Hot Spots

Midsized Cities

#1 El Paso
El Paso ranked only third among midsize Hot Cities in startups and tied with Madison, Wisconsin, for second in growth. But combined, its solid showings on both indices easily put it ahead of second-place Tucson, Arizona, in the overall entrepreneurial rankings.

That doesn't surprise Richard Dayoub, who, before becoming president of the Greater El Paso Chamber of Commerce two years ago, started and ran a travel agency in El Paso for 34 years. "You have the dynamic of a growing metropolitan community, with a lot of the nice things people look for in quality of life," says Dayoub, citing the mild, dry, sunny climate; motivated bilingual work force; low costs; and strategic border position.

El Paso is more than 500 miles from the Texas capitol in Austin, and in many ways its economy is more closely tied to neighboring Las Cruces, New Mexico, and Ciudad Juarez, Mexico, than to the rest of the state or the nation. The North American Free Trade Agreement led to the almost complete loss of the city's once-healthy garment industry. But trading with Mexico and supporting factories on both sides of the border have helped overcome the loss of textile plants. El Paso retailers benefit from more than $3.4 billion a year in spending by Mexican visitors, while a current boom in factories in Mexican border towns, or maquiladoras, bodes well for the city's overall economy in the near future, according to a report by the El Paso branch of the Federal Reserve Bank of Dallas.

Nearby Fort Bliss occupies more than a million acres in Texas and New Mexico, and provides a stable source of government contracts. Providing products and services for its tens of thousands of soldiers and civilian employees makes for another healthy industry. All told, Dayoub says, the military installation supports 16 percent of El Paso's economy.

El Paso's future doesn't seem to feature any NAFTA-like bumps. If the current base-closing campaign follows the recommendations of the first review panel, Fort Bliss will gain the largest number of military personnel in the country. Whether Bliss grows or shrinks, El Paso is likely to offer one quality-of-life attribute that many a time-strapped entrepreneur can appreciate: At 19 minutes, it has one of the shortest average commute times of any city in the country.

#6 Madison
When Mina Johnson-Glenberg started her company in Madison two years ago, the former Californian worried about finding the local software talent she needed. But the 41-year-old founder of The NeuronFarm LLC, a six-person developer of web-based reading instructional applications, learned otherwise. "I have excellent programmers with cutting-edge skills," says Johnson-Glenberg, who also praises the state government's efforts to support entrepreneurs with grants and help writing business plans.

Wisconsin's capital is the paradigm for the idea that quality of life attracts entrepreneurs. Numerous studies have ranked Madison tops for schools, politeness, friendliness to people from kids to retirees, internet usage, and now, capacity to foster and grow business startups. "Madison simply offers superior living," explains Wayne Corey, executive director of Wisconsin Independent Businesses, a for-profit small-business group with 16,000 members.

Johnson-Glenberg says the University of Wisconsin supports entrepreneurs with professional development and networking events, but she remains concerned about a lack of local angel investors. "Midwesterners are traditionally very risk-averse," she says. "How do you make these risk-averse people part with their cash? I don't know."

#1 Arizona
Since Phoenix led big cities and Tucson was second among midsize cities, it's no surprise Arizona topped the states for starting and growing a business venture. And indeed, a gulf as wide as its namesake gorge separates the Grand Canyon State from the other top states for entrepreneurs.

Annual statewide population growth exceeding 200,000 people stimulates a construction spurt supporting startup and expansion of many kinds of businesses, says the Arizona Small Business Association's Fraker. "The in-migration to Arizona and the housing boom have been dramatic," Fraker says. A construction firm can support four or five others providing support services and products, Fraker figures, and he believes that virtuous cycle is behind the prosperity.

Low labor and real estate costs, especially relative to neighboring California, make the state nearly irresistible to relocating Americans. Challenges include developing a homegrown financial industry to capitalize entrepreneurs and dealing with rising real estate costs.

#2 New Jersey
Alisa Weberman started her business in California and ran it there as a part-time venture for five years. But when it was time to make Listen & Live Audio Inc. a full-time enterprise, she and her co-founder moved to Roseland, New Jersey. Proximity to publishing firms in New York City was a huge advantage to the audio book publisher, which has grown to six employees and $1 million in projected 2005 sales since its move seven years ago. "The company really took off when we moved here," says Weberman, 38, who chose New Jersey over New York City because of the availability of warehouse space.

Heavily populated, well-regulated and high-cost, the state of New Jersey could hardly be more different from Arizona. But its second-place finish is no accident. The same things that distinguish it from many Western states make New Jersey attractive for small businesses, says Brenda B. Hopper, state director of the New Jersey Small Business Development Center in Newark.

"New Jersey is the state with the highest population density and the highest [household] income," says Hopper. "That means we have a lot of people here who spend a lot of money." The state boasts world-class colleges, including Princeton University, and its profoundly developed land, sea and air facilities make it a magnet for transportation service firms. New York City and Philadelphia also offer opportunities for small firms to provide back-office operations to those cities' sizable financial service industries, Hopper says.

New Jersey remains congested--Newark's 31.5-minute average commute time ranks behind only Chicago and New York City--but as long as it retains its strategic position between East Coast population centers, the state is likely to continue to be one of the best places for entrepreneurs to tap into the country's richest markets.

To view the entire ranking of cities, counties and states, and to use our our interactive online location-finding tool, visit our Best Cities area .

Mark Henricks is Entrepreneur's "Staff Smarts" columnist.

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This article was originally published in the October 2005 print edition of Entrepreneur with the headline: Hot Spots.

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