The startup world is changing. More entrepreneurs are ditching major cities for smaller towns. You’ve probably seen the headlines: founders setting up shop in suburbs instead of New York or San Francisco. Places that might not have been on the radar a decade ago are now attracting innovative new companies.
This shift is happening fast across America. Lower costs, easier lifestyles, and remote work have all made this move possible for many startups. But this move isn’t just about saving money. You need to understand both sides before making this choice.
This article explores this trend and whether such a switch makes sense for your business.
The Appeal of Smaller Cities
Many small cities are becoming startup-friendly zones. These places offer lower rent, less traffic, and access to local talent. That means you can spend less on operations and still run your business effectively.
According to US Postal Service data, a majority of people have been leaving metro areas like Houston, Chicago, Los Angeles, Austin, and Miami. Cities like Katy (TX), Northbrook (IL), Sanford (NC), Cleveland, Green Cove Springs (FL), and St. Cloud (FL) are seeing high levels of incoming residents.
The 2023 change-of-address data showed that people want affordable living and less crowded spaces. That shift benefits startups. With more people moving into these cities, there’s a growing customer base and labor pool. You can also get support from local governments that want to attract businesses.
Some offer tax breaks or low-interest loans to new companies. However, savings and incentives are only part of what startups need to consider. Smaller cities might lower your day-to-day expenses, but they often limit exposure and access to key players. This difference in needs highlights why, despite the allure of smaller locations, many startups still find compelling reasons to remain in major urban centers.
What are the biggest challenges startups face when moving to smaller cities?
Restrictive access to specialized vendors and service providers creates operational hurdles. Startup founders typically struggle with slower internet speeds, fewer coworking spaces, and limited legal or accounting expertise. Additionally, attracting experienced executives becomes harder since many prefer established tech ecosystems with multiple career opportunities.
Why Some Startups Still Stay In the Game
There’s a reason many startups haven’t given up on cities like New York. Yes, office space in some boroughs, like Manhattan, has faced challenges. In 2024, the city’s commercial buildings saw delinquency rates skyrocket over 1000%.
Spectrum News NY1 reported that vacancy rates for these properties remain above 20%. But this isn’t the full picture. Reuters reports that investors, including major players like Blackstone, are increasingly interested in New York office spaces as more companies ask employees to return.
Even Blackstone’s President Jonathan Gray sees significant value in New York City offices, citing the growth of financial firms and limited new construction. This investor confidence is a positive signal. For many businesses, being in a large metro still makes sense for networking, securing funding, and media visibility.
Startups relying on face-to-face meetings or proximity to key industries still value New York. Areas such as Midtown and the Financial District remain central to decision-making. Therefore, some businesses are still exploring Manhattan office space for lease. The decision isn’t about prestige but about access to vital connections and opportunities.
According to The Farm Soho, these spaces provide all the essential infrastructure for quickly launching business operations. This kind of agility is crucial for companies balancing growth with uncertainty, especially in competitive markets. Still, not every startup aims to compete in a high-cost environment.
Many are looking towards quieter, less crowded locations that offer different advantages. This raises the question of who’s driving this movement towards smaller cities, and their motivations might surprise you.
Millionaires, Millennials, and the Migration Myth
It’s important to understand who’s driving the move to smaller cities. It’s not just startups chasing low costs. Henley & Partners’ 2023 report shows that many wealthy Americans are moving to small but upscale cities.
These places include Austin, West Palm Beach, Scottsdale, Miami, Greenwich, and Darien, which offer luxury living, warm climate, and a calm pace of life. For them, the move is about lifestyle, not cost-cutting. At the same time, many millennials are moving to smaller cities for different reasons.
According to Newsweek, these individuals want affordable homes, flexible work options, and better lifestyle choices. This wave of younger residents is helping small cities grow. Cities like Asheville (NC), Spartanburg (SC), and Lafayette (LA) have become popular for their balance of job opportunities and cultural vibes.
And as the workforce shifts, startups are taking notice. But here’s the key: this trend is not one-size-fits-all. Some small towns grow because of remote work, while others offer tax deals or room to expand. Still, some lack the resources or community support needed for long-term success.
You need to look at the reason behind the move. Is it a lifestyle choice? Or is it a smart business decision?
How do investors view startups located outside major tech hubs?
Many investors now embrace geographic diversity, especially post-pandemic. However, early-stage funding remains concentrated in major metros. Startups in smaller cities often require stronger traction metrics and clearer remote communication strategies. Some VCs specifically target “heartland” investments, but due diligence processes may take longer without face-to-face meetings.
Startup Growth Depends on More Than Just Geography
No matter where you go, certain factors always matter, like talent, infrastructure, and support. Your city should offer more than cheap rent. It should also help you scale your business.
For instance, Forbes reveals that tech talent migration has been strongest in cities like Denver, San Diego, Miami, Dallas, Nashville, and Tampa. These places now have a high number of trained workers and growing tech networks. That makes it easier for startups to find employees and expand operations.
On the other hand, big cities like New York are changing, too. According to The New York Times, one example is congestion pricing, a policy expected to charge drivers for entering certain parts of Manhattan. This change is forcing local businesses to rethink how they serve customers and manage logistics.
But many of these changes can also bring new opportunities. Experts believe this move could improve public transportation. Local foot traffic could rise. Businesses that adapt quickly may even benefit more than those in slower-moving regions.
Before relocating, consider the city’s offerings beyond its zip code and whether it helps you grow your team, reach your market, and stay connected.
How does the quality of life in smaller cities affect startup employees?
Smaller cities often offer a better work-life balance with less traffic and more affordable housing. This can lead to increased employee satisfaction and potentially lower turnover rates. The quieter environment might also appeal to individuals seeking a less stressful lifestyle.
Relocating to a smaller city may seem like a smart move, especially with rising costs in major metros. But before making that decision, weigh all sides. While smaller suburbs offer cost savings and lifestyle perks, large hubs still hold advantages in exposure, talent, and infrastructure.
Where you build your business can open doors or close them. Consider your team, product, and long-term plans before making a move. Choosing the right place is less about the trend and more about what helps your business succeed.
