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Best Types of Businesses to Start in California

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At its best, the California business environment is as sunny as its climate, a place where big corporations, longtime family businesses and upstart entrepreneurs thrive. There are millions of small businesses in this state to meet the needs of the biggest population in the nation.

NerdWallet analyzed the data to find the industries where individual businesses perform the best in the Golden State. The best types of businesses to start in California include retail shops, salons and spas, educational businesses and e-commerce, which is flourishing.

NerdWallet examined 186 industries categorized by the North American Industry Classification System in this study. We measured workforce growth, payroll, revenue growth and the regulatory burden to find the top 10 types of businesses to start in California. For more details, see the methodology section at the end of this article.

Key takeaways

They’re small. By number of employees, each of the top 10 industries on our list is smaller in size than the statewide median of 17.8 employees per company. Real estate companies, with 4.5 employees per firm, and personal care services, at 5.4 employees per business, had the fewest employees.

High revenue per employee. In many of the top 10 industries, revenue gains have outpaced labor costs. For example, from 2007 to 2012, revenues for e-commerce companies grew over three times as fast as additional workers were hired.

The best business has high revenue and low payroll. Most businesses have a tough time driving high revenue while keeping payroll expenses in check. Those with larger revenue tend to have high-cost labor. The one exception is top-ranked gas stations, which have been able to pump out revenue with relatively cheap labor.

They’re safe. The top 10 industries carry some of the lowest safety risks for workers. All 10 industries received citations from the Occupational Safety and Health Administration at a rate well below the statewide median of 1.67 citations per 100 businesses in a year, and eight on our list had OSHA penalties per citation below the statewide median of $1,247.

Best types of businesses to start in California

1. Gas stations

Car culture is deeply ingrained in the Golden State, so it’s no wonder gas stations top the list of best businesses to start. The state has about 8,000 gas stations, which employ 54,500 people. Revenue for the gas station industry increased nearly 25% from 2007 to 2012, when gas prices reached all-time highs. However, since gasoline is commoditized — meaning prices are mostly uniform — and individual gas stations face plenty of competition, profit margins are likely low in this industry. California is taking steps to encourage zero-emission and alternative-fuel vehicles, including a recent executive order establishing a greenhouse gas reduction target of 40% below 1990 levels by 2030. Still, about 96% of the state’s transportation needs depend on petroleum-based fuels, according to the California Energy Commission. This reliance, plus an aging mass-transit system, means the demand for gas stations should continue to rise. By far, the highest retail gas sales are in Los Angeles County, according to the California Energy Commission. Other areas with high sales include Orange, San Diego and Riverside counties. Gas stations are highly regulated, especially when it comes to taxes and fees, but the state provides resources for operators. The California Independent Oil Marketers Association is a trade association representing wholesale and retail fuel marketers.

2. E-commerce

E-commerce, more formally known as electronic shopping and mail-order houses, includes retail companies that use print only or print and online catalogs to sell merchandise. An online shopping business is easier, faster and cheaper to set up than a brick-and-mortar counterpart. There are about 5,000 companies with 55,000 workers in this industry in California. Revenue is high — each employee brings in an average of $958,300 — for total industry revenue of $52.66 billion in 2012. The size of the workforce jumped 27% from 2007 to 2012. The booming tech industry in Silicon Valley and the San Francisco Bay Area has helped further the reach of e-commerce companies through new platforms, apps and software. The California Retailers Association, which represents all segments of the retail industry, is a major trade organization for business owners in e-commerce.

3. Supplementary educational businesses

Educational businesses are usually privately owned companies that provide instruction in areas such as fine arts, athletics, languages and tutoring — and include dance studios, driving instruction and exam preparation centers. In California, there’s strong demand for supplementary education after school, on weekends and during school breaks. There are 6,150 of these kinds of businesses in the state, employing 67,255 people. The industry brought in over $3 billion in revenue in 2012, and the workforce grew over 33% from 2007 to 2012. Tutoring schools became popular with the No Child Left Behind Act, and that demand has held up with the implementation of Common Core, along with ever-present fervor over SAT and ACT preparation. Successful supplementary educational businesses headquartered in California include PresenceLearning, Ruby Makeup Academy, Ducerus and ArborBridge Group.

4. Wholesale electronic trade

Businesses within wholesale electronic markets arrange to purchase or sell goods on behalf of other companies. In California, one of these companies, Pajono Woodworks, supplies building materials to cities and the military. Automotive aftermarket companies also fall under this umbrella and they are represented by the California Automotive Wholesalers Association. This industry falls under the wider category of wholesale trade, which is the buying and selling of large quantities of goods and merchandise to companies that resell those goods to consumers. Agents and brokers in wholesale electronic markets make trades remotely, as opposed to handling goods — a crucial intermediate step for California’s retailers. There are about 4,800 wholesale electronic market firms in the state employing 35,400 people. As an $80.5 billion industry, it’s…

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