Small Business

Here's why businesses in the South are more optimistic

Tanisha A. Sykes
A 'Now Hiring' sign is displayed during a Job News USA career fair in Louisville, Kentucky.
Luke Sharrett | Bloomberg | Getty Images

When Natasia Malaihollo moved her three-year-old start-up company Wyzzer from Los Angeles to Kentucky in 2015, she had two things in mind.

"The rent is much cheaper and the talent is much cheaper," says Malaihollo, 30.

The trek cross-country was on the heels of receiving $1.7 million in start-up funding from investors through The Brandery, a seed stage startup accelerator.

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"If we had to raise that kind of money in California, we would have only been able to hire two engineers, instead, we have six," says Malaihollo whose company makes surveys for brands. "The talent in Kentucky is of the same caliber, but it's much more affordable."

Attracting top talent at better wages is just one reason why small businesses in the South are more optimistic than owners in other regions.

Some small businesses are attracted to Tennessee because it's a right-to-work state, which means employees can work without having to be a member of a union, boasts Charlie Brock, CEO, Launch Tennessee, an organization that connects entrepreneurs to the resources they need. It also has a relatively low cost of living and offers a high quality of life, Brock says. "Those things have helped attract all types of businesses to our area, from early stage startups to Amazon and Volkswagen."

In fact, nearly 50% of small businesses in the South report that their local economies' health is somewhat good or very good, according to The MetLife and U.S. Chamber of Commerce Small Business Index. In contrast, 31% of small business owners in the Northeast report similar sentiments.

Branch Technology is growing thanks in part to lower manufacturing and storage costs, and partnering with some top construction technology contractors.

Another reason owners are optimistic is President Trump's proposal to cut the tax rate to 15% for so-called pass-through businesses that report profits on their personal tax returns. That would be big cut from the 39.6% top rate. Trump received a great deal of support from Southern voters.

"While there's a lot of talk of tax reform recently, we haven't actually seen a major tax overhaul in the last 30 years," says Scott Drenkard, director of state policy at the Tax Foundation. One interesting note: "In really broad strokes, there has been more positive tax reform in the South than, say, the Northeast."

Texas, for instance, has taken a bite out of what it calls the margin tax or franchise tax, a levy on business margins, lowering it by 25% to 0.375% for those in retail and wholesale trade.

Aside from lower taxes and reduced costs, the living is easy in the South.

"We found that similar companies making $100,000 in profit in Boston reported that they were less satisfied than those in South Carolina because they are in an environment that is more competitive," says Siddharth Vedula, assistant professor of entrepreneurship at Babson College.

"It could be that if there is a slow pace of life, people are relatively more laid back, less stressed, or more likely to be optimistic about the future," says Vedula.

Another real advantage: The start-up ecosystem is maturing in the South. In fact, the rate of startup growth for 2013 was 58.5%, up from 46.9%, the lowest level ever recorded for this indicator since the 1980' according to the Kauffman Index of Growth Entrepreneurship.

"In Silicon Valley, you have to be a Google or Apple to have a say in how the tech start-up ecosystem forms," says Platt Boyd, Founder and CEO of Branch Technology in Chattanooga, Tennessee. Boyd's startup uses 3D printing technology to produce construction materials as well as other furniture and fixtures. "Here, it's maturing as each of these companies grows so we all have an integral role in forming what it becomes."

While some small businesses are flocking to the South for the cost-savings, others are attracted to the collaboration, support, and access to resources. "Southern Hospitality absolutely defines how we help startups," says Launch Tennessee's Brock.