It amazes me how many people cling to the romantic notion of starting a new business in their garage. Garages are typically full of stuff (including your car), poorly lit, and cold due to a lack of insulation. Your garage is also attached to your home which means you’ve chosen a location for your business based on where you live right now.
That a dangerous mistake.
Even if you are not starting a retail store or a restaurant, location is an important factor in the success of your business. It might not seem so at first when it is just you, your laptop and a phone working from a coffee shop. However, if you are successful and need to grow then you want to make sure you are in a city that facilitates your growth. Just like natural resources fuel economic growth, your company will need business resources to grow.
Three common business resources that depend on your location are: Employees, Financing and Customers.
Location Based Employees
Assuming your business takes off, you will want to grow your team quickly. This might mean hiring engineers, artists, sales people or simple manual labor. Whatever kinds of employees your business calls for, you want to make sure you have a ready supply of candidates in your area to fill those positions.
It is not a coincidence that you find many companies in the same industry gravitating to the same city. Companies in the same industry hire the same kinds of people, and often away from each other. This creates a liquid workforce where you can quickly scale up when you are successful by drawing from employees at larger companies in the same industry.
The major drawback to being in close vicinity to many other companies in the same industry is that your employees are more likely to be poached by those companies. Ideally, you want to find somewhere with enough density to make hiring easy but not so dense that employees will switch jobs every six months.
Location Based Financing
At some point your company will require outside capital to continue to grow. Despite the global nature of business these days, most early ventures are initially funded by local investors. There is so much risk in early ventures that investors focus on the people more than the business and to do that they need to meet you in person. Of course, to be funded by locals there need to be locals that invest in your kind of business. While there may be investors in your city, if they don’t typically invest in your kind of business you will have an uphill battle to raise money.
Put simply, you want to be in a business that your city is in already. It’s easiest to raise money for a high tech company in San Francisco and for a new hedge fund in New York City but if you need to finance a new farm both places will prove difficult.
You want to be in a business that your city is in already.
The good news is that if you’ve already chosen a place with a large pool of potential employees, chances are that they work for competitors and those competitors have raised financing already. That means you might already have an educated investor community.
Location Based Customers
While you can reach customers by email, phone and even video these days there is no replacement for meeting your customers in person. Sales is still a very human activity and your ability to sit down with potential customers and understand their needs will be critical to your success. While you can’t work in the same city as all of your customers, you want to be close to enough of them to fuel your early sales and product development.
Another added benefit of being close to your customers is that other companies who service the same customers will be there as well. This means you will have more opportunities to develop partnerships (and potentially be acquired).
The reality is that any location you choose will never be perfect. Whether to move your business, or even your home, somewhere new is a decision that you will need to make after weighing the facts. It is possible that the potential of easier financing is outweighed by your desire to be near your family, which is a very logical decision. However, realizing that limitation up front means that you can plan ahead and work harder to overcome it.
Thanks to Evan Cooke for inspiring this post. He promised me a job cleaning his yacht in exchange for covering the topic.