Opening up a new location or expanding into a satellite office is hardly something that happens overnight, as evidenced by Amazon’s continued quest to find a new site for what they dub “HQ2” somewhere in the United States. In a move that is expected to create as many as 50,000 high paying jobs and that will invest over $5 billion into the local economy, countless cities are vying for Amazon’s attention – but Amazon certainly has a few requirements of its own, too.
In many ways, this public search for the home of Amazon’s second headquarters helps to illustrate the factors that all entrepreneurs and business leaders must consider during an expansion. From the moment one decides to open up a new office or branch in a new country or city, there are a number of mission critical factors that they need to keep in mind.
1. How will this expansion affect company culture?
Most business leaders work incredibly hard to build a strong company culture – if they hadn’t, they wouldn’t have a business successful enough to consider an expansion in the first place. But that culture is going to change to a certain degree during an expansion; this isn’t something one can avoid. Instead, a leader’s job is to understand the degree to which it will change.
According to The Business Journal, a new location or satellite office can really only be expected to maintain about 85% continuity in culture once regional impact is taken into consideration. After all, working in New York City is simply not the same as working in Topeka, Kansas or vice versa.
In essence, leaders need to think about their expansion not just in terms of the market they’ll now be trying to service, but what that market also holds by way of lifestyle offerings for employees and its general demographical fit.
Never forget that a Department of Economics study at the University of Warwick found that happy workers who are participants in strong company cultures tend to be 12% more productive on average – and unhappy workers are 10% less productive. The fact that culture will change is less important than understanding how it will change.
2. The talent factor.
Any business lives and dies by the quality of the people who work for it – this certainly isn’t a new idea. But one thing business leaders do have to consider when expanding into a new area involves how that particular place will actually affect their ability to attract and retain the people they need.
According to a study conducted by Glassdoor, attracting high-quality candidates to fill available positions is something that 76% of hiring managers rate as their biggest challenge. During an expansion, this issue becomes doubly important.
Not only does a business have to weigh the value of the local talent pool, but key stakeholders also have to think about what the new market has to offer that could make people want to uproot their lives and come work there in the first place.
Likewise, consider the fact that employee turnover is 25% lower on average at companies that support remote work and options like telecommuting. Maybe the location itself isn’t necessarily the best in terms of getting people to move across the country to work, but a business may be able to bridge that gap by allowing people to work from home.
3. The financial implications of expansion.
According to American Express, one of the most important questions an entrepreneur will need to answer during the early phases of an expansion involves “What type of legal relationship will the new location have with the old one?”
Is the new location going to be a totally separate entity? Will “Site 2” be a wholly owned subsidiary of “Site 1”? What are the long-term goals for expansion beyond this initial move? Does the entrepreneur hope to one day franchise out their operations? How does the current expansion move them closer to that goal over time?
One may think they already know the answer to all these questions, but there is another to consider that will be dictated almost entirely by the location that has been chosen: “What are the tax implications I now have to worry about?” If an entrepreneur is already married to the location they’ve chosen, setting up a new office as a separate entity may not be the way to go once they factor in the local and federal tax implications of said area.
Even something as simple as whether or not a business can use the same employer identification number on its taxes will vary depending on the location they’re currently talking about.
This is why it’s always important to not only consider all of these factors at the beginning of an expansion, but also to consult with both an attorney and an accountant as early on in the process as possible.
4. Understand that the process is like starting a business from scratch.
Finally and perhaps most importantly, any business leader or entrepreneur that has decided to open up a new office or branch in a new location must understand that they’re essentially starting from scratch – even if it doesn’t necessarily seem that way.
So much of a business’ success will be dictated by whether or not it is actually possible to duplicate their organization’s functionality in this new environment. This itself is influenced by a wide range of different factors.
Objective market research will become invaluable during this time. One must be able to not only identify the strengths of a new target market but also measure the strength of existing demand, something that isn’t necessarily a foregone conclusion just because a brand is already a strong one. Does adequate demand exist? If it doesn’t, what type of marketing efforts will be required to create the desired level of demand? What drives growth in this new market? These are questions that an entrepreneur will need to be able to answer as soon as possible.
Likewise, competitors will vary wildly in a new location, which means that a business will now be facing unique challenges that weren’t necessarily present when they opened a previous site. Leaders and managers need to be able to measure both the strength of their industry in general as well as the strength of this new local area that they’ll be operating in. One of the biggest mistakes someone can make during this time is to assume that these two concepts are essentially describing the same thing, because they aren’t.
For a growing company, nothing is more exciting and yet more challenging than expanding operations into a new area. The process is one that will test the company’s maturity, its employees’ flexibility, as well as its leadership’s capabilities. In many ways, opening a new office can be likened to a rite of passage that, when executed successfully, can be a fantastic opportunity to expand into new markets and take on an evolved workforce that can propel the company into its next stage of growth.