The Best (And Worst) States To Start A Solution Provider Company In 2019

Despite hints of economic uncertainty, the economy remains strong and entrepreneurs may be thinking this is the best time to launch a solution provider business. Here’s comprehensive state-by-state information, from business climates and tax rates to workforce education and experience, they can use to guide their decisions.

The “Great Recession” is a distant memory and the U.S. economy has been humming along with GDP (gross domestic product) growing at a robust 2.9 percent in 2018. As of July the U.S. economy had recorded 121 consecutive months of GDP growth, marking the longest expansion in U.S. history.

But the trade tensions with China are creating uncertainty, inverted yield curves have investors nervous and there are early signs that segments of the U.S. economy—including the manufacturing sector—are slowing.

Entrepreneurs considering whether to start a solution provider business have a lot to think about. And that includes the best place to set up shop.

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For the seventh year, CRN researchers and editors have undertaken a detailed analysis of the business climate in all 50 states to offer entrepreneurs and solution providers guidance about which states offer more business opportunities, the most potential for growth and innovation, the biggest pools of educated workers, lower operating costs and less burdensome taxes and regulations.

Here we provide the results of the 2019 research, including a slide show with a state-by-state analysis ranked from the least favorable state to the state with the most to offer a startup solution provider.

The criteria include state-specific data that’s crucial for entrepreneurs starting a solution provider business, ranging from the education and experience of a state’s workforce, to corporate income and sales taxes, to state GDP growth and business climates. (A detailed description of the Best States methodology and the sources of data is provided in a separate story.)

This year we are paying close attention to the economies of each state, including such factors as GDP growth, economic growth prospects and job creation, given the current economic uncertainties and (very) early indications that an economic slowdown or even a recession may be in the cards for 2020 or 2021.

But other criteria remain important. In the current booming economy, in fact, finding talented, experienced workers is the No. 1 concern for many solution provider executives. That’s a challenge right now given that the unemployment rate for technology occupations in the U.S. hit a 20-year low in May of 1.3 percent.

The economic data used in this year’s Best States analysis has led to some churn among the states’ rankings. Once-high-flying states like Maryland and Virginia have moved down the list because as the economy improves, they become more expensive places to work and live and finding talented employees becomes even tougher. States like Massachusetts and New York, which have always been expensive places to do business and have high taxes, have become even more unattractive, costwise. Even Colorado, once ranked No. 2 on our Best States list, has dropped down (No. 12 this year) as costs rise and hiring workers becomes more difficult.

Other states like Arizona, Georgia and Tennessee are the new rising stars, attracting young workers while still being relatively less expensive places to start a business and offering lower tax burdens and more business-friendly regulatory environments.

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

For the fourth year in a row Florida achieved the No. 1 ranking in the 2019 Best States analysis.

The Sunshine State, as it has been for several years, was ranked No. 1 in taxes and regulations. The state's corporate income tax is a moderate 5.5 percent, its sales tax is 6.0 percent, unemployment insurance taxes are low and there is no individual income tax. For its overall tax burden Florida is No. 4 on the Tax Foundation's 2019 State Business Tax Climate Index.

Florida's other strength is its booming business climate where it ranked No. 4 (compared to No. 4 in 2018 and No. 2 in 2017). It’s 3.5 percent GDP growth in 2018 was No. 5 among the states. The state also has the lowest unemployment rate (2.1) and was No. 3 in the total number of jobs added (227,200) in 2018.

North Carolina, which was ranked No. 2 in both 2017 and 2018, held onto that position this year. Rounding out the top five states are Utah, Texas and Washington.

At the other end of the 2019 Best States rankings was Arkansas, which has been in the bottom five in previous Best States lists. The state received poor scores for entrepreneurship and innovation (No. 48) and workforce education and experience (No. 47). And the state’s anemic 0.9 percent GDP growth in 2018 (No. 45 among all states) also hurt its overall ranking.

No. 49 on this year’s Best States list was West Virginia, which has been at the bottom of the rankings for several years running. Rounding out the bottom five states were Alaska, Kentucky and South Dakota.

For solution providers in many, if not most states, these are heady times with the U.S. economy humming along. But business is especially good for solution providers in the states with the fastest growing economies.

“Talking about Texas, we’re in one of the best economies—not just in the U.S., but in the world,” said Buck Jones, founder, president and CEO of Pegasus Technology Solutions, a solutions provider based in Frisco, Texas, in the Dallas/Fort Worth region. (This year Pegasus made the CRN Solution Provider 500, Tech Elite 250 and Fast Growth 150 lists).

“There is unlimited potential out there if you have the right [business] model and hire the right people,” Jones said, noting that his revenue is up 45 percent so far this year.

Jones is especially bullish on the Dallas-Fort Worth area, citing the region’s diversity of industries and the variety of small, midsize and large businesses that are potential customers for Pegasus’ IT solutions and professional and managed services.

“We have an unlimited number of customers to go after,” he said, pointing in particular to the number of Fortune 100 companies in Texas—some of which have moved there from expensive states like California. (He specifically pointed to Toyota, which announced in 2014 a plan to move its North American headquarters from Torrance, Calif., to Plano Texas, in the Dallas area.)

Carolinas IT, a managed services provider in Raleigh, N.C., is likewise benefiting from the business climate in that state. “North Carolina is just a great environment for businesses,” said co-founder and CEO Mark Cavaliero.

He especially cites the potential of the Research Triangle area where Carolinas IT (also on the CRN Solution Provider 500, Tech Elite 250 and Fast Growth 150) is based. There are companies of all sizes, from startups to large enterprises, in IT, life sciences and other economy-leading verticals—all of which need IT services.

“It’s just a great environment for startups,” Cavaliero said.

From a workforce perspective, the CEOs of Pegasus Technology Solutions and Carolinas IT both point out the advantages of the states—and the specific regions—where they are based with universities and technical schools that turn out educated, innovative workers.

Cavaliero notes that in addition to having schools that develop “a very talented, skilled workforce,” the opportunities created by Research Triangle Park attracts educated workers from elsewhere, further adding to the talent pool.

As solution providers morph into strategic service providers, expanding their business models beyond on-premises IT implementation projects to offer professional and managed services, they become less tied to a single state.

That’s the case with Jacksonville, Fla.-based CompassMSP (also on the CRN Solution Provider 500, Tech Elite 250 and Fast Growth 150). While the company’s home base is Florida, President and CEO Tom Praschak has bigger ambitions.

“We’re trying to build a national MSP,” he said. CompassMSP has made a series of acquisitions, both within Florida and up the Eastern Seaboard, and the company now provides managed services in multiple markets.

The lesson there is that while it’s important to consider the advantages of the state where a startup solution provider chooses to set up their headquarters, solution providers with ambitions of growth must also be thinking beyond their home state to the business conditions in the states and regions into which they hope to one day expand.