Every year for the past 13 years, the Small Business and Entrepreneurship Council judges which states it says are friendliest to small businesses and entrepreneurship.  They call the rankings the Small Business Survival Index.  For 2008, South Dakota was ranked the best state, followed by Nevada, Wyoming, Florida, and Washington (state).  Those five states were the top five in last year's index as well, with Washington fourth and Florida fifth.  The bottom five states are Minnesota, Rhode Island, Maine, California, and New Jersey (The District of Columbia ranks 51st). 

This is of course just one group's ranking system, and it isn't clear how the ranking really stack up against the number of start-ups state by state.  The index appears to be heavily weighted toward tax policy--an issue that has long been at the center of the SBEC's lobbying efforts.  States with lower taxes across the board--from diesel tax to capital gains--are deemed to be much friendlier toward small businesses and entrepreneurs in the index.  Government spending counts against a state's rating. 

Another interesting piece of the SBEC's metrics is population growth. 

In terms of population growth, from 2000 to 2007, total U.S. population grew by 6.9%. As for the top 25 states in the 2008 Index, population growth over this period registered 8.4%, while among the bottom 26 (including the District of Columbia), population growth registered 5.0%. Therefore, the population in the top 25 states on the Index grew at a 68 percent faster pace than the bottom 26 on the Index over the period of 2000 to 2007. In terms of raw numbers, the top 25 added 13.2 million in population, while the bottom 26 added 6.3 million.

The full report is here.