Ask Inc.: Timing a Business Expansion in an Uncertain Economy
BY Inc. staff
In an economic recession, when should you open a new location?
Q: Given the lingering economic uncertainty, how will I know when to expand my fresh-meal delivery service to the West Coast?
Steve Lindner CEO, ZoneManhattan.com Hunts Point, New York
A: Not even the chairman of the Fed knows what next month will bring. So instead of reading tea leaves, read everything you can find about your desired market. "This is a time for caution," says Jay Weiss, a principal of JGI, a management consulting firm based in Rochelle Park, New Jersey. "But that doesn't mean that it isn't a time for opportunity as well. It just means that you have to do a greater level of analysis."
So, what are those famously healthy West Coasters up to these days? Weiss suggests examining consumer spending and competitors' performance city by city around the region. Are consumers paying top dollar at raw-food restaurants and supermarkets where the sushi varieties outnumber the snack cakes? Or are they increasingly choosing fast-food outlets pitching bargain menus?
Once you have identified a promising market, calculate how long you can hang on if the expansion isn't profitable and the economy spends another two to five years leisurely circling the drain. "Especially now, it's important to have a realistic timeline for benchmarking success," says Weiss.
If you can handle the risk (and scrounge up the financing), there are advantages to pouncing while the iron is of an indeterminate temperature. "We look at it as an absolutely ideal time to expand," says David Swinghamer, a partner at Union Square Hospitality Group, which owns 11 restaurants in New York City. When Union Square recently launched additional outposts for its Shake Shack and Blue Smoke restaurants, it was able to choose from an abundance of qualified employees and reasonable leases. Still, Swinghamer recommends carefully checking out the competition. "You have to go there for yourself and really feel it," he says. Fortunately, you will have no problem finding a hotel room at a great price.