Open for business: These 10 states have the highest rates of success for new business owners

• National averages: Across all states, the average number of businesses formed from 2017-2021 is 0.002 per capita or one for every 500 people. These businesses, on average, employ about 4.74 people each, and 77.83% have managed to survive since the year they were established.
• California significantly outpaces all other states: California boasts the highest business survival score in the country, outperforming Massachusetts by a whopping 34%. This sizeable lead may be surprising, given California's complex economic landscape is characterized by some of the highest state income tax rates and rigorous labor and environmental regulations. The resilience of new businesses in California could be attributed to a combination of supportive legislation, robust labor laws ensuring a well-supported workforce, and access to a large and diverse customer base. Considering these factors collectively offers a holistic perspective on business survival in the state.
• The prevalence of surviving businesses correlates with small business funding and state economic health: There is a slight positive correlation between the prevalence of surviving businesses per capita and the amount of state funding that small businesses receive, Pearson's r = 0.25. A similar positive correlation is observed between surviving businesses per capita and GDP per capita, Pearson's r = 0.24. In other words, in states where small businesses receive more funding and where the overall economic output per person is higher, there tends to be a higher number of businesses that continue to operate over time. Note that these correlations do not demonstrate a direct causal relationship.

States with the highest business survival rates

10. North Carolina

• Business survival score: 55.90
• 1-year business survival rate: 78.8%
• 5-year business survival rate: 53.9%

With a growing population of nearly 11 million, North Carolina ranks tenth in states with the greatest business survival rates. This Eastern Seaboard state featured record employment growth and low rates of unemployment in 2022, according to the North Carolina Department of Commerce.

These factors likely contributed to North Carolina having the seventh-highest proportion of surviving businesses that were formed during the first year of the pandemic (2020). Additionally, 73.5% of North Carolina businesses opened in 2020 endured through the end of 2022.

9. Mississippi

• Business survival score: 55.94
• 1-year business survival rate: 55.2%
• 5-year business survival rate: 79.3%

Ranking ninth in the nation for business survival rates this year is Mississippi. The state has the fourth-highest five-year business survival rate in the nation. The data shows that 55.2% of Mississippi businesses formed in 2017 survived through 2022.

This is of significance, as according to the Mississippi State University Extension, longstanding Mississippi businesses 11 years and older support most jobs in the state. In fact, for the majority of new jobs, Mississippi employees rely on employment from young, small businesses.

8. Illinois

• Business survival score: 57.18
• 1-year business survival rate: 78.5%
• 5-year business survival rate: 54.2%

One of the most populous states in the country with more than 12.5 million people, Illinois has the eighth-highest new business survival rates. The Prairie State has the third-highest proportion of businesses formed during the first year of the pandemic that survived. Of those businesses started in 2020, more than three-quarters, or 76.1%, were still around through the end of 2022.

7. Indiana

• Business survival score: 57.39
• 1-year business survival rate: 80.4%
• 5-year business survival rate: 53.3%

Ranking seventh on the list is Indiana. The Hoosier State has the sixth-highest proportion of businesses formed during the first year of the pandemic (2020) to survive, with nearly three quarters, or 73.9%, enduring through the end of 2022.

6. Nevada

• Business survival score: 57.60
• 1-year business survival rate: 81.5%
• 5-year business survival rate: 48.7%

When it comes to reaching a steady flow of new customers, businesses in Nevada certainly have an advantage: more than 56 million people visit Nevada each year, according to the Nevada Governor's Office of Economic Development. While a direct statistical tie has not been established, this factor is likely reflected in Nevada's high business survival rates.

In fact, the Silver State has the third-highest 1-year business survival rates (2021-2022) in the nation. Of those companies formed in 2021, more than four out of five, or 81.5%, survived through 2022.

5. West Virginia

• Business survival score: 58.32
• 1-year business survival rate: 80.0%
• 5-year business survival rate: 55.0%

In recent years, West Virginia's economy has witnessed a transformative shift, showing promising signs of rejuvenation and growth. According to the West Virginia Economic Development, the state has attracted $10.72 in business investment since 2017 and has experienced a 3.8% rise in employment rates in 2021. It may be no surprise, then, to find that the Mountain State ranked fifth in the nation for business survival rates.

4. Washington

• Business survival score: 61.37
• 1-year business survival rate: 83.2%
• 5-year business survival rate: 49.7%

Washington has the fourth-highest survival rate in the nation this year for businesses formed from 2017-2022. The Evergreen State also has the second-highest 1-year business survival rate (2021-2022) in the U.S., with more than four out of five, or 83.2%, surviving through 2022.

3. Pennsylvania

• Business survival score: 61.74
• 1-year business survival rate: 80.5%
• 5-year business survival rate: 54.2%

Ranking third this year is Pennsylvania, with a business survival score of 61.74. The Keystone State boasts the second-highest proportion of businesses that were formed during the first year of the pandemic (2020) to survive. Of those companies that were formed in 2020, 76.1% survived through 2022. Pennsylvania also has the fifth-highest 1-year survival rate (2021-2022) in the nation. For businesses created in 2021, 80.5% were still around through 2022.

2. Massachusetts

• Business survival score: 62.33
• 1-year business survival rate: 81.0%
• 5-year business survival rate: 55.0%

Massachusetts ranks second overall, with the fourth-highest 1-year survival rate (2021-2022) in the nation. Of the businesses formed in the state in 2021, 81.0% survived through 2022. Massachusetts also has the fourth-highest survival rate for businesses that were formed during the first year of the pandemic (2020). Of all Massachusetts businesses formed in 2020, 74.4% were still operating through 2022.

1. California

• Business survival score: 83.72
• 1-year business survival rate: 86.8%
• 5-year business survival rate: 55.2%

In the most populous state in the nation with more than 39 million people, entrepreneurs starting a business in California have access to a large pool of potential customers. It is therefore not surprising that California ranks as number one in business survival. The Golden State has the highest 1-year survival rate (2021-2022) in the nation. Of businesses formed in California in 2021, 86.8% survived through 2022. California also ranks as the third-highest for the 5-year business survival rate in the nation. Of those companies formed in the state in 2017, 55.2% were still operating through 2022.

Methodology

To identify the states with the best new business survival rates, the data and research team at Trademark Engine ranked all states using a composite score of factors including: 

• Survival rates since inception (75% of composite score): This is a crucial factor as it directly measures the robustness and longevity of new businesses in each state. A higher survival rate indicates a more favorable business climate or ecosystem that enables new enterprises to thrive, adapt, and endure over time.
• Average employment of surviving businesses (15% of composite score): This reflects the capacity of surviving businesses to generate employment. A higher average employee count per business indicates that not only are businesses surviving, but they are also growing and contributing positively to job creation and the economy in their state.
• Surviving businesses per capita (10% of composite score): This metric gives insight into the density of surviving businesses in each state relative to the population. It is a signal of the relative concentration of sustained business activity and entrepreneurial spirit within the state.

The composite score incorporates data from one- to five-year-old businesses but primarily favors the newest businesses formed in the past year. All data used to determine the state rankings in this report come from the Bureau of Labor Statistics's Establishment Age and Survival Data.

This story was produced by Trademark Engine and reviewed and distributed by Stacker Media.