How Do Entrepreneurs Choose Where To Locate? It’s Probably Not What You Think

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Endeavor Insight ReportA new report out by Endeavor Insight shows what many people have been saying for years: When deciding where to locate, entrepreneurs and business leaders care far, far more about having a skilled workforce, steady infrastructure, and quality of life than they do tax breaks and government handouts.

Endeavor set out to answer the question, “What Do The Best Entrepreneurs Want In A City?” They surveyed “150 founders of some of the fastest growing companies in the U.S.” in order to answer the question.

The results:

• Entrepreneurs at fast-growing firms usually decide where to live based on personal connections and quality of life factors many years before they start their firms.

• These founders value a pool of talented employees more than any other business-related resource that cities can offer.

• Access to customers and suppliers is the second most valuable business-related resource that cities can provide, according to these entrepreneurs.

And here’s the biggest takeaway:

• The founders in our study rarely cite low tax rates or business-friendly regulations as reasons for starting a business in a specific city.

As the report notes, many of the entrepreneurs starting the fastest-growing companies are young and highly mobile. They tend to move to places that have a high quality of life (because that’s the kind of place they’d like to live) and then build up the business. The report cites things like natural and cultural attractions, along with other connections the entrepreneurs have with their cities.

The second strongest factor is the availability of skilled employees. “In fact, a local pool of employees was the most frequently mentioned business-related resource among the founders in our study,” the report reads. “A number of founders also highlighted the link between the ability to attract talented employees and a city’s quality of life.” (In other words, try attracting and keeping workers if you live in a dreary hellhole with no amenities and terrible schools—you can’t do it.)

Not surprisingly, these entrepreneurs want to be located near hubs of similar businesses—both for access to customers as well as infrastructure and workers.

Importantly, Endeavor notes, these business leaders just aren’t very concerned about taxes or “regulations.” From the report:

• Only 5% of entrepreneurs cited low tax rates as a factor in deciding where to launch their company.

• Only 2% of respondents mentioned business-friendly regulations or policies when discussing why they founded their company in a specific city.

In fact, the survey respondents listed things like “parks” and “restaurants” more often than “taxes” or “regulations.” Those factors—and the relatively tiny differences between them from state to state—just don’t matter much.

All elected leaders talk about wanting to attract new businesses and more jobs—and for good reason. But in their rush to attract startups, too often they lean on the only tool they know: Tax breaks and government handouts to corporations. Not only are those incentives not making much of a difference in where firms locate, but they’re actually backfiring by taking money away from education, infrastructure, and quality of life—all of the things business leaders say they’re really looking for.

The takeaway seems clear: If leaders want to create an environment that’s friendly to fast-growing startups, they should hang up the tax giveaways and start investing in K-12 schools, universities, infrastructure like roads and technology, and protecting the very things that make our state a great place to live.

Read the full report here:

Endeavor is a startup “accelerator”— a nonprofit organization that aids and mentors emerging entrepreneurs around the world.

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