Cities

9 Hot Startup U.S. Cities That Aren't San Francisco or New York

9 Hot Startup U.S. Cities That Aren't San Francisco or New York

Los Angeles, California.

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This story appears in the August 2015 issue of Entrepreneur. Subscribe »

Ask someone to name cities with thriving tech, media, fashion or food scenes, and you’ll hear the usual suspects: San Francisco; New York; Portland, Ore. But there’s a slew of other metro areas with established infrastructure and skilled work forces that can match those more established locations at a fraction of the cost of living and with less day-to-day stress. These are the places where startup dreams come easier and cheaper, but can still pay off big. Start packing.

1. Salt Lake City

Image credit: Adam Barker

Best for: Software and hardware
Metro-area population: 1.1 million
Median household income: $53,036
Median home price: $243,300
Unemployment: 3.5%
College graduates: 31%

Tech companies such as Adobe and Workday are moving to “Silicon Slopes” in droves, inspired by startups launched by alumni from software pioneers Novell and WordPerfect, not to mention the easy access to world-class skiing. On the hardware side, everything from flash memory chips (one of every 14 worldwide is made here) to Skullcandy headphones calls the Wasatch Front home. VCs invested nearly $1 billion in local startups last year, making Salt Lake tops nationally in dollar-per-deal average.

The Utah Science Technology and Research Economic Development Initiative provides funding to the University of Utah in Salt Lake and Utah State University in nearby Logan to research new technologies and spin them off into a handful of companies each year. And when the state’s insurance department wanted to ban Zenefits, a Silicon Valley startup that gives away its HR-management software for free, Governor Gary Herbert signed a law reversing the ban, stating, “Utah is open for business.”

Did you know? Thanks to thousands of Mormon missionaries returning from time abroad, Utah has the highest percentage of foreign-language speakers in the country.

Correction: An earlier version of this article misstated the location of Utah State University as Ogden, and has been updated to its correct city, Logan.

2. Baltimore

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Best for: Education
Metro-area population: 2.7 million
Median household income: $68,455
Median home price: $223,100
Unemployment: 5.7%
College graduates: 36%

There’s a quiet revolution happening in Baltimore, which has become a booming hub of education-focused companies anchored by Johns Hopkins University, named the best grad school for education by U.S. News & World Report. The city is also home to Laureate Education (formerly Sylvan Learning), a for-profit education powerhouse. 

Now Baltimore is luring ed-tech startups. Citelighter, which helps K-12 students and teachers organize and share research via a browser plug-in, recently moved there from New York City and received $100,000 as a housewarming gift from Technology Development Corp., Maryland’s public fund investing in tech companies.

Baltimore teachers work with diverse student populations and are entrepreneur-friendly, willing to test out new tech and ideas in classrooms. The city regularly hosts events to connect entrepreneurs with educators; a recent Baltimore Tech for Schools event drew 1,100 teachers and school administrators to check out product demos.

Did you know? Of the nation’s largest school systems by enrollment, Baltimore has the third-highest spending per pupil on an annual basis.

3. Nashville, Tenn.

Best for: Media
Metro-area population: 1.5 million
Median household income: $44,223
Median home price: $186,400
Unemployment: 4.6%
College graduates: 31%

It has long been a hotbed for the music business—evidenced this year by the first graduating class of the Project Music accelerator at the Nashville Entrepreneur Center—but Nashville has experienced a miniature media explosion. Among the spate of new creative agencies and fledgling media companies are Good.Must.Grow., a nonprofit digital agency that develops corporate media strategies. Meanwhile, co-working spaces such as Refinery, Deavor, the Skillery and Weld have popped up to cater to self-employed media workers. 

Driving the boom is Nashville’s growing population of college grads, ages 25 to 34, which increased 48 percent between 2000 and 2012. Among U.S. cities, only Houston experienced faster growth in its young-grad population.

Did you know? Nashville is home to bestselling novelist Ann Patchett, who in 2011 teamed up with publishing veteran Karen Hayes to open Parnassus, a successful independent bookstore.

Kansas City, Mo./Kan.

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Best for: Specialty foods
Metro-area population: 2 million
Median household income: $46,193
Median home price: $153,000
Unemployment: 5.4%
College graduates: 33%

Krizman’s House of Sausage has been selling ethnic sausages and knockwurst to Kansas City locals since 1939. It’s one of the city’s growing number of specialty-foods businesses—including bakeries, breweries, distilleries, candy-makers and, of course, bottlers of barbecue sauce. Driving this growth are three local food-business incubators, including the Farm to Table Kitchen housed at the famed City Market, designed to help “foodpreneurs” connect with mentors, commercial kitchens, collaborative infrastructure, marketing awareness and the greater Kansas City food community. The result: In the past two years, 71 new food companies were started in the area.

Did you know? Kansas City claims to be the birthplace of the bacon craze; two local entrepreneurs invented a dish called “Bacon Explosion” back in 2008 and published the recipe on their blog, BBQ Addicts.

Sacramento, Calif.

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Best for: Ag tech
Metro-area population: 2.1 million
Median household income: $46,106
Median home price: $275,800
Unemployment: 6%
College graduates: 30%

California’s capital, in the heart of the state’s farming-focused Central Valley, was mockingly known as “Cow Town” for decades. But in today’s foodie culture, Sacramento’s location is a plus. The region is home to 18 agriculture and food technology startups, and the sector is growing faster there than at any time before. Central Valley farmers grow high-value crops such as almonds, which generate more than $5,000 per acre (but consume vast amounts of water— controversial in the drought-stricken state), while winemakers in nearby Napa and Sonoma counties are always looking for farming innovation for their grapes—and can afford to pay for it.

The scene’s foundation can be traced 25 miles west to the University of California, Davis, the world’s top-ranked research university in agriculture. Thanks to a $40 million grant from candy-maker Mars, the school is building a World Food Center that will combine food science and policy with innovation and investment opportunities. It’s also creating a lab and incubator space for life-science startups, and its new Venture Catalyst will look to convert UC research into viable businesses. Even Silicon Valley has noticed: Last year, VC heavyweight Vinod Khosla put $7.5 million into Davis-based startup BioConsortia, which uses microbes to increase crop yields.

Did you know? Even though it’s almost 90 miles inland from San Francisco, Sacramento connects to the Pacific Ocean via the Deep Water Ship Channel, allowing the Port of Sacramento to handle oceangoing cargo ships.

Minneapolis - St. Paul

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Best for: Restaurants
Metro-area population: 3.2 million
Median household income: $54,304
Median home price: $209,400
Unemployment: 4.0%
College graduates: 39%

Statistics from the Minneapolis-Saint Paul Regional Economic Development Partnership indicate an estimated 19 percent increase in the number of full-service restaurants opening in the past 10 years, ranking the region among the hottest in the country for restaurant startups. 

The poster child for the boom is James Beard Award-winning native chef Gavin Kaysen, who studied in New England; worked in Paris, San Diego and New York (under celebrity chef Daniel Boulud); then moved back to his hometown in 2014 to open Spoon and Stable, widely regarded as one of the city’s best eateries.

That’s not to say you need a name-brand curriculum vitae to open for business. New food trucks are rolling out across the cities—faster than the economic development office can keep track of them—as entrepreneurs seek a low-cost avenue to try food concepts and build a following before signing a lease for a brick-and-mortar restaurant.

Did you know? With its heavy Scandinavian population, Minneapolis is a key U.S. player in the most avant-garde movement in food today: New Nordic cuisine, based on fish, dairy and cold-weather crops such as rutabagas, mushrooms and radishes.

Houston

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Best for: Import/export
Metro-area population: 5.7 million
Median household income: $44,761
Median home price: $200,300
Unemployment: 4.2%
College graduates: 29%

With more than 163 million tons of cargo passing through each year, the Port of Houston ranks first in U.S. import tonnage. Houston handled 67 percent of ship containers traveling through the Gulf of Mexico last year. And with Mexico allowing foreign investment in energy for the first time in 76 years, plus the opening of an extra shipping lane in the Panama Canal in 2016, the city’s share of cargo handled is bound to grow. 

The port is actively pursuing import/export startups with two financial incentives. By setting up shop in Foreign Trade Zone 84, businesses can store goods, manufacture products for export, and delay formal customs entry and duties until they officially decide to move the products into the U.S. The Freeport Tax Exemption also lets importers/exporters store inventory for up to 175 days without paying property tax, if they plan to ship that product out of the state. 

Add a large cluster of warehousing; a central location that’s within a day’s drive of Atlanta, Chicago, Denver and Phoenix; two international airports; 94 consulates (the third most in the U.S.); and a bilingual population (one of every three Houstonians is Hispanic), and it’s easy to see how Houston could serve as the hub of a global business. 

Did you know? The city’s deep-water shipping channel was one reason NASA chose Houston for its headquarters in 1962; ships are the easiest way to transport bulky rockets.

Boston

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Best for: Healthcare
Metro-area population: 4.5 million
Median household income: $52,792
Median home price: $374,600
Unemployment: 4.4%
College graduates: 43%

In Boston, hospital scrubs are as much of a business uniform as a suit, and “healthcare innovation” is the biggest buzzword in town.

Most everyone in the medical field, from brain surgeons to venture capitalists, is clustered in a section of downtown measuring less than three square miles. There are five top-ranked hospitals, including Massachusetts General and Brigham and Women’s, both of which have innovation centers and host regular hackathons. Across the Charles River are Cambridge and Kendall Square, home to the Massachusetts Institute of Technology and healthcare companies ranging from startups to behemoths like Genzyme and Pfizer. Other companies that have recently set up camp in Boston include Johnson & Johnson and Samsung.

The state government contributes funding and resources through its Massachusetts eHealth Institute. For entrepreneurs who need medical training to grow, there are healthcare-specific incubators from Healthbox Studios and Athena Health.

Did you know? Boston receives more funding from the National Institutes of Health than any other U.S. city. In 2013 (the most recent figures available), $1.72 billion in grants went to 47 of the city’s hospitals, universities and research institutions.

Los Angeles

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Best for: Apparel retail
Metro-area population: 12.9 million
Median household income: $45,903
Median home price: $434,700
Unemployment: 6.6%
College graduates: 31%

Forget film. Fashion is Los Angeles’ hottest industry, beating out New York City with bigger spaces for cheaper rents. In fact, more than 36 percent of all U.S. apparel and textile manufacturing jobs are in the L.A. area—almost three times as many as in New York. The business is mainly clustered in downtown’s Fashion District, home to hundreds of factories, importers and wholesalers selling everything from textiles to thread. That has led to the rapid development of some of fashion’s newest hits, including Nasty Gal and JustFab, as well as T-shirt powerhouse American Apparel.

A steady pool of design talent comes out of local schools such as the Fashion Institute of Design and Merchandising. What’s more, garment workers aren’t unionized, so labor costs are lower than in NYC, but manufacturers can still put “Made in the USA” on their labels.

Did you know? Hedi Slimane, creative director for Paris-based fashion house Saint Laurent, insisted that he and his design team live in Los Angeles, telling Women’s Wear Daily he likes “the sense of expansion and the possibilities offered to experiment.”

Edition: December 2016

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