Top 25 Cities For Doing Business in America

Frank Sinatra never wrote a song about Newark or Green Bay, nor has Madonna ever bought a house in either city. But these are among the unexpected places where businesses are adding jobs most rapidly and many people are moving in search of new lives, creating tremendous opportunities for entrepreneurs.

The Top Cities in America for doing business are not at all where most people think, and there's good data to back that up. This year Inc. publishes an exclusive Top Cities list, using a brand-new methodology that we believe to be the most objective, reliable system used anywhere for ranking fertile ground for companies.

For the most part, the top cities aren't found on the fashionable coasts, nor in the biggest, most famous metro areas, but in more prosaic places, including many in the Midwest, that found a way to grow in a tough economy and now seem poised for rapid expansion as the recovery comes in. Especially notable are cities -- large, medium, and small -- spread throughout the still booming Southeast, including No. 1 ranked Atlanta and a score of Florida cities of various sizes.

"Atlanta is amazing," notes Ray Wallace, president of W. Ray Wallace & Associates, an Inc. 500 firm that does financial consulting from suburban Alpharetta, Ga "The opportunities are here and small businesses are here. People from all over the South come to Atlanta like to Mecca."

If the late 1990s were all about a gold rush -- quick success, stock market fire-works, sex and the city -- the prevailing trends almost midway through the more somber 2000s suggest a whole other dimension to what makes the entrepreneurial economy hum in such under-hyped business havens as No. 5 (small city) Sioux Falls, S.D., No. 4 (medium) Fresno, Calif., and No. 11 (small) Bismarck, N.D. (For a complete ranking of 277 large, medium, and small cities, and a separate ranking of the top cities by major industries, see Inc.com.)

Of course, there are some high-tech, high-priced holdovers relatively high on the list, including No. 15 (large) San Diego, No. 19 (large) Austin, and No. 13 (large) greater Washington, D.C., but those places have been high up on the growth curve for more than a decade. Perhaps most revealing are those denizens, including No. 9 worst Boston, No. 8 worst Portland, Oreg., No. 7 worst San Francisco, and No. 6 worst New York City. Dead last (the No. 1 worst large metro area) is San Jose, home of Silicon Valley, the megawatt center of late '90s business hype. In the bygone era, these were the cities that had the sizzle. No more.

The Rankings

How did Inc. arrive at these conclusions? Not by subjective criteria, such as proximity to research universities or a hospitable climate. The central premise behind the Top Cities rankings is that current and historical job growth is the most objective indicator of a region's economic vitality for entrepreneurs. More than three-quarters of all new jobs are created by small business, according to the Small Business Administration, so a region showing strong job growth is in all likelihood a hotbed of entrepreneurship. The impact on business of a city's educational and training systems, housing and living costs, taxes, regulatory burdens, and quality of life -- factors commonly measured by other "hot lists" to identify strong economies -- are all ultimately reflected by job growth.

A strong history of creating new jobs means that regional businesses have expanded, created new demand, and pushed up areawide disposable incomes. In contrast, companies don't form or hire new workers when a region's regulatory climate, costs, or work force capabilities aren't conducive to expansion.

Regions that consistently generate jobs in a broad range of industries rank at the top of the list. Those with poor and worsening job growth and increasingly undiversified economies do less well in the rankings. As the recent technology bust and manufacturing cutbacks indicate, overreliance on a single sector risks painful, long-term setbacks. Unbalanced growth can also indicate whether even once prospering areas are developing anti-industrial land use or other slow- or no-growth regulatory policies.

Inc. measured current-year employment growth in more than 250 regions (as defined by the Bureau of Labor Statistics) as well as current trends in the annual average growth over the past three years, and compared employment expansion in the first half versus the second half of the last decade. Job growth factors account for approximately two-thirds of the final score for each city and the balance among industries accounts for approximately one-third of the final score.

So what kind of places are working best in George Bush's America? They are predominantly suburban and, perhaps most importantly, relatively affordable, particularly in terms of housing prices, cost of living, and business costs. These are places, notes Brookings Institution demographer William Frey, where younger families, including many well-educated people as well as upwardly mobile immigrants and even singles, are now migrating in large numbers.

Perhaps the most predictable bottom line in this current economic expansion is, well, the bottom line. Places kindest to business costs, whether in terms of office rents, taxes, or regulatory environments, seem to be doing best. "When people depend on debt to finance operations, they look at things differently than when it's equity," suggests Andrew Segal, of Boxer Property, a Houston-based real estate investment firm with holdings in several "second tier" cities. "Business now has to look for a more reasonable place. The ugly ducklings are beginning to look better." Few people in the growth areas, of course, would consider themselves "ugly ducklings," but they certainly tend to have economies that are grayer and less specialized than the '90s hotshots. Total dependence on high tech, once considered a boon, has turned out to be a disaster.

In the mid to late '90s, suggests Leslie Parks, former economic development director for San Jose, inflated stock prices created a false economy that drove up real estate prices and the cost of managerial and technical talent while driving out more middle-class, blue-collar activities from the region. "Economic diversity is a constant challenge here," Parks adds. "A lot of people did not want basic industries. They thought high tech could solve everything."

Atlanta: Leading the Pack

The leading large city on the list, Atlanta, epitomizes the characteristics of economic diversity and affordability. Spread out over 28 counties in north-central Georgia, Atlanta's region includes over 4.5 million people, only 420,000 of whom live in the city itself. It combines the advantages seen in smaller communities with an array of assets -- such as top-flight universities, major corporate headquarters, and a world-class airport -- usually only found in leading global cities.

This vast archipelago of largely suburban communities also houses a relatively diverse economic structure. Atlanta is not wedded to technology like San Jose, or financial services like New York City and Boston. While the recession pummeled some of Atlanta's key industries -- including information technology and construction -- the area's well-rounded economy has allowed it to take full advantage of the current, broad-based recovery.

"Atlanta has one of the most diversified economies in the country," points out Mark Vitner, a senior economist who studies the Southeast for Charlotte-based Wachovia. "Whatever the new thing turns out to be, Atlanta will be in the forefront. They are very adaptable."

Affordability, Vitner notes, has been the other pillar of the region's success. Although not cheap by southern standards, Atlanta's cost of living, particularly housing, is much lower than that in places like Boston, New York City, Seattle, or San Francisco. This has made Atlanta an excellent spot to start a business, allowing lower costs and salaries for start-ups.

Atlanta turned out to be a far better choice than San Francisco for the head-quarters of the fast-growing, 250-employee Cendian Inc., which opted for the Georgia metropolis over a series of other cities, including the fabled city by the bay." Affordability killed us with the BayArea," says CEO Mark Kaiser. "San Francisco is a delightful place to live, but way too expensive."

Atlanta may lack some of the Bay Area's edginess and physical beauty, Kaiser adds, but in addition to reasonable housing prices, it also presents many lifestyle options, including an increasingly lively central city and diverse suburban areas, which allows the firm to compete for talent across a broad spectrum of skills, from top management to technicians. At the same time, Atlanta's airport and long history as an area of logistics expertise, best epitomized by UPS, help the firm in its primary business of providing logistical support for the chemical industry worldwide.

"Atlanta," Kaiser sums up, "gives you a lot for the buck."

Affordability

The theme of affordability was repeated often by many firms located in the cities that ranked high on the list. It helps explain the remarkable performance of places like No. 4 (large) San Antonio and No. 26 (medium) McAllen, Texas, all of central Florida, and much of inland California. "San Antonio is a very good sell for families," says Keith Frederick, founder of SecureInfo, a San Antonio computer security firm with 145 employees. "You can get a new three-bedroom starter house here with a two-car garage for $60,000. And it's actually a super environment for operational experience. This is one of the few places I can get the kind of talent I need."

Indeed, Inc.'s data shows many fast-growing cities, such as No. 5 (small) Sioux Falls, S.D., No. 15 (small) Fargo, N.D., and No.8 (large) Jacksonville, Fla., also saw rapid expansion of financial and business-professional service industries, which require a work force with a high level of education. In contrast, many of the traditional hotbeds for these professional industries (e.g., Boston, New York City, San Jose) have suffered either negative or slow growth during the past few years.

These trends were particularly notable in Florida, the state that more than any other dominates our list. A remarkable six of the top 25 cities on the large list, including No. 5 West Palm Beach, No. 7 Fort Lauderdale, No. 8 Jacksonville, No. 11 Orlando, No. 14 Tampa