Ready to Expand? Not so Fast. Ask Yourself These Questions First.

“How’s business?”

After a few years in the black, it’s your favorite question to answer. Your customers can’t get enough of you, and not a day goes by without someone asking when you’ll open another location.

That must mean you’re ready to expand, right? From Starbucks to McDonalds to H&M, that’s what successful businesses do. They branch out. So what are you waiting for? Start scouting locations already. It takes more time than you think.

Global business expansion team

Don’t Overextend Yourself

But wait. What if your second location isn’t as successful as your first? What if the culture doesn’t translate? Or, worse, what if customers like the second spot so much that they abandon the first?

No, you’re not just overthinking things. In fact, my single biggest failure as an entrepreneur was overextending myself. You might be great at what you do. I certainly thought I was, but I soon got a dose of reality.

Even if your product is flying off the shelves, be careful. It’s easiest to underestimate operational costs when things are going well. If your margins are tighter than you think, expanding can be downright disastrous.

You’re Still Not Safe

“Well, I’m not about to fail,” you might be thinking. “I’m a few years old, and I’m here to stay!”

Frankly, just because you’ve done well doesn’t mean you’re safe. Eighty percent of businesses survive their first year, but at the five-year mark, things aren’t quite so rosy. By that time, almost half of businesses fail. Ten years down the road, just one-third are still around.

Couldn’t economic cycles be to blame? Actually, the data hasn’t changed much in recent decades. In fact, Babson College’s 2015/2016 Global Entrepreneurship Report makes clear that over half of businesses fail for one simple reason: undercapitalization. Not to put too fine a point on it, but if your business fails, it’s not the economy’s fault — it’s yours.

Business expansion - analyzing second location

Ready for Round 2?

Obviously, undercapitalization is a concern for every young company. But what’s shocking is just how many business owners misjudge their operating costs prior to expansion. Before you take the plunge, ask yourself these questions:

1. Do I have cash to spare?

If you find yourself with excess funds every month, you might be ready for a new spot.

2. Have I mastered my craft?

What defines your business? If you’ve nailed your core competency, it might be time to scale up.

3. Do people know my brand?

Who are your customers? What do they love about you? Is your company the new hip thing? If you’ve already got a line out the door, chances are good that your second location would, too.

4. Have I done my fieldwork?

Go check out your desired location. What businesses are nearby? What are the demographics? Do they seem to have plenty of traffic? If you don’t know the natives, don’t even think about joining their tribe.

5. Can I delegate?

You’re only one person. If you open a second location, you won’t be able to manage both at once. What if an emergency comes up? Do you trust your team to handle it? One of the toughest parts of expansion is learning to let go.

6. Have I learned to embrace risk?

If you’ve made it this far, you’re probably no stranger to risk. It’s all part of the game. But a second location is a chance to try new things. If you don’t experiment, you’ll never climb higher.

7. How’s my company culture?

If you’ve built the sort of company where employees actually want to come to work, it shows. If you haven’t, well, that shows, too. Before opening a second shop, be sure you can staff it with helpful, friendly faces.

8. Have I learned to celebrate success?

As an entrepreneur, it’s easy to become hell-bent on expansion. But business is a journey. Take time to recognize how far you’ve come before turning the page.

For any pioneer, the road to new territory can be a rocky one. But don’t let the fear of getting lost prevent you from striking out anew. By seizing the right moment to expand, your company can — quite literally — break new ground.