Phoenix among top 10 metros for new business formation, report says

The Valley has been a haven for entrepreneurial activity, according to a new report from Roofstock, a real estate investment platform.

The Phoenix metro had a startup formation rate of 9.63%, defined as the number of new businesses in a given year divided by the total number of businesses in a given metro area, from 2014 to 2018.

Phoenix’s metro, which includes Mesa and Chandler, ranked 7th in the nation overall among large cities for its business formation rate, and the report estimated that more than 6,100 businesses were created annually representing more than 37,000 jobs.

The most prolific business formation rates among major cities (those with more than 1 million residents) came from Las Vegas, Nevada with 11.44%, Orlando, Florida with 10.95% and Austin, Texas with 10.61%.

Roofstock compiled the report using historical data from the U.S. Census Bureau’s 2018 Business Dynamics Statistics, which is the most up-to date version of this data that considers businesses with paid employees. The authors used a five-year trailing average of the startup formation rate from 2014 to 2018 to rank the cities.

More collaboration

While the data in the Roofstock report is not industry specific, Brandon Clarke, the co-founder and CEO of StartupAZ Foundation, said that in the past decade tech startups have gotten better access to resources and collaborated more effectively which fostered a productive ecosystem.

“What’s improved over the last decade is we are seeing more sophisticated founders go solve big problems and go through the process and build the teams that go solve them,” he said. “So I’m bullish on the overall startup ecosystem across greater Phoenix.”

He also noted that the business model for startups is different from other small businesses and more geared towards rapid growth. Tech startups generally develop software products and have smaller staffs that are able to work remote, so those that faced business challenges during the pandemic were able to pivot.

“I think we’re absolutely going to experience an emergence out of this. I think we’ve got startups now that have had a year to kind of understand the landscape and have a little bit more predictability about where their markets are headed.”

Clarke and StartupAZ recently partnered with InvisionAZ and Gov. Ducey to award $1 million in small grants to startups weathering the pandemic.

Pacing with national average

At the state level, Arizona ranked 8th nationally with a business formation rate of 8.93%, just ahead of the national average at 8.13%. The report found that more than 8,000 new businesses are created statewide each year, bringing nearly 50,000 jobs. Based on these figures, the majority of entrepreneurial activity happened in and around Phoenix.

The states with the greatest startup formation rates were Nevada with 10.39%, Florida with 10.16% and Utah with 9.42%.

Other, smaller Arizona cities made the list as well. Tucson ranked 41st on the major cities list with a business formation rate of 6.75% and an estimated 950 new businesses formed each year. Lake Havasu City ranked 45th among small metro areas (those with between 100,000 and 349,999 people) with a startup formation rate at 6.71% and just shy of 200 new businesses formed each year. 

While Phoenix ranked highly on its business formation rate, the metro area did not form as many businesses as other major metros each year. New York had the greatest number of new annual business formations with more than 36,000, followed by Los Angeles with 24,000 and Miami with 14,000.

By count of startups launched each year, Phoenix ranked 13th nationally despite having the fifth or sixth largest population in the country during the data collection period.

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