One CEO learned that expanding to a second city can have many pitfalls. The marketplace is different, and many of your needs are different, too.
Opening an office in another state is not always easy. Just ask Deb Bass. Her Bass & Associates, a 1998 Inc. 500 IT-staffing company headquartered in Omaha, learned that the hard way. At the behest of a large customer, Bass had opened up a second site, in Overland Park, Kans., the booming edge city 195 miles southeast of Bass's home turf. "It didn't take us long to say to ourselves, 'This is a different beast," she confides today.
In how many areas does Bass cop to missteps? Plenty. The list includes--
- Hiring. "Our first branch manager came from a corporate job, but in our office she was working solo," says Bass. "She had to cold-call people and knock down doors. But she wasn't able to do that kind of selling. We misjudged how hard it might be for a person working by themselves--the isolation. If you're not driven, you might hide in a shell. You might show up and make a few phone calls, but that's not enough."
- Market acceptance. "In Omaha, we have a hard time finding employees but an easy time finding clients. In Overland Park, the reverse was true. But I'd much rather have plenty of clients and have to find people, because that's an easier problem to deal with. I know we know how to recruit," Bass says.
- Advertising. "In Omaha, with good radio ads and billboards, we could get our name out effectively. We thought we could do the same in Kansas City. But it's a much bigger market, and buying advertising there is much more expensive. We had to use our advertising dollars differently to get name recognition."
- Competition. "Companies in the Kansas City area have more entrenched preferred-vendor lists than companies in Omaha do. We were shut out of a lot of places because of those lists."
- The client base. "In Kansas City many potential clients were national and international firms that had huge projects. Other large firms were more warmly perceived by them than a local company like ours was. The large international customers were looking for vendors who could provide bodies. They were more price sensitive."
In retrospect, Bass has realized that she was too quick to open a second location--although going in, she was aware of some of the problems she faced. "We only had three months to prepare, but in those three months we did some research," she explains.
The findings had indicated that Overland Park would be a fiercely competitive market and suggested that it would be difficult to build a practice there quickly. But, like many entrepreneurs, Bass thought that her company's ingenuity would carry the day. "I was supposed to use the analysis we had done to get a clearer picture--the lay of the land," she says. "I saw the numbers, but even then I still thought it would be just like Omaha. But Overland Park is really different, and we struggled with those differences for six to nine months."