I had just ordered a latte in the popular and pristine Cool Beans Cafe in Narragansett, Rhode Island, one morning last summer when an unidentified man entered the shop, stepped brusquely behind the counter, shoved a thermometer in a plate of egg frittatas, and demanded to know when they’d been baked.
The baristas, who had just opened the doors and set out the plate moments before, were stunned. I thought someone should call the police. But it turned out that the guy was a state restaurant inspector, and he proceeded to interrogate the young women as if he was assessing a crime scene.
If that’s typical of the way Rhode Island officials conduct routine inspections, it’s no wonder the state ranks lowest in the country on small business friendliness.
In their third annual Small Business Friendliness Survey, Thumbtack and the Ewing Marion Kauffman Foundation, draw upon data from nearly 13,000 small business owners to provide insights into state and local business environments across the nation. It’s the only one of its kind to ask business owners and operators how they feel about the city and states where they live, and to grade and rank those cities and states across a variety of metrics. Thumbtack says the survey “aims to learn what creates a healthy, vibrant, local business environment by asking the owner/operators of small businesses themselves about these issues.”
The 2014 data was used to grade 38 states and 82 metropolitan regions along various metrics. According to those surveyed, California and Illinois join Rhode Island as the least business-friendly states: All three scored an “F,” and Rhode Island and California have been ranked among the bottom 5 for three years.
The best states for small businesses? According to the survey they are Utah, Idaho, Texas, Virginia, and Louisiana. As for cities, Colorado Springs, Boise, and Houston rank tops.
"Creating a business climate that is welcoming to small, dynamic businesses is more important than ever, but rarely does anyone ask small business owners themselves about what makes for a pro-entrepreneur environment," says Jon Lieber, Chief Economist of Thumbtack, an online business that helps match individuals who need services with professionals who provide them. "Thousands of small business owners across the country told us that the keys to a pro-growth environment are ease of compliance with tax and regulatory systems and helpful training programs."
Thumbtack’s analysis points to three key features of a small business friendly government: “Small businesses respond well to regulations that are easy to understand and comply with; tax laws that are easy to follow; and training and networking programs that help create an environment where entrepreneurs can thrive.”
Professional licensing requirements stood out as the single largest factor that determined how a professional viewed his or her city, according to Thumbtack. On its blog, the company reports:
“Half of the professionals to complete our survey were subject to a professional licensing requirement at the local, county, state, or federal level, and these professionals were more likely to give their governments lower marks than those professionals not subject to such requirements. 62 percent of licensed professionals reported they were subject to licensing requirements at more than one level of government, and 25 percent said they were subject to licensing rules at city, county, state, and federal levels. The friendliness of licensing requirements had nearly twice the effect that the friendliness of tax rules did in determining a pro’s overall attitude towards their state government.”
Professionals commonly complain about being required to obtain licenses in more than one jurisdiction in their state to do the same work. And, they complain that licensing rules are not consistently enforced, giving unlicensed professionals an unfair pricing advantage.
Ease of filing taxes was another factor determining a state’s overall friendliness ranking. Most of those who said their taxes were “somewhat” or “extremely” easy to comply with also said their state government was friendly; but only 42 percent of businesses who said taxes were “somewhat” or “extremely” difficult to comply with consider their state to be business friendly.
Awareness of government-sponsored training programs also influenced how business owners thought of their state government. Three-fourths of those who said they were aware of government-sponsored training programs for business owners ranked their local government as "somewhat" or "very supportive.”
"It is critical to the economic health of every city and state to create an entrepreneur-friendly environment," said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation. "Policymakers put themselves in the best position to encourage sustainable growth and long-term prosperity by listening to the voices of small business owners themselves."
Find out how your own state or region ranks on small business friendliness here.