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The 10 Best and Worst States to Start a Small Business

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The 10 Best and Worst States to Start a Small Business

There are many important things to consider when launching your own business or side hustle, and location is at the top of the list. Local and state laws can mean different taxes, zoning regulations and licensing requirements, so it pays to be strategic about your choice of state, city and even neighborhood, according to the U.S. Small Business Administration.

Related: 5 Things Not to Do When You’re Running a Small Business

After all, some 20% of new businesses fail within the first two years of being open, according to the U.S. Bureau of Labor Statistics (BLS). The BLS also found that 45% of businesses fail within the first five years. That number jumps to 65% after 10 years.

Capital on Tap, a company that offers a credit card and spending management platform for small business owners, analyzed BLS data to determine the percentage of startups that are still active after three years — and broke down the U.S. states with the highest and lowest chance of survival in three- and five-year time frames.

“There are over 30 million small businesses in the U.S., making up an enormous percentage of the economy, and as this number continues to grow, so will innovation and commercial drive,” says Damian Brychcy, chief executive officer at Capital on Tap. “This research should serve as a positive sign to entrepreneurs in the top ten states who are thinking about starting a business.”

Image Credit: John Coletti | Getty Images. Boston, Massachusetts.

Qualities of business-friendly states

Before diving into the data, it’s important to consider what factors make a state attractive for new business owners. And it’s about more than just starting a business. The following factors can help keep small companies afloat and lead to ongoing success:

Taxes

Perhaps the most important factor of all, a business-friendly tax environment can keep costs down and put more money in your pockets. There are payroll, employment, income and corporate taxes to worry about, all of which can affect decisions around hiring and expansion. Some states also offer tax incentives for small businesses, which can remove expensive hurdles. Reviewing a self-employed tax schedule in your area can help.

Workforce

If you want to run a healthy, growing business, you’ll almost certainly be hiring employees. The best states for small businesses will have a plethora of available talent and a workforce with high levels of college education. Starting a business near a college or university can also attract interest from recent graduates. This is especially prominent in the technology industry.

Regulations

State policies regarding small businesses involve more than just taxes and deductions. Government programs can offer business owners grants and loans and incentivize investment from larger funders. Compliance is another factor. States can lower the costs of business by removing regulatory red tape, such as required government approvals or clearances.

Growth potential

You want to start your business somewhere it can thrive in both the short- and long-term. A number of factors can support this — for example, funding, investment in infrastructure and livability. A close proximity to sources of financing can help your company grow, as long as the area can support your workers and their families. States and cities with a low cost of living, good schools and solid infrastructure will not only attract talent but keep it.

U.S. states/territories with the highest rate of small business survival, per Capital on Tap 

State

1year average (%)

3year average (%)

5year average (%)

Massachusetts

81.91

64.96

54.38

Wisconsin

81.13

64.93

54.97

South Dakota

80.44

64.03

54.88

Minnesota

80.96

63.97

53.51

Iowa

80.85

63.71

53.65

North Dakota

79.55

63.63

53.98

Pennsylvania

80.69

63.51

53.18

Montana

79.60

62.79

53.03

Hawaii

79.37

62.22

52.21

North Carolina

79.85

61.91

51.25

Massachusetts

With elite universities, a thriving tech hub, a strong economy and a highly educated workforce, Massachusetts tops the list. Nearly 82% of small businesses survive their first year. Boston is also a growing hub for STEM jobs and is home to many investors and potential employees. The state also boasts a strong Economic Development Incentive Program (EDIP) that provides tax and property incentives for job creators.

Wisconsin

Not only does Wisconsin have a relatively low cost of living, but the state has one of the nation’s best public university systems (read: highly educated workforce) and a business-friendly government that offers tax credits, low-interest loans and grants to small companies. Wisconsin also runs a public-private capital initiative through the Wisconsin Economic Development Corporation (WEDC), which recently announced a $100 million investment in the state’s startups.

South Dakota

Taxes are the big selling point for starting a business in South Dakota. With no corporate income, personal income, property or business inventory taxes, the state makes running a small company affordable for owners. The state is highly affordable and has very few regulations, both of which lower overall business costs.

Minnesota

Almost 81% of small businesses survive their first year in Minnesota, a feat that can be credited to the state’s supportive business environment, educated workforce and relative affordability for a high quality of life. Minnesota also has nine small business development centers throughout the state, which offer consulting, mentoring, networking opportunities and access to capital.

Iowa

With a high quality of life and low cost of living, Iowa is an attractive place to start and expand a small company. One of the biggest factors is extremely low energy and utility costs, which is especially important for manufacturing. Iowa cities also offer property tax incentives for small businesses and some of the nation’s lowest workers’ compensation costs.

U.S. states/territories with the lowest rate of small business survival, per Capital on Tap 

State

1year average (%)

3year average (%)

5year average (%)

Washington

75.12

54.60

42.75

District of Columbia

76.04

54.73

43.73

New Mexico

76.64

56.58

45.58

Florida

77.00

56.82

44.95

Nevada

77.18

57.38

46.79

New Hampshire

76.65

57.52

46.63

Arizona

77.34

58.00

46.74

Tennessee

78.46

58.21

46.81

Arkansas

77.64

58.24

47.25

Rhode Island

76.76

58.30

47.75

Washington

Less than 43% of new businesses in Washington are still running after five years, thanks to expensive real estate, complex regulations and the nation’s highest statewide minimum wage ($16.28/hour). The state’s business and occupation tax is also calculated based on gross receipts, not overall profits, so businesses with slim margins will especially struggle.

District of Columbia

Washington, D.C., is one of the most expensive metro areas in the country, both in terms of real estate and overall cost of living. That means high salaries and high rents for offices or storefronts. The city’s business income tax and regulatory requirements are also relatively high, both of which can cut into profit margins.

New Mexico

High unemployment rates and limited access to capital make New Mexico a challenging state to open a small business. Skilled workers are lacking compared to surrounding states, and complex regulations can be a burden for business owners. More than 23% of small businesses fail within their first year.

Florida

Although Florida claims to be a thriving hub for entrepreneurs and small businesses, the data tells a different story: More than 55% of small businesses fail within five years. One of the biggest factors is the increasing frequency and severity of hurricanes, which has led to rising insurance costs. This affects both the available workforce and a company’s bottom line as premiums skyrocket.

Nevada

Almost 23% of new businesses fail within their first year in Nevada, and that’s despite no corporate or individual income taxes. Part of the challenge is local governments: regulations vary widely depending on your city of choice, with different requirements for specific licenses and fees. A heavy reliance on tourism can also backfire when travel to the state falls off, such as during the pandemic.

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Beware of These Risky Sales Tactics That Are Doomed to Fail or Backfire

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Beware of These Risky Sales Tactics That Are Doomed to Fail or Backfire

Opinions expressed by Entrepreneur contributors are their own.

True story: Recently, my daughter was at a major brand car dealership with her boyfriend, intending to purchase a pre-owned car. Note I made up the numbers for the sake of my daughter’s financial privacy, but the takeaways are still the same.

The dealership asked for, let’s say, $26,000 “all in” for the car, but my daughter had already decided that $20,000 was the most she would pay. There was a lot of ground to cover to actually make a deal happen. After some discussion, the salesperson did his best, dropping the price to $25,000. But that still left a big gap, so he told her, “Let me go check with my manager and see if he has any ideas.”

After five minutes, the salesperson and his manager entered the room together. The manager explained that at $25,000, this was a great price; it was already well below their MSRP, and the deal was “very thin” as it was for him. He then used the famous line, “Okay, here’s what I’m going to do to get you into this car today.” The manager pulled out a piece of paper with revised numbers that showed his price now at $23,995. He explained to my daughter that this was the absolute best possible price. He was “all in;” this was his “best offer,” and he told her to take it or leave it. For the grand finale — keeping in mind that this is a 100% true story — the manager took out a big red ink stamp and smacked it down on the paper. The stamp read “FINAL” in bold red ink. $23,995. FINAL.

My daughter responded, “Thanks, but I’m sorry; it looks like it’s not going to work out.” Without hesitation, he immediately blurted out, “How about $22,500?”

When my daughter told me the story, I had a wonderful laugh. After the big show, the manager held his price for a full six seconds. And the idea of the red final stamp just made the story even better. But the more I thought about it, the more I realized there’s actually quite a lot to unpack here regarding sales tactics, psychology and effectiveness.

Related: 3 Unconventional Sales Tactics That Will Close More Deals

I’m not in the car business, and I’ve never sold cars, but I can see some familiar sales tactics (and mistakes) playing out here:

Playing the waiting game

All this went down after my daughter had spent hours on the lot. It was getting late in the day on a Saturday, and the manager knew she was hoping to get it done. At some level, the manager was wearing her down and playing out the clock, playing the “waiting game.” It didn’t work in this case, but often, this notion of using time as a weapon can be very effective. Utilizing time as a strategic element in the negotiation process can be effective, but it must be used carefully and respectfully. Pushing too hard on time constraints can backfire.

Closing the deal by changing the sales lineup

When the salesperson reached his personal negotiation line or felt he would lose her, he brought in his manager. In addition to adding some time to the clock, this step created a new opportunity for a new dynamic. The dealership never really wants a potential buyer to walk out the door, so if one person doesn’t get the job done, it’s always worth trying someone else. Involving a manager or company administrator in the negotiation process can create new dynamics and opportunities for closing a deal.

Proposing your best and final offer

Although I laughed hysterically when I heard about the red stamp, I soon realized it was actually a smart move. Once upon a time, I’m guessing some sales and marketing people sat in a room, and someone said, “I have an idea — let’s make a red stamp that says final and use that during negotiations.” Everyone probably laughed, and they would have said, “No, I’m serious!” And then everyone thought about it and agreed, as funny of an idea as it was, it actually made sense. It’s one thing to tell someone something verbally, but when it’s “official” and in red ink on paper, it’s human nature to believe it and take it as indisputable. Using psychological sales tactics to create a Fear Of Missing Out (FOMO) effect, such as a “Final Offer” stamp, can be effective in conveying seriousness and finality, but you have to honor your word, or you will likely lose credibility.

All the tactics I outlined above were smart, but here’s where I think the dealership dropped the ball:

Trying a shutdown move too soon

The manager came in cold, and rather than take some time (again, time is on their side) to talk about the value, create some alignment, and build some rapport, he went straight for the kill. That tactic may work, but I felt it was too aggressive. He would have been better off discussing the pain points and goals concerning the product, coming up with some extra incentives, etc. Understanding the customer’s needs, discussing the product’s value and building rapport and trust can be crucial in successful sales.

Related: How to Master Your Sales Success — Why Every Answer and Rejection Matters

Putting an out-of-reach offer on the table

The manager decided to go for the close in a fairly aggressive way. In some cases, that tactic makes sense. But he played it all wrong with the numbers. He knew they were a full $5,000 or 20% off, and he decided to put it all on the line at $23,995. Obviously, given how fast he dropped another thousand, he had plenty more room. If he was going for the hard close and “FINAL” offer, he should have made it more compelling. By putting on the big show and then immediately dropping his price, he completely lost credibility and lowered the odds of closing. In this case, he lost my daughter’s trust and the sale. In negotiation, it’s important to understand the other party’s budget and limits before making an offer. Being aware of their constraints will increase the likelihood of closing a deal.

Saying your offer is “final” when it’s not

If you offer something of value at a good price and tell them it’s “final” (which I personally don’t recommend as a sales tactic), then stand by it and mean it. Your word has to mean something. Once he realized his “final” price was not going to work, rather than lower it, he could have thrown in some additional valuable incentive, perhaps some amount of free service or some kind of special financing. If a “final offer” is presented, standing by it as your final word is essential. If adjustments are needed, they should include additional incentives or value to maintain trust and credibility.

Sales is an art, no doubt about that. A great salesperson builds a relationship, asks questions and listens, understands the client’s pain points, is honest and transparent, and operates with integrity. Of course, strategies, techniques, incentives, and a lot of human emotion and psychology are at play, but all of them can happen successfully without losing your credibility.

So, the overall moral of my story? Choose wisely before using the big red stamp!

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Why Morgan Stanley Analysts Doubled Apple iPhone Predictions

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Why Morgan Stanley Analysts Doubled Apple iPhone Predictions

Apple entered the AI game last month with Apple Intelligence, a suite of new features designed to bring AI straight to iPhone, iPad, and Mac screens. Apple’s AI has a catch though: it only works on the newest iPhones and it could be the reason why millions of iPhone users with older models seriously think about upgrading, say Morgan Stanley analysts.

Morgan Stanley analysts named Apple a top-pick stock on Monday, after which Apple shares jumped to an all-time high, per Bloomberg. Apple Intelligence is a “clear catalyst” for iPhone upgrades and will enable Apple to sell nearly half a billion iPhones in the next two years, analyst Eric Woodring stated.

Apple Intelligence is expected to come out this fall for the iPhone 15 Pro and 15 Pro Max — older iPhones will not have access to Apple’s AI. The update offers AI-generated emojis, a smarter Siri, and direct access to ChatGPT, though some anticipated Siri AI upgrades may arrive next year.

Related: Apple Is Expanding What The iPhone Can Do. Here’s What’s Changing Right Away.

“We believe that there is record level of pent-up demand entering the iPhone 16 cycle later this year,” Woodring noted, adding that Apple Intelligence delivers “unique-to-the-Apple-ecosystem” value.

Morgan Stanley previously forecasted that Apple would sell around 230 million iPhones in the same time frame, making the new prediction more than double the previous one.

Apple is also uniquely positioned to be the AI “base camp” for its customers, “just as it has done for digital content (iPod) and social media (iPhone),” wrote Morgan Stanley analyst Ananda Baruah.

Apple CEO Tim Cook waves to customers before they enter Apple’s 5th Avenue store. (Photo by Drew Angerer/Getty Images)

Other analysts at different firms have made similar predictions. Wedbush Securities analyst Dan Ives told Reuters in June that more than 15% of existing iPhone users could buy the new iPhone Apple is expected to release this fall.

Related: Apple Labels These 3 Iconic Products ‘Vintage,’ and Soon-to-Be ‘Obsolete’

Ives estimated that 270 million iPhone users have not bought a new model in the past four years.

More than half of Apple’s overall revenue in the second quarter of 2024 came from iPhones; Apple has the majority of the market share for smartphones in the U.S.

At the time of writing, Apple was the largest company in the world with a $3.584 trillion market cap. Microsoft, Nvidia, Google, and Amazon followed.

Related: Warren Buffett Had to Work From His iPhone After Telephone Lines Went Down at Berkshire Hathaway: ‘I’m Glad We Didn’t Sell All of Our Apple’

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How to Start a Business This Weekend: AppSumo CEO Noah Kagan

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How to Start a Business This Weekend: AppSumo CEO Noah Kagan

Noah Kagan shared how he started AppSumo, a “Groupon for software,” in one weekend in a new podcast episode. The startup cost was $60; AppSumo earned $80 million last year and Kagan is still its CEO.

In 2010, Kagan was 28 years old and had already experienced what it was like to be the 30th employee at Facebook and the fourth employee at personal finance app Mint.

“I think I just felt insecure at some of these places,” Kagan told fellow entrepreneur Jeff Berman in a June episode of the “Masters of Scale” podcast.

Kagan was fired after nine months at Facebook by Mark Zuckerberg and later fired from Mint, too. He realized that dedicating his time to his day job carried a risk — another person could decide to let him go at any time.

Related: The Author of ‘Million Dollar Weekend’ Says This Is the Only Difference Between You and the Many ‘Very, Very Dumb People’ Making a Lot of Money

“I think I wanted to prove that I’m smart or prove that I’m successful or prove that Facebook when they fired me, and then when Mint fired me, [that] I can do it,” Kagan said.

The idea for AppSumo, a marketplace of software deals for small business owners or solopreneurs, was born when Kagan thought there was a way to promote software tools and also get paid for it. He saw that the site MacHeist gave Apple users discounts on software bundles and wanted to try making the same type of discounts available to a broader audience.

“My interest was letting the geniuses create software, and my skill and my excitement is promotion,” Kagain said.

The business came together in about 60 hours. First, Kagan found software he wanted to sell: the image-sharing service Imgur. He cold-emailed Imgur’s founder on Reddit and got approval to sell a discounted version in exchange for a cut of sales.

Related: Here’s Why Reddit Turned Down an Acquisition Offer From Google in Its Early Days, According to Cofounder Alexis Ohanian

The next piece was meeting with Reddit’s founding engineer to ask for free advertising. He got that too.

The final part was paying a developer to create a website with a PayPal button and purchasing the AppSumo.com domain name.

What was the total cost to launch the business? $60 and one weekend of his time.

AppSumo made $300,000 in the first year, and $3 million in the second, Kagan said in the podcast. It brought in $80 million in revenue last year.

Kagan now has a net worth of $36 million.

Kagan said that the crucial part of business was being invested in the problem and getting excited about it.

Related: This Flexible Side Hustle Is Helping Millions Earn Extra Cash — and Might Be ‘More Attractive’ Than an Office Job

“I think that’s the thing in business people are kind of missing out,” Kagan said. “They’re chasing AI now or chasing being an influencer. I think find areas [where] you’re like, I don’t know if I’m going to ever get tired of this.”

Starting a side hustle or finding an extra source of income has an upside — according to Kagan, you have more control over your future.

“If you can just give up 30 minutes a week, if you can just give up one Netflix show a week, if you can give up one thing a week, and you keep doing it weekly, eventually you can have that business,” he said.

Related: This Is the Winning Formula for Starting a Successful Podcast, According to a New Analysis

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