How friendly is your city?

What makes your city work? Is it the tax rate? Sound enforcement of regulations? Some other unknown piece of magic?

For the third year in a row Thumbtack has partnered with the Ewing Marion Kauffman Foundation to ask nearly 13,000 small business owners: what makes your government friendly to small business? And the responses we get are frequently surprising. This year, Utah received the highest ratings from its small business owners, earning it an A+ grade for friendliness. Colorado Springs and Boise led the way for cities, earning the highest grades in the country and topping our rankings of 82 cities.

Other places didn’t fare as well – California, Illinois, and Rhode Island stood out for the negative responses their small businesses gave when asked how friendly they were. Each of those states earned an F grade for friendliness, along with the least friendly city in the country, Sacramento, California. The full results can be seen at www.thumbtack.com/survey

national map


What are the elements that make a city or state friendly? Our analysis shows that three factors stood out in determining what made a government friendly to small business: small businesses respond well to regulations that are easy to understand and comply with, tax laws that are easy to follow, and training and networking programs that help create an environment where entrepreneurs can thrive.

Licensing

Of all the regulatory factors we examined, professional licensing requirements were the single largest factor that determined how a professional viewed his or her city. Half of the professionals to complete our survey were subject to a professional licensing requirement at the local, county, state, or federal level, and these professionals were more likely to give their governments lower marks than those professionals not subject to such requirements. 62 percent of licensed professionals reported they were subject to licensing requirements at more than one level of government, and 25 percent said they were subject to licensing rules at city, county, state, and federal levels. The friendliness of licensing requirements had nearly twice the effect that the friendliness of tax rules did in determining a pro’s overall attitude towards their state government.

licensing

A common complaint regarding licensing was that pros who operate in more than one jurisdiction had to be licensed more than once to do the same work. Enforcement was also on many professional’s minds – many licensed business owners who compete against unlicensed professionals felt the unlicensed pros had an unfair advantage when it came to pricing because the unlicensed professionals didn’t bother to comply with local rules.

Taxes

Ease of filing taxes was the second most significant factor in determining a state’s overall friendliness. 68 percent of businesses who said their taxes were “somewhat” or “extremely” easy to comply with said their state government was friendly, while only 42 percent of businesses who said taxes were “somewhat” or “extremely” difficult to comply with said their state government was friendly.

taxes

And what about the tax rate itself? It turns out that the tax rate generally wasn’t a top complaint for professionals and wasn’t a statistically significant factor in determining perceptions of overall friendliness. In fact, two thirds of our small business respondents said that the level of taxes they paid was “fair,” although larger businesses were overwhelmingly more likely to say they paid an unfairly high level of taxes.

The ease of complying with taxes was far more important to the businesses in our sample than the tax rates themselves when rating a location’s business friendliness.

Training and Networking

The non-regulatory factor that had the largest effect on perceptions of small business friendliness was the presence of training and networking programs offered by government agencies to help professionals succeed. Awareness of these programs raised overall perceptions of small business friendliness by 10 percent, and 76 percent of those who said they were aware of government-sponsored training programs for business owners ranked their local government as “somewhat” or “very supportive,” and only 8 percent of these said local government was unsupportive.

training

Other factors

Small business owners still feel anxiety about providing health care for their families and their employees – 50 percent said it was “somewhat” or “very” difficult to obtain and keep health insurance at their business, and only 19 percent said they felt prepared for implementation of the Affordable Care Act.

Many professionals appreciated the use of technology by their state or local governments to help with compliance and keeping them informed, but governments that offered websites that didn’t work suffered for it in the ranks – ease of website use had a positive and statistically significant effect on state friendliness scores. While 62 percent of respondents who found a website easy to use thought their government was friendly, only 33 percent of those who found a website difficult to use thought their government was friendly.

And there were some gender differences as well – female entrepreneurs gave their state and local governments scores that were on average higher than their male counterparts, and male entrepreneurs were more likely to say the local economy was stronger than their female counterparts. In some states this effect was extremely pronounced with scores that differed as many as 10-20 percentage points between genders, though the reasons aren’t entirely clear.

Conclusions

Once again, our survey has helped provide insights into government policies that aren’t available elsewhere. With a respondent base of nearly 13,000 small business owners and a population that is largely representative of small service businesses across the U.S. economy, the Thumbtack/Kauffman survey is the only one of its kind to ask business owners and operators how they feel about the city and states where they live, and grade and rank those cities and states across a variety of metrics.

What do you think about the friendliness of your city or state towards small business? Please let us know in the comments, and keep the conversation going on twitter using #smallbizfriendly

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  • Tim

    I’m a one-person operation and I have very little to do with the state except for taxes. However, I wouldn’t want to be trying to start a small business in Wisconsin right now. The culture in Madison is on “lots of jobs”, so if you are going to bring on 15+ people the state will do hand-springs to help, but if you want to start a 1-2 person operation, you are not only on your own, it’s almost impossible to get someone from the state Departments of Revenue or Labor to return phone calls. Wisconsin governmental departments at this moment is focused on getting the governor re-elected and then boosted toward his run for the White House.

  • LaShondia

    I am curious to know which way the Ewing Marion Kauffman Foundation leans politically. I ask because although I live in a state, which isn’t exactly small business friendly, and I abhor that, I noticed that the states that got A+ ratings, are one, red states, two, rank high on the lists for most uneducated, uninsured, unemployed, and highest instances of federal government aid, and three, are the most deregulated. My problem with surveys like this is that they give a distorted view of what it takes to run a small business friendly state. For instance, MD has a ton of regulations and licensings involved in starting a business but it tends to be BIG business friendly rather than small business friendly. Therein, lies the distinction. Thank you for an informative piece.

    • Jon Lieber

      Hi LaShondia. Thanks for your comment.

      The Kauffman Foundation is an independent, non-partisan research institute. And Thumbtack has no political affiliation either – all the results you see came from the self-reported impressions of Thumbtack’s business users from across the country. So it is the views of our pros that shape this, not the views of either Kauffman or us.

      If you’d like to learn more about the methodology and how we collected survey responses, you can read about it here: http://www.thumbtack.com/survey/2014/methods.pdf

      Thanks again for the interest.

  • KB

    I live in a relatively small town in Southeast Florida. The good ol’ boy(and girl) network is very strong here.