Connecticut 2nd Worst State To Start A Business: New Report

CONNECTICUT — Pity the American entrepreneur.

According to U.S. Bureau of Labor Statistics data, about a fifth of all startups typically don’t survive past their first year of operation, and nearly half never make it to the start of year five. A slow recovery from the COVID-19 pandemic, labor shortages, and the highest inflation in nearly 40 years are strangling many new ventures in the cradle.

In Connecticut, 85 percent of employers struggle with finding and retaining employees, according to Chris DiPentima, president & CEO of the Connecticut Business & Industry Association.

It's almost enough to make that newly-minted MBA wish he had studied for that archaeology degree instead.

Your intuition might whisper that here in the 4th richest state and hedge fund capital of the universe, clever new business endeavors were rising above that downward spiral, but your intuition would be spectacularly wrong. According to a new report from personal finance website WalletHub, Connecticut is the 2nd worst state in which to start a business.

WalletHub analysts identified 27 "key indicators of startup success" and graded the fifty states in each of the categories. Connecticut was in the bottom 20 percent among most (1=Best, 25=Average):

• 45th – Average Growth in Number of Small Businesses
• 43rd – Office Space Affordability
• 46th – Labor Costs
• 45th – Average Length of Work Week (in Hours)
• 44th – Cost of Living
• 31st – Industry Variety

WalletHub found Connecticut to have the fifth-highest educated populace, but smart people come at a cost: the state has the fifth-highest labor costs as well.

Those MBAs who want to hit the ground running may wish to consider opening their business in Utah, Florida or Texas, which the WalletHub analysts pegged as the top three start-up friendly states:

Jae Hyeung Kang, an associate professor of entrepreneurship in the Department of Management and Marketing at Oakland University's School of Business Administration, believes that outbound resident migration is a leading indicator of small business doom. If that's true, the start-up climate in Connecticut may not be getting any fresher anytime soon. The state was 11th on United Van Lines' list of states with outbound moves last year.

"The state authorities may want to take a deeper look at the inbound and out-bound population movement. One of the major indicators is job opportunities in specific industries. Each state has unique advantages for attracting entrepreneurs to start new businesses," Kang said.

Experts also warn there is no easy path to restoring the fertile soil for start-ups once the bloom is off the entrepreneurial rose.

Bruce Bachenheimer, clinical professor of management at Pace University, told WalletHub that, "Simply cutting some red tape and offering certain tax incentives is not enough. Without the right mix of government incentives and business opportunities, it is a bit like building a stool with a missing leg. Each state must work hard to recognize its unique strengths and weaknesses, and then carefully construct policies that genuinely benefit a new business."

But just because there's no easy fix doesn't mean Connecticut isn't going to try. Recently, the CBIA released its 2023 legislative policy solutions, a 12-point package of recommendations designed to "unlock and transform" Connecticut’s economy. Buttons the CBIA wants pushed include lowering the state’s cost of living, and removing the sales tax on training programs and occupational licensing restrictions. The plan was endorsed by a bipartisan group of 84 lawmakers in Hartford.