You’ve launched your small business, poured heart and sweat in to grow a foothold, and now are approaching the limits to revenues… now what? Perhaps opening a new location crossed your mind along the way?
If you have a thriving small business and established brand, then it's only natural to want to capitalize on it. Most business owners believe that the next step is to open a new location to achieve small business growth. It is the natural, smart next step. However, there are some critical risks and you should think carefully before making any decision.
Just because your business is successful doesn’t guarantee profitability somewhere geographically new. A new location brings many, sometimes unexpected, challenges in which to overcome.
Let's explore 4 things you should consider before opening a new location:
1. Can You Replicate the Business?
There's a reason large fast-food chains such as McDonald's are a success. The process is exactly the same in each store all over the world and, it doesn't rely on a single person.
While replication isn’t exactly a requirement, if your business relies on the customer experience or specific product “tastes”, if you will, then replicating that “taste” may, but not always, be key to success. Another great example is Budweiser. When you partake in an ice-cold Bud Light anywhere in the U.S. the flavor is always the same. This is in spite of the fact that Budweiser has several manufacturing plants, any of which product the EXACT same Bud Light.
Off subject for a moment, I strongly recommend trying an Erdinger Dunkel if you want to enjoy a truly wonderful alcoholic beverage - Ryan, Owner
With respect to replication, you need to consider whether you, personally, are critical to the day to day running of your business. Typically, a small business owner will always lean towards a yes on this question. Call it a bit of entrepreneurial pride. However, with a bit of effort you can likely train a talented employee up to run the second location. After all, if you plan on opening new locations, you'll likely also need to transition yourself into a more executive role rather than day-to-day manager.
One thing that we often are asked is about the loyalty of a customer base to specific employees. Think something along a mechanic or hair stylist in which their customers come to the business specifically for that person. Our response to that is to liberally ignore this concern. The customers that you’re worried about will likely maintain their loyalty at the original location. What you’ll be concerned about is creating a new customer base related directly with the new location.
2. Carry Out Market Research for the New Location
It may sound appealing to move to a much busier, populated location, but this will not always guarantee success. New locations always come with exciting challenges.
Before opening up a new shop, you'll need to carry out thorough market research. The top two items on the research docket is to determine your new or expanded competition set as well as any differentiation in your customer demographics.
This item is often massively under-researched by business owners.
The biggest culprit is by overlooking the secondary and tertiary competitors. If you own a coffee shop for example, it’s obvious to identify the other local shops plus the ‘Starbucks’ of the world. However, what about the breakfast place down the street that also provides coffee (secondary)? Or suppose that the new location has a much denser residential population. Under that scenario then the potential customer’s own home would be your competitor. They could simply make the coffee and/or work from home rather than purchase from you (tertiary).
If you’re having trouble identifying any ‘real’ competitors, don't assume it's going to be a home run. There could be a hidden reason competitors have not moved into the area that you have yet to discover.
This one is a bit more nebulous in terms of determining the success of your future location.
Let’s start with describing a few common potentialities. Geographically speaks, cities often consist of distinct demographic areas. Think something along these lines: Affluent residential zone, the artistic area, or college-oriented section of town. Each one presents a very distinctly different buying pattern in terms of both physical products and services.
Depending on your business these zones can make or break a new location. However, if you’ve done the proper research, you’ll have the knowledge you need to perhaps modify the business to meet the new demands. For example, perhaps your new location is going to be located in the affluent area and your original may be in the artsy area. A simple, but highly effective, move may be to place more emphasis on the quality of the location and atmosphere to cater more to what those affluent customers are used to.
3. Spend Time Finding the Right Talent
If you learn one thing from this blog post let it be that you should NEVER, under any circumstance, promote employees based on tenure alone. This is a proven recipe for disaster. It is absolutely critical that you hire and/or promote exclusively based on talent and capabilities.
You’ll have plenty of calendar days between when you make the call to open a new location until when you officially launch. There is no rush to fill the new positions with just anybody who can do the job. You’ll want to make sure that the new team meets or even exceed the caliber and skills of the one that led to your success.
It sounds so painfully obvious but heed this item well. Poor hiring choices are one of the leading indicators of failure during small business expansion.
Also, be sure to take into consideration NDA’s and Non-Competes when training an employee. Especially, if you’re transferring trade secrets in order to run a new location. Reach out to your business attorney for more info.
The first step in this process is to identify your culture. You may have a fairly solid idea here but remember to take into consideration those demographic zones. You can tweak your culture somewhat to meet the desires of the new locale as long as you keep your core in place.
Refer to our example above about moving to an affluent area. For example, you may change the dress code from hyper casual to more formal to meet the expectation of the new demographic. However, you wouldn’t change the personality qualities of your customer facing employees since that is more core to who you are as a business.
4. Do You Even Need a Second Location?
Opening a new store comes with a lot of financial risks, among other things. You'll need to secure a suitable site and likely refurbish it. You'll also need to hire staff, buy equipment and, take care of the admin.
We don’t say this to scare you off. In fact, we strongly support business expansion such as new locations. But having realistic expectations is another one of those critical items. (The list of critical items is long indeed. -Ryan)
Generally speaking, one of the most common motivators for a new location is the soft cap on revenues of your current location. There’s only so much time in the day, or seat at a table, or parking spaces in the lot after all.
But before you rush immediately to that new location, perhaps you can take an inward approach. If you’re that little coffee shop we mentioned, then perhaps you can simply expand on the current location? A few examples of this could be: adding on porch dining, buying the unit next door and merging, extending the hours of operations.
One other option here is a bit riskier but can provide direct revenue growth without much work at all… raising your prices. If you’re looking for quick growth and you believe that your customer base will tolerate a modest increase, then this is a simple and effective growth tool. In fact, it can even be a solid portion of your expansion strategy by utilizing the price increase to internally fund the new location.
Another alternative approach may be to move your business (more) online. Moving online expands your reach to lots of new locations all at once. You also won't have to spend half as much money to do so. You'll just need a great web designer and SEO expert to get you up and running. You may even want to hire a great business coach to help you make a plan of action.
How to Achieve Small Business Growth?
These tips are just the tip of the iceberg in the steps needs to open a new location. But if you can conquer these initial ones with ease then you’ll be on the right path to success.
As you can see, there are lots to consider before opening a second location. Ensure you take your time and do your research before making any decisions. Remember, there are many ways to achieve small business growth.