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Pick Your Spot

Just because you can get a good deal doesn't mean that Swampland is a good location for your business.
June 1, 2002
URL: http://www.entrepreneur.com/article/51950

They are a little like detectives, except there is no dead body in the parlor room, nor is there a butler lurking in the shadowy hallway. Instead, John Carstarphen and Rebecca Rice search for clues that will lead them to the right location. Carstarphen, 44, and Rice, 49, run D-Studios, an independent film production company in Dallas.

Carstarphen and Rice tool about Dallas in his '95 Chevy or her '93 Nissan Sentra, sometimes driving miles and miles around the Texas desert, to find the proper setting. It's even more difficult than it sounds.

"Is the look going to be right for the story?" wonders Rice. "The look is equally important to the quality of sound we can get. A lot of locations may not be noisy, but [they] may have real bad acoustics, so we have to be cognizant of that. We have to know whether we have enough access to electricity to run the camera and the lights. Availability is a big issue. Can we get the location the way we need it, for as long as we need it?"

D-Studios, on average, produces three pictures per year, which translates into about 30 locations. Finding the proper location is crucial to the success of their filmmaking business.

Or any business. Just as a movie needs the right location for a scene, so, too, does your company.

You may not think about location much, especially if you only have the funds to operate out of your parents' garage. But whether it's going to be in your first month of business, or after your first year, someday you're going to need the proper setting for your start-up. At some point, every entrepreneur needs to be a location scout.

All Over the Place

"If you've ever taken a marketing course in college, one of the first things you learn is the four Ps," says Sean O'Halloran, CEO of GeoMarketing Research in Oreland, Pennsylvania. "Those Ps are product, price, promotion and place, and place tends to be the most ignored. Which is interesting, because of all of those, 'place' tends to be the most permanent. You can always change your price or promotion strategies, and you may tinker with your product, but leases and mortgages tend to be long-term situations. If you make a bad decision, you can be stuck for a long time. More optimistically, if you find the right location for your business, you can reap the benefits for years to come."

O'Halloran, who has a degree in geography, likens entrepreneurs trying to find the right locations for their businesses to animals. "You have to ask yourself, 'What kind of animal am I? Am I a retail rat who can survive anywhere, like a McDonald's? That's a good thing to be. Or am I a giant bamboo-eating panda who can only thrive in the rain forest? What habitat is right for me?" Just as a panda wouldn't do well in a desert, your restaurant may not do well if it's in a deserted part of downtown.

On the other side of the country, Stephen Roulac is thinking about location issues just as intently. His San Rafael, California, company, which has offices in Hong Kong and India, specializes in giving advice on complex real estate decisions, and his clients have included everybody from Bank of America and Texaco to the U.S. Department of Labor.

Are You Expanding?
Thinking of opening a second location? Find out what you need to consider in Opening a Branch Location .

"If you're going to be an entrepreneur, there are three markets you have to deal with," says Roulac. "You deal with the customer market, the employee market and the capital market. Location affects all of those. Depending on where your business is, it can hinder your ability to attract customers and have them stay with you; and it's [the] same with employees and the capital market."

Roulac ticks off some potential concerns:

Does the community you're located in give people a favorable impression about your company? If you're located next to a city dump, will potential customers think of your business as trash?

How will investors be influenced by your location? Says Roulac, "If you're [in the] financial technology sector, your chances are better if you're located in a Silicon Valley-type of area than if you're not."

And what of future employees? "People want a compelling place to live, to work, to learn, to shop, to play and to prosper," he says. So if you want to set up shop where customers are, but it's not much fun to live, your best employees might move as soon as they've earned enough to escape. Conversely, if you're located in the middle of nowhere, you may not be able to staff your business with the right people. But wait--there's more. How is the housing market in the town you plan to set up in? The schools? Did you even think about that? "And since September 11, employees are asking a new question," says Roulac. "Is your company a safe place to work?"

All the questions kind of make a start-up want to cry.

But don't. If you believe your business is someday going to swell to 20 employees--or 200--these are issues you need to mull over. But if you have no employees now, they're not questions that demand an immediate answer.

For now, you can locate your business inside the city dump. You'll just have to know how to spin it to everybody else. Consider how the fictional Ed on NBC's Ed beams with pride every time somebody mentions that he has a law practice inside his bowling alley. "Some companies can take their mismatch and play with it," says Roulac. "Think of Gateway Computers and their commercials with all those cows. They basically play on the fact that you wouldn't expect to find a computer company in Iowa."

You don't anymore. Gateway is now headquartered in San Diego. But Roulac is right about one thing: The company was founded on an Iowa cattle farm.

Ready to run out and sign a lease? Hold it! Let's take one more look at the factors you need to consider.
  • Parking: What's it like for the harried and hurried consumer? If they have to go through an obstacle course, why should they come?
  • Roads: Check with the city. Are they doing any nearby construction soon? The last thing a start-up needs are orange cones and gridlock in front of its business.
  • Safety: If your business is going to be open after the sun goes down, will you have proper lighting at night? Will your customers feel safe coming and leaving your business? Will you?
  • Natural Environment: Are you in a flood plain? Could a tornado wipe you out? A hurricane? The right insurance might protect you from being in the wrong location.
  • Customer Environment: If you target teenagers, maybe the business district isn't a bright idea. If your customers are conservative, being next to a nightclub may not be wise. Find out where customers are and where they'll be going.
  • Tax Programs: With 125 designated empowerment zones in the United States, most states and many cities have incentives for starting a business in an economically disadvantaged area. For instance, if you're in the Oakland Enterprise Zone, which is in a suburb of San Francisco, you might find yourself receiving six different tax credits, like one for hiring an unemployed person and another for bringing aboard somebody who has been in prison. Before you pick a location, contact your city's business development office and see what they have to offer.

Search for Research

Whether your dream involves working on a cattle farm or on Fifth and Elm Street, follow the example of Dylan Fager, 26, and do some basic research. Fager found out all the information he could before he and his business partner, now wife, Elise, 26, bought into a Mailboxes Etc. franchise located just outside Cincinnati. It appeared to be a sure thing, and it was: The lot was right across the street from a regional shopping mall, and tons of traffic pumped past the building every day of the week.

But the Fagers still asked for all the information about consumer retailing that they could get from their landlord, the city of Springdale and their local chamber of commerce. "I hate to even call it research, because they made it so easy," says Dylan, who nonetheless felt confident that he and Elise could make a business in the location: "There's 2 [million] to 3 million square feet of office space within five miles of the store. So there was a market, but nobody had tapped into it yet."

Indeed. They opened in 1999 and routinely bring in "the mid six figures," says Fager, who recently purchased a second Mailboxes Etc. in downtown Cincinnati, where he says he has virtually no competition.

Joe Sitt would applaud. He feels downtown is where it's at--even in the most economically depressed and depressing parts of a city. Of course, he would feel that way; his New York City company, Thor Equities, specializes in buying up ruined buildings and renovating them. But he makes a good case for the inner city. "First, you'll have less competition. It's a lot cheaper to get into an urban neighborhood, and you'll be filling a tremendous void," says Sitt. "Why go someplace and butt heads with a hundred other competing businesses, when you could go somewhere where customers are salivating for your products and services?"

If you feel you need more help, it may be worth hiring a location analysis firm like the Roulac Group or GeoMarketing. Although it can cost up to several thousand dollars for them to do all the work for you, some companies, like Geo, will research a location you've already found for as little as $500.

However the research is done, O'Halloran says there are a few basic mistakes to try not to make when finding the right location for your business--one common mistake being the "build it, and they will come" plan. "Just because a concept is great--just because your sandwiches are great, or your clothing line is terrific--it doesn't mean the customers are going to be there," says O'Halloran.

Entrepreneurs also sometimes forget that location is not static, says O'Halloran. "There's a neighborhood near Philadelphia called Manayunk. It's a hip, chic neighborhood. It's become a real shopping destination. But 15 or 20 years ago, everybody was moving out. Nobody came here. Things change-for the better, [and] for the worse. I'm not saying you should do a location analysis every week, or even every year, but if you're the first to see the trend, then you can be the first to be in or out of the area."

But you shouldn't go to the other extreme, warns O'Halloran. "Entrepreneurs sometimes think location is everything," she says. "It's important, but you can be in a great location and have a terrible operator. A great operator can overcome a bad location."

The Finer Things Some places are the right spot for more than business.

Inspiration. That's why Russell Sparkman, 43, located his business, FusionSpark Media Inc., on Whidbey Island, a rural island 90 minutes north of Seattle. Of course, the telephone wires sometimes go down under falling trees, and if he misses a ferry because of bad timing or summer crowds, he could potentially miss an in-person meeting on the coast--which doesn't look professional, especially when you run a business that's making a little more than $1 million per year.

But the headaches are worth it, says Sparkman, whose company produces nature-related photographic documentaries for the Internet, available at his. Work is more fun when you can spot whales from your office window.

Just Move It

Wherever you decide to locate, the important thing is that your company has a home, and you may even realize someday that your second choice has become your first.

That's why Rice isn't complaining that her business isn't out in Hollywood. Los Angeles, she observes, can be a cold, cruel city for small, independent filmmakers. The film community there just isn't set up for the little guy, unless the little guy wants to work with the Warner Bros. of the world.

"We can keep the overhead lower by staying in Dallas," says Rice, "but even more than that, we can create stories that are based in Dallas, which you don't see a lot. Everything's set in Los Angeles." And the markets that Roulac talked about--customers, employees and investors--are ever-present for D-Studios. Film crew and acting talent abounds in Dallas, and when Carstarphen and Rice are ready to show their work to a distributor in Los Angeles or New York, they aren't looked down on or perceived as being out of the loop. "It's become commonplace now--filmmakers can be located anywhere," says Rice. So, too, can start-ups.

For More Informatin Where do you go to learn more about tax programs and zoning issues that affect your search? Here's a quick rundown of resources: