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The Best Place to Start a Business Might Not Be Where You Think

Before you develop that grooming app for ferrets, or open a boutique selling crocheted popsicle-holders, make sure you are giving yourself a head start by setting up your business in a city that welcomes entrepreneurship — and offers the incentives to make your venture a success. However, experts caution that tolerance and open-mindedness are as important — if not more so — than obvious qualities such as lower taxes and an attractive cost of living.

A recent WalletHub survey of 1,268 small cities across America reveals the top locations for startups, based on metrics such as cost of living, average revenue growth for small businesses, prevalence of investors, and corporate tax rate.

Topping the list is Holland, Michigan, a city on the eastern shore of Lake Michigan known for its tulip festivals. North Chicago, Illinois, home to Abbott Laboratories and several medical schools, placed second. Brighton, an upstate New York brick-making city and hometown of Frederick Douglass, came third.

Tech-heavy Mountain View in California — where Google, Symantec, LinkedIn, and Samsung all have offices — unsurprisingly rated as the most expensive small city in which to purchase office space, with a price averaging $66 per square foot. Kentwood, Michigan, and Dothan, Alabama tied for the most affordable office space, at $8.76 per square foot.

The study also concluded that Bethesda, Maryland, has the most residents with a bachelor’s degree (82 percent). Carbondale, Illinois, has the lowest cost of labor costs, at $17,677 a year; and Miami Beach in Florida attracts the largest number of startup businesses — 246 per 100,000 residents.

“Many small cities are hungry for business development to promote economic development and rebound from serious economic decline,” said Shawn M. Clark, a professor at the Smeal College of Business at Penn State University.

However, there’s no guarantee that an urban center in an economic slump will embrace new opportunities with open arms, he cautioned.

“Small cities tend to have highly cohesive, and in some cases entrenched, city councils that may push back on investments and entrepreneurial activities that change the status quo," Clark said. "Entrepreneurs should seek to build bridges between the old and the new.”

Equally important — and especially relevant in view of the current social issues facing states such as North Carolina, Georgia, and Tennessee — small cities need to offer tolerance and acceptance, said Michael R. Burcham, senior lecturer at Vanderbilt University. “Creative people are drawn to other creative souls — and require a more progressively minded city to thrive. Small cities need to do an assessment of their behaviors.”