Creating the Creative Biz Step 3: Location, Location…ah, maybe not yet!

I wish I had a nickel for every client that walks into my office with just a rough business idea and a location.  No information on their target customer…no marketing plan…no information on competitors, but they believe they know where they want to locate this business.  Some even come with a signed lease agreement.

The number one “killer” of small businesses is lack of capital in the first year.  In most businesses, a significant amount of capital is generally eaten up by overhead: rent, utilities, taxes, and maintenance.  Any business advisor will tell you that finding the right location is very important to a small business’ success, but it should not be the first thing that you go out and do when deciding to start a new business.

As mentioned in my two previous “steps” – first you need to have a good business idea and then you need to “know” your target customer and determine where they are, what they need (or want) and where they shop at.  Clients incubating in a place like the Rockford City Market have a special opportunity (albeit some weather challenges) to test their market before taking on excessive amounts of overhead. 

Still others decide to start out in their homes.  There are obvious drawbacks for the person that decides to do a “home-base” office/business.  But at least the home-based business owner understands the need to keep over-head to a minimum in the initial start-up phases.

Small shop means Big Biz potential

Here is a photo of a new business that I know that is taking their time before they make a full blown investment in a shop or store-front.  By “boot-strapping” or keeping loans and capital injections in a business to a minimum gives them ample time to learn more about their markets, pricing and customer needs before taking the big leap. 

Bella Luna Bakery started at the Rockford City market last summer and is now using a small (closet-like) space at the Millennium Center where they can deliver their product; and bake in the shared commercial kitchen.  Admittedly, they have almost outgrown this space, but by keeping over-head low they keep their cash flow as high as possible which allows them the funds to continually expand.

The problem with rushing into a larger location and overhead expenses is that so many businesses use all of their spare cash flow and start-up capital on the overhead expense leaving no cushion to carry them through seasonal fluctuations or errors in planning.  Many of these businesses want to grow after a year or two, but can’t because they don’t have any money of their own left and banks are unwilling to loan anymore to the enterprise.  Research has shown that sometimes it can take businesses up to twenty years or more to dig out of financial problems that they encountered within the first or second year of business.

Starting out small and waiting for a more expensive location until you have demonstrated your business’ ability to survive and thrive with good market intelligence and great customer service could mean the difference between creating a good business or a great business.

Food for thought…

P.S. – Never ask a realtor or developer about what comes first in the business plan.  Make sure any discussions regarding your business location is discussed with someone that does NOT have a vested or financial interest in the property.