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10 Worst and Best States for Startups + 5 Ways to Thrive Anywhere

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In addition to the lists of the 10 Worst and 10 Best States for Startups, we’re suggesting five ways startups can thrive, no matter where they’re planted.

Top 10 Best States for Startups and the 10 Worst; But 5 “Buts” to Help You Thrive Anywhere

As a leading credit card processing company with headquarters in western Washington, we are thrilled but not all that surprised to find that Washington State was No. 1 on the list of Top 10 States for Entrepreneurs as reported on businessnewsdaily.com. That said, it is impressive that six of the top ten and all of the top five states ranked as most conducive to startups are in the western portion of the U.S.

Top 10 Best States for Startups

  1. Washington
  2. Wyoming
  3. California
  4. Colorado
  5. Oregon
  6. Texas
  7. Delaware
  8. Massachusetts
  9. Montana
  10. Missouri

The list’s rankings are based on a number of factors, including number and quality of startup opportunities, the state’s business climate, business taxes, productivity, cost of living, whether there is adequate available workforce, median education, and access to capital.  Among those states rated as least favorable to startups, many made the list because of a high rate of failed businesses in those states.

Top 10 Worst States for Startups

  1. West Virginia
  2. Hawaii
  3. South Carolina
  4. Pennsylvania
  5. Virginia
  6. Maryland
  7. Vermont
  8. Arkansas
  9. Rhode Island
  10. Alabama

Moving to one of the states where startups are most likely to succeed might not be an option for you; however, there are things that you can do to make sure your business can thrive anywhere. We came up with five principles entrepreneurs and business owners should take to heart.

5 Buts for Startups That Want to Thrive

Scrimp – But Never On Quality

There is nothing wrong with thinking lean; in fact, it’s often a business necessity for startups. Scrimping and cutting costs wherever possible can help reduce operating costs and give startups enough time to begin to generate growth momentum.

But scrimping on quality is always a mistake! This doesn’t mean that your startup has to have the best, it means you need to provide good quality and value for customers’ day in and day out.

Save – But Spend on Marketing

When business contracts, marketing activities are often first on the chopping block, with some startups and small businesses opening their doors without even having a formal marketing plan at all.

But cutting the marketing budget when business is slow will usually just make things worse. When business slows, put more resources into marketing, not less. Likewise, if you cannot tie results to marketing efforts, it might be smart to change your marketing mix, but don’t eliminate it!

Raise Working Capital – But Preserve It

Low cash flow or lack of working capital set aside for unexpected problems or emerging opportunities can bring startups to their knees. Startups that open their doors with enough working capital and the ability to generate cash flow needed to meet operations and grow have an advantage right from the start.

But depleting working capital reserves or spreading cash flow too thin can put startups on shaky ground. Consider using cash flow management tools like invoice factoring to speed up cash flow or preserve working capital by using merchant cash advance or equipment lease financing instead of buying equipment outright.

Go for Broke – But Live to Fight Another Day

The very nature of startups involves risk taking. There is no such thing as a sure thing! There are times in the life of a startup – and in any business – where it’s absolutely essential to take risks that take entrepreneurs outside of their comfort zones.

But taking risks doesn’t have to mean risking everything. The bigger the risk you are considering, the more vital it is that you identify warning signs or statistics that allow you to minimize losses and enable your startup to live to fight another day.

Grow Big – But Keep Thinking Small

As startups become small businesses then grow into midsize companies and even large corporations, new employees will come on board, infrastructure will get bigger and – inevitably – many things will change.

But the values, innovation and culture that you set out to create in the beginning don’t have to change. While you are still small, think about the characteristics that set your business apart whether you’re located in one of the worst or best states for startups, so the most important values they can be strategically preserved and promoted as your company grows.

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Measure Business Ideas Against 3 Core Financial Management Strategies

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You can use the three core goals of financial management to determine which business ideas are most likely to help your business grow.

Hit 3 Goals with All Your Financial Management Strategies for the Win

Few entrepreneurs suffer from a lack of ideas, but knowing which ones should get the green light isn’t always apparent. Pursuing the wrong financial management strategies can result in wasted business resources, slowing or even stalling your business growth.

It’s important for every business owner to choose goals and values by which they can measure new ideas and initiatives, to be sure they will contribute to company growth. The three core goals of financial management can do just that. You may be surprised when you realize that these three core goals are about a lot more than just managing finances, demonstrating clearly how inter-dependent seemingly disparate business ideas really are.

Use these 3 Financial Management Strategies to Guide All Your Business Decisions

1. Will It Maximize Profits

It doesn’t take long for most new business owners to realize that more sales don’t always equate to more profits, and profit it what a business needs to reinvest in itself and grow more quickly. You should take the time to calculate profit relative to your business as a whole, and to each of the individual products and services you sell so that you understand:

  1. Gross profit margin (Formula: sales – cost of goods sold / sales)
  2. Operating profit margin (Formula: EBIT / sales)
  3. Net profit margin (Formula: net profits after taxes / sales)

Gross profit margin reveals the amount of profit your company earns after the cost of goods sold is deducted. The cost of goods sold might include the money paid to a manufacturer or distributor, cost of raw ingredients, cost of marketing and advertising, staff-related expenses and any other inputs. This shows how efficiently your company is using labor and supplies relative to the amount sold.

Operating profit margin compares earnings before interest and taxes (EBIT) to sales. High operating profits is an indication that the company is getting a good return on the cost of goods sold; conversely, low profits might indicate a need to reduce input costs or manage operations more efficiently.

Net profit margin shows what the company has after everyone has been paid, including the government. Net profits are ultimately the money your business has to invest toward growth, since all other revenues are eclipsed by the cost of goods sold and taxes.

Though many business owners think they have to increase prices in order to maximize profits, price isn’t the only factor contributing to profitability, as the formulas above illustrate. In fact, sometimes raising prices is the wrong way to maximize profits, if a price increase makes your business less competitive and you lose volume of sales which, at a lower price, actually result in the maximum profit your business can earn on a given item.

2. Will It Minimize Costs

It’s obvious from our discussion of cost of goods sold that minimizing business expenses can have a positive impact on your profit margins. The lower the cost of inputs and operating expenses needed to produce sales, the more money is left as gross profit (and ultimately net profit). However, just as raising prices isn’t always the best way to maximize profits, lowering costs isn’t always the best decision for your business.

For instance, what if you change suppliers based on your costs for the raw ingredients you need to produce one of the items your company sales, but your new supplier provides faulty or sub-standard quality materials? You may have temporarily decreased the cost of goods sold but may have increased expenses and reduced profits in the long term as your business has to handle returns, exchanges, customer complaints, bad reviews and customer defections.

As you can see, what seems to be the most obvious answer isn’t always the most accurate one. Let’s say you need to free up working capital in order to buy inventory and equipment to launch a new product or service. On the face of it, the ‘cheapest’ way to pay for the growth initiative seems to be to wait until you have the money saved up; however, this could be a costly decision. Competitors may outmaneuver you or new rivals could emerge and establish themselves in the market while you wait on the sidelines. In the long run, taking potential sales and profits into account, the less costly decision might actually be to take advantage of a merchant cash advance or business line of credit to grow more quickly.

3. Will It Maximize Market Share

Formula: Company sales / total sales in its industry (by geography, if applicable) over a certain period of time; in other words, of the sales possible during a given time period, what percentage did your business earn?

So far we have talked a lot about areas pertaining to finance and accounting; however, marketing concerns affect each of these three goals as well, and is obviously relevant to maximizing market share. Marketing (price, product, promotion, and distribution) decisions affect the cost of goods sold as well as company costs.

It’s worth noting that of all the reasons cited by entrepreneurs whose startups failed, poor marketing was actually the biggest reason startups failed. Yet for many business owners, marketing seems an afterthought; a topic they quickly try to master when projections don’t match up with results after opening their business or launching new product lines.

Maximizing market share is one of the core goals of financial management strategies for an obvious reason; more customers and less sales lost to competitors creates more opportunity to realize a profit. In addition, more sales often translate into lower cost of goods sold as inventory can be ordered in larger quantities at a lower price.

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