The Best Places For Doing Business in America 2005

We examined 274 population centers, looking for job creation and other signs that businesses are thriving. Here's what we found.

The economies of most big cities are idling. The real entrepreneurial hotbeds are now on the periphery -- where low costs make it possible to thrive in a tough global economy.

The new economy didn't disappear. It changed addresses.

The dynamic, job-generating information-technology and service companies that characterized the boom of the 1990s are still around. But it's getting harder to find them in the usual high-tech clusters like Silicon Valley, Boston, and Austin. Instead, five years after the bubble burst and a year or so into an economic recovery, those same kinds of companies are thriving in places like Reno, Nev., Boise, Idaho, and Naples, Fla. -- cities that were once mere specks on the new-economy map.

Thanks to lower housing and labor costs, more favorable regulatory environments, and, in some cases, lower taxes, these smaller cities are proving ideal places for doing business -- especially in a globalized economy in which companies operate under relentless pressure to keep costs low and quality high. In many cases, it is precisely these low costs that allow U.S. companies to successfully compete in industries that often seem all but ready to concede to India and other countries. Rather than sending business overseas, many companies are instead opting to contract with lower-cost domestic suppliers -- a new wrinkle in the outsourcing trend known as home-shoring.

Take Boise. Nestled at the base of the Rocky Mountains, the city has long been known for its astonishing scenery and outdoor recreational opportunities. But in recent years, Boise has undergone a transformation. Since 2001, the number of information jobs in the area has jumped 5.9%. Professional business services jobs have grown 9.1%, and the financial services sector has grown more than 11.3%. By contrast, San Jose, in the heart of Silicon Valley, has experienced a 23% drop in information jobs, a 21.5% loss in business services jobs, and a 2.2% loss in financial services positions over the same period.

Boise's surge is being fueled by companies like Treetop Technologies, a software services firm that has added 83 jobs over the past two years and now has 110 employees and offices in nine states, Calgary, and Singapore. Clients such as Hewlett-Packard, Agilent, and the state of Idaho rely on Treetop to provide application support, development, and administration -- the very services that many fret are destined to leave the U.S. for India. Treetop's revenue hit $10 million in 2004.

Founder and CEO Jason Crawforth, a 35-year-old Boise native, says he couldn't have done it anywhere else. Housing prices in Boise can be as much as 75% lower than in the San Francisco Bay area, according to the National Association of Realtors. That makes it easier to attract talented employees while paying some 30% less than in Silicon Valley. A software-testing engineer earning $65,000 a year at Treetop, for example, would command a salary of at least $85,000 in the Bay area, according to Crawforth. "People here are competent, speak well, tend to be patient, and have a good attitude," Crawforth says. "I have almost no turnover and people love the opportunity to be here. That's what makes this such a great place to do home-shoring."

Entrepreneurs like Crawforth helped propel Boise to the No. 2 spot in Inc.'s annual ranking of the best places for doing business in America. And it's not just Boise. Nearly all of the areas ranking high on our list are making use of the same formula. They're using their lower business and housing costs to attract entrepreneurs and stimulate strong growth in IT, business services, and finance -- creating a new new economy in the shadow of the old one.

How did Inc. arrive at the 2005 rankings? We didn't try to quantify subjective criteria such as good weather and proximity to research universities. Our assumption is that job growth is the best measure of a region's economic vitality -- especially as it applies to entrepreneurs. So we looked for jobs. If, as in the classic Small Business Administration formulation, small businesses produce up to 80% of the new jobs in this country, a region showing strong job growth is bound to be a hotbed of entrepreneurial activity. What's more, strong job growth suggests that a region's economy is expanding. That means new demand and new opportunities.

Inc. measured current-year employment growth in 274 metropolitan statistical areas, as defined by the Bureau of Labor Statistics. (Most of the MSAs bear the name of a single city, but all MSAs include areas surrounding the namesake city.) We also looked at average annual job growth over the past three years and compared job growth in the first and second halves of a period comprising the past 10 years. Job-growth factors account for about two-thirds of each city's final score; the balance among industries accounts for the remainder. (For a more detailed explanation of our methodology, see "How the Rankings Were Calculated," page 104. The rankings themselves begin on page 107.)