Washington, D.C. is a great city for starting a business, ranking third in the whole country according to a new report from CNBC. Then again, it's also the third most expensive place to run a startup according to SmartAsset, as we reported less than a week ago.
So what's going on here? It turns out the seeming contradiction is actually mostly an illusion. CNBC's report looks at several additional factors beyond just the cost of running a business, which radically alters the equation.
CNBC used public information from the federal government as well as data published by private business groups and its own previous surveys to gather data. Weighted for the importance of many factors from surveys of business leaders, each city was scored on the cost of business, diversity, labor force, quality of life and what it referred to as "environment for success." The D.C. area scored 877 out of 1,500, beaten only by Austin at the top spot, and by Provo, Utah at number two.
High levels of diversity and education helped push D.C. to the top, as did the $700 million invested in tech companies here over the last year. On the other hand, D.C. lost points for taxes and a higher than average unemployment rate. It also lost points for having above average wages, which is striking since working for a startup means markedly lower than average pay than other industries in the area.
At the same time, a report this week from commercial real estate giant JLL puts the District at number three for growth of tech jobs. JLL's report points out that overall slow economic growth can restrict the flow of investment, forcing entrepreneurs to be more careful with cash than they might in boom times. Combined with the high demand for tech talent, the cost of starting a business somewhere with high prices like D.C. can kill a company before it starts, or drive it elsewhere. Both CNBC and JLL make the point that starting companies in tech hubs only works if you can afford it. Otherwise, companies are better off setting up in cheaper places than Silicon Valley, New York or D.C. That's definitely a plus for Provo.
The hard ranking disguises the fact that whether D.C. is a great place to start a business depends entirely on the business and the people involved. If the costs are worth it because an entrepreneur can afford them or has a business plan that will make up for it quickly, then it offers a lot of potential for growth. But, there's no denying that some of those costs, financial and otherwise, can make it a disadvantageous territory. Right now, the overall growth in startups and tech jobs suggests a generally favorable attitude from entrepreneurs about prospects here, but every business will have it's own ranking of best cities that may look nothing like the "official" ones.
