The opening line to a Frank Zappa song goes, “I might be movin’ to Montana soon.” It seems a number of new businesses are singing this tune as well.
The New York Times reports that 540 adults out of 100,000 residents in Montana start a business, twice the national average.
According to the Kauffman Index, Montana is the number one state two years running for startup activity. In fact, there are a number of states you might not expect (Wyoming and North Dakota are ranked second and third), in addition to states you might expect to be higher, such as California (14) and New York (11).
Given that established Silicon Valley and Silicon Alley hotbeds for entrepreneurs are already somewhat oversaturated, it’s perhaps not surprising that other parts of the country show a proportionately higher rate of start-up activity.
Still, how has Montana, a state known primarily for Yellowstone National Park, the largest migratory elk herd, the Bighorn Mountains and Custer’s Last Stand, developed such a heavy concentration of new business creation?
Related Article: Cultivating Entrepreneurship: How Startups Fuel Regional Economies
Big Parks and Big Oil
The Independent Record notes that Montana’s public parks and outdoor lifestyle is a major attraction to some SMBs. “You can’t put a price on taking a fly rod to the river during the lunch hour. Nothing matches being able to unwind in the wilderness over a weekend. Innovators that create jobs understand this, and they want to take advantage of the unique lifestyle value that our public lands provide.”
That said, for those not necessarily predisposed to outside adventure, perhaps a more significant driver of recent Montana business growth is, to quote another song lyric (The Ballad of Jed Clampett, aka the Beverly Hills theme song), “Oil that is, black gold.”
According to NPR, in 2013 the oil industry brought in $200 million in tax revenue while unemployment near oil fields reached record lows in comparison to state averages. But that was two years ago. The Missoulian reports that, with oil prices declining from $108 barrel to below $50 at the start of 2015, a decline in oil and gas industry capital spending could result in lower tax revenues and lost jobs.
How will plunging oil prices, coupled with rising real estate values, affect Montana’s lead position as an SMB incubator?
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The Advantage of an Established Base
One advantage is that Montana now has an established foundation of new businesses. Typically when new businesses start to take hold, they tend to inspire additional new ventures that not only continue to build on the success of others but also contribute to overall economic development.
On the other hand, Montana ranks at the bottom for average wages and salaries. While this might be good for the labor overhead of new businesses, Robert Reich points out it’s also true that depressed economic conditions tend to lead people to start their own businesses. That doesn’t necessarily mean such “acts of desperation” to earn more money necessarily lead to higher salaries. Consequently, just because Montana is leading area for new businesses doesn’t necessarily mean those businesses are successful or have long-term potential.
Looking For Workers
Even with the oil and gas industry pulling back on new projects and capital development, Montana is expected to add 8,300 jobs statewide in 2015. This is expected to decline to 6,600 jobs annually for the next six years, but unemployment will still remain low.
This is also a double-edged sword.
On the one hand, it indicates continued growth independent of declining oil prices. On the other hand, when job growth accelerates and unemployment is low, businesses may have to compete for workers, which forces salaries up and along with the cost of doing business.
Some small companies in Billings were forced to close because they couldn’t find qualified staff. In a survey of local employers, 70 percent noted a lack of available workers was hindering their businesses, and less than half said there was an adequate supply of even entry level labor.
Rich Naylor, owner of My Handyman Service and a 2015 SBA Small Business Week award winner (one of nine named Montanans), the biggest challenge he faces in running his own business is finding qualified workers, according to Billings Business.
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Future Prospecting in Montana
Issues finding good workers and fluctuating economic conditions tied to big industries aren't just a problem in Montana, it’s a problem almost everywhere. Whether Montana continues to give birth to new enterprising SMBs may have as much to do with what existing SMBs have to offer in terms of networking and financial support.
No one is saying you should uproot your business and move to Montana just because it holds a number one ranking for SMBs. But if you’re the type of person who does like fly fishing and camping, you might put it on your list of prospective places to consider starting up a new venture. Fuel prices notwithstanding, it offers a vibrant base of entrepreneurship that just might provide a good incentive to heed Frank Zappa’s advice.