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JULY 12, 2005     Editions: Edition Preference

Best Places for Entrepreneurs

By Stacy Perman


Rewriting the Location Rulebook

A new breed of entrepreneur is bypassing big cities in favor of smaller towns, which are doing their best to make newcomers feel at home


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By definition, entrepreneurs are creative, edgy, and often idiosyncratic. Increasingly, so are the cities and towns in which they choose to hang their shingles.



With the old-line manufacturing economy almost a thing of the past and service and information economies taking its place, the enticements that make a city attractive for entrepreneurs also are changing. The traditional menu of tax incentives, low office rents, and favorable regulatory environments remain in play. But more frequently, observers say, a host of variables that emphasize quality of life, population diversity, infrastructure, and a culture of creativity have become weightier matters to consider when choosing a city.

Indeed, in his book, The Rise of the Creative Class, Carnegie Mellon University professor Richard Florida argues that more than 30% of the American workforce -- some 38 million people -- now makes up what he calls the "creative class," in which he includes artists, scientists, architects, designers, musicians, and the like. That trend, in turn, has caused a fundamental shift in values, attitudes, and subsequently, the economy.

THINKING SMALL.  From this creative class come some of the most innovative business ideas, and from those come employment -- roughly three-quarters of all new jobs are generated by small businesses, according to the Small Business Administration. The net result is that a number of unexpected cities are becoming fertile breeding grounds for entrepreneurship.

In a special report all this week, BusinessWeek Online will examine the growing number of factors that make entrepreneurial hotbeds hot -- with a look at some of the unlikeliest of cities managing to stand out.

For starters, many entrepreneurs are no longer drawn to the big, established metropolitan cities like New York or San Francisco. Instead, many set their sights on smaller, regional locales. Second- and even third-tier cities and towns that once flew under the radar -- like Boise, Idaho (high-tech), Sioux Falls, S.D. (biotechnology), and Brandon, Vt. (the arts) -- have become thriving hubs for small business.

MICROPOLITAN MIX.  "There's the old axiom, 'Go west, young man,'" says John Boyd, president of Boyd Co., a site-selection consultancy based in Princeton, N.J. "But really, the mantra now is 'Go small, young man.'"

"Micropolitan" centers, as some call them, which lie somewhere between a city and a rural town, now trumpet their mix of beautiful settings, affordable housing, and attractive lifestyles. With communication technology blurring geographic borders, entrepreneurs in search of the proverbial good life are building companies where they want to live, as much as where they think they should work.

And communities that want to attract business development are learning that they can no longer rely on the cluster effect of a dominant industry to spawn further economic growth. "The widest, broadest mix of choice in housing, neighborhoods, shopping, and the widest range in cultural and entertainment offerings, leisure, and recreation is what makes a place a desirable one to start a business," says Michael Beyard, a senior fellow at the Urban Land Institute in Washington, D.C. Phoenix, Las Vegas, and other locales have followed this strategy, seeing some of the fastest-growing business economies in the nation.

NEW DEVELOPMENTS.  Increasingly, cities are coming up with slew of innovative ideas and incentives to retain homegrown entrepreneurs and attract new ones. Economically distressed places that were once heavily reliant on either a single industry or a dominant company for growth are introducing infrastructure and anchor projects to draw new money, talent, and people.

Take Buffalo, N.Y. A former steel and grain giant, it's spending $123 million to fund the Inner Harbor project -- a mixed-use development of retailers, restaurants, a hotel, and a museum, all aimed at reviving the town's flagging economy and attracting new businesses.

Pittsfield, Mass., once a General Electric (GE) company town, is orchestrating its own comeback. The Pittsfield Economic Development Authority is transforming a former GE plant into a 52-acre campus designed to attract small and midsize outfits. Tax incentives, a revived downtown, and investment in telecommunications infrastructure are all part of the lure.

COLLEGE CHEER.  Smart colleges and universities -- and the cities in which they reside -- are not only learning to attract businesses but are collaborating to ensure that the entrepreneurial minds already there don't flee after graduation. The presence of a university can prove to be a big selling point for businesses, which are drawn to a continually replenished labor pool.

More than that, though, schools now offer a panoply of resources, including on-campus business incubators, research funding, and faculties that can serve as go-to consultants. Provo, Utah, home to Brigham Young University, also hosts dozens of flourishing small businesses, many of which got their start within the university's gates.

For small cities and towns, in particular, even relatively modest efforts can give them an advantage over regional rivals. In May, Searcy, Ark., a town of about 20,000, launched a free wireless initiative. Searcy joined a number of large cities, including New York, that have begun rolling out public wireless zones -- an advantage for small businesses that still struggle with finding affordable Internet and networking packages.

MODERN PROBLEMS.  So while no one surefire recipe exists to attract budding businesses, a wider range of factors has opened the doors for smaller, often unlikely cities -- and the entrepreneurs who choose to settle there are reaping the rewards. The places that can offer the best mix of living environment, infrastructure, and resources have the best shot at boosting their local economies.

"I don't think there's one simple answer," says Bruce Phillips, senior fellow and economist at the National Federation of Independent Business Research Foundation in Washington, D.C. That leaves cities in search of as many new answers as they can find.

Coming Wednesday: Five entrepreneurial cities to watch

Thursday: A conversation with Jack Schultz, author of Boomtown USA

Friday: A look at one thriving company and where it's choosing to expand. Plus: a slide show spotlighting some of the nation's most innovative small-business cities.

 READER COMMENTS



Perman is a reporter for BusinessWeek Online in New York

Edited by Rod Kurtz


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