Boomtowns '06

As part of our annual report, Inc. studied 393 population centers across the nation, identifying job creation and other signs of business vitality. What did we find? The big cities are idling, and the real entrepreneurial hot spots are on the periphery -- where low costs and favorable regulatory environments make it possible to thrive.

Which metropolitan areas are really booming? Here, you'll find a searchable database, the full 2006 rankings broken down by small, medium, and large cities, an interactive map, stories explaining why -- and where -- companies are flourishing today, and much more.

Bellingham, Washington; St. George, Utah; McAllen, Texas...You may be surprised by the places that top our list of the hottest cities for entrepreneurs.

Call it the revenge of the boondocks. For several years now, the nation's entrepreneurial hotbeds have been migrating from the major urban centers to smaller cities on the periphery. But a funny thing happened on the way to Inc.'s 2006 Hot Cities list. Demographic trends have accelerated to the point that what once constituted the periphery is no longer, well, peripheral. Sure, longtime list-topping cities such as Phoenix, Daytona Beach, and Orlando again are posting strong job growth and continue to be great places to do business. But the nation's newest entrepreneurial hotbeds can be found even further afield -- in cities like Bellingham, Washington; Port St. Lucie, Florida; and McAllen, Texas -- places that have never registered as business centers. The rise of these small communities is the most important trend emerging from this year's survey of the nation's hottest places to do business. As always, our list (which was compiled by Michael A. Shires, professor of public policy at Pepperdine University) puts the focus on job growth, which we believe is the best measure of a region's economic vitality -- especially as it applies to entrepreneurs. The Small Business Administration estimates that small companies generate as many as three-quarters of the nation's new jobs; as a result, a region showing strong job creation is likely to be a hotbed of entrepreneurial activity. What's more, strong job growth suggests that a region's economy is expanding. That means new demand and new opportunities.

To compile the rankings, Inc. measured current-year employment growth, as well as average annual job growth over the past three years and compared job growth in the first and second halves of the period comprising the past 10 years. The big difference this year is the number of communities surveyed. In years past, the Bureau of Labor Statistics, which generates the job-growth data, surveyed 274 metropolitan statistical areas, or MSAs. This year, BLS surveyed 393 -- which has allowed us to paint a far more accurate picture of where the action really is.

Red-hot Florida is the center of that action, contributing 19 cities to the list's top 100. Indeed, every one of the state's metro areas is experiencing significant population and job growth. The three star megaregions of the desert Southwest -- Las Vegas (No. 9), Reno (No. 25), and Phoenix (No. 36) -- boast many of the same advantages and are experiencing similar levels of growth. Now much of that growth is spilling over into even smaller areas, such as St. George, Utah (No. 2), Idaho Falls, Idaho (No. 10), and Bend, Oregon (No. 14). Says St. Louis-based demographer Wendell Cox: "This is the sprawl beyond the sprawl."

The nation's largest urban areas continue to lag. New York City comes in at No. 292, Boston at No. 343, and Philadelphia at No. 392. This is in stark contrast with surrounding areas, such as the suburbs of Philadelphia and Washington, D.C. The industrial belt also is lagging; it accounts for five of the bottom 10 MSAs, including last place Muncie, Indiana.

Admittedly, it's a lot easier for small, emerging regions to post big growth rates than it is for big, mature ones. Still, it's hard to deny the advantages of the boomtowns described in the pages that follow. We've profiled the top 20 cities in three categories -- small (an employment base of less than 150,000); medium (150,000 to 450,000), and large (more than 450,000). We've also included some U.S. Census figures ranking the nation's cities on measures like median income, health, and education.

How the 2006 Best Cities Were Selected

Learn the methodology behind our list of the top cities for small business.

This year's rankings incorporate a new methodology that emphasizes the robustness of a region's growth and expands the rankings to include all of the MSAs for which the Bureau of Labor Statistics reports employment data. They are derived from three-month rolling averages of U.S. Bureau of Labor Statistics "state and area" unadjusted employment data reported from January 1994 to September 2005.

The data reflect the North American Industry Classification System categories, including total nonfarm employment, manufacturing, financial services, business and professional services, educational and health services, information, retail and wholesale trade, transportation and utilities, leisure and hospitality, and government.

Because of new baseline calculations instituted by the BLS in the first quarter of 2005, sectoral detail for the 393 MSAs was not available for enough regions to develop the balance component used in years past by Inc.

This year's rankings use four measures of growth to rank all areas for which full data sets were available from the past 10 years -- 393 regions in total. Because of the change in approach, this year's rankings cannot be directly compared to last year's, but rankings for last year are provided using the new methodology.

"Large" areas include those with a current nonfarm employment base of at least 450,000 jobs. "Medium" areas range from 150,000 to 450,000 jobs. "Small" areas have as many as 150,000 jobs.

The index is calculated from a normalized, weighted summary of: 1) recent growth trend: the current and prior year's employment growth rates, with the current year emphasized (two points); 2) mid-term growth: the average annual 2000-2005 growth rate (two points); 3) long-term trend: the sum of the 2000-2005 and 1994-1999 employment growth rates multiplied by the ratio of the 1994-1999 growth rate over the 2000-2005 growth rate (two points); and 4) current year growth (one point).

Statistics: Income

Data: Centers for Disease Control