Chattanooga is least expensive city of startups

It is very common for visiting founders and investors to remark at the affordability of Chattanooga

Co.Lab Executive Director Marcus Shaw poses at the Co.Lab, in the Edeny Building, on Wednesday, July 26, in Chattanooga, Tenn.

Chattanooga continues to be the lowest cost city in America to start a business, according to a new study by the online personal finance website SmartAsset.

With relatively cheap office space, wages and legal and accounting rates - combined with the least expensive gigabit-per-second Internet hookup connections in the country - Chattanooga boasts the lowest overall startup costs for businesses of any U.S. city. The estimated first-year costs of starting and running a business in Chattanooga are 18.5 percent below the U.S. average and only half of what it costs to start a business in Silicon Valley, SmartAsset said.

Chattanooga has been the cheapest city for startups among the 80 major cities studied by SmartAsset in each of the past four years that the annual cost analysis has been conducted. Tennessee boasts three of the top 10 lowest cost cities for starting a business, making the Volunteer State "plenty affordable" and the lowest cost state, according to Derek Miller, a mortgage retirement and budget expert for SmartAsset.

The initial costs of starting a business are often key to its success, Miller said.

"To create a successful company, you need some money to pay for office space, employees and everyday bills from utilities to legal fees," Miller writes in a new report on the comparative costs of cities. "This can dampen entrepreneurs' ability to bring their business ideas to life, especially if they don't have much capital in their savings account. Imagine trying to start a new company in San Francisco with its exorbitant cost of living."

Office costs in San Francisco are more than triple what it costs for comparable space in Chattanooga and labor costs, on average, are 80 percent higher in Silicon Valley than in the Tennessee Valley, Miller said.

Despite lower rates for most startup business costs, Chattanooga does have higher rates for filing to a limited liability or corporation status for a new business. The $450 rate for such business filings in Chattanooga is more than double the U.S. average of $217, SmartAsset said.

The study did not look at other state and local taxes such as personal income or corporate franchise fees, however. SmartAsset also didn't consider what some contend may be Chattanooga's biggest unique asset - the availability of high-speed Internet service up to 10 gigabits per second to every home and business served by EPB.

The leader of the Dynamo Venture capital fund, which aids in the development of new logistics companies, said he frequently sees the advantages of Chattanooga's costs of operations when working with new startups.

"It is very common for visiting founders and investors to remark at the affordability of Chattanooga," said Santosh Sankar, co-founder and director of the accelerator program at Dynamo Venture. "Things that tend to stick out: inexpensive office space, affordable meal options, and the outdoor recreation options the region provides to offer a high quality of life."

Marcus Shaw, president of the Company Lab accelerator, which works with dozens of startup businesses every year, said the Innovation District and the ability for entrepreneurs to live close to their businesses in downtown Chattanooga is a key advantage over most other cities.

"One cost savings for entrepreneurs and startup teams in Chattanooga is the ability to live near their businesses," Shaw said. "In major cities, housing in business corridors is often unaffordable, and the cost commuting long distances can be burdensome."

Chattanooga Mayor Any Berke said the SmartAsset recognition of Chattanooga's cost advantage should help promote even more startup ventures by both local and relocated entrepreneurs.

"Chattanooga is a city of creators, and clearly some of the remarkable energy that's powering our economy comes from the many new companies that are created here every year," Berke said. "That is due in large part to the tremendous value that entrepreneurs find here, coupled with our region's outstanding amenities and quality of life."

Five years ago, Berke established the 140-acre Innovation District in downtown Chattanooga to promote and encourage a place where innovators could live, work and play in an interactive urban environment. The hub of the Innovation District is in the Edney building, which houses CoLab, Tech Town, Society of Work, the Enterprise Center and a variety of startup businesses near the Public Library, UTC, EPB and the Lamp Post startup venture.

On the North Shore, Tennessee's biggest incubator - and the third biggest business incubator in the entire country - offers low-cost rent and shared support services for new businesses during their first three years of operation.

"Resources like the INCubator in the Hamilton County Business Development Center are what keeps Chattanooga at the top of this list," said Charles Wood, vice president of economic development at the Chattanooga Chamber of Commerce. "It's one of many strong programs that form the unique entrepreneurial ecosystem that makes Chattanooga so attractive to startup companies, especially when you factor in our affordable costs of living and doing business in general."

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.