Small business launchpads

There is an interesting report by CNN Money and Fortune Small Businesses (Report) that rates metro areas in terms of the best place to launch a small business. Portland Metro doesn't rate a top anything. However, it is not clear why.

This type of report leads one to wonder why they are done. They often use categories that are not necessarily germane to the topic or they fail to use categories that might well be a true decision maker.

E.g., for this report, there are many categories that I would add to the mix, but I realize too that the level of data comparison I might choose could well make it difficult to render a comprehensible report.

Metropolitan areas are often comprised of several cities, towns, and counties. Overlapping states are not uncommon. One city typically dominates a metro region, but the city doesn't always reflect the region. Thus, a comparison between metro areas is not the same as comparing the respective dominate cities.

I picked a Portland city look alike Austin, Texas for comparison. Take a peek at the Wikipedia blurb on Austin. In the Report, Austin Metro was #8. As I mentioned above, Portland didn't fare well.

I am not going to run through each category and subcategory, but the bottom line – within the parameters of the Report, assuming equal weighting, there is not one category that stands out to disqualify Portland Metro.

There are three major categories and 17 subcategories. The primary categories: Business Climate; Demand; & Costs. With equal weights, there would be a tie between Austin Metro and Portland Metro.

In an attempt to make sense of the Report, I reformatted the results under Business Climate to create a table showing Portland Metro vs Austin Metro vs an average of all large metros.

Business Climate (category, Portland, Austin, all large metros).

Employer establishments with 1-49 employees: 61,215; 37,296; 78,289
Small business growth rate: 9%; 13.3%; 5.3%
State business tax climate ranking (1 is best) 9; 7; N/A
Percentage of population with bachelor's degree 32.2%; 38%; 32.7%
Violent crime (rate per 100,000 inhabitants): 313.2; 344.1; 537.6
Property crime (rate per 100,000 inhabitants): 3,529.5; 4,126.4; 3,700.0.

The score is Portland 3, Austin 3. Eliminate the crime categories where Portland was better, the score is Portland 1, Austin 3. This raises the question of weighting and the value of quality of life factors..

There was weighting. In the Report there was FAQ that explains its methodology and while it admits to weighting, I didn't see any details on which ones were weighted and how the weighting was assigned.

The business tax climate subcategory is a suspected weighted item. And, upon a closer look it fails to enlighten. The rating is based upon report rating tax climate by states not metros. The report is from the Tax Foundation. They rated Texas as 7th favorable and Oregon as 9th favorable.

This is contrary to the goal of a report that rates metro areas to ignore the business tax climate of the metro; it might well be different than the state, especially given that two states may well be part of the metro. Portland Metro is one. While a more local tax discussion might not help Portland Metro, it would assist an entrepreneur's decision making.

In the Costs section, foreclosures and housing to income ratios subcategories are probably weighted items because without a weighting neither item would take away from Portland Metro's overall qualification.

But, the Report does show that the rate of foreclosures is significantly higher in Portland Metro, and that the Austin Metro did better in the housing to income ratios.

A couple of factors I would have included are office leasing costs and availability of capital and its cost. Aren't both highly relevant to where to start a business?.

I understand that there has to be some limit on how may factors are included in a report, and not everyone will be satisfied with the selections. But even assuming that the right factors were included – the absence of the knowing the weights lessens the value of the Report.

Bottom line: This report doesn't permit a entrepreneur to reach a conclusion as to where it would be best to launch the new business, nor does it help to winnow choices. Its sole value might well be a city branding effect.