Small business advice: How to decide where to expand to next


It’s a critical question for many business owners: Where to expand to next? One entrepreneur offers some pointers below. (Sean Gallup/Getty Images)
May 23

Despite its popularity in America, Starbucks struggled when it first expanded to the European market. Neither product quality nor a lack of promotion was at fault; Europeans simply wished to sip their coffee or tea in the café with personalized service.

Target, meanwhile, stumbled when trying to break into Canada. While its stores were a prime shopping destination for Canadians traveling south of the border, its locations in the country have stalled as customers have deemed the products inferior.

The moral of the story? No company, even if highly successful in its original market, is immune to the unique challenges that a new location presents. Small businesses in particular must pursue their brick-and-mortar expansions with care and ample research.

While the details of your expansion will depend upon your specific business and industry, here are five factors no company can afford to ignore:

1. Costs of doing business: The cost of labor and materials can vary dramatically in different cities, states and countries. What is the average local wage for the positions you must fill? How easy is it to procure the necessary supplies?

Before you commit to a location, carefully consider how such costs will affect your profits. Labor costs and your capacity to pass higher costs along to consumers vary by market.

2. Growth trajectory: Don’t forget to conduct research about the population and income level of your prospective location, as well as the relationship between the two. If population numbers have leveled out but income is increasing, that’s a positive sign that the buying power of the market is increasing, too.

3. Business climate: Big-box retailers like Walmart may avoid zip codes that favor local boutiques, but these environments can be wonderful for small businesses. Research tax laws to gauge how friendly the city or town is liable to be toward your company.

4. Workforce characteristics: Can you quickly hire the talent you need or train the existing workforce? What pool of workers exists?

For instance, if you must hire engineers and there are few in the prospective location, you may need to convince talented candidates to relocate. Can you afford that?

5. Transportation options: Establishing a beautiful new location means little if your customers and suppliers can’t reach you. If the location is cost-prohibitive due to difficult traffic routes, look elsewhere.

A business owner can learn a great deal from local newspapers, but other tools can help you conduct a more thorough search. Here are five electronic resources that can help you identify the right location for your expansion — without leaving your office.

1. City-Data.com, which provides basic demographic information for a given zip code.

2. United States Census Bureau, which compiles information about each area’s population size, growth, income levels and other demographic information.

3. Zillow, which shows median housing prices — a good indication of a region’s level of affluence. Zillow maintains a wealth of current and past data.

4. Google Maps and other digital mapping programs are excellent resources. Simply zooming in and out on Google Maps can provide you with a rough sense of the layout of a neighborhood, which is especially important if your company relies on traffic or transportation routes.

5. GIS (geographic information software) programs such as Esri, which makes maps even more valuable. Overlay income levels on a specific city, or examine commuting and public transportation data in a town.

Deciding where and how to grow can make or break your business. Expansion affects your entire company, not just a single location. Wherever your business takes you, conducting thoughtful research can allow you to grow profitably and strategically.

Chuck Cohn is the chief executive and founder of Varsity Tutors based in St. Louis, Missouri. Varsity Tutors is a technology platform for private academic tutoring and test prep designed to help students achieve academic excellence.

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