Virginia Small Business Rating: Fair to Middling

Ranking out of top 177 metros. For an explanation of metrics, see Reward Expert’s methodology here.

Yesterday I opined on the critical importance of tax rates in influencing the flow of corporate and human capital between the states (“Supply Siders Like Virginia’s Economic Outlook“). But I made the point that taxes are hardly the only factor driving economic growth. Another important variable is entrepreneurial vitality — the ability of states and metros to grow their own businesses. Strong entrepreneurial ecosystems have kept states like California and New York in the game despite atrocious tax policies that push businesses and high-income households out of their states.

Now comes a new of “Best and Worst Places to Start a Small Business,” published by Reward Expert, a company that creates reward packages for credit cards. Researchers used a bundle of 30 metrics including office space, demographics and diversity, education, income, transit, housing costs, and venture capital activity, among others for 177 metropolitan areas with populations greater than 250,000.

Under this methodology, the Denver, Colo., and Boston, Mass., metros scored No. 1 and No. 2, while Charleston, S.C., and the Tallahassee, Fla., regions scored the worst.

And Virginia metros? Overall, they put in a fair-to-middling performance. The Washington and Richmond metros ranked 21st and 22nd respectively, both respectable scores but not enough to blow anyone’s socks off. Roanoke was a pleasant surprise at 29th. Lynchburg scored in the top half. Virginia Beach-Norfolk was the only laggard, falling into the bottom half — but nowhere near the bottom.

Metropolitan rankings have become a dime a dozen now, and I haven’t analyzed Reward Expert’s methodology to see if it is better or worse than the others. (I do question how valuable the five-year startup survival rate is as a metric, for instance, for it seems to vary within such a narrow range. And Washington’s low score for educational attainment looks plain wrong.) Just consider the report as one more colorful fragment in the kaleidoscope of data we scrutinize to track our performance.

Combine this report on small business prospects with the “Rich States, Poor States,” which focuses more on factors influencing corporate investment and human capital flows between states, and the outlook is cautiously positive for Virginia. By no means can we consider ourselves an economic development powerhouse, as we were during the glory days of the 1980s and 1990s. And we’re still too dependent upon the vagaries of federal government spending. But our economic fundamentals look better that those of most states.

Update: WalletHub has come out with its own ranking of best cities for business startups. Bottom line: Virginia sucks. Out of 180 cities:

Richmond — 79th
Virginia Beach — 131st
Norfolk — 150th
Newport News — 160th
Chesapeake — 170th

Important difference between the two rankings: Reward Experts looks at Virginia metropolitan regions, WalletHub looks at Virginia “cities.”