Tech Startup Hubs are Some of the Hardest Places for Everyone Else to Do Business

A new report and analysis on the relative ease of doing business in cities across North America shows that lowering barriers to entry makes a big difference for underrepresented founders. 

Intriguingly, the data also shows that tech startup hubs like San Francisco, Boston and Austin are some of the hardest places to do business, which might partly explain why the tech industry remains so dominated by white people.

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Researchers at Arizona State University ranked cities in the U.S., Mexico and Canada on ease of doing business in its Doing Business North America report. They pulled from 12,000 data points and 111 variables to create 28 data indicators, including ease of starting a business, finding employees, getting electricity, paying taxes, land and space use and resolving insolvency.

The top 10 are:

1. Colorado Springs, Colorado
2. Durham, North Carolina
3. Henderson, Nevada 
4. Sioux Falls, South Dakota
5. Salt Lake City, Utah
6. Raleigh, North Carolina
7. Charleston, South Carolina
8. Cincinnati, Ohio
9. Tulsa, Oklahoma
10. Las Vegas, Nevada

Meanwhile, startup hubs such as San Francisco and San Jose, California, Boston, New York City and  Austin, Texas ranked low on the list. San Francisco ranked 64th, San Jose ranked 67th, Boston ranked 30th, New York City ranked 76th and Austin ranked 57th.

Making small changes in regulations could have a measurable impact on the number of businesses started by underrepresented founders, says Alicia Plemmons, an assistant professor of economics at Southern Illinois University Edwardsville. Particularly, making it easier for people to start a business could potentially have a large effect, she said.  

Plemmons analyzed the report, focusing on the United States. She compared the ease-of-doing business score to data on underrepresented business ownership that she compiled using an algorithm that guesses race and ethnicity based on founders’ names.

The algorithm is not 100% accurate, but it pulls from census data, and Plemmons only included a race or ethnicity if the prediction was 95% or higher. 

If the Ease of Doing Business score (a value out of 100 potential points) in a city increased by one point, the rate of businesses led by people of color would increase by 3.8%. She defined the rate as the proportion of minority business owners (predicted using surnames classified by the Decennial Census Bureau Surname File) in the city relative to the total minority population within the city. This means that changing regulations, such as simplifying processes or reducing fees could increase the number of Black, Hispanic and Asian-led businesses in the U.S., she said. 

Overall, Miami, San Jose, California, and San Antonio have the highest number of minority-owned businesses, while Lincoln, Nebraska, Fargo, North Dakota and Portland, Maine have the lowest number. When accounting for the size of the population, Miami, San Antonio and Arlington, Virginia have the highest rate of minority business owners, while Portland, Maine, Jackson, Mississippi, and Cleveland, Ohio have the lowest rate, according to Plemmons’ analysis. 

The ASU report found that it’s relatively easy to start a business in Canada. Canada took the top eight spots when looking at just the starting-a-business rank — the top three are St. John’s, Newfoundland and Labrador, Ottawa, Ontario, and Edmonton, Alberta.

The U.S. South holds the top four spots for the employing workers rank — Charleston, South Carolina, Raleigh, North Carolina, Durham, North Carolina and Nashville hold the top four ranks, respectively.

Meanwhile, the Western U.S. took most of the top spots for the ease of finding an energy supply — Salt Lake City, Utah, Henderson, Nevada and Las Vegas, took the top three, and Chandler, Mesa, Phoenix and Tucson, Arizona, took spots five through eight (Wilmington, Delaware, took number four).

The report is led by the Center for the Study of Economic Liberty at ASU, which is working to become “an international leader in research that affects liberty-enhancing public policy,” according to its website. It partnered with Mexico City, Mexico-based Caminos de la Libertad for the report.

Plemmons shared her findings at Arizona State University in October. She plans to continue refining the analysis and potentially publish a full report in the next few years.