Let's face it, at some point, almost every shop owner entertains the idea of opening a second location. For many, it's a pleasant daydream, which is never seriously acted upon. In my company's experience, however, once the idea has taken hold, most operators find the decision difficult, even frustrating.
Many feel isolated, having (by habit) to address the question more intuitively than analytically. Others, regrettably, just forge ahead, plunging into the project at breakneck speed, preferring decisiveness to analysis. To help those struggling to make the decision, and to head off the consequences of those who may make it too quickly, I'll attempt to identify the principal considerations in the decision to open a second location.
By way of full disclosure, I should admit up front to a certain point of view: I believe at least half of all second locations are opened for wrong or insufficient reasons. The lucky ones that flourish anyway (you see them sooner or later in the trade magazines as successes) are testaments to their owners' powers of clairvoyance that most of the rest of us have to do without. There are at least as many serious mistakes that cause owners to struggle agonizingly for years. We've seen more than a few unpublished disastersand understandably so. First, I'll try to challenge you with a series of sobering considerations. After splashing enough cold water on the idea, you can quit agonizing about it and get some sleep. But if your second location ambitions are still alive and kicking, I'll suggest some rock-solid reasons to move forward. More often than we'd like to admit, certain unromantic basics get brushed off or ignored in our enthusiasm for the shiny new location. Let's begin with a few fundamentals:
"Everything will be better there"
No it won't. It will be different, certainly. But better how? The collision repair business can be maddening and we're all human. It's not hard to cite rational, logical, strategic reason for a second location, when what we really want to do is get away from difficult employees, uncomprehending customers and incomprehensible adjusters. And it's dangerously easy to plan a second location when the real need for your life, your health, your family and your marriage is to do something else entirely. Of course, only you can and shouldanswer such an intimate question. But at some point in the decisionmaking process, better earlier than late, it must be asked and answered: Am I, or are we, going toward something, or trying to get away from something?What exactly will be different?
Some things. But will they be the things that really count? Please do this little exercise: Write down the three most frustrating things that occur, day in and day out, in your existing business today. If you are honest, chances are that at least two of them are people issues, not bricks and mortar. Is that because we are unwilling or incapable of finding good people, or of managing them, or of redesigning obsolete procedures? Either way, no new location in and of itself will make that better. In fact, a second location will make unaddressed people and procedure problems worse, not better.
The Layout Lure
We're builders. We make physical things. We solve problems by creating physical form and function. It's almost impossible to resist the seductive idea that the things that drive us nuts can be solved if only we have the right shop layout. Workflow layout is important, even essential, but that whole issue comes after we form a strategic business reason to expand. A great layout is a lousy reason to open a second location."We need more space"
I'm skeptical. Try, "We're sick of the old space." It's fairly rare to find a shop at full capacity. Shifts, "triage," basic work-in-progress (WIP) management, compensation incentives for cycle time, and replace vs. repair margin analysis can yield great chunks of additional capacity without adding a single additional square foot. Is the first location producing its maximum number of margin dollars? Some second locations are built because the first is genuinely maxed out, but this is rare.Operating Controls
Admittedly, this is not the subject of this article. So what on earth do operating controls have to do with the second location decision? Before a second location is seriously contemplated you need a real operating P&L at the first one (the "mother ship," so to speak), not just some bookkeeper's chart of accounts. You need to know exactly how your labor rates, parts and materials economics and overhead costs currently interact to produce your earnings stream. Only then will you be able to make a prudent estimate of how the new location may behave as part of your business. If you don't know the current operating values of the existing location, how can you possibly forecast the financial behavior of a second one?"We have the loan approval!"
With all due respect to your wonderful banker, that's just not enough. What your bank looks at to finance the expansion is less, not more, than what you need to look at, given the difference of risk between you. They will spread their risk over several thousand business loans. You'll be spreading your personal net worth over one business idea. The fact that the bank will give you the money is an insufficient reason to proceed.Go Ugly Early
Admit to yourself that there will be mistakes in the project. Prepare yourself as part of the decision-making process. Resist the temptation to leave the big challenges until later. You might have several months of negative cash flow. The market could dry up because of weather anomalies or statistical glitches in claims.It's not enough to be psychologically prepared; your pro forma income statement for the new location should contain a worst-case scenario that won't be pleasant, but that you can afford. It doesn't get healthy in a straight line, either. There will be a period of relapse. Spend an hour rehearsing unpleasant surprises and how you'll deal with them so they don't cripple the mother ship when they occur.
Market Capacity
Unless it's an existing collision repair site your second location will be adding to repair capacity already in excess of demand. In virtually every market there already are two to three times the equipped square feet and hours needed to fix a relatively constant supply of that market's wrecks. That means 100 percent of the new location's physical volume must be taken away-and kept it away-from other shops now serving the need. Are you sure you know exactly how you're going to do that?A Managerial Earthquake
While you pore over intriguing shop layout drawings and fascinating new concepts of U-shaped workflows, it's easy to forget the single greatest consequence of the second location decision: One of the two locations will not have you. If your beautiful new location is going to be managed by somebody else, are they already on board? If so, shouldn't they be deeply-even intimately-involved in even the earliest planning? I know, I know. What fun is that? This is your baby. Well, then I guess you're going to the new place yourself. So do you have the person on board who's ready to take command of the mother ship? And that first location, your life's work, is all ready to operate without you every day? Oh, you're going to run both for a while? So let's get serious. You can't develop a second location without developing-probably for the first time-a real general manager. How to do that is certainly the subject of a different article, but nothing else about this project is going to work without it.How Many, Ultimately?
Everybody can see that owners' second locations never look anything like their first ones. They're either larger or smaller, they're almost always prettier, and the layout is reflects all the workflow issues that drove the owner crazy at the mother ship. But the real story lies in a less noticed fact: The third location never looks like the second. The owner has learned all his hard lessons on the second. The second is agonizing, but the third is much, much easier. It seems to be only at the third location that the new ways of operating forced on the organization can begin to be "back-imprinted" on the earlier location(s). Unless you have a plan and the energy to carry out an organized expansion beyond two, that second one is a high price to pay, not just financially, but managerially and even emotionally.Still hot on the trail of the second location? Well, one thing that's as sure as sunrise: There will be a moment when you genuinely ask yourself, "Why on earth did I start this?" You're going to need an answer that goes beyond pretty architects' renderings. Without it you can lose your strategic way as the project gets difficult. Let's look at the reasons you ought to be doing this:
Your Employees and Their Families
Although you can't make a nickel without them, your business doesn't own them. They're only rented, and not just for money but on faith. They show up every day voluntarily and bet on your personal ability to perpetuate the magic machine that converts their efforts into food, clothing and shelter for their families. Somewhere along the line you acquired the responsibility to protect the jobs you created for people who have every right to expect they'll be there when they show up ready to work. There's many a day that it's not an attractive idea, but it goes with the territory of being an owner. You owe it to your good employees to protect their livelihood.The Right Thing
If expansion means being forced to do it all better (selling, buying and operating) then you will be raising the bar. When you retain earnings to be more productive, you make the playing field that much more difficult for those who don't belong on it. That's a natural and healthy part of the ecology of business, and particularly healthful for our industry. Only constant improvement rewards those who can and will at the justifiable expense of those who can't or won't.Defending Your Life's Work
Claims are on the move. They are being distributed to fewer and fewer repairers. There is still an immense overcapacity to be abandoned, and it will take years. But it will happen as immutably as the retreat of a glacier. Your chances that your business will either grow or shrink are many times those that it will remain the same. Even at a fixed volume, you will lose your ability to compete without continuing to increase productivity. You have spent years, perhaps most of your life, building an economic institution of great but illiquid value. You have no choice but to defend it. That means that in an essentially flat market, you must take volume away from someone else, someone who is less willing to invest the energy and risk to defend his or her life's work and fortune. These are not new business principles. This means that if your existing location is fully utilized, you have to have a second location for defensive purposes alone. It may be across the street or on the lot next door, but it is essential for long-term preservation of value, which is a nice term for survival. It may be riskier in the long run to do nothing, than it is to either grow or get out.Look, you're not in business to protect every living being in your market who fixes wrecked cars. There are too many of them, and they simply don't operate their businesses as well as you do. Their underserved customers and insurers are your rightful prey. Besides, you need their good employees. Do it because you believe you have what it takes to win, and you deserve the winnings in exchange for your determination and energy. In business there is no greater joy.
Now go back and really work through the challenges at the beginning of this article. That way you'll be ready for Part II: The Second Location: What and Where?
