How Boston Can Stay the #2 Entrepreneurial Scene

By many metrics, Boston is considered the #2 best metro area for entrepreneurship, behind Silicon Valley. However, in many of those same metrics, New York is on the heels of Boston, and cities such as Seattle, Chicago, and Atlanta are coming up close behind as well. If you’re a Bostonian, you know you can’t stand New York claiming to be better than Boston at anything, so from my experiences living and working in the Boston area, here are some suggestions that Boston-area municipalities and the Massachusetts legislature can undertake to make the area more business- and startup-friendly, and prevent the next Facebook from leaving the state as well.

1) Adopt a Delaware-esque model of business formation: Delaware is considered by many business lawyers to be a business law paradise, not only for its low business taxes and focus on corporate law in its court system, but also for the comparative ease of business formation and transformation. In particular, in Delaware it is possible to legally change the form of a business from one form, say an LLC, to another, such as a corporation, with a simple form — no need for shell corporations, asset transfers, stock swaps, or mergers. Some startups may prefer to initially form as an LLC for its ease and informality of administration and flexibility of structuring, and later become a corporation once angel investors and VCs come onto the scene. In Massachusetts this can be a time-consuming and expensive process, particularly with the attendant legal fees. Adopting a quicker method of business form change can make Massachusetts more attractive to startups who would be better able to “change their stripes” as their business circumstances dictate.

2) Have more sensible fees: In terms of filing fees that must be paid to the government, LLCs are over twice as expensive as corporations (at least for small businesses). There is no sensible reason why LLCs should be more expensive than corporations, except the notion that the state is trying to cash in on the popularity of LLCs over corporations. The state should pick one fee for business formation, and stick with it. It may also want to look into the possibility of fee waivers for startups, particularly ones that are bootstrapping their development.

3) Be a leader, not a follower, in trends in business law: In the past 5-10 years, new, socially-minded business forms have been adopted by several states, such as the Low-profit Limited Liability Company (L3C), the flexible purpose corporation, and the buzz-worthy benefit corporation. Given the desire of the younger generation of entrepreneurs to conduct their business in a more socially-responsible way, Massachusetts should adopt at least one, if not all, of these business forms — Silicon Valley (California), the #1 entrepreneur scene, and NYC (New York), the #3 entrepreneur scene, have already adopted socially-driven business forms. If Massachusetts wants to remain at the cutting edge of entrepreneurship and startups, it should not be one of the last adopters in trends in business law.

In addition to these legal changes Boston and Massachusetts can make, there are a couple of livability improvements that can be made.

1) Ensuring affordability of housing: The housing market in the Boston area, particularly the rental market, have always have upward pressures caused by the demand from the legions of college students in the area. The housing bust in 2008 placed even more upward pressure on the rental market as people moved from owning to renting. Unfortunately, due to the prevalence of townhouses and brownstones that make up the majority of rentable real estate, and the fact that new mid-rise and high-rise residential projects are skewed towards the luxury end of the market, the housing stock will always remain limited. The local and state government should remain concerned that entrepreneurs, particularly ones with limited funds, are not priced out of the area. One of the City of Boston’s projects to encourage entrepreneurship is transforming the Seaport District in South Boston into the “Innovation District”, complete with housing targeted at entrepreneurs. Unfortunately, the proposed base rents for the project are nearly or over double the rents for similar style housing in parts of the city like Allston and Brighton (although the housing quality will almost certainly be greater than that available at those half-priced rents). If the cities and the state want the area to remain attractive to entrepreneurs, they should ensure that the area is affordable to entrepreneurs.

2) Fix the MBTA: I don’t want to digress too far, as many residents of the Boston area could write a rant about the MBTA whose length could rival War and Peace, but in order for the Boston area to remain attractive, the MBTA must become a reliable, affordable way to transit around the city. If it can sometimes take a person the same amount of time to travel from one end of the city to the other via the MBTA as it would to fly from Logan to JFK, there is a massive issue. Unfortunately, the MBTA cannot fix its problems because it is drowning in massive debt which I highly doubt its proposed significant service cuts and fare hikes will actually solve. More drastic measures, such as bankruptcy proceedings to restructure its debt, are likely needed; the question is whether MBTA managers and state legislators have the political fortitude to undertake those measures.

Although the Boston area has a significant competitive advantage in the entrepreneurial scene due to the large numbers of institutes of higher education producing large numbers of trained and educated individuals, it does not want to fall from its place in the entrepreneurial scene by being uncompetitive on the legal and lifestyle fronts. The above are just several suggestions to keep Boston at the forefront of entrepreneurship