, highlighted Las Vegas yet again. The desert dynamo sported the best economic growth rating in the nation, but was only one point ahead of Orlando and 10th-ranked Austin/San Marcos, Texas.

The risk of bankruptcy was represented by a Dun & Bradstreet cal-culation of the rate of business failures during 1999. The higher the number, the safer the city for nascent firms. Here was Las Vegas' downfall, as the city scored among the worst in the nation, neutralizing its stellar rating on the other three criteria. However, that's not necessarily bad, says Iris Geisler, the Dun & Bradstreet economist who conducted the study. In an otherwise economically robust community like Las Vegas, higher bankruptcy rates are likely due to an adventurous group of entrepreneurs willing to take risks and a financial community willing to lend them the money to try novel ideas.

Quality Of People Counts

It's one thing to sit in a tower, ivory or not, at Dun & Bradstreet's Murray Hill, New Jersey, headquarters and pore over government reports. It's another to actually be running a business in one of these top-rated communities. But interviews with entrepreneurs reveal that the economists were on target. These business owners love almost everything about the hot spots they live in.

The quality of people, for instance, came up frequently. Glenn Abel, president and founder of Springbok Technologies, a high-tech public relations firm in Richardson, a suburb of sixth-ranked Dallas, says networking helped him get his business off the ground seven years ago and has kept it airborne ever since. "In Dallas, if you network well, you get a referral, and if you present yourself well, you get the business," says Abel, 38, who has 90 employees. "It's a great city to do business in."

And in Charlotte, North Carolina, part of the fifth-ranked MSA that includes Gastonia and Rock Hill in South Carolina, Thomas Moore, an early-childhood consultant and motivational speaker, says that just being around nice people makes it worthwhile for him to be in Charlotte. "The thing that helps me do my job is having people who are comfortable with [forming business] relationships," says Moore. He adds that, as a minority businessman, it's especially important to develop good ties with bankers, printers and others who can accept him without prejudice.

Maybe the most important people in any business are its employees, and most entrepreneurs who like their location are ecstatic about the local talent pool. "I'm absolutely thrilled with the quality of the people we've been able to recruit and hire," says Walt Geer, presidents and CEO of eCompanyStore.com, an Atlanta online purveyor of uniforms. He knows what he's talking about: The 32-year-old entrepreneur has presided over eCompanyStore's expansion from 19 employees in December 1999 to 95 by late summer 2000. Geer credits the nearby universities of Georgia and Georgia Tech with providing the computer talent he needs, while Atlanta's rural hinterlands supply a lower-cost, manufacturing labor force.

It takes money to be in business, and entrepreneurs in several top-ranked cities say that recent growth in the number and size of local venture capital firms bodes well for future chances of getting funding. Geer says his company has raised nearly $17 million from venture capitalists. "And our principal investors have come out of the Southeast," he said. "That wouldn't have happened just a few years ago."

Other Contributing Factors

Not everything that makes a city great for entrepreneurs can be totted up on a calculator. Quality-of-life considerations drive location decisions for several business owners. When Andrew Aiken, 39, and David Frisbie, 49, left the big real estate company they worked for in Chicago to start their own development firm in 1993, the sunny weather of West Palm Beach played a role. "The warm water and being able to surf and fish year-round didn't hurt," says Aiken.

Even harder to measure is the importance of the city government's attitude toward Renaissance Partners, Aiken and Frisbie's eight-person company. "[West Palm Beach] had a depressed town center and a tax base that was going down," Aiken says. "The master plan was clearly written to invite big and small businesses to the community." The city's plan called for just the sort of building Aiken and Frisbie wanted to do, and city staff promised to expedite building permit and zoning requests to help the developers meet their critical timetables. The city followed through, and Renaissance Partners has developed several downtown blocks of boutique retail, residential lofts and a new mixed-use project, all of which are making West Palm Beach more attractive for lifestyle-seekers.

Not every government is so amenable, of course, but flexibility is more common in top-rated small-business cities. "There is no question that the city government has done a hell of a job," says Lou Hoffman, 42, who set up his 85-person Hoffman Agency public relations firm in downtown San Jose, California, eight years ago. Hoffman sits on a task force put together by the current mayor with the mandate to explain to city officials how to encourage start-ups in the city.

Perhaps the least tangible component of greatness is reputation. Hoffman says San Jose's stature as the epicenter of Silicon Valley turns heads as far away as Europe and Japan when he's presenting his firm to new prospects. "It's a differentiator, and part of our brand," he says. Abel, on the other hand, says the fact that Dallas is overlooked as a high-tech hub has helped him when competitors pass over the city for better-known, but much more combative, battlegrounds in Austin, Boston and the Silicon Valley.

Whether in or out of the limelight, success seems to breed success. Austin, for example, is now home to some 2,000 high-tech companies, including eight that went public in 1999, while the rest hauled in around $740 million in venture capital, according to Angelou Economic Advisors, an Austin economic development firm. "There are now plenty of models of how to succeed," says Peter Zandan, 47, chairman and founder of Austin-based Internet pricing consulting firm Zilliant, which has 40 employees. "And there's more energy than ever before going into entrepreneurship."

Why Location Matters

None of this answers the question of whether location matters. Some say it does, in a big way. Abel went so far as to open a second office of Springbok Technologies in Austin, just 200 miles from his headquarters. "We're in the people business," he explains. "We felt clients wanted us to have a local presence to consult with face to face."

Service businesses like Abel's often need to be near customers, agrees Dun & Bradstreet's Geisler. Others may not be so location-dependent, except when it comes to employees. "For a dotcom business, it doesn't matter where their warehouse is," Geisler says. "But it does matter where they do their programming. The hardest thing is to attract programmers."

And your location might matter a lot depending on how quickly you need access to physical items. That's why Carol Fitzgerald operates her 22-person online media venture, The Book Report Network, in New York City, where costs are high but also where most major book publishers have their headquarters. "We're in publishing," explains Fitzgerald, the 43-year-old founder and CEO of the company. "We have to have an office in the city to get books quickly if they're being delivered from the publishers."

Managing a company of virtual employees that are scattered across the country isn't as easy as it might sound, Fitzgerald adds. "You can't brainstorm unless people are actually together in a room to bat ideas around," she explains. "There are moments when you have to sit down and thrash it out better than you can with e-mail."

Top 20 Large Cities:
1. Fort Worth/Arlington, TX
2. West Palm Beach/Boca Raton, FL
3. Raleigh/Durham/Chapel Hill, NC
4. Atlanta, GA
5. Charlotte/Gastonia/Rock Hill, NC/SC
6. Dallas, TX
7. Las Vegas, NV/AZ
8. Orlando, FL
9. New York, NY
10. Austin/San Marcos, TX
11. Washington, DC/MD/VA/WV
12. Phoenix/Mesa, AZ
13. Houston, TX
14. San Antonio, TX
15. San Jose, CA
16. Seattle/Bellevue/Everett, WA
17. Salt Lake City/Ogden, UT
18. Nashville, TN
19. Orange County, CA
20. Denver, CO
Top 5 Midsized Cities
1. Tacoma, WA
2. Charleston/North Charleston, SC
3. Baton Rouge, LA
4. McAllen/Edinburg/Mission, TX
5. Wilmington/Newark, DE/MD

Top 5 Southeast Cities
1. West Palm Beach/Boca Raton, FL (2*)
2. Raleigh/Durham/Chapel Hill, NC (3*)
3. Atlanta, GA (4*)
4. Charlotte/Gastonia/Rock Hill, NC/SC (5*)
5. Orlando, FL (8*)

Top 5 Northeast Cities
1. New York, NY (9*)
2. Newark, NJ (24*)
3. Middlesex/Somerset/Hunterdon, NJ (25*)
4. Bergen/Passaic, NJ (31*)
5. Nassau/Suffolk, NY (35*)

Top 5 Central Cities
1 Fort Worth/Arlington, TX (1*)
2. Dallas, TX (6*)
3. Austin/San Marcos, TX (10*)
4. Houston, TX (13*)
5. San Antonio, TX (14*)

Top 5 West Cities
1. San Jose, CA (15*)
2. Seattle/Bellevue/Everett, WA (16*)
3. Orange County, CA (19*)
4. San Diego, CA (21*)
5. Sacramento, CA(29*)

Top 4 Mountain Cities
1. Las Vegas, NV/AZ (7*)
2. Phoenix/Mesa, AZ (12*)
3. Salt Lake City/Ogden, UT ( 17*)
4. Denver, CO (20*)

Best Bets
Small Business Growth
1. Nashville, TN (18*)
2. Las Vegas, NV/AZ (7*)
2. New York, NY (9*)
4. Detroit, MI (33*)
5. Chicago, IL (48*)

Entrepreneurial Activity
1. Las Vegas, NV/AZ (7*)
2. Austin/San Marcos, TX (10*)
2. Orlando, FL (8*)
4. Atlanta, GA (4*)
5. Salt Lake City/Ogden, UT (17*)

Economic Growth
1. Las Vegas NV/AZ (7*)
2. Austin/San Marcos, TX (10*)
2. Orlando, FL (8*)
4. Riverside/San Bernardino, CA (39*)
5. Phoenix/Mesa, AZ (12*)

Lowest Failure Rates
1. Hartford, CT (55*)
2. Nassau-Suffolk, NY (35*)
3. West Palm Beach/Boca Raton, FL (2*)
4. Greensboro/Winston-Salem/High Point, NC (36*)
4. New Orleans, LA (42*)

*rank in overall listing  

 

Why Location Doesn't Matter

But the opinions of entrepreneurs are divided on whether they need to be anywhere in particular. For instance, since opening his office in Austin, Abel has questioned whether he couldn't have handled his Austin clients from Dallas by e-mail, instant messaging and other communications technology. "We service clients in 21 states," he notes. "The technology certainly makes it easier, but we still need two locations."

In San Diego, Scott Phillips, president and CEO of MassHysteria, an 80-person content application service provider, says location is a lifestyle, not a business, decision. "We don't think regionally; we don't think nationally. We just think globally," says Phillips, 35. "It doesn't really matter where you are. You just have to be willing to travel."

Fort Worth/ Arlington, Texas

Fort Worth became famous more than a century ago as the place "where the West begins," the assembly and starting point for the epic cattle drives that, more than anything, inspired the legend of the American cowboy. But the toughest drover who ever saddled up a mustang never saw anything like this Texas city's sprint from 25th place in last year's "Best Cities" study to the front of the herd this year.

"It doesn't surprise me. Fort Worth is booming," says Lerii Smith, 39-year-old co-owner of Project Partners, a two-person project management company that specializes in fundraising and event planning. Indeed, the study revealed an exceptionally sleek entrepreneurial economy in Cowtown, as Fort Worth continues to be known (even though the stockyards closed decades back).

Fort Worth/Arlington, as the four-county metropolitan area is called, beat the pack largely by sharply increasing the rate of employment growth in existing businesses with fewer than 20 employees. (Although there was an even more striking change in the risk of bankruptcy, a difference in the way bankruptcy figures were gathered this year makes comparisons with 1999's figures difficult.) Meanwhile, it held steady its very high ranking in entrepreneurial activity and only slightly less robust economic growth.

"What you really saw was not an increase in the percentage of small businesses," explains Iris Geisler of Dun & Bradstreet. "But the small businesses they have were really growing in terms of employees."

What we're seeing, adds Bill Thornton, the president of the Fort Worth Chamber of Commerce, is the fruit of Fort Worth's effort at diversification that began a decade ago as the city faced twin slumps in its then-key industries of energy and defense. While four of 10 city manufacturing jobs were defense-related then, only two of 10 are now, he says.

Credit the long-standing beneficial influence of Dallas-Fort Worth International Airport, as well as a renaissance in Fort Worth's downtown area that has seen it turn into a bustling nighttime destination and a major stimulus from Alliance Airport, a specialized commercial facility on the north side developed by Ross Perot Jr., son of the maverick billionaire and erstwhile presidential candidate. By attracting major facilities from American Airlines, Nokia, Motorola, Federal Express and nearly two dozen other Fortune 500 firms, Alliance has added 14,000 of Fort Worth's 870,000 jobs and 14 million square feet of industrial and commercial space.

You obviously don't build airports or renovate downtowns overnight, but Thornton says a more fluid commodity-public perception-is also behind the metropolitan area's sudden surge. "We've been underserved for years and years because of our historical, economic and geographic ties with Dallas," he said. "But almost two million people can't be ignored. We're really catching up."

For Smith, the presence of large employers and low unemployment means lots of opportunities to sell her project management services as an outsource provider. When one large firm recently relocated to the Alliance Airport area, she says, Project Partners got the job of planning the groundbreaking at the new facility. "That's trickle-down," she said. "That's big business and great economic development coming together and my company getting business because of it."

New York, New York

New York City hasn't made much of a showing in the history of our "Best Cities" list, but its appearance in the top 10 this year shouldn't be a complete surprise. "They have been consistently rising in the ranking," notes Dun & Bradstreet economist Iris Geisler. New York appeared at 41 in 1998 and 23 in 1999 en route to ninth place in 2000.

What happened? "What's very noticeable about New York City between last year and this year is their increase in business growth," says Geisler. "Small firms with fewer than 20 employees have really seen growth in employment over the last year compared with other MSAs. They made a big leap."

Counterbalancing New York's sizzling 99 rating on small-business growth is a tepid 52 on entrepreneurial activity, lowest of any top 10 city on this critical measure. But New York entrepreneurs are puzzled by this low position on new business formation, because they see a city where entrepreneurial activity is hot and getting hotter.

"The city is just bustling with people starting new businesses and trying to create new industries," says Ken Shapiro, 35, president and co-founder of 10-person Internet customer service company Askit.com.

Even as recently as only a few years ago, however, things were much different, says Shapiro. New York was largely untouched by the Internet boom, and most of the young businesspeople Shapiro knew wanted to work at the financial giants. "Now the majority of the people I went to business school with that worked at Goldman Sachs or American Express or someplace similar have left to go into entrepreneurial endeavors," says the graduate of the Wharton School's MBA program.

Despite the city's energy, obstacles remain in the form of high costs and heavy regulation. "The city has become so high-priced with all the people making money on Wall Street," said Shapiro. "The dollar doesn't go very far here."

California Comeback

On the West Coast, an entire state is moving to dominate the "Best Cities" listing. With seven metropolitan areas, California is better-represented than any other state, despite having no top-10 cities. And, without exception, each city has improved on its 1999 ranking.

Dun & Bradstreet economist Iris Geisler sees no clear pattern to explain California's steady creep upward. And, indeed, the various metro areas' rankings don't appear to present any sort of coherent picture. Neither Northern nor Southern California appears to have much of an edge, with San Jose's top spot in 15th place nearly matched by Orange County's 19th position. Los Angeles, both the largest and lowest-ranked large city in the state, is stuck at 53rd, only slightly better than 1999's 56th-place ranking. But San Francisco improved sharply, rising 17 spots to 32nd, and Sacramento ended up even better, climbing 21 spaces to 29th.

City governments and business associations may deserve some of the credit. Wallace Walrod, vice president of Orange County Business Council, a private business group in Irvine, points to the Venture Point Tech Coast Small Business Development Center, an incubator for high-tech start-ups, as one new factor that could make that part of the state stand out. "Our budget for Venture Point is doubling next year," says Walrod. "When it has events, it gets 700 or 800 companies attending. So there's obviously a need."

While starting businesses is important, California's main obstacle seems to be keeping them going. California cities rank consistently near the bottom on the risk-of-bankruptcy scale, exemplified by Sacramento's cellar-level score of 1. Still, bankruptcy data needs to be looked at in the context of other key indicators, Geisler says, because it can involve so many factors, from access to capital to entrepreneurs' eagerness in tackling risky ventures. "Higher failures do not necessarily indicate a negative climate for businesses. And cities with higher failure rates, especially with otherwise good business climates, can help budding entrepreneurs by providing information about where the risks are," Geisler says.

At least they're trying. In San Jose, Lou Hoffman of Hoffman Agency, is encouraged by the fact that the city's mayor has asked him and other business owners to sit on an advisory panel to suggest ways to boost entrepreneurship. "It's going to take some time to put it into action," says Hoffman, "but I believe San Jose's going to keep getting better and better."

By The Numbers

Perhaps we can't convince you to uproot yourself-your home, your business, your life-and trek to an unfamiliar locale based solely on the potential for success in one of our hot cities. But if you are interested in such a dramatic change, you might be curious to know just how we weeded out our nation's top entrepreneurial spots.

This year, we used four basic criteria in ranking our top cities: entrepreneurial activity (based on the number of businesses that are five years old or younger within metropolitan statistical areas), small-business growth (those businesses with fewer than 20 employees that had significant employment growth from January 1999 to January 2000), economic growth (which measures the change in job growth over a three-year period through January 2000) and risk (cities with the lowest business failure rates). We then used a point system to determine each city's overall ranking as well as its ranking within a specific region.

Dun & Bradstreet research by Iris Geisler, Greg Needham and Nancy Wilkinson; Entrepreneur research by Lee Houston

About Dun & Bradstreet
Dun & Bradstreet (D&B), with the world's largest information database, tracks 57 million companies worldwide-11 million marketable establishments in the United States alone. Businesses use D&B's services to find new customers and evaluate their creditworthiness, identify potential suppliers and collect overdue receivables.

Through face-to-face and telephone interviews as well as public-records searches, more than 200 million financial transactions are added annually to D&B's files in the United States alone. D&B updates its information base continually-an average of more than one million times each business day.

When businesses are entered in the D&B database, they are issued D-U-N-S numbers (similar to Social Security numbers). The U.S. federal government requires companies to have this number to bid for government contracts. Also used by the United Nations and the European Union, the D&B D-U-N-S number is quickly becoming the universal standard for identifying businesses on the Web as well.

For more information about D&B, call (800) 234-3867 or visit the D&B Web site at www.dnb.com. To register for a D-U-N-S number, call (800) 333-0505.


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