Yelp Analysis Finds Bright Spots for Business Growth

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A new economic outlook report released by the team at Yelp just this morning finds ample opportunity for growth for small businesses throughout the country, and particularly those located in Southeastern states.

Looking at economic opportunities for businesses in 50 U.S. cities, Yelp found the most strength in warm weather locations. New businesses in the country’s most expensive cities—like New York, San Francisco, and Boston—fared poorly in Yelp’s analysis, in part because of the high costs those business owners face.

“The markets we often think of as being on the forefront of trends in food, retail and other sectors can also be the toughest for small-business success,” explains Yelp Data Editor Carl Bialik.

Although competitive markets can be good for consumers, Bialik points out that the opposite is often true for businesses in those areas. Highly populated cities tend to come with high rents, high wages, and other related costs, which budding entrepreneurs in other locales with expanding populations may not have to deal with.

“The Southeast and Southwest look like strong spots right now, with many of the top cities on the list,” Bialik says.

For its first-ever Local Economic Outlook report, Yelp assigned “opportunity scores” and ranked cities, neighborhoods, and business categories based on those scores. Each U.S. business with reviews on Yelp was analyzed using a random-forest model to estimate its probability of remaining open for the next three months, for each month over the last two years. The random-forest model also takes into account business’ locations, categories, and other factors based on Yelp-related activities, such as how many reviews each business has received.

While Yelp’s city-specific rankings are useful, it’s the neighborhood-by-neighborhood information that stands to benefit local business owners the most. Yelp’s data team generated a list of 50 neighborhoods that have experienced the largest positive change in economic opportunity over the past year to give budding entrepreneurs an idea of where to look for future opportunities.

Many of the highest-ranking neighborhoods are in lower-ranking cities. For example, the No. 1 most improved neighborhood on Yelp’s list is the Stonestown neighborhood in San Francisco. Several neighborhoods in New York City’s Queens borough were also ranked highly, meaning that business owners in economically challenging cities don’t have to go far to find areas for potential growth.

Four of the top 10 most improved neighborhoods in Yelp’s report are located in California. Bialik attributes California’s dominance on the neighborhood rankings partly to the fact that many of the nation’s major cities are in California, and Yelp has defined neighborhoods in many of those cities.

“Also, many of those markets are dynamic, which can mean big rises and falls in opportunity in a short time period, as opportunity shifts between neighborhoods in the same city,” he explains.

Today’s report comes on the heels of a working paper from Harvard, released last month, showing that data from online platforms like Yelp and Zillow offers the potential for improved measurement of local economies. In particular, the paper found that data from Yelp could help track local economic activity on a more granular level than publicly available government data.

Yelp hopes its new report will become a resource for businesses and entrepreneurs, along with policymakers, as it helps those professionals better understand where the greatest opportunity exists in the current economy.

“For a long time we’ve wanted to analyze Yelp data to better understand what it can tell us about local economies … We’ve built a larger team of data scientists and have learned a lot about our data and the signals it shows,” Bialik says. “We think business owners will want to know which are the most promising markets around the country, and neighborhoods in their cities, for business survival.”

Stephanie Miles is a senior editor at Street Fight.




Stephanie Miles is a journalist who covers personal finance, technology, and real estate. As Street Fight’s senior editor, she is particularly interested in how local merchants and national brands are utilizing hyperlocal technology to reach consumers. She has written for FHM, the Daily News, Working World, Gawker, Cityfile, and Recessionwire.