When does it make sense to open a second location for your business?
When does it make sense to open a second location for your business? What business metrics should you achieve? My business has been picking up, but I don't want to pull the trigger too early!
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Two immediate ideas pop in here. One: when you can afford to open and maintain your second location. Two: When your customer base expends to a level that means loss of a customer if timing, employee production, good will and common sense, urge your doing so.
Simply amplifies here are your employees having difficulty in properly handling you customers, is the good will you give your customers being seriously strained, how long have you been open in the original store to build your return clientele, are you customers traveling uncomfortable distances to the point of loosing them. Then lastly would a larger location suffice as to oppose a second location.
It make sense to open a second Business Location,the moment you feel the Business has picked well and you have a wide range of clients who comes from different regions,Your second Location will serve as a base for that region hence you get closer to your customer,increase your earnings as you gain more customers with easy access to your services
Only if there is a real advantage to physical connection and human interaction or distribution of goods.
Great question. I suggest that you read the book, "No Man's Land" by Doug Tatum. He does an excellent job answering this question. Good read and definitely want this in your library.
I appreciate the judiciousness in your approach towards opening second location for your business.
Your present business at its present location has four stages: Introduction, Growth, Maturity, and a universal truth Decline (because of growing competitors or obsolescence the takers of product/ service assign it). Decline stage can be be converted into another life to the life of present business through timely innovations halfway past the stage of Maturity.
Now, for your business at second location, you should not venture while the present business is at Growth Stage. Halfway past the Maturity stage you will have to concentrate on innovations for the present location. So the best time wouId be about one-quarter way of Maturity Stage of the business at present location.
You said your "business has been picking up". It is a period ahead of 'business is picking up', and short of 'business has picked up'. The day you say "my business has picked up" without waiting further start venturing into business at second location.
You would need to consider a lot for the choice of second location, and models/ modalities for the same. But that is not your specific question. Your question is "When" which has been answered, and not "What all or How", as you already are a master of this business having grown it at present location.
I wish you the very best for your business at present location, second location, and many more locations thereafter.
- Dr. D.S. Narban
Ph.D. (Psychology), MBA
Carrie the very short answer is this: once you have the first location nailed and it is able to operate without your full attention. In my experience many folks have failed because they are opening the second shop before the first one is working. I'd be happy to chat off-line if you like. This is a topic that deserves very careful consideration.
Carrie, congratulations on what you have achieved already. Some great answers here already. I am only going to recommend you read the " E-Myth " by Michael Gerber. Combined with the great answers you have already recieved, this should assist you to see the way forward for you and your business.
Do some research for areas where your competitors are not so strong and the demand for your products is good. When sales growth in your original area begin saturating and/or distribution becomes too diversified, pool the trigger.
Opening a second location would involve additional capital. Check out that if the second location fails to deliver, your business will not be crippled.
A second location however is a great idea when business is on a roll, as long as it gives access to a whole new market for selling to, or sourcing from, preferably both. Then it makes great sense to move on. The expected results should be of a quantum magnitude and not just incremental.
when you got three achievements
1-above than break-even according to capital.
2-main core of team will be completed and smoothly run the business.
3-business plan has an opportunity or a space for second place.
I think several factors already mentioned are critical: you must be able to generate enough income to get your new location off of the ground, you must already have a strategic plan for managing both locations AND you must determine how saturated the market is in the new location to predict your ability to enter the market and do well in an area which already may have several similar businesses.
If you can set up shop by sharing space with someone until your business grows or if you can minimize costs by figuring out if you can use the same resources at both locations that might be helpful but ultimately you need plan for double the costs, double the set-up, staff etc.
Every business goes through levels of development. Starting one is often the most difficult stage so it’s great to know that your business is picking up. You are correct in taking the position that you do not want to pull the trigger early. It’s always exciting to think about expansion but the truth is, your decision to expand could ultimately affect the performance of your primary location if measures are not properly undertaken.
Thus, before deciding to expand, here are a few guide-questions to consider:
1. Have you come up with at least 5 non-negotiable core values from which you can build the foundation of your business?
2. Are you comfortable with the current roster of people you have on-board your business? More importantly, are these people aligned with your values, purpose and vision?
3. Do you have enough savings or have you allocated enough capital to support your new location for the first 6 months of operations?
4. Have you made any financial projections for an expansion? How does the cash flow look?
5. Are you confident with the frameworks, workflows currently in place with your business?
These questions lead to one very important consideration: Is your business adaptable to your new location?
Business expansion is a tricky proposition because the global business environment has become more Volatile, Unpredictable, Chaotic and Ambiguous otherwise referred to as VUCA. Businesses used to spend 80% of their time on designing strategy and 20% on implementation because the thinking was a perfect business strategy exists. They realize later on that because of their greater focus on strategy, 40% of the potential revenues are left on the planning table. With VUCA, the shift on business development should focus more on implementation because the business environment is in a constant state of change.
As the business owner, you have to make sure that you and your people are proficient not only on the technical and business aspects but also on the behavioral component. Change creates distortions and turbulence. Its profound effect will be on behavioral; how people, businesses, cultures react to changes in existing conditions. Just like Darwinism, the key to survival is to have the ability to adapt. Without the ability to adapt, you would not have the foresight to see all the opportunities that change presents.
Your first location should establish a solid backbone for your development schedule. The foundational values should be in place so that everyone involved in the project will be aligned. Alignment is important because having everyone dedicated to your purpose and vision will keep you moving in the same direction despite of turbulence.
You also need to make sure your back-end or back office operations are rock-solid. Similar to a tree where you don't see the roots that support its life, your back-office is responsible for maintaining order especially during times of chaos. If the costs of maintaining back office work is past your budget, you can outsource it and save at least 50% on your net income because outsourcing takes advantage of economies of scale. Here in the Philippines, we have a pool of competent back office workers who make only US$2/hour.
Finally, you need to make sure your infrastructure is dependable to ensure uninterrupted operations.
Expansion is more than just adding a new location it is all about building business which has greater implications on your success. Done correctly, and your business will thrive.
Without making the answer too complicated, the simple answer is-
When you have replaced yourself in the first business and that business continues to develop, grow and continues to pay its way and all wages and still makes you a good profit.
You are then free to work on the second.
In my opinion, I'd say see if your business, at the first location is continually generating profits over the course of a half year to a year before opening another location. Remember that the second location, initially, will be run off the profits off the first location, so you need to make sure you have enough cashflow to support two locations, with one of those locations initially being in the red.
Most people will say I'm crazy, but here goes . . .
Second location depends on your business of course. But the typical business owner is already overstretched with only one location. Believe it or not you would probably be better off straight from 1 location to 4 locations. If your cash and business moxy does not allow you to think at a level of 4 locations, don't even go to a second location.
In my 30 years of experience I have seen a curious model play itself out: You go from 1 to 4, then 4 to 10, then 10 to 40. Each time you will have to reinvent how you manage. If you don't learn to reinvent how you manage, even location #2 could kill the business and put you in the hospital.
After 40 locations, sell out or franchise it.
Hi Carrie, I would go with Moira.
But the first question should always e . WHY?
If you are just asking to find the right "trigger point" I believe the responses to date
cover 90+ of the typical homework that is needed.
To add to the discussion i would also add a few more questions.
(always there are questions before answers.
Please explore the other tried and tested questions.
Why?........... Add a second location. Alternative is to expand current site
When?....... Is the best time in my customers buying cycle. Summer/Winter etc.
Where?..... Location. Location, Location. depends on market type. Interstate/ country/other side of town.
Who? ...... The personnel to staff, new ppl or mix. Impact on current business, staff, plus lead time and ramp up time for mew location.
How........ Cost of establishing . Rent/ buy/ purchase competitor.
All of the above questions need to be added to the others.
There are a number of issues under each main heading.
You would need to incorporate a "Growth plan" as part of your business plan. If you are looking for bank finance or introduction for a extra partner. which is also a question for consideration under "How"
The other thing I would be doing is looking at your current business.
Understand who your customers are, and why the buy from you.
What is it that makes you unique.
Work out who your top 20 customers. by sales and by profit.
Work out who your 80/20 (80% of the business generally comes from 20% of your customers.
Identify which markets they are working in.
Identify were your customers rank within each market they operate in.
See if there is room to add additional higher ranked customers.
Id where they are located. (this may help you in working out were to place your second business.)
Work out what is required to attract and maintain additional new business.
Staff levels and stock plus cash flow.
All of the above will also provide an indication as to what potential you already have / have not.
If you are looking to grow, and believe there is a need to do so.
One should at first decide what type of growth is best for the company and why.
Hope this helps. George.
Two things are required:
1. When you totally understand the economics of the first location (many mature businesses canot answer basic questions well, like what does it cost fully-loaded to acquire a new customer) AND
2. You have systemitized not just the delivery of your product/service but also the mangement and training of people to do it.
Many companies fail when they try to scale because they think just "Doing the service" is enough. It is not. There are two levels of abstraction above that:
1. Managing the people to do it - A very different skill set, and
2. Finding and training new people to do it effectively - And getting the people to stay too
We are in the business of installing Management Systems (6) that prepare companies to scale. So check out AirTightMgt.com. Literally every company that wants to scale needs these six systems in place before they go into a rapid growth mode. The Six Systems are:
1. Strategic Planning (process)
2. Management Best Practices (art including the 5 styles of management every professional manager should use at appropriate times) i.e.: http://clevelenterprises.com/articles/ManagementByObjective.htm
3. Dashboards and Metrics (KPIs) (Design = art, maintenance = process)
See 6 videos here: http://www.airtightmgt.com/what-is-airtight-management/dashboards-and-metrics.html
4. Strategic Budgeting (process)
5. Process Management (The process of process documentation, training and constant improvement - Kaizen)
6. Human Capital Acquisition and Development (HCAD) = Finding and keeping the best people and controlling your culture to be appropriate for your market and brand.
There are many free videos on the web site about Dashboards, as that is one of the key rights of passage for companies to shift from "seat of the pants" management to professional best practices and managing by the numbers with leverage.
I suggest that you zero base budget the costs for a 2nd operation and make sure you have revenues to cover the "Nut." I always found overtime to be the better option and not open another location until those options are addressed...