Every year, the grass on the other side of the fence looks greener to many entrepreneurs, and a change of place looks like the most promising path to growth. So they pull up stakes and move to a new place, where they hope to find better odds for business success than they had in their previous location. They're in good company. The U.S. Census Bureau reports that approximately 40 million Americans relocate each year, and the U.S. Postal Service processes about 38 million change-of-address forms annually. Although no one keeps a similar count of business moves, given the multitude of valid business reasons for making a move, almost any entrepreneur will, at some time, consider relocating as a way to expand.
Why Location Matters
Businesses commonly cite five main reasons for moving, according to Sharon K. Ward, an economic development consultant in Allentown, Pennsylvania. These are labor and work force issues, the desire to reach new markets, the need to upgrade facilities or equipment, the desire to lower costs or increase cash flow, and considerations about quality of life. For different businesses and at different times, certain concerns are more important than others, Ward notes. But just about all moves can be attributed to some combination of these issues.
Chief among current reasons for relocation is the need for a suitable work force. You may have a shortage of qualified workers for some occupations, especially those requiring technical expertise. For firms that need specialized employees, it may be well worth it to relocate to an area where you can easily find these kinds of employees.
When a company finds itself in outmoded or undersized facilities, that's another reason to look at moving. Most businesses start in a small facility, such as the founder's garage, and then move to bigger quarters in the same city, says L. Clinton Hoch, director of location advisory services for DCG Corplan Consulting, a site selection consultancy in West Orange, New Jersey. Later, the business outgrows that location or begins to find fault with its facilities, services, utilities, infrastructure or other features. "Usually only after [a business owner] goes through those stages is he or she ready to make a move out of the original area," says Hoch.
Cost is a concern in any business decision, and a move can cure--or create--many cost issues. For starters, the cost of living varies widely among cities. In Little Rock, Arkansas, for example, the cost of living is 13 percent below the national average. At the other end of the spectrum, New York City's costs are more than twice the U.S. average. Theoretically, a move from Manhattan to Little Rock could yield significant savings.
But costs involve more than living expenses, cautions Hoch, and differences in geographic costs have leveled out in recent years. Companies often find themselves forced to compromise between staying close to target markets and choosing the lowest-cost facility. That's one reason for the exodus of employees from central cities to nearby suburbs, which, according to the U.S. Census Bureau, resulted in 3 million people leaving the cities, while the suburbs gained 2.8 million in one recent year.
Depending on circumstances, you may have other financial issues to consider. Large companies seeking to build semiconductor factories or auto plants, for instance, often land well-publicized tax concessions worth billions of dollars. Economic development consultant Sharon Ward, a former research and marketing director for the Committee for Economic Growth, a private organization that markets the Wilkes-Barre area of Pennsylvania to businesses, points out that small companies rarely receive such perks because incentives are based on the number of jobs the business will create. However, an entrepreneur may be able to tap a cash flow windfall by selling a building or land that has appreciated in value, then purchasing or renting lower-cost space.
An even more intangible issue is quality of life. Companies evaluating relocation often look at recreational opportunities, education facilities, crime rates, health care, climate and other factors when evaluating a city's quality of life. That's another reason deteriorating inner cities are losing businesses, as companies seek an improved quality of life elsewhere. "Maybe it's an unhealthy or unsafe area to live in," notes Ward. "Or it may be hard to recruit workers because of [the location]."
While moving carries risks, a move can be one of the best things you ever do for your business. When you move or expand to a new location, the odds are stacked in your favor, according to relocation expert Luigi Salvaneschi, who has overseen the selection of new sites for thousands of retail establishments. "Because you have been in business for some time," he says, "you are fully aware of all the problems your current location has. If you have poor traffic and know that's the problem, you look for a new location that has good traffic."
But there are no guarantees in relocation, and as many things can go wrong with a move as can go right. Ward cites a study of readers of Area Development magazine that identified a number of common mistakes. They included rushing the decision, focusing too narrowly on a few costs, failing to use available economic development services, ignoring quality-of-life factors, missing important environmental or regulatory concerns, and, believe it or not, failing to plan for future expansion. These mistakes can be boiled down to hurrying too much and trying to do a move too cheaply.
Part of the problem is the complexity of these two issues. There's no set time for how long it should take to move, Ward says, and sometimes you don't have a choice. "I've worked with companies that made a decision in three or four months because they didn't have a choice," she says. Others might expend two or three years in the process, with no better results.
Unfamiliar factors complicate cost calculations, adds Salvaneschi. For instance, an entrepreneur must figure in the cost of business interruption. Almost inevitably, a business's productivity will be reduced for a period of days or even weeks after a move. And that's not all. "You may also have some loss of goodwill," he says. "Especially if you've been in that location for many years, you're going to lose some loyal customers."