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The Best Startup State Is... New York?

A new study by University of Nebraska economists that looked at broad measures of entrepreneurial activity ranked New York as the best of the 50 states for entrepreneurship. Despite being known as a haven for high taxes and tight regulation compared to some other places, the Empire State topped runners-up Washington, Massachusetts, New Jersey and Oregon for the No. 1 spot.

How did this happen? The Debunker looked at the Nebraska work and found researchers weighed five factors:

  • Percentage and per capita growth in the number of business establishments
  • Rate of new business formation
  • Number of patents per thousand state residents
  • Gross receipts of sole proprietorships
  • Number of partnerships per capita
In 2010, New York busted a strong move in gross receipts per capita and also saw substantial growth in the number of new businesses.

Note that the new study didn't use more subjective measures, such as how hospitable a state was for new business formation. Instead, using data from the Internal Revenue Service Bureau of Labor Statistics and similar presumably impartial sources, researchers counted up new businesses and measured their innovation and expansion.

This might explain why the "real" best state for startups is difficult to pin down. Other studies look at different things and get much different results, as these show:

  • The Small Business & Entrepreneurship Council ranked New York nearly dead last, 49th of 51 including the District of Columbia, in its Small Business Survival Index 2010, released in January. The difference was that the SBEC, an advocacy group as opposed to a pure research organization, looked specifically at "major government-imposed or government-related costs affecting small businesses and entrepreneurs." These include taxes, regulatory costs, health care policies, and the like. Interestingly, despite the extreme difference in the way the two indices ranked New York, Washington ranked highly in both (fifth in the SBEC ranking and second in the Nebraska list).
  • The Tax Foundation's 2011 State Business Tax Climate Index had the same state at the top as the SBEC -- South Dakota, which is one of just three states with no corporate or individual income tax. New York this time came in 50th. As the foundation noted, however, taxes is just one of the many factors affecting whether a startup succeeds.
  • The Kauffman Foundation took yet another approach to identifying the best state for small business in 2008 with its State New Economy Index. This list examined 29 indicators in categories including "knowledge jobs, globalization, economic dynamism, transformation to a digital economy and technological innovation capacity." The Kauffman list, which is repeated every few years, aims to ferret out the states with the best chances for fostering startups at the edge of innovation. Its top five were Massachusetts, Washington, Maryland, Delaware and New Jersey -- not much different from the University of Nebraska report. (New York was ninth.)
  • Chief Executive asked 550 CEOs to identify the best states for its annual report on best and worst states for business. The corner office-dwellers examined three general categories including tax and regulation, workforce quality, and living environment and -- surprise! -- came up with a list that resembled none of the others. Texas ranked best -- for the seventh straight year -- followed by North Carolina, Florida, Tennessee, and Georgia in what looks an awful lot like a lineup of top college athletics programs. New York settled into its now-familiar 49th spot.
What can a small business person or would-be entrepreneur with a footloose streak take from these rankings? Only that the best state for you is the one that has what you're looking for. Look seriously at your business and your needs -- but don't look too seriously at any one ranking.

Mark Henricks is an Austin, Texas, freelance journalist whose reporting on business, technology and other topics has appeared in The New York Times, The Wall Street Journal, Entrepreneur, and other leading publications. Learn more about him at The Article Authority. Follow him on Twitter @bizmyths.

Image courtesy of Flickr user Instant Vantage, CC2.0