If you are even contemplating this question, then kudos to you. About half of small businesses fail in their first five years, according to the Bureau of Labor Statistics. But if you’re ready to think about expansion, things must be going pretty well. That said, even if you are doing well financially right now, that doesn’t mean it’s definitely time to expand. Success and good buzz isn’t everything, and there are a number of questions you should ask yourself before you move onto the idea of opening a new location. Most importantly, you must have a strong answer as to why you want to do it. Do you have a compelling reason (other than prestige) to expand? If you have a compelling reason, you’ll then want to do some further reflection.
Some Questions to Ask Yourself:
Are You Ready Managerially?
It’s likely that only a few managers (or perhaps even just you) have taken on the lion’s share of the responsibilities when setting up a new small enterprise. Before expanding on that, it’s crucial to see how the burden can now be successfully shared. If you are currently a one-person operation when it comes to leadership, how will you be able to devote time to another location? You will need operations in place as well as logistics that will make it possible for you to delegate more and participate in day-to-day details less. Are you responsibly in a place where that can happen? In addition, it may be that specific people on your team are a big part of your success. Do you have enough talent to go around to sustain another location?
Are You Ready Financially?
The rule to use here is similar to the one people say to have in place when asking someone to marry you. Before you propose, you’ll want to be absolutely sure the answer is yes. That means that before you take on a new location, you need to be sure that you are comfortable enough to do so without limiting the resources of your original business. You may be experiencing a growth period, but can you sustain it? Do you have seasonal needs, for example, that you need to consider that will affect your cash flow at some point in the year? Do you have a business plan that looks beyond your current numbers and truly captures how you will expand your audience? A little risk can get you reward, but expansion should be based on a real financial cushion and not stretching yourself too thin.
Many small business experts recommend treating your expansion like you would a brand new business. Don’t move ahead unless you can draw from an outside bank account or another outside source that doesn’t lean on the success of your current location.
Are There Customers Waiting For You?
You also want to make certain that you aren’t poaching from your own business. Is your new location far enough away from, and providing enough of a new service to, new clientele that it won’t just split your audience?
Can You Recreate the Experience That Has Brought You Success?
Over-expansion isn’t just a risk for the little guy. Huge corporations have tried to expand into new markets and failed miserably. In 2015, Target’s disastrous attempt to expand into the Canadian market cost it billions.
Starbucks has also had serious issues expanding into markets like Israel and Australia. The problem customers quote is that the desired experience these companies create in the US, that has made them so successful, is simply not replicable in these new environments. Customers, with an expectation that service will fit a certain mold, then leave disappointed and don’t return.
Before you expand your business, you have to ask yourself what it is that has connected you to your customers. What makes your business special? Will you be able to replicate your success, or will expansion undermine both your new location and your original business? It’s better to have one thriving location than to have two locations that are doing just okay.
Is Opening a New Location the Only Answer? Or, Can You Grow Without Adding Another Venue?
One of the riskiest propositions for a new business is expansion, particularly when it means opening a new location. There is so much added liability and headaches from logistics, including the burdens of staffing a new area, insurance questions, cleaning, heating and cooling, and more. Finally, if the prospect fails, you will be saddled with a huge amount of debt that could end up sinking your whole enterprise. Perhaps you should explore other ways to expand your business without taking on the risk of a whole new location.
What Can You Do Instead of Opening a New Location?
- Expand your office remotely: If office space is part of the issue, can you hire people remotely? More and more people are working remotely, particularly designers, marketing people, and accountants.
- Expand your product digitally: Is it possible to up your digital profile and expand that way instead of physically? You might be able to target a much larger market and find more customers than you ever could with a new location. In addition, digital shopkeeping usually takes a great deal of the logistics off of your plate. You can have warehousing and distribution taken care of by distribution centers, rather than try to expand your own brick and mortar footprint. Of course, you also lose some control of the customer experience, but that is something that you’d have to carefully consider.
- Open a pop up space: You’ve seen these all over malls. Many businesses try out temporary spaces to see if they have the momentum to grab a foothold in a new venue. Pop ups can be an innovative way to expand while creating relationships with other businesses that can facilitate expansion. Can your cafe, for example, move into the lobby of a hotel? Symbiotic relationships like that can be tested with pop ups.
Ultimately, if you are doing well, the most important thing is not to jeopardize your original location chasing another one. Make sure you have your managerial, financial, and speculative ducks in a row before scaling up and moving ahead because almost nothing could be a worse drain on your resources than ending up stuck with an empty piece of real estate. If you’re looking for more simple guidance on how to make the big decision as to whether you should open a new location, check out this flowchart created by Fundera.
