Best & Worst Small Cities to Start a Business (2024)

Insights from Vallari Chandna, B.A. LL.B (Law), M.B.A, Ph.D. – Professor, Management, Austin E. Cofrin School of Business at University of Wisconsin-Green Bay

What are the pros and cons of starting a business in a small city?

There are a lot of opportunities in smaller cities like lesser competition, lower costs, and stronger community ties, that are often overlooked so indeed quite a few pros to starting a business in this setting. But the most significant I think would be the community and cost aspects. It is usually much cheaper to rent space and utilities tend to be much cheaper too. So, it is much more cost-effective if you need large physical spaces like a storefront, office space, or storage space. Salaries tend to be much lower too as often the cost of living is lower, so workers expect and are satisfied with a lower salary than typically seen in large cities. A strong sense of community is another major benefit of starting a business in a small city. Positive word-of-mouth can spread rapidly, and it is easier to build closer relationships with customers and capture that elusive customer loyalty all businesses seek.

In terms of cons, sometimes it can be hard to find specialized talent or skills as the talent pool can be limited. All the businesses are competing for the same limited pool of employees so it can be challenging to get the people you need. To some degree, if there is the opportunity for remote work for certain positions, this issue can be mitigated.

Would some types of small businesses – i.e., retail stores, restaurants, or tech startups – do better than others in a smaller city?

Indeed, certain businesses do better than others in a smaller city. Stores that sell specialty goods such as locally-produced or unique niche products, tend to be more popular. If the city is in a tourist location, products targeting the visitor population may be a popular choice of enterprise. Restaurants do tend to do well especially if the concept is unique or they offer ethnic cuisine or they focus on local sourcing of ingredients. Many small towns have very successful upscale restaurants. A lot of tech startups, particularly those with a mix of remote workers, can also find it easy to build a hub in a smaller city with lower rents and costs.

What tips do you have for an entrepreneur starting a business in a small city?

My two top tips would be: (1) focus on the community and become a community partner. Network with local businesses, and sponsor local events- essentially become a part of that community and foster the goodwill of your neighbors; (2) focus on a niche market and do not compete with the big chains. Find a product or service unique enough that you can focus on that and build a loyal customer base for the same.

What are the trends for small city businesses in 2024?

We are likely to continue seeing small businesses integrate more technology into their businesses. Smaller brick-and-mortar stores in small cities will increasingly create a digital presence as well and sell products to a wider audience. Small city businesses in the arena of wellness are on the rise as well. So, wellness centers and healthier restaurants can be popular choices for new businesses as there is a general focus on such lifestyle choices being driven through social media.

What can local authorities do to encourage entrepreneurial activity in their small city?

Many local authorities across the country already do some of these but things like (1) tax incentives and reduced regulatory burdens help. It does not mean regulations need to be lax but rather anything unnecessary can be revised; (2) streamlining the permit process is always appreciated by new businesses. For many new businesses, this can be a very challenging process so making it as smooth as possible can help reduce some barriers to entry; (3) networking and recognition events for local businesses and entrepreneurs are very important as well. It helps them get some publicity for their businesses so can certainly motivate them; (4) infrastructure investments and revitalization efforts are conducive as well; (5) shop local or small business days also indicate support. Encouraging locals to support their local businesses, creates a better community as well as economically benefits the businesses and the city.

Source: Best & Worst Small Cities to Start a Business (2024)