Expansion: To Open More Locations or Not - Transmission Digest

Expansion: To Open More Locations or Not

The excitement that comes with being successful at your first location is awesome. You feel like you can beat the world because it means you’ve accomplished something that most small business owners can’t. It’s something to be really proud of when we realize that about 80% of startup businesses go under within the first couple of years. That leads to the inevitable question that almost all successful small business owners ask: “If I can do this well with one location, couldn’t I make twice as much money with two, or three times as much with three?” The answer unfortunately is “no” in most cases, and here’s why.

Expansion: To Open More Locations or Not

It's Your Business

Author: Terry Greenhut
Subject Matter: Shop management
Issue: Expansion

It’s Your Business

  • Author: Terry Greenhut
  • Subject Matter: Shop management
  • Issue: Expansion

Tools for the Excellent Manager

14th in a series

The excitement that comes with being successful at your first location is awesome. You feel like you can beat the world because it means you’ve accomplished something that most small business owners can’t. It’s something to be really proud of when we realize that about 80% of startup businesses go under within the first couple of years. That leads to the inevitable question that almost all successful small business owners ask: “If I can do this well with one location, couldn’t I make twice as much money with two, or three times as much with three?” The answer unfortunately is “no” in most cases, and here’s why.

The reason your business is so successful is you – your talent, your drive, your passion, your persistence, your willingness to sacrifice, your ability to make good split second management decisions, your understanding of what needs to be done and how. You devote 100% of your time in your shop addressing all these factors and many others. If you were to open a second location and had to devote half or more of your time and resources to it, what would happen to your original location? Could it do as well with you only being there half the time and with you not being able to walk around the shop instantly spotting problems and recommending fixes that save or make money? Could you be effective managing more than one location at a time? These are tough questions but they must be asked and answered before there is any thought of opening more locations.

Often in our business the shop owner does some of the repair or diagnostic work, sells jobs, deals with employees and suppliers, handles customer situations, and basically runs everything. Often the owners don’t hire managers to run the shop because they are right there on the premises themselves. Their own salary is about the equivalent of what they would have to pay a manager, so basically they are taking the manager’s salary for running the business. The shop might be showing a tidy profit by saving a manager’s salary, but would it still be profitable if another non-productive salary had to be paid?

Extra salaries, splitting time

Splitting his or her time would mean having to hire people to take care of many of those responsibilities in both locations. That’s two substantial extra salaries. The employees chosen would need to be as good as the owner at accomplishing those tasks in both locations. Attaining and training people to think and act as the owner would is very difficult. Even if you could find people who have all of the attributes, the one thing they don’t have is “skin in the game.” They don’t own the shop or have an investment in it. They have a job and although they may do it to the best of their ability, when things go wrong, money is not coming out of their pockets to pay for the mistakes or problems. The worst that can happen to them is that they lose their job if they get fired or the shop fails, which only means that they will have the inconvenience of having to find another one, which is not usually very hard to do in this business. The owner, on the other hand, can lose a lot of money and possibly the entire business, house, car, savings, retirement, etc. So when push comes to shove, who is going to give it everything they’ve got?

If the owner plans to hire managers to run each location he or she then has to assume a new role, that of overseer, which means constantly traveling back and forth between locations, checking on how effectively they are being managed and retraining managers and techs continually. One question the owner has to ask is, “Would I be happy doing all this running over the long haul?” One thing is for certain; when an owner slacks off and is no longer watching closely, the empire begins to crumble for any number of reasons.

If you’ve ever wondered why managers exist in business, it’s because production employees need them to keep their motivation up, to answer questions for them, to insure quality, to see that they are following the rules and to lend a hand when needed. Owners need them as a second set of eyes, to report on productivity, machinery that needs repair, parts problems, the need for additional training, record keeping, and problem solving. The owner, in essence, becomes the manager of the managers. Since everyone needs to be managed to some degree, the question arises; “Who manages the owner?” That would be the consultant. Any owner who is considering opening more locations needs to learn to do it right from someone who has done it successfully. It’s a very different ballpark than that of a one shop operation.

Consult & prepare

There is no shame to hiring a consultant for a period of time. We all need help at some point, especially with a new venture. Even though they can be expensive, they are not permanent employees and can save or make an owner a good deal of money. If you are going to hire a consultant, observe are a few rules.

  • First, the consultant must be someone who has been there and done that, someone who is super-successful at what you are trying to accomplish.
  • It must be someone with whom you can get along.
  • You must be willing to put your ego aside because, by definition, a know-it-all can’t learn anything.
  • You have to remember that even though you came up with the original notion, the consultant’s job is to expand on it and help to give you a better understanding of how to get it all done.

Before opening a second location a complete crew would need to be chosen, trained, and ready to do business as well as it is being done in the original location if the shop wants to maintain the reputation that made it successful. With the internet and social media being as easy to access as they are, bad reviews can drive any business under in a very short period of time, so there is no break-in period. A new shop has to be ready to satisfy customer needs immediately upon opening, so before it opens the employees who will man it need to be working at the original shop for a period of time. The owner may have to go through several people to find the right crew to open with, costing a considerable amount of time and money, but this process can’t be rushed. It has to be done right.

I’ve seen too many satellite shops fail because the owner waited to hire a crew till the shop was about to open, then without the supervision of more experienced employees the new ones were left to fumble around on their own. Alternatively, experienced techs were taken from the original shop to bolster up the new one causing a decline in quality and efficiency in the first shop. The bottom line is that the owner needs to have enough money to employ two full crews in the first shop for a logical period of time before the second shop opens so the transition is as smooth as possible.

Sounds like a simple concept, but it’s very hard to stick with. There is always pressure from any number of sources to get the new location open and making money. If the owner doesn’t have the wherewithal, or for whatever reason is cajoled into opening the shop before it’s ready, the outcome could be disastrous.

Well before a new shop opens, advertising and promotion need to be in place. In fact, they need to be up and running for a good while to create anticipation of the opening. That, of course, should include your website announcing that the new location is opening soon. If the shop is planning on doing wholesale work or wants to get referrals from other businesses, an outside salesperson should be put on the road several weeks before opening to visit with any business they might be able to avail itself of the shop’s services or recommend customers to it.

Delusions of grandeur

You may think that because of your success in your original shop that people all over the county know of you and your good work. It may come as a big surprise that 10 or 15 miles away they’ve never heard of you, but that’s the way it usually works out especially if there are other cities, towns or natural dividers like rivers or mountains between your locations. Don’t make the mistake, though, of opening the new shop close enough to the original one that it will steal work from it. How do you know if it’s too close? Stick pins in the map for every customer you’ve had. The area you want to open in should have very few or no pins at all. That means it was too far for customers to travel. When opening another shop you are much better off assuming that nobody knows you and work hard to make your new location known.

Hopefully part of the reason for your success in the original location is that you’ve gotten involved in the community by participating in local events, supporting local charities, attending Chamber of Commerce meetings and helping out wherever you can to show that you and your business care about the community. You need to start doing the same for your new location before it opens. It never hurts to get friendly with the fire, police, public works, building, and highway departments either.

While you’re waiting to open go out and make your deals with local parts stores, towing companies, car dealerships, junk yards, insurance agents, newspapers, radio and television stations. This is the time to make yourself known to all of the local suppliers who will provide you with goods or services. Often they can become your customers as well.

If all this hasn’t scared you out of it and you really feel you can make a success of it with all of its unique challenges, go to it, but please think it through, take your time, and do it wisely.

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