Few factors play as big of a role in small business success as location. An inconvenient location can spell the demise of a business that would have otherwise become an international sensation. The right location, on the other hand, can easily offset a competitive disadvantage in price or even quality. In fact, some of the biggest chains in the world, like Domino’s and Starbucks, built their entire business model around location, as opposed to the quality of their products.
But choosing and designing the right location for your small business isn’t as simple as securing a lease in a busy area and making a few small alterations. These two decisions must be highly strategic. Well, one strategy that has proven successful for many small businesses is mimicking their largest competitors.
In this article, we’ll tackle the following concerns for businesses considering opening new locations:
- Should Your New Location be Near Your Competitors?
- What Kind of Layout Offers the Best Customer Experience?
- Have You Chosen Someone to Run the Original Location?
- Can You Cover the Accompanying Expenses On Your Own?
Should Your New Location Be Near Your Competitors?
People often scoff at competing businesses situated very close to one another. You might see a McDonald’s, Wendy’s and Burger King all in a row. On the next block, you might see a Gap across the street from an Old Navy. At first, this seems counter-intuitive. What business would give their customers a reason to think twice before entering?
However, research has shown that competing businesses can actually use each other’s foot traffic to their advantage. This phenomenon can even be applied to small businesses located near larger, established chains.
You might assume that the chain would take all the customers for itself. But this would only happen if everyone shopping in the area was looking for items specific to that chain. In reality, shoppers are more likely to seek broad items (i.e. “coffee” instead of “Starbucks coffee”). Thus, more businesses serving coffee in one area ultimately brings more customers looking for coffee to that area.
So, instead of choosing a space that lacks businesses in your industry, stay as close to your competition as possible. Shoppers will already be coming to that area in search of the products or services you provide.
What Did Your Competitors Change about Their Designs?
Your neighboring competitors should be kept in mind as you design your new location as well. Their space probably looked just like yours when it was first purchased. Did your competitors invest in tenant/leasehold improvements, like tearing down walls, lighting changes, new plumbing, or something related to HVAC (heating, ventilation, air conditioning)? Then, examine the layout of their inventory, displays, and customer service areas. Odds are, the layout of at least one of these areas has had a crucial impact on their success.
Pay special attention to design-related decisions that emphasize your competitors’ greatest strengths. For example, let’s say you own a restaurant that is known for its outdoor bar and seating area. That business might invest in outdoor heating so customers can continue eating outside as temperatures shrink.
What Kind of Layout Offers the Best Customer Experience?
Today’s brick-and-mortar stores must offer unique customer experiences in order to compete with online retailers. For this reason, your location should be designed to emphasize the main reason customers visit your store instead of shopping online. Do customers come to your store for a relaxing environment filled with comfortable furniture and pleasant music? Do they usually interact with several products before purchasing?
For many brick-and-mortar stores, their main appeal is their employees. In this case, the store should consider what kind of layout would allow their employees to do what they do best. For example, certain floor plans make it easier for employees to see all of their shoppers and quickly tend to their needs.
Have You Chosen Someone to Run the Original Location?
Entrepreneurs often have a very difficult time delegating tasks. After all, many of them started their businesses under the premise of “If you want something done right, you’ve got to do it yourself.” But this philosophy must be put to rest in order to open a second location.
As the owner, you’re going to be running the new location so you can identify problems and make adjustments early on. With that in mind, who will be running the original location? Research has shown that promoting existing employees to leadership positions poses less risk than hiring strangers. But this might not hold true if the existing employee is completely caught off guard by this major promotion. Thus, it’s up to you choose an existing employee for this position well before you open the new location. This will allow you to gradually groom the employee for the various new responsibilities to come.
Is Your Success Attributed to Your Original Location?
You wouldn’t be considering opening a new location if there wasn’t growing demand for your products or services. But in addition to researching market trends, you must evaluate your own success as well. A great deal of your success may be attributed to your location. Maybe your business is located next to a number of popular local hangouts. Do many of your customers visit your business because they know you personally? If your business is located in a small town, your products or services may fill an important role in your local community.
New locations must maintain the same special qualities of their flagships. The point of these questions is to determine if your original location is indeed that special quality.
Businesses with heavy local followings might also have trouble succeeding in areas that are relatively far from their original locations. This suggests that your new clientele will be very different from your current customers. Your offerings can’t exactly be marketed as “local favorites” if you have to adjust them to suit your new clientele’s preferences.
Can You Cover the Accompanying Expenses On Your Own?
Countless entrepreneurs have underestimated the costs of opening additional locations. They assumed that since demand was steadily increasing at their original location, they would have plenty of cash to cover their new expenses. But then came the unexpected expenses, or the realization that the new location wouldn’t hit its break-even point as early as anticipated. It would be nearly one year before the new location drew a profit, albeit a very small one.
Luckily, opening a new location is one of the most reasonable purposes for a business loan. Only a financial institution that specializes in this area can tell you the true cost of opening a new location, year over year. And even if you didn’t plan on applying for funding, the research process for a new location essentially requires you to create a business plan. You can already supply all the market research and current cash flow data the institution needs to grant approval.
In summary, it’s nearly impossible to develop a strategy for supporting the new location on your own because you don’t even know how much it will cost. So, give your mental health a break and start gathering the paperwork for a business loan application.