Worst States to start a business in 2025 part one

Starting a business in the United States is exciting, but it’s also risky. 

However, according to the U.S. Bureau of Labor Statistics (BLS), as reported by the Investopedia, approximately 20% of new ones fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of them make it to 15 years or more. These statistics haven’t changed much over time, and have been fairly consistent since the 1990s.

There are many reasons why this happens. It could be high costs, a weak local economy, or not enough access to customers and skilled workers. But one big factor that many entrepreneurs overlook is location. In the U.S., each state has its own laws, taxes, and economic conditions. These can make all the difference.

To help you avoid expensive mistakes, the personal finance website WalletHub recently released its 2025 report on the Best & Worst States to Start a Business. They compared all 50 U.S. states using 25 indicators, including how easy it is to get funding, the cost of office space, taxes, and labor market strength. WalletHub’s latest rankings for 2025 reveal the best and worst states for entrepreneurs. Understanding the startup success rates by state can be the key to making an informed decision

In this article, we focus on the 10 worst states to start a business in 2025. If you’re an entrepreneur thinking of doing business in the U.S., this will help you avoid the most difficult states or plan smarter.

Why the State You Choose Matters

In the U.S., each state has its own laws, tax structures, and regulations. This means that the experience of starting and running a business can vary widely from one state to another. Factors such as corporate tax rates, cost of living, availability of skilled labor, and access to financing can all influence success.​ For entrepreneurs seeking to get registered in the U.S., especially if you’re unfamiliar with the U.S. legal or economic landscape, choosing a state with a strong business climate is essential.

WalletHub’s Evaluation Framework. To create its 2025 Best & Worst States to Start a Business report, WalletHub compared all 50 U.S. states using a data-driven method. The goal was to measure how friendly each state is for new businesses — both local and international.

They used 25 indicators grouped into three main categories:

• Business Environment (50% of total score): Looks at how active, dynamic, and growth-focused the state’s economy is for small and new ones. Key indicators include: average length of the work week, startup activity (new businesses per 1,000 people), 5-year survival rate, job growth, industry variety (diverse local economy), share of fast-growing firms, GDP growth. 

States like West Virginia, and Alaska ranked poorly due to low startup activity and slow job creation

• Access to Resources (25% of total score): Measures how easy it is to get funding, talent, and support to grow your company. Key indicators include: Availability of financing (venture capital, small business loans), Share of college-educated workers, Number of higher education institutions, Broadband internet access, Research & development (R&D) spending, support programs.  

States like Rhode Island and New Hampshire have limited access to capital, skilled workers, and R&D infrastructure

• Business Costs (25% of total score): Focuses on how expensive it is to run a business in each state. Key indicators include: Cost of office space, labor costs (wages, hiring), corporate taxes, energy costs, cost of living index. 

States like New Jersey, Hawaii, and Connecticut ranked among the worst due to high operational expenses

Putting It Together

When a state ranks low in all three categories, like Rhode Island, New Jersey, or Alaska, it becomes much harder for a new one to survive and grow.

The final result is a realistic picture of how each state is startup-friendly or startup-hostile in practice. Here are the 10 worst states to start a business along with their respective total scores

• Rhode Island — 33.51
• Connecticut — 34.63
• New Jersey — 37.36
• Alaska — 38.37
• Maryland — 38.93
• New Hampshire — 39.02
• Hawaii — 39.20
• Pennsylvania — 39.29
• Vermont — 39.91
• West Virginia — 40.43

Below is a detailed table of WalletHub’s January 20, 2025 report

Note: Ranks are out of 50. A lower number indicates better performance in that category.

Can you still succeed in these States?

Entrepreneurs determined to launch ventures in the 10 worst U.S. states for startups, will encounter higher taxes, limited ecosystems, and regulatory headaches. But that doesn’t mean it’s impossible.

These issues mean entrepreneurs must be creative and lean to turn these challenges into opportunities. Here’s how to improve your chances.

General Tips for Starting up in Challenging States

• Run Lean with Digital Tools. Use low-cost platforms like Trello (project management), Canva (design), and QuickBooks (accounting). These help control costs in expensive markets like New Jersey or Maryland.
• Access Grants & Incentives Early. Investigate federal programs like Small Business Administration, SBA loans, and pair them with state-level initiatives, especially in states like West Virginia, which rank low in resources but high in affordability.
• Test Before You Scale. The U.S. has a high first-year failure rate (approx. 20%). Avoid over-investing early. Start with a minimum viable product (MVP), then scale once you understand the local market dynamics.
• Find Your People. In states with weak ecosystems, actively join local chambers, entrepreneur networks, or industry meetups to build a support system.

Expect the second part of the article. Looking for the best U.S. states for business? Please read our article. 

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