15 most affordable startup cities

Investing

The 15 Most Affordable Cities to Launch a Startup

September 12, 2019 | by Francesca Ortegren

15 most affordable startup cities

If you're an entrepreneur who wants to start a business, there are seemingly endless factors to consider. While your product or service is the most important, where you start your business also plays a pivotal role in your business's success.

Though the prevalence of startups has been on the rise since the Great Recession and almost half of the U.S. workforce is employed by a small business, ~45% of startup businesses don't make it to the end of their fifth year. An assessment of postmortems by CB Insights cited bad location as one of the top 20 reasons startups fail.

In that same report, approximately 37% of founders claimed the lack of investment or running out of cash to be reasons for their collapse. Another 23% stated that something missing from the team, typically a set of skills the company lacked, impacted their success.

Starting a successful business requires access to equity and talent, both related to the local economy. Considering that most funding for a new business comes from the founders' personal finances or investments, availability of equity is important. Even with startup funds, a business needs to make that money last in order to stay afloat, which is why lower cost-of-living areas are smart places to build your business.

Location influences whether you can build a productive team, as you'll need access to talented individuals who meet your company's needs, like a young, well-educated population, or be located in a place that's desirable and affordable to live.

Process

We assessed various datasets (see Methodology) to rank the 50 most populated U.S. metros on startup friendliness. We considered the current startup culture by evaluating startup density in the metro area, investment in businesses, and the proportion of people employed at a startup or self-employed. We also included startup growth in the recent past, the education level of the local population, and the cost of living, all of which may predict future startup and economic success.

Here's how each metric is defined:

  • Startup density: Indication of new (three years old or younger) businesses and upcoming new businesses (based on state-wide business applications) in the area.
  • Startup growth: Growth of small business prevalence based on density measures over time.
  • Investment in businesses: Indication of ability of capital (venture capital and private equity) for starting a business.
  • Employment at startups: The percentage of workers working for startups as an indication of the availability of startup jobs and desire to work in those environments.
  • Self-employment: Percentage of workers who own their own business as a measure of entrepreneurial spirit.
  • Education: Potential employee pool with a bachelor's degree or higher, ages 18-34. Fresh college graduates make great hires for startups, and this metric accounts for young, college-educated individuals flocking to different areas.
  • Cost of living: Measured by Regional Price Parities in 2017, which evaluates the cost of living of a metro as a percentage of the national average cost of living.

To account for the importance of each of the above metrics, we used a weighted ranking system. Because building a business requires funding-much coming from the founders' pockets-we attributed the highest weight to cost of living to account for general affordability (40 points). Startup growth was weighed slightly lower (30 points), but higher than our other metrics - as growth indicates startup successfulness. Growth was followed by startup density and investment in businesses (20 points each). Education and employment measures were weighted with the least importance (10 points each).

Fast Facts:

  • Texas was ranked highly (#1 or #2) on many of our state-wide measures, including new and growth of business applications, number of private equity backed businesses, billions invested in businesses, and number of private equity firms.
  • Texas cities had the best representation of workers employed at startups (3 of the top 5 metros were located in Texas).
  • Florida had the largest representation of cities with the highest proportion of self-employed workers (4 of the top 5 were in Florida).
  • Southern and Southwestern states made up a majority of our list, with Texas and Florida accounting for 8 of the top 10 cities.
  • The West Coast was not represented on our list, likely due to the high cost of living rates in those areas.
  • St. Louis, Buffalo, and Charlotte metro costs of living fell below 95% of the national average.

15. Buffalo-Cheektowaga-Niagara Falls, NY

The Buffalo metro area may not seem like a prime location to build a business, but there's more than meets the eye in this Upstate New York city. Unlike most metro areas in the U.S., the Buffalo area never experienced a drop in gross domestic product (GDP) from the Great Recession. Instead, it's seen consistent increases for the last two decades, a resilience that should prove beneficial for a new business if the case of another economic dip.

Moreover, Governor Cuomo initiated the Buffalo Billion program to actively create more jobs and economic activity in the Buffalo area. The program helps fund 43North, a worldwide competition that has put Buffalo on the startup map by awarding winners with $5 million total and requiring relocation to the Buffalo area.

  • Startup density: 17.69%
  • Startup growth: 11.72%
  • VC businesses: 0.8%
  • Workers employed by startups: 5.6%
  • Self-employed workers: 2.7%
  • Education: 29.62% with bachelor's or higher
  • Cost of living: 94.9%

14. St. Louis, MO-IL

St. Louis, surrounded by the Missouri and Mississippi Rivers, is home to approximately 2.8 million residents, the Stanley Cup-winning St. Louis Blues, and the nation's best zoo. If that's not enough to convince you St. Louis is a great place to build a business, the Gateway to the West was ranked in the top 70 places for business and careers by Forbes and is located in the state with the 8th-lowest cost of doing business.

Not only does the greater St. Louis area offer affordable French-colonial style homes, but also offers plenty of opportunities for entrepreneurs, like accelerators, dozens of incubators, and college and technical education. According to Forbes, amenities like those might be worth more than a business degree when it comes to building your business, so a location like St. Louis is a great place to consider.

  • Startup density: 26.29%
  • Startup growth: 18.09%
  • VC businesses: 0.5%
  • Workers employed by startups: 4.72%
  • Self-employed workers: 3.1%
  • Education: 29.31% with bachelor's or higher
  • Cost of living: 91.4%

13. Salt Lake City, UT

Salt Lake City is more likely to spark thoughts of skiing than technology, but it had the highest rate of startup growth on our list, is located in the third-best state to do business according to CNBC, and is considered one of the most trendy (and affordable) places to live. The metro is recognized as a financial hub with a highly skilled workforce, which could predict business prosperity.

Salt Lake City's 1.2 million residents might see a huge tech boom in the future, as some consider it to be the next Silicon Valley. That predicted influx of commerce will benefit the local economy. The quality of SLC's workforce and the many recreation options in the nearby Wasatch Mountains makes Salt Lake City a great place to start a business now.

  • Startup density: 22.98%
  • Startup growth: 17.4%
  • VC businesses: 0.7%
  • Workers employed by startups: 5.91%
  • Self-employed workers: 3.9%
  • Education: 26.39% with bachelor's or higher
  • Cost of living: 99.1%

12. Denver-Aurora-Lakewood, CO

Most of us don't need to be convinced that the Denver metro sounds like a great place to live. Surrounded by the Rocky Mountains, the views are gorgeous and the weather is mild compared to much of Colorado. And don't let the slightly higher cost of living frighten you! While it's above average, the median household income is near $76,600 - about 25% above the national median.

The metro has experienced consistent GDP growth since 2009, with a 6% increase from 2016 to 2017 alone, a great indicator for business growth and success. With a highly educated population, business owners should have an easy time hiring talented employees as well.

  • Startup density: 25.3%
  • Startup growth: 25.98%
  • VC businesses: 0.6%
  • Workers employed by startups: 6.25%
  • Self-employed workers: 4.8%
  • Education: 37.14% with bachelor's or higher
  • Cost of living: 106.3%

11. Charlotte-Concord-Gastonia, NC-SC

Located on the North Carolina-South Carolina border, the Charlotte metro area is a rapidly growing startup hub. The appeal for business owners is undeniable: this #1 tech town has experienced consistent economic growth since 2010, and experienced the most startup growth of any metro on our list.

This home of the Carolina Panthers and Charlotte Bobcats is the second most affordable on our list, with a cost of living only 93.8% of the national average. If cost of living isn't attractive enough, the metro doesn't skimp on wages either, the median income is 20% higher than the state of North Carolina.

  • Startup density: 24.25%
  • Startup growth: 19.67%
  • VC businesses: 0.6%
  • Workers employed by startups: 5.63%
  • Self-employed workers: 3.7%
  • Education: 30.12% with bachelor's or higher
  • Cost of living: 93.8 %

10. Miami-Fort Lauderdale-West Palm Beach, FL

Whether you're looking to rollerblade the South Beach and experience Miami's vibrant culture, explore the canals in Fort Lauderdale, or want to visit world-renowned art museums in West Palm Beach, this metro is a perfect stop. The economy here is growing: Miami is ranked an alpha city by the Globalization and World Cities (GaWC) Research Network, and the metro has the 12th highest GDP (of 121 U.S. metro areas examined by the Bureau of Economic Analysis). The area also saw a 1.61% increase in median income in 2016.

While the metro area scored the highest cost of living on our list and has a relatively low median household income, Florida's standing as the 10th best U.S. state to do business and the metro's status as a startup mecca might convince you to open your small business here. The miami area had the highest proportions of self-employed people and startup employees and the second-highest overall startup density on our list.

  • Startup density: 27.48%
  • Startup growth: 7.69%
  • VC businesses: 0.5%
  • Workers employed by startups: 9.39%
  • Self-employed workers: 6.8%
  • Education: 24.91% with bachelor's or higher
  • Cost of living: 108.4%

9. Raleigh, NC

Raleigh, North Carolina is part of a research and educational hub known as the “Research Triangle” that includes three prominent research universities (University of North Carolina Chapel Hill, North Carolina State University, and Duke University) across the larger combined statistical area of Raleigh-Durham-Chapel Hill. The Research Triangle contributes to Raleigh's lead in educated residents with the highest percentage of 18-34 year olds with a bachelor's degree or higher. That educated population can prove useful to those looking to start a business, especially those who need specialized talent.

US News ranked this area as the 10th best place to live out of 125 US metro areas based on metrics related to quality of life, job market, value of living (Raleigh's median income is over $12,000 above the national median and has been growing), and people's desire to live there.

  • Startup density: 23.49%
  • Startup growth: 14.36%
  • VC businesses: 0.6%
  • Workers employed by startups: 7.5%
  • Self-employed workers: 3.9%
  • Education: 38.11% with bachelor's or higher
  • Cost of living: 96.2%

8. San Antonio-New Braunfels, TX

The San Antonio-New Braunfels metro is the third-largest metro in Texas, with ~2.5 million residents. For entrepreneurs, the Alamo City might be a great place to start your next business, as indicated by the metro's #1 rank on our average investment score (tied with Houston).

Texas has the second-highest number and growth of new business applications compared to other states on our list and was ranked as the #1 state to do business in a recent CNBC study, partially due to the low cost of doing business (ranked #18 in the U.S.). Additionally, this hill country metro offers the potential to reach a wider customer base, as a large (32.1%) percentage of the population are native Spanish speakers.

  • Startup density: 24.68%
  • Startup growth: 4.97%
  • VC businesses: 0.7%
  • Workers employed by startups: 5.14%
  • Self-employed workers: 2.6%
  • Education: 20.7% with bachelor's or higher
  • Cost of living: 94.4%

7. Tampa-St. Petersburg-Clearwater, FL

Our #7 spot goes to the Tampa Bay area, which resides on Florida's west coast. With 16 colleges, including the University of South Florida, 22 golf courses, 20 marinas, 8 state parks, and plenty of space to lounge on the beach, the area once known as the “cigar capital of the world” has quickly become a hotspot for entrepreneurs.

The metro's estimated 3.1 million residents would agree that it certainly attracts more than tourists, though, including a culture that supports small businesses: 5.4% of workers here are self-employed, making it the second-largest proportion of self-employed workers on our list.

  • Startup density: 25.83%
  • Startup growth: 12.64%
  • VC businesses: 0.5%
  • Workers employed by startups: 6.36%
  • Self-employed workers: 5.4%
  • Education: 24.35% with bachelor's or higher
  • Cost of living: 98.9%

6. Houston-The Woodlands-Sugarland,TX

The second Texas metro on our list is the largest in the state with an estimated 6.89 million residents spanning 8265.8 square miles. According to the Bureau of Economic Analysis, the Houston metro area's GDP, estimated at $490 billion, is the 7th highest of any metro in the United States and is considered an alpha city by the GaWC Research Network, both indicating sizeable economic success.

Considering Houston's metro is tied with San Antonio's for the highest average investment in small business, and the proximity to great food, the Gulf of Mexico coast, and attractions like Minute Maid Park and the NASA Space Center, we would definitely suggest considering starting a business here.

  • Startup density: 25.40%
  • Startup growth: 10.17%
  • VC businesses: 0.7%
  • Workers employed by startups: 6.54%
  • Self-employed workers: 2.8%
  • Education: 24.65% with bachelor's or higher
  • Cost of living: 101.7%

5. Orlando-Kissimmee-Sanford, FL

The next metro on our list is a playground for adults and kids alike: with attractions where you can find out whether the sorting hat places you in your favorite Hogwarts House at The Wizarding World of Harry Potter or drink around the world at Epcot, there's never a dull moment in the Orlando area.

Its lower-than-average cost of living and median household income only slightly below the national average makes it more affordable than you'd think. There's good reason to build a startup here, too! The metro had the highest overall startup density score and landed 2nd for percentage of self-employed workers, suggesting the residents of the Orlando metro area have an affinity for entrepreneurship.

  • Startup density: 28%
  • Startup growth: 15.37%
  • VC businesses: 0.4%
  • Workers employed by startups: 6.03%
  • Self-employed workers: 5%
  • Education: 23.42% with bachelor's or higher
  • Cost of living: 98.3%

4. Jacksonville, FL

Jacksonville, located on the northeast coast of Florida, is home to approximately 1.5 million people. The metro consistently fell within the top 33% of our list on a few metrics: business owners make up ~4.4% of the workers and startups account for over 25% of the businesses in Jacksonville. Florida itself had 108,983 new business applications by March, 2019, landing the #1 spot.

The Jacksonville metro juxtaposes the stereotypical Floridian town with ~50% single residents and a median age of about 38 years old (compared to Florida's median age of 42). With median household incomes 10% above those of the state and a cost of living approximately 5% below the national average, Jacksonville makes for affordable beach dwelling.

  • Startup density: 25.21%
  • Startup growth: 18.62%
  • VC businesses: 0.6%
  • Workers employed by startups: 6.10%
  • Self-employed workers: 4.4%
  • Education: 22.9% with bachelor's or higher
  • Cost of living: 95.4%

3. Dallas-Fort Worth-Arlington, TX

People are flocking to the Metroplex, from the Big D to Cowtown, by the hundreds. Dallas-Fort Worth-Arlington (DFW) has increased its population by an estimated 277,747 residents in the last two years - that's over 380 new residents per day-and it isn't expected to slow down any time soon. The Texas State Data Center projects the metro to reach almost 8 million by 2025. That influx of residents, along with graduates from DFW's 40+ colleges, could pave the way for a productive team at any company.

There also seems to be plenty of available capital for entrepreneurs: the Metroplex had the second-largest average investment in businesses on our list.

  • Startup density: 26.53%
  • Startup growth: 7.26%
  • VC businesses: 0.6%
  • Workers employed by startups: 7.04%
  • Self-employed workers: 3.0%
  • Education: 26.35% with bachelor's or higher
  • Cost of living: 100.2%

2. Atlanta-Sandy Springs-Roswell, GA

Located at the foothills of the Appalachian Mountains, the home of Coca Cola boasts weekends filled with food and music festivals, a rich civil rights history, and southern charm. According to the GaWC Research Network, Atlanta is one of the economic hubs of the United States, suggesting there's a place for business owners in this city in a forest.

Between 2012 and 2017, Georgia saw the highest business application growth (0.86%) of the 8 states on our list and the Atlanta metro ranked #2 in our overall growth metric. The metro area is home to over 5.8 million residents and 66 higher education institutions, leaving plenty of potential employees for new businesses.

  • Startup density: 24.77%
  • Startup growth: 11.77%
  • VC businesses: 0.7%
  • Workers employed by startups: 6.18%
  • Self-employed workers: 4.6%
  • Education: 28.75% with bachelor's or higher
  • Cost of living: 98.6%

1. Austin-Round Rock, TX

If you love stand-up paddle boarding, barbeque, and live music, then the Texas capital is the place to be. Between music festivals like Austin City Limits and South by Southwest, and the drivable seven lakes that surround the Colorado River, keeping it weird is pretty easy.

Recreation isn't the only thing Austin does right, though. The metro has over 2.2 million residents, up nearly 80% since 2000. With cost of living expenses only 0.5% above the national average and no corporate or personal state income tax, we can see why the Austin metro ranked #1 in startup density and #2 in the percentage of residents working for a startup.

  • Startup density: 28.14%
  • Startup growth: 9.14%
  • VC businesses: 0.5%
  • Workers employed by startups: 8.61%
  • Self-employed workers: 3.6%
  • Education: 34.46% with bachelor's or higher
  • Cost of living: 100.5%

Methodology

For the purposes of this study, startups were defined as small businesses three years or younger. We used seven metrics to evaluate startup friendliness in the metro area. All data were standardized (z-score) by subtracting the variable's mean from the raw value then dividing by the standard deviation. Standardizing scores allowed us to aggregate across data to develop metrics that assessed broader concepts. We explain how each metric was calculated below:

  • Startup density: This metric was an aggregate of the proportion of startups in the metro in 2016 and the number of new business applications across the state in the first quarter of 2019.
  • Startup growth: Growth of small business prevalence by averaging startup density growth and new business application growth measures. We calculated startup density growth as the proportional change in the startup density between 2014 and 2016. We then calculated new business growth as the proportional change in the number of new business applications between 2005 and 2019.
  • Investment in businesses: We averaged four measures: the proportion of businesses in the metro created with venture capital investments in 2016, the number of private equity-backed companies in the state between 2012 and 2017, the number of private-equity firms in the state in 2017, and the state-wide billions invested in businesses between 2012 and 2017.
  • Employment at startups: The percentage of metro-area workers who were employed by a startup in 2016.
  • Self-employment: The percentage of metro-area workers who owned their own business in 2017.
  • Education: The proportion of the metro-area population of 18-34 year olds with a bachelor's degree or higher.
  • Cost of living: Cost of living was the metro's percentage of the national average cost of living.

After standardizing and calculating each of the above metrics, we developed a weighted ranking system to assess the best startup locations. We assigned 0.4 (our highest weight) to cost of living to account for affordability, 0.3 to our startup growth metric, startup density and investment in business were each assigned 0.2, and startup employees, self-employment, and education were each assigned a weight of 0.1. We multiplied each metric by its assigned weight, then divided the product by 1.4 (the sum of our weights) to provide a proportion-based rank.

Statistics on the current and growth of startups, the percentage of workers employed at startups, and the share of businesses created with venture capital investment were taken from the Annual Survey of Entrepreneurs (ASE) 2014-2016. The ASE reports statistics on businesses' economic and demographic characteristics.

The number and growth of businesses applications were taken from the 2019 Business Formation Statistics dataset, which provides state-level business application statistics each quarter.

The percentage of workers who were self-employed was acquired from the 2017 American Community Survey (ACS). The ACS includes social, housing, economic, and demographic information about the 50 most-populated metropolitan statistical areas (MSAs) in the United States.

All investment statistics except the proportion of those created with venture capital investment were taken from the American Investment Council (AIC) data. The AIC provides quarterly estimates of private equity trends and investments in each state.

Cost of living information was acquired from the Bureau of Economic Analysis' Regional Price Parity data. The Regional Price Parities data evaluates the cost of living of a metro based as a percentage of the national average cost of living, including costs for all consumption goods and services, including housing.