You’ve heard “location is everything”— but location can also be nothing if it doesn’t help the viability of your business. For a brick-and-mortar operation that depends on foot traffic and visibility, it’s the element that can make an enterprise — or prevent it from ever becoming reality.
Scouting Your Business Location
Robbin Block, Seattle marketing expert and a volunteer mentor for the Small Business Administration’s SCORE program, says that to begin a location analysis, you need a solid business plan that includes details such as sales forecasting, market position, and what makes them stand out.
“If you’re doing anything that involves a physical space — especially one that involves consumers — location is everything. But it really depends on the type of business too,” Block says. Is it a restaurant that people pick for its proximity? Or gift shop that depends on people walking by? Is it site-specific, like a winery that needs to be in a certain part of the country?
Where Should You Open Your Business?
Johnny Tseng, another SCORE volunteer and a Dallas-based real estate investor, wants to see a balance sheet on value creation from the location. “If you are starting up a restaurant, location is important because it increases foot traffic and the volume of guests (a plus for revenues), potentially reduces advertising expenses (a minus for expenses), but it likely increases my rent (a plus for expenses),” Tseng says.
“By quantifying all of those plus-minus revenues and plus-minus expenses,” Tseng adds, “You’ve arrived at a quick net value calculation that you should run for every prospective location for your business.” So in the case of, say, a wholesale business with out-of-state customers, a location with higher foot traffic wouldn’t help your value creation.
Performing a PERT Analysis
The Program Evaluation and Review Technique (PERT) is not only a way to map your business, but to understand all the roads that will cross your path. The PERT looks at political, economic, regulatory and technology in the area, and see how that impacts you. “Certainly, economic can be quite important, let’s say, if you’re opening a restaurant,” Block says. That will help determine the kind of food you’ll serve and what you’ll charge. What are the demographics in that area? “Trends right now in restaurants are that young people are dining out less. What’s driving that, for example, is the fact that they can’t get jobs.”
The Geography of Your Business
Geography isn’t necessarily the same as location. Many criteria figure into this, including proximity to your home, target audience, and any site-specific requirements. Block uses a start-up brewery as an example: Do they have access to great water, plus a lot of beer drinkers in their market?
It’s also important to have businesses nearby with a similar customer profile. Block recalls a client who wanted to use a space in a strip mall near a college and a car racetrack. “The recommendation I made was that they put in a kind of family pub that serves burgers and bar food,” she says. “They have their kids and they wanted kind of a fast, casual kind of dining. They’re also near the college, and that would be within price range for them. You have to look at proximity to other entities that are related.”
Analyzing Your Local Competition
Equally critical is to understand competition in the area—are there too many similar businesses so yours won’t stand out? Once you’ve gotten a handle on the above, “You want to map that to the competition or the density of competition. If it’s a really growing kind of business, like a really popular thing, it can take a certain level of competition, but you have to understand what you’re moving into,” she said.
Block talked about a client who wanted to start a blow-dry salon. They scoured locations, did extensive analysis, and realized that the only part of town the business would be viable in was in an upscale neighborhood that already had its share of similar services — plus department stores and salons ready to offer that as an added feature.
“Everything from the data you can find and all the practical stuff to what’s really happening on the ground, those are good things to evaluate, because not only were we looking for a location, but we were trying to figure out if her idea was even viable. We were doing both at the same time.”
In the end, Block advised them to not pursue that idea — potentially saving her client from a failed business.
Finding the Right Real Estate Agent
Once you have established the rest of your plan, work with an agent who knows what properties are available, and also understands the market and pricing. Then plug those numbers back in to your plan and make sure it still works.
Finally, Tesng says to ignore so-called “rules of thumb.” In your research, you may find formulas that advise how much of your cash flow should go to a location. Instead, use what actually works for your particular plan.
“My advice to start-up or small businesses is to never do what is standard. You’re not creating value if you are just following the standard, and frankly, you might not be able to afford what is standard like the other established businesses or your competitors. But feel free to find out what is the ‘standard’ when it comes to your lease, and then beat it!”
Here are some links from the U.S. Small Business Administration that can also help you get started: