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Slicker Cities

When not just any metropolitan area will do, seek out one of these best cities for entrepreneurship.
October 1, 2001
URL: http://www.entrepreneur.com/article/44300

When Dun & Bradstreet vice president of Analytical Services Jan Rowland ran the numbers for Entrepreneur and Dun & Bradstreet's 8th annual ranking of the best cities in the nation for entrepreneurship, one thing stuck out: Metropolitan areas in the South--from Texas to Florida and up through North Carolina--dominated the top 10. But it's the way that the South achieved its lofty position that she found intriguing.

"There are a significant number of new businesses [in the South] each year," she says. It's a trend that makes the area attractive to entrepreneurs. Having other young companies nearby represents an opportunity to grow business-to-business relationships, she notes, as they aren't yet locked into long-term supplier contracts. It's also a characteristic shared by at least one major northwestern city: Seattle.

No wonder these booming areas might tempt a business owner to move operations to a more friendly locale or open a branch office in these entrepreneurial hot spots. It's an expensive option for improving your business, but some entrepreneurs are willing to give it a try.

A Moving Experience

Seattle may have lost Boeing Co. to Chicago, but it just gained Aquatoy Inc.

In April, the aquatic toy manufacturer relocated to Seattle, No. 20 on this year's list, after pulling up stakes in Mountain View, California (right next to Silicon Valley's epicenter and this year's 13th best entrepreneurial city, San Jose).

The Emerald City probably won't consider Aquatoy compensation for the loss of the aerospace giant. The company's move, however, says something about Seattle's continuing attraction for entrepreneurs--if not corporate behemoths--which bodes well for the city's future.

"It has a high-energy environment," says Aquatoy president Wink Thorne, 36, who had lived in the city before moving to California. "Seattle is a bit more of a cosmopolitan city now. The resources are good: good work force, businesses, restaurants and theaters."

Those same qualities, of course, apply to the Silicon Valley he left behind. It's just that Mountain View and the surrounding towns lacked two crucial items as Thorne planned the future of his company: affordable space and plentiful employees.

In Seattle, Thorne found a 5,000-square-foot space evenly divided between office and warehouse in the fishing district. He was able to add five times the room he had in Mountain View for only twice the cost.

He also found that Seattle is teeming with talent. Better still, interviewing with a toy manufacturer doesn't turn off the area's potential employees. Silicon Valley tech snobs, in contrast, looked down their noses at the prospect of working for Thorne's firm. In the move, Thorne left behind all but one of his employees: his wife.

"We've been putting out ads for positions and been amazed at the responses vs. what we were getting in the Mountain View area," says Thorne. Cost is another huge factor in the search for qualified workers. To replace his office administrator, for instance, he'll pay 30 to 40 percent less than he'd paid in the Bay area.

With sales constantly growing and distribution contracts now in place with FAO Schwartz and Imaginarium, Thorne's move is paying off. He's a perfect poster child for the way a move can position a company for growth. But just how many entrepreneurs are willing to take such a drastic step?

Everyone's Doing It!

The answer is, about 2 million companies each year, according to John Kelley, vice president of Imagitas Inc. Kelley's company produces the "welcome to your new town" kits sent by the U.S. Postal Service to every individual that fills out a change-of-address card and recently introduced a similar package for businesses.

More than 70 percent of the firms that move have fewer than 10 employees, says Kelley. Although most don't attempt Aquatoy's bold interstate action--the vast majority moves within the same county--each shares the hunger for space to grow, Kelley says.

It's not a decision you should take lightly, however, especially if it involves moving to a new town. "It's a huge decision in a business's life," says Barbara Hampton, who helps strategize business moves for clients at Boston-based real estate specialist Spaulding & Slye Colliers. "You can either do it to impact your business positively or negatively. You can lose your business over this."

No wonder then that although the average individual moves every seven years, the average business moves only every 12 to 15 years, according to Steve Mumma, senior vice president at Atlas Van Lines.

Those firms that take Aquatoy's plunge tend to be in manufacturing or performing such back-office operations as call centers. (An Atlas Van Lines survey indicates that 62 percent of relocations involving firms with fewer than 500 employees were in manufacturing or processing.)

By contrast, small service firms tend to take advantage of out-of-area opportunities by opening branch offices. That's what Los Angeles Internet consultant company Genex Inc. did last year when it opened an office in Atlanta (No. 7 on this year's list).

Regardless of what kind of business you run, however, determining whether to stay in place or move to a new town is a two-step process that requires research.

Where You're At

The first step in evaluating whether a move or expansion would benefit your business is judging whether your current location is impeding your growth. Aquatoy faced problems that were fairly easy to identify: lack of labor and high real estate costs.

Of the two, labor is the more frequent cause of moves, says Daniel B. Amdur, president of MovingStation.com, an online relocation service for small businesses and individuals. "In the end, it's always an HR issue: access to quality labor," he says.

Still, lack of labor isn't the only thing that can hold a company back, says Bob Hess, who helps firms analyze relocation decisions as a partner with Deloitte & Touche LLP's Fantus corporate real estate solutions practice. "As it grows," he says, "a company can acquire customers that can't be well-served from its initial location."

That was the case for Genex, which chose Atlanta, in part, to service its customers on the East Coast. One of the firm's major clients--Security First Network Bank--is also in Atlanta.

In addition to proximity to your customers, everything from the taxes you pay to utility rates can increase your costs, putting you at a disadvantage against your competitors. Even availability of funding can be determined by your base of operations, experts say. Your firm may be cash-starved because you lack sufficient avenues of financing in your existing location, and you haven't been able to make enough road shows to visit far-flung venture capitalists nationwide.

For a complete listing of the top cities and profiles of our number-one hot spots, click here.

Measure the Greener Grass

Once you've finally put down on paper all those issues that have been nagging you about your current location, it's time for the second step: scouting the alternatives. Entrepreneurs recommend taking a look at several options. Thorne eyed Denver; Boulder, Colorado; and Portland, Oregon, in addition to Seattle. Genex scoped Boston, Chicago, Cincinnati, Miami, New York City, and Washington, DC, before settling on Atlanta.

In an expansion such as the one Genex undertook, the opportunity to grow the second office depends largely on the wealth of target clients and the competitive environment. New York City may have had more companies, but it also had more competition. "We really liked the competitive environment [in Atlanta]," says Genex managing director Seth Lynn. "We felt like we could elevate ourselves much more rapidly in Atlanta than the other cities."

Experts say that in researching your options, you should contact the local chamber of commerce--even while being wary of that source's bias for its town. Genex, for instance, got information and introductions to other entrepreneurs from the Atlanta Chamber of Commerce's economic development committee that helped with its decision. Such introductions can help you estimate costs for real estate, insurance and labor. You can also get information on local educational opportunities to find young talent and provide continuing education for prospective employees.

Costly Moves

As you eye a new location, remember that it won't necessarily pay for itself just in more employees, lower rent or better transportation. The savings need to be significant to recoup the substantial cost of moving your business.

Regardless of whether you move to a new city or across town, the biggest cost of a move is in lost employees. Typically, only 30 to 40 percent of the employees offered positions in a new city accept. (Even Boeing achieved those numbers despite its expectation that 70 to 80 percent of its executives would relocate to Chicago.)

The labor havoc is less when you only move across town, but it's still there. "If you're moving any substantive distance, it's the people who [live in] the other direction [from the move] that you've got to address, even if it's 30 miles," says Amdur.

And if you decide to move employees, keep in mind that the Employee Relocation Council estimates it costs an average of $51,353 to move a home-owning employee and $15,335 to move an employee who rents.

That doesn't even begin to take into account the lowered productivity as workers surf the Web for information on everything from homes to schools to churches in the new town. You'll also lose income from time lost during the move.

Where to Now?

In the end, you may decide that a change in location isn't worth the effort. Hess estimates that half the firms that investigate a move decide to stay put after looking at the costs.

If you decide a new location is the only solution to growing your business, then your work is only beginning. Mumma and other experts say that the moving process can take up to a year from start to finish.

And don't speak too soon, even in an effort to keep employees informed along the way. "The company must clearly define what's going to be offered to employees," says Diane McIntire of Cornerstone Relocation Group LLC, in Warren, New Jersey.

Make sure you've got plenty of information to sell employees on the move. "This may include tours of the area," says McIntire. Be able to answer or bring in an expert to field questions about the new location, including everything from the weather to cultural opportunities.

If all those details sound like a second full-time job, that's exactly what they are. But no one ever said the road to bigger growth was going to be an easy trip.

For a complete listing of the top cities and profiles of our number-one hot spots, click here.

No. 1 City: Dallas (2001)

There's something in the air, water and even the soil that invites businesses to Dallas. Entrepreneurs would be the first to agree--their growth rates helped propel Dallas to the top of our list this year, after receiving respectable top 20 finishes in recent years.

When entrepreneurs arrive, they'll find a well-trained labor force, leadership that reaches out to businesses, and a city whose location, international airport and extensive highway network make it an excellent base for doing business in Latin America. Capital flows more easily here than in many cities, thanks to a number of small-business-friendly national banks as well as a boom in local bank startups over the past five years.

Telecommunications, high-tech, energy, real estate and restaurants top the list of Dallas' hot industries. And though some tech companies have taken a beating, laid-off tech workers aren't rolling over. They're starting businesses--sending first-quarter 2001 startup stats through the roof.

While there's a sweet smell of success in the air, Dallas, like every rose, has its thorn. Bankruptcies are relatively high, says Jan Rowland of Dun & Bradstreet, but the impact is tempered by high economic and small-business growth rates.

Economically depressed South Dallas would not call these boom times, but there are programs on tap designed to help the south catch up. The Trinity River Corridor Project, which some expect to spearhead a construction boom, includes development of 20 miles of waterfront property in South Dallas into parks and recreational outlets. Construction on Highway 635 and the development of a commuter rail system will connect suburban North Dallas with its poorer southern sibling, which should enable the job-starved to more easily reach labor-starved entrepreneurs.

-Cynthia E. Griffin
For a complete listing of the top cities and profiles of our number-one hot spots, click here.

No. 1 City: Orlando, Florida (2001)

Can you keep a secret? No? Good, because Orlando wants you to tell everyone you know just how good it is to entrepreneurial businesses. That's no surprise to us--this small-business haven, which has had a top 10 finish four years running, shares top billing this year with Dallas as the No. 1 city for entrepreneurs.

Historically noted for its tourism--fed chiefly by Walt Disney World, Sea World and Universal Studios--Orlando is much more than a one-trick pony. It's also a high-tech mecca nurtured by an attractive climate, a reasonable cost of living and of doing business, and a world-class international airport.

As a technology hub, Orlando is a certified sleeper. Though its relative obscurity has hurt tech businesses searching for capital, its leadership in the simulation and information high-tech industries and its proximity to NASA are finally attracting attention--and helping the area weather the technology slump. Add a new campaign to heighten awareness of the area as a technology stronghold, and Orlando is likely to reach star status in tech circles before long.

Of course, growth comes with its own set of problems, and in Orlando those include lack of affordable housing, a labor shortage and inadequate mass transit. O-Force--the Orlando Regional Workforce Development Partnership--is creating programs to meet the region's labor needs.

Improving mass transit is on the drawing board, and while the county commission recently rejected plans for a light-rail system, residents approved a constitutional referendum in the November 2000 election to create a high-speed rail system that will connect Orlando with Jacksonville, Miami and Tampa. Many locals believe that will lure workers and even capital to the area.

All those efforts, combined with the area's entrepreneurial spirit and willingness to extend its Southern hospitality to all who come to Orlando, should keep the region on the list of business hot spots for years to come.

-C.E.G.
For a complete listing of the top cities and profiles of our number-one hot spots, click here.

Chris Sandlund is Entrepreneur's "Management Smarts" columnist.