Jonathan:
Hey, what’s up? Hope you’re doing great. Going to read you a question that I got, and the question is this, “I am thinking about starting a second location. Is this a good idea?”
I’ve been asked this quite a few times. I’ve looked at quite a few businesses. My general feeling on this is, the majority of the time, no. The reason for that is, the majority of the time, the individual asking the question is not maxing out the potential in the market they already serve, meaning that if they become a bit more aggressive with their marketing, both digital marketing and offline print marketing, that they can really drive a lot more revenue to the business. They’ve also not maximized their customer service, meaning it’s not as good as it could be. They’ve not maximized the quality of the service that they’re performing. They’ve not perfected their business model.
Anytime you go to a second location, you’re pretty much assured that your second location will not function as well as your first location. I’m sure that’s not always true, but the majority of the time, you’ve got to assume that would be the case. I used to be part of a company that was in the majority of the states in the … or a lot of the states throughout the United States. While that sounds really awesome and really impressive, and maybe it makes for great bragging rights, it’s not as awesome to actually live that. That means that when there’s a problem at the second location, you’ve got to drive there. You’ve got a team there. They probably don’t get as much attention. You’ve got to get on an airplane. It just complicates your life. Everything about it is more complicated.
My general suggestion is to focus on the thing you’ve got and perfected that thing. Make that thing great. When it’s fantastic, and when the business model’s nailed, and when you’re extracting lots of profit out of it, then go do your next location. You know to do your next location when everything I just said is running great. You’ve nailed it but you’re also, in spite of the amount of spending, both digital and offline, in the way of marketing … In spite of all the spend, you’re seeing a higher and higher cost of conversion on new clients, and it’s getting harder and harder to acquire new clients. When you start to reach that point, and so maybe you’re starting to hit some point of saturation in the market or diminishing returns from marketing dollars spent, then you might consider moving to a second location.
There’s other reasons why you might do a second location. The takeaway, have you perfected, have you nailed, have you optimized the thing you’re doing, and is the thing you’re doing making you a lot of profit, because you’re going to need that profit to fund the next thing, because the next thing you start, meaning the next location, will not be profitable from day one. Sure, maybe you’ve got a great project or a huge contract in a new area, and that’s going to make it possible to open up the next location, but what if it goes away, and it’s only one thing? Are you sure you can build that area as fast as you need to? Are you sure everything’s going to go as smooth as you think?
Nail what you’ve got going. Make a ton of profit on that thing you’ve got going. Use that profit later to finance the next thing. Then when you get the next one completely profitable, working smooth, running as good as the first location, then think about the third. But 99% of the time, adding a second location now is not the best move.
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