Strategy & Planning

Location, Location, Location

Location, Location, Location

Before you launch a new business, analyze the market potential and labor pool in your area to ensure it's the right place to open shop.

By Rebecca Little

The old mantra proves true: location, location, location. The right location can make or break a business in its critical first years, but it goes beyond finding a good space at the right price. Target market, labor pool, market potential and nearby businesses all must be taken into account before writing your deposit check. Why? Because knowing who your target customers are isn’t enough; to get them into your store, you must know where they live, too.

Where to Begin
The first step in selecting a profitable location is finding demographic data in targeted areas, which can be analyzed for both potential employees and customers. Look for relevant information on the local population, such as the number of people, a breakdown between men and women, and a breakdown of single and married people.

“If you’re investing your life savings into something, you have to do due diligence and research,” says Rodger Roeser, the vice president of Cincinnati-based Justice and Young Advertising and Public Relations, who has performed the market research for many small companies. “You can gather information to do a general profile of the type of person you’re trying to target either as a consumer or a potential employee. Birds of a feather flock together. People tend to be around people like themselves.”

David W. Hightower, the executive vice president of Houston-based Wolff Companies, a former director of the National Association of Industrial and Office Properties (NAIOP) and president of NAIOP’s Houston Chapter, suggests starting with your own data on existing clients and targeted clients.

“You need to ask, Who am I serving and where do I need to be to best serve them?” Hightower says. “You can do that simply by getting a map and pen and for each client that you have, plot them on a map and see how it’s distributed.”

Hightower suggests using colored pens: one color for existing clients and one for target clients. “Look at where they are, and if they all tend to be in one direction or one area, try to locate in a place that’s convenient for existing and future customers,” he says.

There are a number of places to find supplemental demographic data. Although a marketing agency can perform demographic market analysis, those studies tend to be costly. There are other low-cost stops to supplement your own client information with demographic and psychographic data, which focuses on things such as customers’ values, attitudes and interests.

Local chambers of commerce and economic development corporations have a wealth of information on population distribution, household incomes, ethnic distribution, education levels, and job and skill set information, which can be useful for assessing the labor and consumer pool. Roeser says local radio and television stations often will provide their demographic data for free. Professional associations often also have information available for their members.

Another useful stop is the U.S. Census Bureau Web site, where data can be transferred into spreadsheets for easy analysis. There also are demographic databases available online, such as CensusScope, which are a fairly modest investment.

Gathering this information is not only good policy for ensuring the ideal location for your business, but it also can be helpful when applying for a loan. “You can say ‘I should be able to attract this amount of my labor pool, that amount into my store and here’s how I plan to market to these people,’” Roeser says. At the end of the day, you can only deliver what customers what if you know who they are. Demographic and psychographic data can help you to form both a big picture and individualized understanding of your clients.

Where’s the Competition?
Once the field has been narrowed to a geographic area, you need to choose a more specific locale. The experts suggest taking a tip from the competition and other large corporations to see where their successful businesses are located.

“It’s smart to place your business geographically where other people are doing similar types of things,” says Joel Welsh, chief community officer at Birmingham, Mich.-based StartupNation, a resource Web site for entrepreneurs and small businesses. “It might seem counterintuitive, but it works because you’ve already got a captive audience of people who are accustomed to going to a certain area for a particular service.”

For instance, Welsh says, there is a reason that Manhattan has a diamond district or that fast food restaurants often pop up across the street and next door to each other. “That way you don’t have to worry about potential customers, you just have to worry about differentiating yourself from the competition,” Welsh says.

Another factor to consider is whether there are similar businesses, in terms of customer bases and employees, nearby to capture foot traffic. “Even if it’s a different product or service, you should look at other businesses that are already located in the area that have been successful,” Welsh says. “If not, you have to ask why not. There might be a good reason.”

For instance, Roeser says, Panera Bread and Starbucks often are located near one another because they pull from the same customer base. Positioning your business near other businesses can generate foot traffic. “You can benefit from watching the big companies like Wal-Mart or Home Depot who do significant market research before opening a store,” Roeser says. “If a large store pulls from a market you also want to target, you can piggyback on that research and locate nearby.”

Examine the Labor Pool
Locating nearby stores that market to similar clients (or pull from a similar labor pool) shows that there is an adequate number of potential workers and customers from which to pull.

The same research can be applied to examining the labor pool. For instance, an IT company might want to locate in an area that already employs many IT workers, where there is already skilled labor.

“Companies assess the appropriateness of the labor force by looking at the types of companies located in the community,” says Jerry Gordon, the president and CEO of Vienna, Va.-based Fairfax County Economic Development Authority, provides economic and demographic data on both the labor pool and the market for clients.

Gordon suggests supplementing census and demographic data with information from the Bureau of Economic Analysis and the Bureau of Labor Statistics that have data on specific skill sets and education levels in certain geographic areas.

The specific location will vary greatly on the type of business. For instance, a Web-based business with little customer traffic can center a business conveniently for employees and worry less about paying for a high-finish building. “If you’re in a business where people are coming to you with customer traffic, you want to have the appearance of a prestigious location,” Hightower says.

Hightower says it’s also important to keep the long-term business plan in mind and take into consideration how much space you might need in future years. “Keep in mind where you’re trying to go in five years, not just where you’ll be in 12 months,” he adds. “Try to find a location that has the opportunity to expand without having to move again. Even if it means moving within the building, but you get to keep the same address.”

As in all aspects of launching a small business, careful planning and research is the key to success. A little number crunching can assess the potential consumers and employees in a given area to determine whether it is the right place for your business.