Entrepreneur Alert: The Best (And Worst) States For Starting A Solution Provider Business

In early September Internet giant Amazon.com announced that it was seeking a location for a second headquarters, setting off a frenzy where just about every state and city in the U.S. is scrambling to make the argument that it is the best place for Amazon to set up shop.

Which raises the question all entrepreneurs ask (or should ask): Where is the best place for me to locate my business?

Each year for the past five years CRN researchers and editors have undertaken a detailed analysis of the business climate in all 50 states to offer readers guidance about which states offer more business opportunities, more innovation and growth potential, better pools of talented workers, lower costs, and less burdensome taxes and regulations.

[Related: 2017 Best States To Start A Solution Provider Business]

Here we provide the results of our 2017 research, including a slide show with a state-by-state analysis ranked from the least favorable state to the state that has the most to offer a startup solution provider.

The criteria includes state-by-state data that's important for entrepreneurs starting a solution provider business, everything from the education and experience levels of the available workforce, to corporate income and sales tax rates, to state GDP growth rates and economic climates. (A more detailed description of the Best States methodology and data sources is provided in a separate story.)

This year the analysis included more data on public infrastructure, including road conditions, public transport, internet performance and even disaster preparedness – an important factor as evidenced by the recent damage in Texas and Florida caused by hurricanes Harvey and Irma.

Also important is the solution provider competitive saturation, a ranking based on the ratio of potential business customers in a state per solution provider. While some states might be attractive from the perspective of having low taxes or a deep pool of IT talent, those attributes might be offset by potential competition from a large number of established solution providers.

So which states are the best for starting a solution provider business?

For the second year in a row Florida has come out on top thanks to its No. 1 ranking for taxes and regulations: The state has no personal income tax and the 5.5 percent corporate income tax is among the 10 lowest in the country.

The Sunshine State ranked No. 2 in business climate/competitive environment. Florida is No. 2 in the number of small and midsize businesses (1.94 million) that make for prospective customers for a solution provider. And its 3 percent real GDP growth in 2016 ranked No. 3 (tied with several other states).

North Carolina, which was ranked No. 5 last year, was No. 2 this year while Texas, No. 7 last year, moved up to No. 3. Rounding out the top five were California and Washington.

At the other end of the 2017 Best States rankings was West Virginia, which was No. 50 for the third year in a row with its low scores for workforce education and experience, No. 50 ranking for entrepreneurship and innovation, relatively small tech sector and 0.9 percent decline in GDP last year.

Joining West Virginia at the bottom of the rankings was Rhode Island (which was No. 49 last year as well), No. 48 Alaska, No. 47 Hawaii and No. 46 Maine.

Why Florida? "It's growing rapidly. There's some pretty vibrant commerce going on in the state of Florida," said Chris Pyle, president and CEO of Champion Solutions Group, No. 199 on the 2017 CRN Solution Provider 500 list. Based in Boca Raton, Fla., CSG generates about $55 million of its $120 million annual revenue in its home state.

The booming health-care, hospitality and tourism industries all have a big presence in Florida and aerospace companies like Embraer have moved into the Sunshine State. While some Fortune 500 companies are based in Florida, Pyle says there are a huge number of small and midsize companies "that really need solution providers, VARs, systems integrators and managed service providers to meet their IT needs and help them grow their businesses."

Florida's population has been growing rapidly – a recent AP story said that 1,000 people move to Florida every day – fueling its growth. Pyle noted that the state has no personal income tax, a pro-business governor and "a lot" of available venture capital – he pointed to virtual reality technology developer Magic Leap, based in Plantation, Fla., which has raised nearly $1.9 billion in financing.

North Carolina, ranked No. 2 this year, offers a balanced ranking across the Best States criteria. While its No. 19 ranking for entrepreneurship and innovation and No. 10 ranking for business climate/competitive environment may not match states like California, Massachusetts and Washington, it beats those states in taxes and regulations with its No. 4 rank and low labor/operating costs where it's ranked No. 8.

North Carolina developed a timetable to steadily reduce the state corporate income tax (now at a low 3 percent) and personal income tax (now at 5.499 percent) to make the state more attractive for businesses. "And they've stuck to that," said Jeff Albright, managing principal of Global Technology Solutions Group, a Charlotte, N.C.-based solution provider that's No. 493 on the 2017 CRN Solution Provider 500.

The tech sector accounts for 6.6 percent of North Carolina's total gross state product (No. 18) and tech industry firms employ 5.6 percent of all private sector workers (also No. 18). The Tar Heel State reported 1.6 percent real GDP growth in 2016 (No. 19) and its workforce grew 2.1 percent that year (No. 15).

"North Carolina has a good IT talent base," Albright said, noting that Charlotte is a center for financial services and the state's Research Triangle Park is one of the nation's leading technology hubs.

North Carolina ranked eighth in state infrastructure – Albright points to the thriving Charlotte Douglas International Airport as a major convenience for business. "We spend a lot of time on the road," he said.

While Texas may not generate the same high rankings in education and innovation that tech rivals like California and Massachusetts do, the Lone Star State – which takes a decidedly more "pro-business" stance than other states – also offers a more balanced rankings lineup with its lower costs and reduced tax burden.

Texas is ranked No. 8 in entrepreneurship and innovation and No. 12 in business climate and competitive environment. The state ranks No. 2 in tech business establishments (36,245) and No. 2 in tech industry employment (592,960). And it's No. 3 in the number of small and midsize companies (more than 1.5 million) that most often engage solution providers. One down note: Texas' real GDP growth was a meager 0.4 percent in 2016.

"Texas has a lot of opportunities," said Jay Uribe, who with co-president Junab Ali co-founded Mobius Partners, a San Antonio-based IT solution provider, 17 years ago. The company, No. 344 on the 2017 CRN Solution Provider 500, also has offices in Dallas and Houston.

The diversity of industries in Texas is a key growth driver, Uribe said, citing the oil and gas, financial services, retail, real estate and health-care sectors, along with a big U.S. military presence and the businesses that service them. While some industries like oil and gas are notoriously cyclical, that diversity has helped the state – and solution providers like Mobius Partners – weather economic downturns.

Ali said Texas offers "a very pro-business environment" with no corporate or personal income tax – the latter an attraction for both skilled and unskilled workers to move to the state. He knows of people from California, New York and other high-cost states who have moved to Texas for its lower cost of living.

While Mobius Partners has to compete for IT talent with other solution providers and with big companies like Dell – true in most any state – Texas' many colleges and universities are cranking out engineers, programmers and other graduates with technical and business skills. "The IT talent pool is here," Uribe said.

This year's Best States analysis was conducted before Hurricane Harvey wrought widespread destruction on the Texas gulf coast and flooded Houston, and Hurricane Irma heavily damaged towns and cities on Florida's west coast and in the Keys.

Florida and Texas were No. 1 and No. 3, respectively, in this year's Best States rankings and No. 2 North Carolina is often in the sights of hurricanes moving up the East Coast.

The Best States analysis did factor natural disaster preparedness and the number of major disaster declarations into its calculations. But Florida's growth has been fueled by the number of people moving to the state, 333,471 in the last year, according to a recent AP story. Could recent events change that?

CSG's Pyle, in an interview last week, acknowledged that Hurricane Irma created hardships for employees and customers alike – CSG allowed workers and customers whose electricity (and air conditioning) was out to use its offices that had power. "It was a real challenge," Pyle said of the days after the storm.

Pyle said that while the hurricane could have a short-term impact on Florida's growth, he's doubtful it will change the state's upward trajectory. "I think there's too much going on down here for that to happen," he said.

In Texas the homes of some Mobius Partners employees in Houston suffered damage from Harvey and the company has been helping to get them back on their feet, even as Mobius Partners works to get its clients in that region back up and running.

Like Pyle in Florida, Ali said it's too soon to say for sure whether the devastation from the hurricane will have a lasting impact on Texas' long-term growth and attractiveness as a state to start a business.

The CRN Best States analysis has been quite consistent over five years: Many of the states ranked among the top dozen in this year's list have been there since the first list in 2013, including California, Colorado, Massachusetts, Oregon, Texas, Utah and Washington. Likewise, many near the bottom this year, including Arkansas, Hawaii, Mississippi, Rhode Island and Wyoming, have been there in previous years.

States, nevertheless, can quickly rise and fall in the rankings. North Dakota, which once enjoyed an exploding economy because of the oil boom, ranked as high as No. 11 in the 2014 Best States analysis. With stagnant oil prices in recent years, North Dakota's economy has returned to earth and the state was ranked No. 29 this year.