The Best and Worst States For Entrepreneurs

The West is best, but even some Southern and Rust Belt states are becoming havens for new business.

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It takes gumption to start a business. But there a lot of other factors, including the availability of jobs, ethnicity, and geography.

Immigrants, for instance, are much more likely to be business owners than people born in the United States. Western states, with a legacy of adventure, have more startups than Midwestern and Southern states. And a weak economy tends to spur entrepreneurship, as people who can't find corporate jobs strike out on their own. That appears to have happened in 2009, when the rate of new-business startups hit the highest level in 14 years, according to a new study by the nonprofit Kauffman Foundation—while the unemployment rate peaked at 10.1 percent.

[See Why Start-ups Surged During the Recession.]

A breakdown of entrepreneurship rates by state shows some familiar and some surprising trends. Oklahoma and Montana top the list, and both states are bucking the trend, with unemployment rates well below the national average. So new businesses in those states are probably being started by people who are genuinely optimistic and plan to keep at it, even as the economy improves. Other states with high startup rates, like Arizona, California, and Florida, have been hammered by the recession, so there may be a lot of reluctant business owners who can't find other jobs. And a few states with low startup rates, like West Virginia, Missouri, and Wisconsin, have nonetheless seen a big jump in new businesses since the recession began, possibly signaling a cultural shift. Robert Fairlie, a University of Southern California economist who authored the Kauffman study, warns against drawing conclusions from big changes in startup rates, since sample sizes in a given year can be small. Yet entrepreneurship clearly seems to be on the rise in many places. Here's how all the states rank:

State Individuals per 100,000
starting a new business
each month, 2009
Percent change
since 2007
     
Oklahoma 472 55%
Montana 469 -11%
Arizona 456 -7%
Texas 454 22%
Idaho 453 23%
Georgia 436 -27%
Florida 435 17%
Louisiana 430 63%
South Dakota 427 44%
California 409 -7%
Oregon 381 2%
Colorado 379 -11%
Nevada 376 -1%
Vermont 373 37%
Arkansas 364 -6%
Tennessee 363 10%
Utah 362 -9%
West Virginia 346 100%
New York 344 -14%
Alaska 340 -23%
Maine 338 -10%
New Jersey 335 18%
Massachusetts 334 18%
Wyoming 326 23%
District of Columbia 320 10%
North Dakota 319 16%
Delaware 300 48%
Wisconsin 299 75%
Michigan 298 6%
Maryland 291 25%
Connecticut 286 -5%
New Hampshire 284 5%
Indiana 278 -1%
Missouri 274 84%
Ohio 271 43%
Virginia 270 32%
Hawaii 268 24%
New Mexico 256 -56%
North Carolina 250 7%
Kentucky 247 -31%
Illinois 244 -5%
Rhode Island 244 -2%
Washington 240 -12%
Kansas 233 -5%
Iowa 232 25%
South Carolina 231 -9%
Minnesota 221 3%
Alabama 215 3%
Pennsylvania 200 46%
Nebraska 199 -26%
Mississippi 170 -53%