Ready to Hit the Road?Posted on Saturday, July 1st, 2006 by Reed Richardson
Relocating a small business is perilous, but for many owners the rewards are worth the risk
A little over ten years ago, Ken Shirley’s small, warehousing company, located in a small town outside Sacramento, Calif., was humming along, but profits were increasingly hard to come by. Convinced that he needed to change his business model, Shirley longed to start manufacturing many of the health and beauty aides his company was then distributing in order to improve his cash flow. However, the prospect of expanding his current facility, which he did not own but was merely leasing, in addition to what he calls California’s “antagonistic regulatory environment” led him to believe that only one strategy would allow his business to achieve longterm success: relocation.
“Had I stayed in California, I don’t know if I would still be in business,” says Shirley today. “I know that moving was definitely right for me.” And one would be hard pressed to argue with him. Since relocating to Evanston, Wyoming, a town of 11,500 in the southwest part of the state, Shirley’s company, BPI Labs, has bought outright a 20,000 square-foot factory, trimmed its overhead by 30 percent, and, over the past ten years, grown nearly four-fold. “All in all, the move was very successful,” recalls Shirley. “It felt good and I’ve never looked back.”
Hundreds of thousands of small businesses follow Shirley’s example and relocate all across America every year. For some of these companies, who may have lost their lease or been pushed out as a result of eminent domain, the move is involuntary. But for many others like Shirley, the decision to change locations is a conscious choice that stems from a number of competing desires— the most common being to grow and prosper. But no matter what prompts it, most experts agree that relocating a small business will likely be the riskiest proposition most entrepreneurs will have faced since the day they decided to start their own company.
“Business owners are literally betting the business when they make a move,” says Mike Forsyth, managing director at Holland and Davis, a Houston-based business consulting firm. Forsyth, who has been advising companies on relocation for the past ten years, notes that unlike in large companies, which routinely shift assets and personnel, most small business owners have never even contemplated moving. “I’ve worked with clients as big as the federal government and as little as small, family-owned shops,” says Forsyth, “and the emotional aspect of a move as well as the inherent risks are substantially higher for small businesses.”
Still, an overwhelming majority of small business moves tend to be local and, according to Forsyth, are therefore much less complicated than the small percentage that move across state or national boundaries. For a sense of the numbers involved, consider a 2005 study by the Public Policy Institute of California that examined that state’s company relocations over a ten-year period from 1992–2002. It found that 255,878 businesses moved at least once but less than 10,000 of those companies—roughly 4 percent— moved out of state.
“On a scale of 1 to 10, a cross-town move is about a 2,” says Forsyth. “While moving cross-country is about an 8, and going overseas is a 10.” But whether it’s a move around the corner or around the globe, most small business owners who are considering uprooting their company will still face many of the same daunting challenges.
So why move?
There are myriad reasons to relocate one’s business, but most can be linked to one or more of the following five goals: to deal with labor and workforce issues, to expand and reach new markets, to upgrade facilities or equipment, to lower operating costs while increasing cash flow, and to improve overall quality of life. Often, relocation means searching for a newer, larger space to attract more qualified employees and accommodate future growth, but sometimes moving into a smaller space can be appropriate as well, allowing a small business owner to consolidate resources and cut expenses. But to find out whether or not relocating may be right for your small business, most experts recommend that the first question you ponder be “How will the move affect my relationship with my customers?”
Wholesale and manufacturing companies, which are further back in the supply chain, often have a much different relationship with their customers than, say, a law firm or a retail store, which tend to rely heavily on face-to-face encounters, such as customers visiting their offices or walking into their shop. Moving, therefore, has accordingly different effects upon those different types of businesses.
For example, the family-owned company Tapmatic sells much of its tap-and-die hardware to its customers through manufacturer’s sales representatives who are scattered around the country. So, in 1993, after nearly 40 years in southern California, Tapmatic president and second-generation owner Mark Johnson says he felt confident that the family’s decision to move the company to northern Idaho would have no adverse effects on its long-term future, even though barely half of his 30 employees moved with him.
“Losing that many people was a concern because there weren’t a lot of machinists in the area we relocated to,” acknowledges Johnson. “As a result, we had to commit to a lot more on-the-job training, which added some extra cost.” But because Tapmatic ships almost all of its products to customers by UPS, once the new personnel were up to speed, the company’s new location became essentially irrelevant to its customers, says Johnson. In fact, he says the move ended up being a great opportunity for his family’s company to build a larger, more efficient plant from the ground up and improve his employees’ overall quality of life, since many of them could now afford to buy a house for the first time.
However, this relocation strategy is often too difficult to implement for small business owners in the professional and services industries. That’s because previously loyal customers in these sectors often prove to be surprisingly fickle after a business chooses to move across town, let alone across the country. So, if the prospect of turning over your entire customer base sends shudders down your spine and your balance sheet, many small business experts counsel taking greater caution and going through a more thorough marketing-based site selection process before you consider moving.
How to Find Where to Go
But before small business owners can fully answer the question “Should I move my company?” they must firmly grasp the costs and benefits of moving. To do that effectively, most experts recommend small business owners draw up a comprehensive list of their company’s critical needs and wants so they can compare and contrast these criteria when searching for their business’s new home. Or, as relocation expert John R. Frazier writes in the Los Angeles Business Journal: “A well organized site selection process should include research, planning, developing the transaction structure, analyzing the proposal, documenting the transi-tion, and negotiating for government incentives.”
For many small business owners, figuring out how to go about this might seem like an overwhelming first step. But, in fact, there are a number of different resources readily available—from census reports detailing labor availability and wage levels to online site selection programs providing side-by-side comparisons between locations—that can help small business owners determine if the reasons they want to move are the right ones. (For these and more resources, see sidebars.)
BPI Labs’ Shirley cites several of these reasons—unsafe neighborhood, lack of space, bad traffic—behind his first decision to move his business nearly 18 years ago. “At the time, my business was in Pasadena and I was facing all these quality of life issues,” he recalls, the frustration in his voice still evident. “By the end, I just despised the L.A. area with a passion.” And, at times, Shirley says it seemed like the feeling was mutual. “I remember going into one L.A. bank for a loan and being bluntly rejected. They simply told me, ‘You’re a very small fish in a big pond and while we appreciate your business, we’re just not that interested.’”
Mark Willis, who recruits businesses to relocate to his state for the Wyoming Business Council, says this indifference is not uncommon. “Many small businesses can end up feeling lost in the shuffle,” Willis says. “But when searching for new locations, small businesses shouldn’t be afraid to dig considerably deeper and consider towns and areas that might not normally be on your radar.” To find these, Willis points to federal and non-profit business climate studies, industry associations, and local chambers of commerce, as well as state and local economic development associations, like the WBC. “Less developed regions or small states like ours are more interested in recruiting and bringing in small business,” notes Willis. “Often, we can give them that real hands-on attention they’ve been missing.”
For instance, Willis’ organization personally worked with BPI Labs’ Shirley during his company’s second move in order to find an affordable site in Wyoming that both met his plant size needs and provided ready access to freight—his two largest site selection criteria. “At one point, Wyoming’s governor even offered to meet me and let me use his plane to fly around the state and scout locations,” Shirley recalls incredulously. “I mean, do you think [California] Gov. Schwarzenegger would do that for me?”
Avoiding Move Mistakes
Once a small business has committed to moving and found their new home, however, the real work begins. “The key to a successful business move is planning, planning, planning,” says Diane Touleyrou, author of the book Small Company Moving Guide. Touleyrou says her book was born out of orchestrating three different moves for a small software business in Ann Arbor, Mich., which she says left her frustrated and searching for answers. “At the time, though, there weren’t any resources about how to plan and execute a small business move,” she recalls, “So, I decided to write the book.”
In it, Touleyrou draws upon her moving experiences to provide a detailed, three-month timeline that covers everything from setting up “move teams” to hiring the right moving company to notifying your customers to which items should be packed last (toilet paper and a power strip, among others). She, along with other moving experts, also suggests small businesses can save as much as 10 to 20 percent on the move itself by rigorously scrutinizing old documents to determine if they’re worth keeping, a process best remembered by the acronym R.A.F.T. (Recycle, Archive, File, or Trash). “Some things will inevitably go wrong with every move,” writes Touleyrou. “But not planning for bad things to happen causes the most problems.”
Shirley found this out the hard way during his company’s first move in 1988. “I had a contractor all lined up to build out my new location outside Sacramento, but when I showed up nothing had been done,” he recalls. “So my distribution business had to operate from offices for about two months and I lost a great deal of money.” Consequently, when the time came for Shirley’s business to move a second time seven years later, he says he took no chances. “As a precaution, I put my new contractor up in a hotel right there in Evanston and I checked on his progress constantly. Plus, I put three or four months of operating capital in the bank as well, just as a precaution.”
Bob Potter, a 77-year-old retired AT&T executive who has spent the past 18 years recruiting businesses to move to eastern Washington and northern Idaho, says that another common mistake he sees small business owners make during a move involves ignoring their key staff. “Early on in the process, an employer must meet with the workers to fully discuss the ramifications of the move,” says Potter. “Because even if you’re a small, family-owned business with 15 workers, if you don’t get those five key employees to go with you, restarting your company in its new location will be very hard.”
After the Move— Starting Off Right
Once your small business has hung out its new shingle, it’s often a convenient time to reestablish your relationship with your existing customers. Some ways to do this typically involve “Thank You For Your Business” mailed coupons or “Grand Opening” on-site sales events that both jumpstart revenues and reinforce your company’s new location, address, and contact information. Likewise, these events can also be used to introduce your business to new customers, further expanding your sales base and helping your company flourish in its new location. But before your small business heads off into the post-move sunset, relocation consultant Forsyth counsels that you thoroughly review how every aspect of the move went. “It’s really critical to do a lessons learned analysis,” he says. “If you document everything and keep that information, it may eventually pay bid dividends in the long run.” After all, you may never know when your small business has to go “on the road again.”