2023’s Best & Worst States to Start a Business

With around 20% of new businesses failing within one year and inflation making entrepreneurship even more difficult, the personal-finance website WalletHub today released its report on 2023’s Best & Worst States to Start a Business.

Residents of the Golden State can take pride in knowing that California is 2023’s 10th best state to start a business.

California receives high marks for its networking opportunities, its economy, temperate weather, various industries and deep talent pool.

According to U.S. Bureau of Labor Statistics data, about a fifth of all startups typically don’t survive past year one of operation, and nearly half never make it to their fifth anniversary. Staying afloat is difficult even under normal conditions, and even more so when dealing with a global pandemic, the highest inflation in decades and labor shortages.

To determine the most fertile grounds for planting and growing new ventures, WalletHub compared the 50 U.S. states across 27 key indicators of startup success. The data set ranges from financing accessibility to the percentage of residents who are fully vaccinated against COVID-19 to office-space affordability.

Starting a Business in California (1=Best; 25=Avg.):

  • 11th – Avg. Growth in Number of Small Businesses
  • 2nd – Availability of Human Capital
  • 6th – Industry Variety
  • 13th – Percentage of Residents Who Are Fully Vaccinated Against COVID-19
  • 1st – Venture Investment Amount per Capita

Expert Commentary

Which, in your opinion, are the best industries for starting a business in 2023, and what states are most likely to see an increase in start-ups activity?
“According to the United States Census Bureau, the top 5 states in numeric growth (2021 to 2022) are Texas, Florida, North Carolina, Georgia, and Arizona. Although there might be various entrepreneurial opportunities in different industries and states, I think that the automotive industry will continue to make a big transformation from the internal combustion engine to electric cars. There could be three major sectors in the automotive industry such as connected cars, autonomous driving, and electric vehicles. Each sector can be jointly developed by collaborating with big companies and high-tech startups. I expect that high-tech startups advancing in the automotive industry are likely to experience entrepreneurial growth.”
— Jae Hyeung Kang, Ph.D. – Associate Professor, Oakland University

To what extent do state policies – such as corporate tax rates – influence decisions about whether and where to start a new business?

“Tax rates and other state-level tax policies certainly influence business startup and location decisions, but the latest research suggests that other issues are at least as important. Business owners care more about access to suppliers and markets, transportation and communications infrastructure, amenities like parks and good schools for their employees, and supportive business policies other than taxes.”
— Donald Bruce, Ph.D. – Director, Boyd Center for Business & Economic Research; Professor, The University of Tennessee

“No doubt, state tax, and regulatory policies influence new business creation. Lower tax rates, more favorable workplace rules, and reduced licensing and permitting burdens, are examples of policies that would be favorable to business creation. That said, many entrepreneurs start new businesses in locations with which they are most familiar and based on other non-financial factors, such as where they live, where their network is strongest, and where the obvious market is. So, placed-based businesses, like retail establishments, may be less impacted by local policies. However, businesses that cater to a geographically broad market would be more likely to ‘shop’ for the optimal location. Further, established businesses looking to expand might expand or relocate entirely based on the relative favorability of the local business climate. Recently, Texas, for example, has been the beneficiary of some significant business relocations based on its business-friendly policies.”
— Richard Ryffel – Professor of Finance Practice (Part-time), Washington University in St. Louis

What measures can state authorities undertake in order to encourage entrepreneurs to start new businesses in their state?

“The main approach should be to provide a pro-business tax and regulatory environment that is viewed as fair and efficient for all taxpayers. Broad tax bases and low tax rates can raise the same revenue as narrow bases that result from carve-outs and incentives for a small number of businesses (which necessarily require higher tax rates on other taxpayers). Business startup decisions should be based on supply and demand, not tax breaks. Providing a fertile environment for all businesses will inevitably result in a more entrepreneurial climate with more startup activity.”
— Donald Bruce, Ph.D. – Director, Boyd Center for Business & Economic Research; Professor, The University of Tennessee

“Policymakers should be mindful not to erect barriers to business formation…tax and regulatory policies, for example. Beyond that, ensuring that the local business ‘ecosystem’ is favorable to business formation is key. This would include investments in infrastructure and education, concentrating on fostering key industry clusters and encouraging collaboration amongst businesses, government, not-for-profits, and academia.”
—  Richard Ryffel – Professor of Finance Practice (Part-time), Washington University in St. Louis

For the full report, please visit:





Image Sources

  • Start a Business: Pexels