Hot cities for small business

By Mark Henricks

updated 8:47 a.m. ET Sept. 23, 2005

Anthony Helmstetter went to high school in Phoenix, and when it was time to start his business, that's where he--like many others--returned. In Phoenix, the co-founder of MyGoals.com saw a sustained population boom creating an environment ripe for small business. "When you have people coming in, that creates demand for products and services," says Helmstetter, 43. "A lot of people are bringing their dollars into the Phoenix area."

After hatching his idea for an online goal-setting service in Silicon Valley in 1999, Helmstetter relocated to Phoenix in 2000 before going operational in 2001, lured by the city's rapid growth, modest real estate prices and sunny climate. Since then, MyGoals.com has grown to have hundreds of affiliates and thousands of users worldwide.

Thousands of similar stories helped Phoenix lead large cities (cities with more than 50,000 businesses) in Entrepreneur and NPRC's Annual Entrepreneurial Hot Cities rankings. Arizona, likewise, was the top state, and nearby Tucson was the second-place midsize city (20,000 to 50,000 businesses). But high-ranking hot areas exist in every region and in all sorts of environments. Some Hot Cities feature low costs and rapid population growth. Others offer stable populations with excellent quality of life. Some Hot City economies rely on government and tourism, while others are supported by financial services and manufacturing.

Still, some common characteristics emerge among the leaders, says Justine Walden, senior researcher at National Policy Research Council, a Washington, DC, think tank that calculated the Hot Cities rankings with Entrepreneur. For instance, the communities that fared best tend to have pleasant climates, good universities and capacious airports.

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If there is one big trend evident from this year's Hot Cities, it's that small-business success tends to track population growth. The Census Bureau's 2005 report on the 100 fastest-growing counties found 60 in the South, 23 in the West and 17 in the Midwest. About the hot spots for entrepreneurs, Walden says, "Of the top 10 states, seven are in the Southeast or Southwest. And of the top 10 cities, eight are in the Southeast or Southwest."

In talking to entrepreneurs and those who advise them in our Hot Cities, it's also clear that entrepreneurship is regarded as a linchpin to the nation's prosperity. "In Arizona, 95 percent of all companies have less than 100 employees," says Tom Fraker, executive director of the Arizona Small Business Association, a 3,000-member lobbying and education group in Phoenix. "That's why I have a passion for this."

Large cities
#1 Phoenix-Mesa. The Phoenix-Mesa area dominated on the strength of robust growth in new businesses. Its 12,350 startups represented a larger percentage of its total number of companies than any other city. More Phoenix-Mesa small companies also reported robust growth than businesses in any other city.

One of the community's main appeals is its real estate. Home prices are substantially lower than those in most other metros, and that attracts families anxious to own their own homes, as well as real estate investors, home-builders, construction workers and all the support services.

Rich Senopole, director of the Maricopa Community Colleges Small Business Development Center in Phoenix, says the region is also distinguished by an unusually large and active number of organizations devoted to supporting small business. Scores of private- and government-supported for-profit and nonprofit agencies provide education and other assistance to area entrepreneurs, he says. "I don't think I've ever worked anywhere there's been so much communication and coordination between groups, rather than competition."

Phoenix's challenges include undertaking its first light-rail project--a multiyear process that may significantly disrupt businesses located in construction zones. It also must cope with the rising real estate costs and other effects of a strong, long-term population increase that continues unabated: The Census Bureau says Maricopa County had the largest population increase of any county from 2003 to 2004, adding 112,233 people to top 3.5 million.

#2 Charlotte-Gastonia-Rock Hill
Leroy Hill was born and bred in Charlotte. When he left IBM in 1993, he started Yorel Integrated Solutions Inc. there as well. But his personal roots were only part of the reason. "Charlotte is a pro-business town," says Hill, 45. "That has everything to do with helping a small business succeed."

One advantage is the strong financial services industry. Home to both Bank of America and Wachovia headquarters, Charlotte is the nation's second-largest banking center. And when Hill was looking for startup capital, he found it at a local bank. "[The banks are] one of the key reasons small entrepreneurs can flourish here," he says.

Charlotte's once-dominant textile manufacturing industry has been decimated by foreign competition. But other manufacturers, including high-tech firms, have come to take advantage of the low-cost work force. And entrepreneurs like Hill find ready buyers for sophisticated IT among the city's financial services companies. Today, Yorel employs 40, and he sold nearly $30 million in IBM mainframe and midrange computer systems in 2004.

#4 Las Vegas
In 1999, Michele Tell, 38, and James Woodruff, 37, were working for Las Vegas hotels and casinos. "We could see a lot of growth that was going to take place, and we thought this would be a good time to start our own business," says Woodruff, co-founder of Preferred Public Relations & Marketing. That's putting it mildly.

What the two entrepreneurs saw was a place where low taxes, business-friendly regulations and low living costs--especially compared to nearby California--drive population growth so brisk that a mushrooming economy easily qualified it as the fourth-place Hot City.

More than 6,000 people a month move to Clark County, Nevada, according to the Census Bureau, adding powerful demand for residential and commercial construction and consumer services to an economy already well-founded on robust gaming and tourism. Meanwhile, Tell and Woodruff's entrepreneurial move has turned out to be a solid one. In six years, Preferred Public Relations & Marketing has grown from a kitchen-table venture employing only the husband-and-wife co-founders to a 15-person operation with $1.5 million in projected 2005 sales.

#6 Washington, DC-Baltimore
The District of Columbia and environs rely on two industries--government and tourism--which were both affected by the terrorist attacks in 2001. After terrorists damaged the Pentagon, the number of tourists visiting the Washington monuments shriveled. But government spending soon expanded even more rapidly than tourism shrank. That fueled a boom in small companies in the suburbs, especially those dealing with homeland security, qualifying the capital for sixth place among big cities.

"A lot of the growth is in government-related contracting opportunities," confirms Sharon Hadary, executive director of the Center for Women's Business Research in Washington, DC. "In Northern Virginia in particular, we have a very strong high-tech community."

In addition, Baltimore's Johns Hopkins University, home of the famed medical school, gets the most federal research dollars of any U.S. university. And Baltimore's renowned urban renewal continues with the West Side Initiative, the city's biggest redo since its Inner Harbor project more than two decades ago.

High costs and burdensome regulations make the District itself a challenge to entrepreneurs. But metropolitan population growth is robust. Loudon County in nearby Virginia recently ranked third among all counties in percentage growth from 2003 to 2004, expanding 8.1 percent.

#12 Chicago-Gary-Kenosha
America's Second City is first among megalopolises when it comes to entrepreneurial activity. Chicago's 12th-place ranking puts it well ahead of peers such as Los Angeles, New York City and San Francisco. David Weinstein, president of The Chicagoland Entrepreneurial Center, says being large and diverse helps Chicago in many ways.

"The fact that we don't have just one industry, but several industries doing business with each other, is a core advantage of a big city like Chicago," says Weinstein, whose nonprofit organization gives business and funding advice to small companies. Indeed, Chicago leads U.S. cities in a wide array of industries, from distribution--it's home to the world's busiest airport--to manufacturing to professional business services.

All Chicago lacks may be a solid base of experienced serial entrepreneurs. "You go out to Silicon Valley, and you have guys and gals who have started 10 businesses," Weinstein says. "We don't have the repeat entrepreneurs."

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