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!
There are 3 main factors to look at that will help you determine if it makes sense.
1. You have rock solid systems in your business already that are easily duplicated and have proven efficiency and accuracy.
2. The second location has a similar demographic to your first location and demand for your specific business.
3. You are financially healthy to make the move without going into too much debt or causing stress on your bottom line.
Hope this helps. If you would like to discuss further or get more advice, feel free to reach out to me and I am happy to assist.
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.
The answer is not an easy one.
There are a variety of factors that you need to consider when answering this question.
First, are your sales driven by location? In other words if you add a second location will you simply be cannibalizing customers from your current location. And will revenue drop significantly in this location by adding a second. If this is a destination type business the answer could very well be yes. If this is true you have just doubled your operating costs without a corresponding increase in revenue.
The second consideration is that of management complexity. Will you be able to manage both locations effectively. and if not will you be able to hire (and afford) competent management to operate the second location. This point is not an insignificant one. I have seen many examples of this not working.
If the correct management team is not selected and it is still you (the owner) that is driving operations, then whichever location you happen to be at will thrive and the other will be an anchor weighing down your business.
It is also important to establish good systems so that the customer "experience" is the same at either location. This is the franchise model and companies that are successful do this will. Think McDonalds, you know that a Big Mac is a Big Mac regardless of whether you but it in NYC or "Poe Dunk" Arkansas. This is accomplished by having good systems in place and adhering to them rigidly.
I will tell you that you are at the point where many businesses succeed or fail. It is much easier to build a business that you control and in which you are an integral part of the operation than it is to replicate this system successfully without (or with reduced) presence of the founder.
Best of luck in your business.
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.
Supporting what Mark said, if success is due to you then the second location needs to be delayed until it is a system or a process that can be repeated without you. This is a point I make to anyone selling their business as well, the business cant be better with you than without you.
If you feel comfortable with the above, then I ask what do you gain with another location. Double the revenue is not double the profits. You now have more inventory, more payroll, more shrink more demand on your cash supplies. Just make sure its a win.
That is a tough one. I would probably go the route of researching and developing a business plan as if it were opening as a single location and if it can provide the revenue to survive on it's own. It also depends on if you are wanting to open a second location to accommodate the growth in existing customers/clients or to tap into a new geographical area?
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.
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.
Simple, but the answers need planning and are complex.
Eight strategic questions:
1. When you can generate enough business to cover costs.
2. There's a big enough market. Y
3. our customers and potential customers can find you.
4. You can find the right employees.
5. How is your business now. Have you looked at the nine P's of marketing (http://nineps.com) and have done a Marketing Audit?
6. Do you need to add a partner or a strategic analysis?
7. Are you too busy now with customers demanding product?
8. Look at how you present your product or service now? Hope this helps get you looking in the right direction.
You are very smart to ask this question. This is a very complex decision, and not one to enter into lightly. Many business owners may be tempted to jump into this quickly as business starts to do well without weighing some important factors like:
1) Is the current business activity level sustainable, and for how long?
2) What factors are driving you want a additional location?
3) If it makes sense, how does a new location benefit the business long term?
4) Where would you open a new location and does that market make sense?
5) Will you be diluting your brand or spreading yourself thin?
6) Does this fit with your long-term mission and strategic goals?
7) How does it affect your future if your are wrong? Can you bounce back fast?
8) How will this affect the existing location from a operations and cost perspective?
Also make sure to research the new market you are considering ie. prospect clients, competitors, tax implications, environmental complexity, hiring etc.
Make sure it makes complete sense, and talk to other professionals to seek guidance. This will help you make an informed decision, and do your due diligence before you leap.
I know I've given you many questions to think about, but hopefully they help. This definitely a decision that requires much more work in order to properly assess.
Take care and I wish you all the very best in your business Carrie.
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.
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.
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
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
When you have a proven model for success and are in a position where you can replicate it. Looking at all the successful businesses that have sprouted up all over the country and the world in some cases, the common thread is the ability to prove that what works in one location will work in another. Then you need to decide should I franchise my model, or do it myself.
Aside from the location consideration mentioned by Mark, if the average (full business cycle - lows and highs) equals 225% capacity of what a store would need in order to be profitable - then consider a second location. This leaves 112% of ideal profit for each store. From there, you have to manage each store's growth; do the stores borrow business from each other or do they form their own circle of customers.
It really depends on what your business does as many businesses appear to be in different locations but they just have a virtual office. In this day and age of communication there is no need to have more locations unless you have a business that requires staff on the ground. Sometimes time zones are an issue but that is easily solved by starting staff at different times so you have that covered. There are so many things you can do before you need to open in a second location.
Hard to say without an understanding of what your business is. There is some very excellent advice here.
If the second location can sustain on its own without taking any resources (materials or human) from your first location and can generate revenue on its own then it might make sense. If your current location is doing well because you are running it, you'll need to find someone to either run this location or the new one. Or find two new people to run each location with you overseeing both.
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...
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.