Community and competition are key factors in finding the right location for a startup

By July 18, 2018 Blog No Comments

Anyone who has bought a house or had other real estate dealings has likely heard the familiar phrase “location, location, location.” The quality of the area where a residence sits is tied to the home’s overall value.

The same can be true for a small business. Finding an ideal spot to set up shop can lead to positive exposure to potential clients. But there are a variety of other issues to consider, from large-scale questions (is my current city a good one for this business?) to more specific matters (how does the competition stack up in this particular area?).

Here’s a look at some of these factors that can go into finding the right location for a small business.

 

Consider a move

It may be instinctual for a prospective entrepreneur to assume his or her current home is a good place to start a business. Making a move to another city or state is a big personal shift, so adding a startup effort on top of that can be daunting. But as Barbara Weltman notes for the U.S. Small Business Administration, there may be benefits elsewhere to ponder.

“Many entrepreneurs start up where they happen to live and fail to give much thought to the implications that their choice of location can have for their business,” Weltman writes. “Their home city or town is the place they know best, among the people they know well. Yes, this can be advantageous to a point, providing networking opportunities which are very helpful to a business. But initial connections to a spot only go so far in helping a company to operate and thrive.”

For those considering relocation, there is no shortage of reports that declare where business owners should flock to and where they will have the best chance to succeed. One recent study by Biz2Credit ranks New York City as the “Best Small Business City in America,” based on revenue, credit scores and other economic factors. Biz2Credit CEO Rohit Arora said: “The city has a diverse economy, and the sectors it is strong in — finance, IT, travel and tourism, real estate and construction — are thriving.”

The study’s top 10 is dominated by California, including the influential Silicon Valley region. San Jose comes in second, followed by San Francisco (No. 4), Los Angeles (5), Riverside/San Bernardino (6), San Diego (9) and Sacramento (10). Miami, Washington, D.C., and Austin also make the top 10.

Different surveys yield different results, based on the various metrics involved. Example: Forbes’ 2017 ranking of “Best Places for Business and Careers” lists Portland at the top, followed by Raleigh, Seattle, Denver and Des Moines.

 

Access to funding

A major move to either coast likely isn’t feasible for the bulk of prospective entrepreneurs. Yet there are startups that could clearly benefit from shifting to more fertile ground. One example is the tech industry in the aforementioned Silicon Valley. The search for funding through venture capital and other sources can be boosted in such a place, as Ashleigh Harris explores in a story for Rocket Space.

“The more VCs in the vicinity, the more meetings you get; the more meetings you get, the more likely you are to find someone who ultimately gets your vision,” Harris explains. “Though technology has made online networking a wonderful possibility, most deals are still closed face-to-face. For this reason, tech startups would do well to spend at least a portion of their early journey in Silicon Valley (aka the land of incubators and angel investors). You can have the best idea in the world and never really get started in Jackson, Mississippi. Thus, initially choosing a location with an abundance of investors who match your industry is paramount.”

 

Community

Beyond the macro issues of identifying the right city and state, small business owners also need to analyze how their business would fit in the community. By recognizing where their potential customers are, where they congregate, how they spend their money and how to reach them, they can refine the search. Economic and demographic factors play a significant role here. A Houston Chronicle story by Fraser Sherman details several questions to consider:

  • “Is the population large enough to support your business?”
  • “Is the economy healthy?”
  • “Do the demographics work for you?”
  • “Does your style match those in the community?”
  • “Can you find the workers you need in the local area?”

 

Foot traffic

Most small businesses — depending on their products and market — will want to be visible enough to catch a potential client’s eye. Granted, acquiring a prime section of a busy shopping area won’t be cheap. But a strong physical presence can go a long way in attracting foot traffic, just as a strong online and social media presence can attract web traffic.

“You don’t want to be tucked away in a corner where shoppers are likely to bypass you, and even the best retail areas have dead spots,” according to a story by Entrepreneur. “By contrast, if your business requires confidentiality, you may not want to be located in a high-traffic area. Monitor the traffic outside a potential location at different times of the day and on different days of the week to make sure the volume of pedestrian traffic meets your needs.”

 

Dive into details

For an entrepreneur who has identified a major move is needed in order to launch a business, there is an abundance of details that may not be top of mind but should be investigated. As Weltman writes for the Small Business Administration, “Every state says it wants to be business-friendly, but only some deliver on this promise.”

“Government rules, taxes, and other factors can make it more difficult to open a business, operate and grow,” Weltman writes. “Look for a state that makes it easy to get started and function.”

On a local level, Weltman says, the quality of the location is crucial (“Some areas may be prospering while others are declining”) as are transportation issues: “If your business depends on customer traffic, check access to transportation. Is there public transportation near your proposed location? Is there adequate parking for customers who drive to your business?”

 

Competition

In a perfect world, a small business might be so unique and so in-demand that it would earn the status of being “the only game in town.” That’s not terribly realistic, however, as competition — physical and online — is seemingly everywhere. In determining a location, special attention must be paid to the other businesses that are already established. Well-known companies have the advantage of time, reputation and client base. Jake Fox explores the role competition plays in a story for Virgin.

“If there is too much competition, then it may be a warning sign to expand your horizons to a new location,” Fox writes. “There are exceptions to this, such as car dealerships who want to be near each other as customers compare and choose the best car deal, hence their close proximity. Likewise, if you have an element of your offering that is unique or offers some kind of new innovation, then choosing an area that already has a ripe market could be the ideal way to pick up customers very quickly and establish a presence in a new area in a relatively short time frame.”

 

On the other hand …

There are those who veer away from the “location, location, location” theory in business. The rise of online commerce introduced revolutionary shifts in the past several decades. It’s a given that business owners must establish an effective web strategy. For some businesses, that could outweigh location issues, as William Craig writes for Forbes.

“The thing about a physical location is that it caters to a very specific, and certainly very small, cross-section of the populace,” Craig says. “Compared with the larger population of the country, relatively few people will actually see your storefront, and fewer still will actually be in your target market. … The fact is, a well-built website, or social network campaign, or thoroughly syndicated blog post, has the potential to reach many more interested parties than your storefront or office building ever will. This is not to say that the two are mutually exclusive — not by a long shot. But if you’re hoping to court new customers with nothing more than a flashy window display, you might have some troubles.”