Northwest Arkansas Democrat-Gazette
Region scores low for small firms
Tax rates, corporate headquarters cited; others say area is ideal
Northwest Arkansas in recent years repeatedly has landed top spots in rankings of the best, most affordable and fastest-growing places to live in the country.
Realtor.com just last week named Fayetteville the seventh-best place in the country for recent college graduates to launch a career. The real estate website states Northwest Arkansas has a low cost of living and offers cultural options for young professionals.
Cutting against the grain of top billings is another ranking that pegs the region as one of the toughest for small businesses.
The Fayetteville-Springdale-Rogers metropolitan area ranked 180th out of 200 metros in friendliness to small businesses in a February report from a company called ValuePenguin, which analyzes and compares financial and insurance services. The rankings are based on cost of living, local taxes and several other measures of the business climate.
Northwest Arkansas’ high local tax rates and its number of headquarters for large corporations, which can be difficult for a small businesses to compete with, helped drag down its ranking to between Albuquerque, N.M., and Wichita, Kan., according to the report. Low cost of living and a healthy economy counted in the region’s favor.
“We focused on areas of data that would help a small business be sustainable, but also flourish based on the economic traits of the city,” the company wrote.
Local business owners and experts, however, said the list leaves out much of what makes the area ideal for businesses of any size.
Jeff Amerine, whose Startup Junkie Consulting spends every day assisting budding businesses throughout Northwest Arkansas for free, said there’s always room for improvement to the legal process for starting a business or in the ease of finding investors. But he said the region’s quality of life, the university, customer base, groups like his and other benefits make up for those needs.
“This place ought to be in the top 10 on every list, because it’s that good,” Amerine said.
How easy it is to grow new businesses can have widespread importance. Almost one-third of Northwest Arkansas’ employees are working at businesses with fewer than 100 employees, according to 2014 data from the U.S. Small Business Administration.
The administration defines a small business as an independently owned and operated company that is limited in size and in revenue depending on the industry. Size runs the gamut from 10 people working in a local bakery to a manufacturer with fewer than 500 people.
That proportion locally and across the country has been dropping in the past two decades, with larger corporations employing a bigger share of people and paying a bigger share of all of the region’s paychecks. Northwest Arkansas also has fewer new business establishments than similar cities such as Austin, Texas, though the number has been improving, according to the 2016 state of the region report from the University of Arkansas Center for Business and Economic Research.
Wal-Mart Stores Inc. and other powerhouses are important, stable and typically pay more per employee, but new economic growth and innovation is more likely to come from businesses that start as a shop on the corner, said Mervin Jebaraj, the university center’s interim director.
“We haven’t had one of those success stories in a while,” he said. “The challenge for Northwest Arkansas is to make sure the entrepreneurship effort that we have in all its forms is supported and increased to make sure that we do have the next small business startup that grows into a successful large company.”
A MIXED PICTURE
Omar Kasim graduated from the university in 2015, opened his first business early last year and typifies some of the strengths and weaknesses of the region’s small business environment.
Starting a business is hardly easy no matter the circumstances — Kasim recalled working more than 100 hours a week to get Con Quesos Fusion Tacos running on Martin Luther King Jr. Boulevard in Fayetteville. He pointed to some issues that could make the process more challenging.
Private and commercial lenders “wouldn’t touch me,” he said, and he eventually had to go to Texas to find an investor. Fayetteville also has a complex permitting process for new businesses, Kasim said. The city has acknowledged this perception and made streamlining the process a priority in its Fayetteville First development plan.
Amerine echoed the need for more private investment in nascent companies, suggesting the state raise its tax credit to get capital “off the sideline.”
Arkansas has unusually high local sales tax rates, according to the ValuePenguin report and the nonprofit Tax Foundation. The average combined city, county and state sales taxes in Arkansas is about 8.5 percent, higher than all but three other states. Tax rates in Washington and Benton counties vary but on average total nearly 10 percent and go to roads, law enforcement, tourism, parks and other public services.
On the other hand, Kasim had the help of Startup Junkie and the university’s Small Business and Technology Development Center to plan his first business at no cost. Now he’s on to his next venture: an organic, cold-press juice and smoothie shop in uptown Fayetteville he hopes to open this fall. A local bank provided a Small Business Administration-backed loan.
“It felt like they were actually rooting for me,” Kasim said, adding he plans to work with the university to give entrepreneurship students hands-on experience at a campus location for his shop next year. “My message has been, no matter what, you can do it. It’s not easy, but it can be done.”
Other rankings of Northwest Arkansas’ small business environment reflect a mix of positives and negatives.
A WalletHub rating this year of the four major cities in the area put them roughly in the middle out of more than 1,200 small cities, dinging Fayetteville for its startups’ financial success and faulting Springdale for access to financing and other resources. But Forbes last year named Fayetteville the 24th best place for business and careers thanks to its job growth.
PUTTING DOWN ROOTS
Local leaders have long said the region has much to offer prospective businesses. Startup Junkie is partnering with Wal-Mart and local organizations for a similar service in Bentonville called Exchange. Crystal Bridges Museum of American Art, the Razorback Greenway and other amenities can make the place more attractive for residents.
Even the higher taxes might be a good sign in some ways, though lower taxes can mean businesses can invest more in themselves and the rest of the community, said Dana Davis, president and CEO of the Greater Bentonville Area Chamber of Commerce. The chamber helps businesses find locations and connect with other resources.
“We want to have the best here. I think our citizens have been willing to step up to the table and say we need to make sure we have great transportation systems, we need to have great school systems,” Davis said. “This is a place people want to live and want to start a business.”
Derek McEnroe, who coowns New Province Brewing Co. in Rogers with his wife, Megan, said he thought about going elsewhere for the business, perhaps returning to his native Arizona. But the smalltown atmosphere with bigtown amenities here easily won out, and the company’s doors opened in early 2016.
“We definitely wanted to plant roots here,” he said, adding the network of local brewers and restaurants have supported the family’s venture. “The community was very helpful, particularly in our first year.”
The area’s offerings a decade ago attracted a company called CaseStack, which manages shipments for thousands of consumer products internationally and employs about 150 in Fayetteville. Dan Sanker, the company’s founder and CEO, said the necessary expertise is concentrated in Northwest Arkansas.
“We’re finding the kind of people we like to work with here,” he said, adding he expects company and civic leaders and groups will increasingly share information and become involved in the community. “That’s when you start to get great ideas.”
Sanker said CaseStack plans to spin off another, entirely technology-focused company in Fayetteville that could employ 85 people by next year. He praised the city school district and chamber of commerce for their assistance and willingness to make introductions and set up an internship program, for example. Those relationships convinced him to put the new company, SupplyPike, here instead of in California or elsewhere.