The 10 Worst Places In America To Start A Business

Anywhere you start a business, it's going to be a gamble.

More new businesses fail than succeed, according to the Kauffman Foundation. And, as CNBC notes, U.S. Small Business Administration data shows that it's only a matter of time before at least half of all businesses go under: Nearly two-thirds of businesses with employees survive at least two years, but only about 50 percent survive at least five years.

So it's important to set up in an area where the odds are in your favor. Some cities are more hospitable to business formation than others. Regulatory hurdles, tax rates, ease and cost of hiring, and cost of real estate are just some of the factors. Cities across the country are also dealing with demographic challenges, including population growth, an aging workforce and economic stagnation.

The new CNBC Metro 20: America's Best Places to Start a Business ranking identified metro areas where the likelihood of business success is highest. For that ranking, CNBC reviewed data on the 107 largest metro areas in the United States.  

Here's a look at the bottom 10 - the metro areas where social, economic and government hurdles to success could plague business owners.

10. Jackson, Mississippi

Jackson, the capital of the Magnolia State, is weighed by an array of issues that work together to keep entrepreneurs at bay.

With a population of nearly 171,000, Jackson battles higher-than-average unemployment and a poverty rate of nearly 30 percent, according to the most recent U.S. Census Bureau data.

The city's chief issues include dilapidated properties and potholes, thanks to frequent flooding and decades of poor infrastructure management.

Jackson is trying to fix the issue. In 2014 the city approved a 1 percent sales-tax increase to fund infrastructure repairs. The measure is a crucial part of Jackson's mission to transform itself into a destination city that is "safe and conducive to entrepreneurial endeavors," according to the city's official website.

  • Jackson population growth rate: 2.06 percent
  • Jackson average hourly wages: $21.37
  • Jackson unemployment rate: 5.4 percent
  • Jackson cost of living: Low
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

9. Albuquerque, New Mexico

One of New Mexico's eight state-designated arts and cultural districts, Albuquerque is known for its historic buildings, old churches and wealth of handcrafts shops, making it a go-to destination for cultural tourists. But heavily reliant on volatile oil and gas revenues, New Mexico's economy struggled to recover from the Great Recession, and the labor force has stagnated.

In June, Albuquerque's unemployment rate rose to 6.4 percent, the highest level since August 2015, according to the Bureau of Labor Statistics (average annual unemployment was used for the Metro 20 ranking). In addition, annual income growth per capita rose a dismal 0.3 percent in 2013, the most recent data available, trailing the national average of 1.1 percent, according to Albuquerque's most recent progress report.

The city said it plans to make small business a big part of its economy resurgence. It now offers entrepreneurial support resources, including Innovate ABQ, a hub for researchers, investors and entrepreneurs.

  • Albuquerque population growth rate: 2.28 percent
  • Albuquerque average hourly wages: $20.97
  • Albuquerque unemployment rate: 6.2 percent
  • Albuquerque cost of living: Average
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

8. Louisville, Kentucky

Louisville may be home to big market-cap companies, like YUM! Brands, Papa John's and Lexmark, but more than 18 percent of the city's estimated 615,370 residents live in poverty. Meanwhile, the median household income is just $44,806, well below the U.S. average of $53,482, according to government data.

Still, the city claims that small business accounts for about two-thirds of jobs.

A plan called Louisville Forward aims to accelerate the economy through start-up resources, including five business accelerators, five co-working hubs and more than 20 networking partners. The city is also promoting a "buy local" initiative.

  • Louisville population growth rate: 3.46 percent
  • Louisville average hourly wages: $23.24
  • Louisville unemployment rate: 4.7 percent
  • Louisville cost of living: Low
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

7. Providence, Rhode Island

Providence is an epicenter of academia, with eight college and university campuses anchored in the city, including the prestigious Brown University, Johnson & Wales University and Providence College. However, many students flee after graduation, resulting in a severe case of brain drain.

As a result, the city's workforce has been hit hard. Providence's population grew just 1.1 percent between 2010 and 2015, dragging behind the country's growth of 4.1 percent over the same period, according to U.S. Census data.

Rhode Island as a whole has business-friendliness issues. It was recently named America's Bottom State for Business in CNBC's 10th annual state-level ranking, and it's not the first time the state has been at the bottom of the list.

  • Providence population growth rate: 0.76 percent
  • Providence average hourly wages: $24.78
  • Providence unemployment rate: 6 percent
  • Providence cost of living: Average
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

6. Fresno, California

With a poverty rate that is nearly double the national average and a median household income of just $41,455, Fresno is one of California's poorest communities. But the city has tax incentives in place that are designed to boost income growth and business.

As a part of the state's Economic Development Initiative program, businesses in Fresno receive a tax credit when they hire qualified employees for wages paid between 150 percent and 350 percent of the minimum wage.

Because Fresno was designated as one of three pilot program areas in the state, the qualifying wage threshold in Fresno is lower than the program standard of $15, at $10/hour for pilot cities, resulting in a larger tax credit for firms in the area.

  • Fresno population growth rate: 4.77 percent
  • Fresno average hourly wages: $20.13
  • Fresno unemployment rate: 10.2 percent
  • Fresno cost of living: Average
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

5. Santa Rosa, California

Located about 55 miles north of San Francisco, Santa Rosa should get some of the benefits of the tech boom, but it is weighed down in the ranking by expensive costs of living and above-average hourly wages.

Indeed, the city touts itself as the North Bay's premier location for technology and entrepreneurial businesses, and it is trying to live up to the title. Santa Rosa has placed a renewed focus on entrepreneurship, and it now hosts a portal for local business owners on its official municipal website.

It's also involved in a joint venture with the Santa Rosa Chamber of Commerce and the North Bay Angels, a seed capital firm. The partnership, called the North Bay Growth & Innovation Forum, aids local start-ups by creating a larger pool of available angel and private-equity financing.

  • Santa Rosa population growth rate: 3.78 percent
  • Santa Rosa average hourly wages: $27.15
  • Santa Rosa unemployment rate: 4.5 percent
  • Santa Rosa cost of living: Very high
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

4. Allentown, Pennsylvania

Allentown, Pennsylvania's third-largest city, started down a financial spiral a few decades ago (remember the Billy Joel tune?) when nearby big employers folded or fled and its retail sector collapsed. Now Allentown officials say it is undergoing a renaissance and the city wants to make entrepreneurs vital to the plan's success.

The city partners with two business incubators — Bridgeworks Enterprise Center and Velocity — both located in the Lehigh Valley area of Allentown. The former focuses predominantly on manufacturing and manufacturing-related technology start-ups, while the latter provides affordable office space, advisory services and networking sessions to founders who are dedicated to urban renewal.

  • Allentown population growth rate: 1.36 percent
  • Allentown average hourly wages: $23.24
  • Allentown unemployment rate: 5.2 percent
  • Allentown cost of living: Average
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

3. San Bernardino, California

With nearly 34 percent of the population living below the poverty line, San Bernardino is the most impoverished city in California.

The city declared bankruptcy in 2012, with a $46 million budget deficit, forcing it to make serious cuts in services.

Unlike some of the other American towns in this bottom 10 that are making efforts to boost business, San Bernardino is now considering legislation that could make the business climate even worse. An amendment proposed in June would eliminate development funding for the city's small business assistance program, saving the city $150,000 for the current fiscal year. The amendment would also reduce funding for the Center for Employment Opportunities by 60 percent.

But the city also states that it plans to offer an aggressive business incubator program to support entrepreneurial development.

  • San Bernardino population growth rate: 6.26 percent
  • San Bernardino average hourly wages: $21.48
  • San Bernardino unemployment rate: 6.6 percent
  • San Bernardino cost of living: High
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

2. Modesto, California

Yep, yet another city from the Golden State relegated to this bottom 10 (the fourth thus far if you're keeping count). California may have the world's start-up mecca in Silicon Valley, but it isn't the best climate for business owners, in general. The state usually does poorly in CNBC's Top States for Business ranking due to lofty costs of living, high tax rates and high hourly wages. It came in No. 32 in the 2016 Top States ranking.

Modesto has a population of about 211,270, with nearly 21 percent of residents living below the poverty line, compared to the statewide poverty rate of 16 percent, according to U.S. Census data. The college graduation rate is much lower that the state average, too — more than 80 percent of residents lack college degrees.

Companies may struggle to find qualified job applicants, but the city is working to mend the education gap by connecting businesses and education leaders and encouraging social service. Earlier this month, the Modesto Chamber of Commerce held its sixth annual State of Business & Education gathering to show businesses ways to improve the local workforce.

  • Modesto population growth rate: 4.65 percent
  • Modesto average hourly wages: $22.92
  • Modesto unemployment rate: 9.5 percent
  • Modesto cost of living: Average
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

 

1. Stockton, California

The seventh-poorest city in California, Stockton has the dubious distinction of the worst city in which to start a business. Median household income of $45,347 is about $16,000 less than the statewide average. The city's college graduation rate is also much lower than the state and national averages, according to federal data.

The city is aware of its challenges.

In its most recent planning report, the city said it wanted to become more business friendly and make it easier for developers to acquire licenses and fulfill permit requirements. Business issues, such as cost of permits and fees, have become a major talking point in this year's mayoral election. Stockton's often complicated and expensive permitting and licensing process is a top concern for local business owners and developers.

  • Stockton population growth rate: 5.95 percent
  • Stockton average hourly wages: $21.42
  • Stockton unemployment rate: 8.9 percent
  • Stockton cost of living: Average
  • Median population growth rate, all metro areas: 4.77 percent
  • Median average hourly wages, all metro areas: $23.77
  • Median unemployment rate, all metro areas: 5.1 percent

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So 50% of America's worst 10 cities for starting a business are in California... which should not be a surprise since we noted with three simple charts why businesses are fleeing California.

Source: CNBC