Business-Friendly Environment?

by Mike Hunter


Small-business owners gave Metro Phoenix a B– for its business friendliness, ranking it in the top 50 percent of cities nationwide, according to the recently released 2015 Small Business Friendliness Survey conducted by Thumbtack, a technology-based marketplace designed to connect consumers with small-business professionals within local communities.

Among the key findings for Metro Phoenix was an overall small-business friendliness grade of B–, with a ranking of No. 42 out of the 95 cities ranked — a slight drop from last year’s B. Phoenix’s best grade was a composite B for its regulatory environment, which included licensing, tax and labor regulations. Its worst grade was a C for training and networking programs. For the state as a whole, the best grade was a B+ for Arizona’s zoning regulations, which contributed to a composite B for its overall regulatory environment.

“Small-business owners on Thumbtack have consistently told us that they welcome support from their governments but are frequently frustrated by unnecessary bureaucratic obstacles,” said Jon Lieber, chief economist of Thumbtack. “Small businesses in Phoenix gave the city solidly average grades across the board for its regulatory environment.”

The 2015 survey found licensing was again more important than taxes. When evaluating their cities, small businesses said the ease of compliance with licensing rules mattered far more than tax rates. Tax equity — the actual rate at which business owners pay taxes — mattered far less than any measure of regulatory compliance. For example, labor rules were 88 percent more important in driving state friendliness scores when compared to tax rates.

Effective licensing was just as friendly as no licensing. Small-business owners who found licensing compliance to be “very easy” were just as favorable toward their city governments as respondents who weren’t required to be licensed at all. By contrast, licensed professionals in cities with complicated requirements or inconsistent enforcement reported the lowest approval rates.

Training experience was the top factor in both state and city rankings. Offering training on developing a business and navigating the local economic and policy environment was the single biggest factor that influenced perceptions of friendliness. In cities, training was 78 percent more important than the No. 2 factor. On the state level, small business professionals who had a positive training experience were 1.5 times more likely to rate their states as being very supportive.

High-quality websites matter. Investing in a high-quality, easy-to-use website that provides useful information and decreases the costs of regulatory compliance improves overall perceptions of a local or state government. Business owners who said their city had a “great” website ranked their cities 13 percent higher, while there was no difference in the rankings of business owners who were either unaware of or had had a bad experience on city websites.

Metro Phoenix’s Small-Business Friendliness Scores

Attribute 2015 2014 2013 2012
Overall friendliness B– B C+ C+
Ease of starting a business B– B C+ B
Ease of hiring B B B C–
Regulations B B+ C+ B–
Health & safety B B+ C+ C+
Employment, labor & hiring B– B– C+ B+
Tax code B B C+ B
Licensing B B+ B– C+
Environmental B B– B B–
Zoning B A– B– C
Training & networking programs C B C–

Source: Thumbtack (

Arizona’s Small-Business Friendliness

Overall: B–
Licensing Enforcement: C–
(Ease of compliance and effectiveness of enforcement of professional licensing rules)
Training Opportunities: C–
(Whether or not a small-business owner is aware of opportunities for training and networking offered in the community)
Government Website: B
(How difficult or easy it is for a small-business owner to use a government website to comply with regulations)

Regional Rivalry:
Tucson earned an overall friendliness score of C–, coming in behind Phoenix’s B– overall.

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