How do you know if your small business is ready to expand to another location?
I am considering expanding my salon to a second location. Revenue has increased lately, and our operations have been running smoothly. I also have a great team and I want to give them the space and opportunity to grow themselves. What decisions need to be made before I can take the leap?
Hi Lexi - Great problem to have. Congratulations on your success.
I've read your post three times now...and I keep coming back to one word: "lately". Can you substitute the word "consistently" for the word "lately"? I would want to know if I was comfortable that my current revenue in location 1 was sustainable before I invested my cash reserves in location 2 - or worse, borrowed the money from a bank or investors. So that would be my first decision.
Second, I don't know your business like you do. But are you offering something unique that is so great that it makes sense to penetrate a new market on the other side of town? Is it smart to add a new location that potentially could pull customers from location 1? What's the business plan for location 2 look like?
Third, what about your time? Can you split your time so that you could oversee whats happening at both locations? Or are you going to have to rely on new hiring to cover everything from staff to management?
There are more questions I would ask but these would be the ones I would start with and build from there. If you're interested in talking about it more and bouncing your ideas off someone, feel free to call me or private message. Happy to help...
Hi Lexi ,
In my opinion your gut feeling is most probably the best indicator for the decision . Being the eventual risk and reward bearer your sixth sense is the most powerful tool of forecasting your business has at the moment.
However, to safeguard yourself the most important evaluations you have to make beforehand are:
1. Location for the new set up - Preferably it should compliment the existing set up because there may be opportunities to cross sell products and services and cross refer customers .
2. Additional and marginal costs - Preferably it should be a rental space initially and once it is up and running on its own an owned premises may be planned. Other costs should also be evaluated in detail.
3. Skilled Staff - As you said that you have a good team but that team could be sufficient only for the existing set up and leveraging their services to another place may affect your existing client base . So think of the training and development of more staff and the related costs involved.
4. Potential of revenue - This is the most important factor you have to consider studying in detail the target market of the area . The extent and sustainability of revenues for this area should be estimated beforehand. Both in terms of short term revenue expectation and long term revenue expectation.
5. Set Targets- It will be prudent to set some targets for your team and yourself so as soon as you start operations you have indicators of what was expected and what is being translated into financial return actually. This will give you a very quick feedback on the measures to be taken to meet your expectations.
6.Branding- This is also an important matter to be finalized before you practically take a decision . It is generally seen that there are extreme sentiments towards different brands in a single city for example brands famous in posh areas are not very much supported by remote areas. Similarly there are competitive forces between different cities which can harm the brand. So you have to be careful in taking a decision in this area.
7. Competition- You need to evaluate your competition in the new area also separately . Because at times it happens that you did not have major competition in the place where you were successful . Based on that you took a decision and moved to another place but eventually you found out that some local cultural or community entrepreneur is very strong in that area which restricts your ability to grow. So you have to be careful in this area also. Visit and study the market in detail where you want to expand.
These are the major items which I feel you should evaluate before moving but I would still weight your gut feel as the most convincing element in the decision.
Together you and your team can always make things work in your favor. It is just a matter of energy and hard work.
Wish you all the best.
There are a couple of big questions that you need to ask yourself here. As a consultant I dealt with a lot of small business transitioning to the next level and all of of the successful one's had one thing going for them, a Unique Selling Point..
In my current role as a photographer I understand that what I'm selling is my personal skill, and that's a really difficult thing to lend or give to another person, and this is why you really need to understand what is making your current salon successful?
Specifically you need to understand if you have a personal following, or if you are providing a branded service that can rolled out at a new location, with new staff?
This is where it starts to get complicated because even if you do have a magic formula, do you understand what that formula is? Clearly if you are successful you are giving people what they want, but have you compared yourself to your competition and clearly analysed the results.
This means you need to understand in detail why your customers chose you above your competition, and the answer needs to be something that can be wrapped up and recreated. Ideally you should have something so personal that it should almost be applicable to copyright. You should certainly have a distinctive feel to everything you do that identifies you in a good way.
If you have these elements then you need to be marketing them, especially on social media. Almost every local area these days has a Hash Tag on Twitter, or a Facebook page that you should be a vibrant part of. Are there any examples of your work on Instagram? Twitter? Facebook?
Although these are tools that are used locally they are also used to expand through connection into a wider market.
This isn't a frivolous thing, it's something that you should be doing at every level. Branding is one of the fundamental keys to moving your operation from a single outlet, to a franchise. You might ask "How can I give a hash tag to my clients?". Well, the answer isn't actually in social media at all, in everything you do that identifies who you are! Your brand should dominate everything that you do whether it's a casual, or a well crafted image, there should still be purpose behind every seemingly casual decision...If you can read all of this and ,either dismiss it as things that you fully understand, or can implement then you probably do stand a good chance of creating the same experience for customers in a new location [with some market research of course].
If not then a good place to start would be to identify why people come to you, and weather that is a thing that can be transferred, or if it is inherently part of you as an artist/stylist?
Lexi, I’d like to answer you question in two parts:
Your small business is ready to expand to another location when two criteria are met: A) You’ve maximized your current location, and B) The “system” that runs your business has been proven out and is ready to be replicated.
Just because your operations have been running smoothly and revenue has increased does not necessarily mean the best business decision for growth is to open a second shop in a new market. It may be that you’d be better off having a larger facility in the market that you are already doing well in. On the other hand, perhaps you’ve grown as big as your current market can support and opening up a new location is the only viable way to grow. This is going to take some deep examination on your part.
Next, you say your "operations have been running smoothly”, which is an excellent place to be, but have the processes been formalized and can any competent person step into your role? One great way to know for sure is to take a few weeks off and see how things run in your absence. Have you taken time away from your business lately? Opening a second location will probably take a vast majority of your time and you need to be certain your current location will not suffer for it.
Lexi, it sounds as if you are doing well. While there are many practical considerations I really admire that you are looking for ways to help your team grow. You say that revenues have increased "lately" so I sense this is not time proven, yet. This concerns me in the way Rich Veltre writes. I feel that Rich has proposed ALL the right opening questions. My further suggestion is that whilst you go about answering them, keep an eye on that revenue. In other words, start planning but do not leap YET!
I suggest you go with a Score counselor and develop a business plan...Make sure you know your fixed costs and out of pocket/variable costs. and the revenues to cover. I would forecast sales at a high, realistic and worse case scenario and then plug in your costs and especially understand your cash flow needs before jumping in too quickly...My experience is everything is great with the team when doing well, not always that way if plans fail and you are the leader...That's when you look behind you for the support you initially had and they are gone, so plan carefully...Adding fixed costs must generate more revenue...once in place these fixed costs never leave easily...
Congratulations Lexi on your achievements. I know you are in a great business with a growing demand.
In your question, you touched upon 3 key areas of a business: Revenues, operations and team. Well manage these always lead to great profit. I will cover the 3 areas and a fourth one.
1) Just like Richard Veltre and others said, you need to make sure that the increase in revenues is consistent for 1 or 2 years not just lately. At the end of the day, you want to have a strong cash flow consistently growing. Revenue growth means not much in your industry.
2) Operations running smoothly is not enough. You need to make sure that you master the Economics of One Unit. This is an area missed a lot with many salons. Then make sure you have procedures for processes that can run without you.
3) Congratulations on building a GREAT TEAM. You are doing a good thing thinking about their growth. But before your move, make sure you built leaders within the team. For your move, think first convenience for customers.
4) The last area you want to make sure you are covering is TIME. How much time are you spending working on the business? If the second location will add more time then you are not ready.
Best of luck
First of all congratulations on your success @Lexi. None of us except you knows better that what is the standard and level of your business. According to me if you have completed your milestones and goals, and after that your operations have been running smoothly then your should stand up and make a decision to make it sure that you are the brand. One thing you should keep in your mind, your budget is all your status so before you go up you must have your budget for backup. Its not funny, its reality.
I would suggest one approach is to consider the time and attention giving to the business to create this great team. Can the existing team carry on with winning the day to day opportunities the existing business encounters? Also, can site one provide enough cash flow to bring on site two and can you meet or exceed the same cycle time in building a winning team at the second site.
At the same-time the answers to these questions are being explored a good demographic study of the second site should be taking place. Identifying the three best options for the new location looking at traffic patterns and ease of access to and from each location. Mapping each location to understand what is creating the traffic pattern will play into strategies for short and long term. While some of this data is most likely already available the need to physically observe is still one of the best methods for understanding buyer behaviors.
Then there is recruiting great team members to your business verses the competition drawing the same talent to their business. As the team builder will you be able to inspire both teams by splitting your time between the two locations. An old school of thought is to always remember "when the cat is away the mice will play." Great teams existing because they are inspired by a great leader and coach. Even existing great teams must be inspired and motivated intrinsically to repeat their winning behaviors.
Years of research and study supports two team killers; complacency and division.
I hope this offers you some positive thoughts to support business growth.
There are lots of questions you need to consider but perhaps the first three questions I would start by asking as these form critical go no go decision factors are as follows.
1) Have you got the leadership in your original salon if you are out the business?
Many people taking this step find that their first operation struggles once they are focused on the new venture. This normally occurs because of a lack of skill in the day to day running of the operation (replacing the elements you do). The other factor is that you are heavily invested in your business, and even the best most motivated staff do not have your commitment and as a result do not got to the lengths you will. Finally as a decision maker for your organisation you take key decisions affecting the running as a matter of course, they will seek reassurance and clarification so prepare to be frustrated.
2) Have you any information on footfall for the new salon.
This is always the key as you are possibly aware its all about location, location, location! this is key as will dictate how hard you need to work to get the new venture off the ground.
3) Do you have the finances that include contingencies to ensure you get the new salon the way it should be and cover the running costs for a period until demand ensures that revenues cover costs. As a rule, I would suggest you take your best guess on time to break even and double it. If you can afford this then you likely have the resource requirements.
Obviously if you want to explore any of these in more detail then please give me a shout.
Document your success model briefly first.
Review your model to clearly determine what elements will contribute to success independent to location and what elements that are closely depending and affected by location.
You can further improve your core competencies in your current salon and transfer or can be transferred or serviceable by way of back office model to next salon at exceptionally low costs.
Ensure that your success model is twined all the strengths of your first salon and careful designed checklist & strategies to cover those location driven factors.
When you are ready for the above, you can start looking of franchisees or JV model with your employees or expand by own investment. Please note that you may consider buying over another salon as your second salon expansion - this speed up setup process and normally come with existing customers.
Many of the world's languages have the concept of:
Think about English:
A pair or a couple
A few, several, or a lot
I believe this says a lot about your question. For "one," you are there all the time, see things all the time, etc. For two, you can probably manage even if the two are completely disparate (different staff, different books, different investors), but of course it's easier the less disparity there is...so that's what you want to manage toward. Work toward flexibility in your staff, so that you can move them between locations to cover all manner of events, and plan to staff with some slack. I recommend scanning some of the work by Zaynep Ton at MIT - she applies Operations Research to high-performing organization to find out some interesting things.
Going from two to "many", the decision is a lot more difficult and there is scads written about "scaling the business". I won't cover that here.
Ignoring the actual work of the Salon, are all your business functions running extremely well? Are they documented? Are they trainable? Can they be done without your being there? If the answer to all those things are yes (assuming you have a viable business and location), you should be able to expand to other locations, assuming you can find managers for those locations that you know, that know you, and that you trust.
As you mention your Revenue has increased lately , only you should know wether you are moving to another segment market or you are at the same market -within the same circle - you need to sudy that well before moving , plan & study your move well .
Ask for feedback from your employees and existing clients? If they are aboard, develop a business plan, and go for it.
A fine array of answers. Yes, before you invest any money you have to be absolutely certain your services are needed. Good market research is not cheap but is part of your business plan.
In my opinion it is all about cash flow. If you have achieved a meaningful percentage of revenue in net profits (each industry benchmarks are different) - which typically means your existing location is operating efficiently and you will have enough cash to weather the demands of another location, not just start up costs but also sustainable operating losses. Scaling a business is an incredible job and wealth creator. But it can also sink an existing good business.
I've read some excellent ppoints of view in the answers. What I think about your case is:
- the increase of the revenue is not enough to decide to open a second location. It could give you conditions to take same actions, and an option to grow is to check if there is available area nearby or contiguous to your current business. Growth in your current location could be the best choice;
- your business is very talent dependent. But your should have some processes, i.e., the way to do things, that must be replicated to every site in order to guarantee the excellence of your services.
- What information do you have about the other location ? I suggest you to make a business plan, think about all you need to tale this step, use your experience in manage your current business to plan the other one.
Best of luck.
Hi Lexi, there are 2basic reasons why one may want to expand - (1) seek greener/alternate pastures or (2) render faster response to a profitable local clientele. Which of these apply in your case? Do you have a good number of customers coming in from your 'new' location? In that case it makes total sense. In case you want to expand for #1 reason, remember that it will not really be expansion but 'exploration' initially - almost like starting a new business. You may want to find the main reason for your expansion plans and plan before you decide. Hope this helps.
The keys on expanding a busines are based on 3 things: Relationship Management - in your kind of business I would think that is important; Roadmap to Revenue - will there be a good path towards making the next location Successful in the right timeframe; Customer Satisfaction- can we be sure that New Customer at the next location are References and Happy.