For many entrepreneurs, the decision to open a second location symbolizes a triumphant victory in the life of their business. Expanding to a second location can mean that the business has matured enough to reach a whole new set of customers. However, expansion isn’t merely about replicating an existing model in a fresh territory. It’s about understanding the new markets and adjusting to diverse demographic needs.
Many think that establishing a brick-and-mortar shop, restaurant, or other location is the most challenging part of running a business. However, opening a subsequent location presents its own set of complexities. It’s not just about duplicating a successful formula; it’s about enhancing and adapting it. There’s a balance that needs to be struck between maintaining brand consistency and catering to a new target audience. All while managing your team, cash flow, and inventory.
If you think your business is ready to expand into a second location, there are some things you should know before you make the decision.
Have Clear Goals
The goal of any expansion is economic growth. This seems pretty obvious because more locations should mean more customers. However, business owners should have many other goals during the expansion to other locations besides growing their customer base.
The allure of expansion can sometimes blur the line between genuine demand and mere ambition. Before expanding, there are many questions you should ask yourself.
Here are a few to consider:
- What do I hope to achieve with this new outlet besides more sales?
- Am I looking to tap into a new demographic?
- Do I want to offer a different set of products or services?
- What does success look like for the second location?
- Do I expect the second location to outperform the first?
Answering these questions will help you make better decisions during the expansion and long after. For instance, a coffee shop thriving in a bustling urban setting might want to establish a presence in a quieter suburb, targeting families and residents rather than busy professionals. Clear goals act as a compass, guiding business decisions and ensuring you’re on the right path.
Understanding Market Demand is Crucial
Understanding market demand is non-negotiable when launching any business. However, it is especially important when considering the opening of a second location. This means more than just a superficial assessment. Instead, it requires a deep dive into the demographics, preferences, and buying habits of the potential customers in the new area.
Imagine a thriving coffee shop considering a new branch in a different part of the city. If the area already has multiple cafes offering similar services, it might be challenging to carve out a distinct customer base. However, if there’s a gap—for example, no cafe offers specialty vegan options or late-night service—the new location could fill this niche and attract a specific clientele.
Make Sure You Manage Cash Flow Well
Finances are the lifeline of any expansion venture. While your first location might be generating profits, it’s essential to ensure that you have sufficient cash flow to support your second location without compromising the stability of your original outlet. This includes initial setup costs, rent, utilities, inventory, and potential unforeseen expenses. A restaurant owner, before opening a new branch, would need to factor in expenses like interior décor, kitchen equipment, initial stock, and promotional campaigns to attract the local crowd.
82% of businesses that failed cited cash flow problems as a factor in their failure. The pressure to manage cash flow doubles when opening a new location. Be sure to keep a close eye on your cash flow and be ready for any potential gaps. This may mean keeping a line of credit available above what is projected for the expansion expenses.
Consider Bringing Existing Employees to the Second Location
Your employees are your biggest asset. As you expand, consider bringing some of your experienced employees to your new location. They already understand the company culture, operations, and customer service standards. Their experience can be invaluable in setting up the new location, training new hires, and ensuring that the brand’s ethos remains consistent. A bookstore, for instance, might benefit from an experienced manager from the original location who understands inventory management, supplier relationships, and customer engagement strategies pertinent to the brand.
Moving employees from one location to another can be challenging if your current employees are happy where they are. This may be because they like working with their current team. Or perhaps the current location is closer to their home. Whatever the reason, it is never a good idea to try to force an employee to work at another location if it is something they are not interested in.
To remedy this, there are a few things you can do. First, you can offer a promotion opportunity at the new location. Perhaps creating a new leadership position with increased pay could help persuade your best employees to make the change.
If that doesn’t work, you can offer some of your employees a bonus to work at the second location for a time. This will allow the employee a chance to help guide new employees at the new location and earn some extra money while still keeping their permanent position at the original location.
Make Sure You Have Enough Inventory
Inventory management can make or break your second location’s initial days. Ensuring that you’re well-stocked means you can meet customer demand without hiccups. However, it’s a balance. Overstocking can lead to increased overheads and potential wastage, especially if the products have a limited shelf life. For example, let’s say a skincare shop wanted to open a secondary location. While opening their second shop would need to evaluate product shelf life and storage conditions. They would also need to estimate the amount of foot traffic to determine the right inventory levels.
Hopefully, you’re using inventory tools and systems that work well for the primary location. If you’ve got a system that works, utilize that same inventory system for the new location. During an expansion, it is risky to test new systems and tech. Here are some things that will help you make sure that you are not going to run out of inventory.
- Make sure your system can handle the new location and the old
- Over-prepare for the new location
- Perform audits regularly
- Tweak what is not working but avoid changing too much right away
Keeping good inventory records is a team effort. Be sure that your employees are well-trained and can help manage inventory at the new location.
You Can’t Neglect Original Location
In the excitement of a new opportunity, it’s easy to neglect your original location. However, it’s important to remember that your first outlet is the foundation on which your brand was built. Without the first location, the second location would most likely not be possible. So, while you’re trying to get the second location up and running, be sure to keep an eye on the progress of the first location.
One way to do this is to continuously engage with your original customer base. Make sure they’re still happy with the products and services you have to offer. For example, a gym, while opening another branch, should continue to introduce new classes. They should also continue to maintain equipment.
If you’re the face of your business, ensure you remain present at your original location. If regular customers like to visit and interact with or purchase from you, make sure you are still at your first location enough to interact with your regulars.
Know That It Can Be Stressful
Finally, brace yourself for the challenges. Opening a second location is similar to starting a new business. However, with the added pressure of living up to the standards and reputation of your original location. Because of this added stress, be ready to handle the pressure productively and constructively.
Expect long hours, unforeseen challenges, and potential setbacks. Embrace them as part of the growth journey. A bakery owner, for instance, might face supply chain issues, and equipment malfunctions. Or perhaps, even recipe adaptations to cater to local tastes in their new outlet.
While opening your second location, remember to prioritize your well-being and manage stress.
While opening a second location is a commendable milestone, it requires careful planning, patience, and perseverance. By focusing on these pivotal areas, business owners can set the stage for a successful expansion. Doing so will ensure that their brand not only grows but also thrives in its new home.