The 10 best small cities for starting a business

Although small businesses took a hit during the Covid pandemic, many were still able to open despite obstacles. More than 516,000 new businesses opened between April 1, 2020, and March 31, 2021, according to Yelp's recent Economic Average report.

And these activities are only picking up steam in 2021, a Yelp data scientist told CNBC.

If you're an entrepreneur looking to start a business, choosing a location is a major decision. Big cities have bigger populations and better opportunities for networking, but they can also offer fierce competition. That's why some aspiring business owners have set their sights on smaller cities, where overhead is lower and there's potential to be a big fish in a small pond.

To help entrepreneurs find the best fit, WalletHub recently published its ranking of the best and worst small cities for starting a business, focusing on approximately 1,300 cities with populations between 25,000 and 100,000 people.

In its analysis, WalletHub considered each city's overall business environment, with metrics including average business revenues and growth; access to resources such as investors and well-educated talent; and business costs, like office space and labor.

Here are WalletHub's top 10 small cities for starting a business — including where they ranked on each of its criteria, out of the more than 1,300 cities surveyed. Also included is each city's population, according to the U.S. Census Bureau.

Population: 49,831
Business environment (ranking out of 1,300): 26
Access to resources: 68
Business costs: 404

Of all the small cities on the list, Bozeman is tied for first when it comes to having the most start-ups per capita.

Population: 32,118
Business environment (ranking out of 1,300): 83
Access to resources: 63
Business costs: 138

If you're considering starting a business in a smaller city, "the first thing to look at are the demographics, and [whether] they're aligned with your small business's target market," says Angelique Rewers, founder of The Corporate Agent, a consulting firm that helps small businesses land corporate clients. "For example, is the city populated by millennials and Gen Zers, or is it a favorite among Baby Boomers?"

Population: 87,103
Business environment (ranking out of 1,300): 217
Access to resources: 40
Business costs: 68

Population: 34,124
Business environment (ranking out of 1,300): 44
Access to resources: 18
Business costs: 362

Population: 28,257
Business environment (ranking out of 1,300): 436
Access to resources: 10
Business costs: 19

When it comes to choosing a location, "don't forget to look at infrastructure — and especially flight routes," says Rewers. "It's easy to forget during the pandemic that entrepreneurship and travel go hand-in-hand, but before long, conferences and other in-person experiences will be calling. Ideally, look for a city that has a lot of direct flights to the places you'll likely be headed — as well as to make it easy for top customers to get to you."

Population: 51,542
Business environment (ranking out of 1,300): 34
Access to resources: 25
Business costs: 149

Population: 29,174
Business environment (ranking out of 1,300): 5
Access to resources: 219
Business costs: 275

Of all the more than 1,300 cities surveyed, Washington is tied for the highest average growth in the number of small businesses, according to WalletHub.

Population: 29,033
Business environment (ranking out of 1,300): 3
Access to resources: 31
Business costs: 581

Williston is tied with Bozeman for the No. 1 spot in terms of most start-ups per capita.

Population: 34,764
Business environment (ranking out of 1,300): 6
Access to resources: 46
Business costs: 184

"You also have to look at the cost of labor in any city you relocate to," says Rewers. "Employees are a resource your business pays for every single day. And if you're paying more for your talent than your competitors are, you'll have to then strategize on how you'll balance that out." 

Population: 89,587
Business environment (ranking out of 1,300): 1
Access to resources: 395
Business costs: 211

St. George is tied with Washington for the No. 1 spot in terms of the highest average growth in number of small businesses.

The biggest thing to consider about moving to a small city, says serial entrepreneur and business consultant Jennifer Kem, is that "they at least have some type of small-business support center, even if it's a tiny one."

About 4 in 10, 41%, of entrepreneurs and investors use their professional networks for management advice. Almost as many, 37%, use their networks to find new service providers, and 37% use them to identify best practices, according to a 2020 University of Chicago survey of more than 400 respondents.

"Having a connection locally to other entrepreneurs or business owners and how they think and how they brainstorm is still an important connection," Kem says, "even in a world where we do a lot of things digitally."

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