Q: I'm looking to purchase a franchise but am concerned that all the great locations for my new business will have already been taken. How do I know what makes for a great location, and once I find it, how do I negotiate a fair lease? Then how do I go about building out the location?
A: You've asked some of the most important questions for getting your new business off to a great start. To do your questions justice, we're going to spend the next few months focusing on site selection and development.
Let's start with the basics. No matter what you've heard or read, the three things you need to be successful in business are not location, location, location. While having a great location is important for some businesses, it's a combination of the right location, a great product or service that consumers want to buy, superb customer service, a marketing message that's supported by your brand, consistency in delivery, and the right price that make businesses successful. Without great operations and a focus on the consumer, having the best location in the world won't make you successful.
Think we're exaggerating? Say you're out looking for a site for your new business. On your way home from work, you pass by an intersection that has a new retail center under construction. The center is guaranteed to have a high volume of traffic, as it's down the road from a major mall, directly off the major highways, and easily accessible from the streets. Every car in the neighborhood has to pass that spot at least once a day.
Let's assume two major retail anchors, a regional grocer and drug store, have already signed leases. You meet with the landlord, and you find out that except for the one space available, the center is totally leased by nationally branded retailers and restaurants. The one space left is 4,000 square feet, and it's located on the end cap, ensuring that whoever gets that space will have the best visibility in the entire center. Best news yet, if you want it, the space is yours. Location, location, location goes through your mind. You're guaranteed success . . . aren't you?
If you're a retailer or a restaurant, that site might be perfect-if you can afford it. But if you're in, say, the carpet-cleaning business, the site will likely be a disaster. Picking the right location depends a lot on the type of business you're in.
Franchisor Knows Best
Selecting a site for your business requires that you have knowledge of what locations are right and, possibly more important, what locations are wrong for your business. That's called the site criteria, and it's worth every penny to get it from prospective franchisors. Well-established franchisors have experience, not only in different markets, but also in locations that vary in size, surroundings and customer draws. They should be able to provide you with accurate site criteria as well as the training and other assistance needed to find your site. A franchisor's ability to provide this kind of information is a key indicator of its competency.
Remember, there are no stock definitions of a great site, because every business requires different types of locations. If your customers will be coming to your place of business, then visibility and ease of accessibility should be foremost in your mind. However, if you're in a service business that goes to a customer's home or place of business, then highways, a place to park your vehicles and warehouse space may be most important.
Consider what your location will do for you and what you can afford. If your business plan calls for space that costs $13 per square foot and the available space is $26 per square foot, ask yourself whether the more expensive space will bring in enough additional customers to justify the price. If it won't, how long will it be before you can no longer afford the rent? If you need 2,000 square feet but get a bargain price for 4,000 square feet, is bigger better? Maybe not-whereas at 2,000 square feet your business will look busy, it may look empty (and less appealing) at 4,000.
We've mentioned some of the basics of site selection already. But there are other considerations as well, among them:
Population density. How many people or businesses are in your trading area? Are they the right background, age, family size and income for your type of business? Companies like CACIcan provide you with demographic reports telling you who lives and works around your location.
Traffic generators. If you're expecting customers to come to your location, it's always beneficial to have other businesses nearby to help you draw them. Traffic generators such as malls, office complexes, schools or hospitals may bring you the right traffic. Anchors like grocery stores, drug stores and department stores may also bring you the traffic you need. If your business is a women's hair salon and your center has several women's clothing stores, that may be a perfect situation. But if your neighbor is a mattress store, will it bring you the appropriate traffic on a regular basis?
Traffic count and accessibility. How much traffic, both by car and by foot, passes by your location? Traffic counts isn't enough though. If the traffic is going 60 miles per hour and can't get into your center, then having a high traffic count won't be very helpful. If foot traffic is high during the day but your business needs an evening clientele, then noontime foot traffic won't benefit you. You need to determine not only that traffic exists, but also that it's accessible and available when you need it.
Competition. Some businesses, like quick-service restaurants, often do better in areas where other quick-service restaurants are established. However, if you own a dry cleaning business and there's a dry cleaner on every corner near your possible location, saturation may be your undoing.
Security. Is the site safe for your customers and your staff? Is the center run-down and frequented by individuals who will chase your customers away?
Employees. Will you be able to hire people in your area? If the pool of potential employees is limited, your pay scales may go through the roof. If you need entry-level, minimum-wage employees and every kid in the neighborhood is driving a BMW or Porsche, will you find enough staff to even stay open?
Visibility, signage and zoning. Will customers be able to see your business and your signs easily?
Finding a great retail or restaurant site is very difficult today, simply because many of the great sites have already been taken. But you can limit your risk by understanding what types of sites work for your business and making certain that the site you select meets your needs. Keep in mind, a good franchisor will have site-selection manuals, staff that will work with you or local realtors, and information on any zoning or other restrictions that might limit what you can sell.
Michael H. Seid, founder and managing director of franchise advisory firm Michael H. Seid & Associates, has more than 20 years' experience as a senior operations and financial executive and a consultant for franchise, retail, restaurant and service companies. He is co-author of the book Franchising for Dummies and a former member of the International Franchise Association's Board of Directors and Executive Committee.
Kay Marie Ainsley, managing director of Michael H. Seid & Associates, consults with companies on the appropriateness of franchising; assists franchisors with systems, manuals and training programs; and is a frequent speaker and author of numerous articles on franchising.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.