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CHAPTER

9 The Location Plan

LEARNING OBJECTIVES

By studying this chapter, you should be able to… 9-1 Describe the five key factors in locating a brick-and-

mortar startup. 9-2 Discuss the challenges of designing and equipping

a physical facility. 9-3 Recognize both the attraction and the challenges of

creating a home-based startup. 9-4 Understand the potential benefits of locating a

startup on the Internet.

9-1 LOCATING THE BRICK-AND- MORTAR STARTUP

• The choice of a location for a physical facility is often a one-time decision, but a small business owner may later relocate a venture to reduce operating costs, be closer to customers, or tap other advantages.

9-1a The Importance of the Location Decision

• Brick-and-mortar facility – The traditional physical facility from which businesses have historically operated.

• The importance of the initial decision as to where to locate a brick- and-mortar facility is underscored by both the high cost of such a place and the hassle of pulling up stakes and moving an established business.

• Also, if the site is particularly poor, the business may never become successful, even with adequate financing and superior managerial ability.

• The choice of a good location is much more vital to some businesses to others. • Example: The location decision for an apparel store would be much

different than the location decision for a painting contractor’s office.

9-1b Key Factors in Selecting a Good Location (slide 1 of 9)

• Five key factors guide the location selection process: 1. Customer accessibility. 2. Business environment conditions. 3. The availability of resources. 4. The entrepreneur’s personal preference. 5. Site availability and costs.

9.1 Factors in Determining a Good Business Location

9-1b Key Factors in Selecting a Good Location (slide 2 of 9)

• Relevant questions to ask when making the location decision include the following: • Neighbor mix: Who’s next door? • Security and safety: How safe is the neighborhood? • Services: Does the city provide reliable trash

pickup, for example? • Past tenants’ fate: What happened to previous

businesses in that location? • Location’s life-cycle stage: Is the area developing,

stagnant, or in decline?

9-1b Key Factors in Selecting a Good Location (slide 3 of 9)

CUSTOMER ACCESSIBLITY • Customer accessibility is a key location factor in

industries with high transportation costs, as well as those that must provide handy access for targeted customers to avoid losing those customers to more conveniently located competitors.

BUSINESS ENVIRONMENT CONDITIONS • Business environment factors affecting the location

decision are climate, competition, legal requirements, and the tax structure.

9-1b Key Factors in Selecting a Good Location (slide 4 of 9)

• Although most state and city governments go to great lengths to support startups, nearly all cities have regulations that restrict new business operations under certain circumstances. • Zoning ordinances – Local laws regulating land use. • These ordinances often apply to factors related to:

• Traffic and parking. • Signage. • Nonrelated employees working in a home. • The use of a home more as a business than as a residence. • The sale of retail goods to the public. • The storage of hazardous materials and work-related equipment.

9-1b Key Factors in Selecting a Good Location (slide 5 of 9)

AVAILABILITY OF RESOURCES • Availability of resources, such as raw materials and

crucial suppliers, can be important to location decisions. • Proximity to important sources of raw materials and an

appropriate labor supply are particularly critical considerations in the location of most manufacturing businesses.

• Access to key suppliers influences site selections for retail outlets and restaurant operations.

9-1b Key Factors in Selecting a Good Location (slide 6 of 9)

• Availability of suitable labor can also be important to location decisions. • The suitability of the labor supply for a manufacturer depends

on the nature of its production process. • Labor-intensive operations need to be located near workers with

appropriate skills and reasonable wage requirements. • A history of acceptable levels of labor productivity and peaceful

relations with employers in a particular area is beneficial to almost any production operation.

• Companies that depend on semiskilled or unskilled workers usually locate in an area with surplus labor, while other firms may need to be close to a pool of highly skilled labor.

• Access to good transportation is important to many companies, particularly retail stores and small manufacturers.

9-1b Key Factors in Selecting a Good Location (slide 7 of 9)

PERSONAL PREFERENCE OF THE ENTREPRENEUR • The entrepreneur’s personal preference is a practical

consideration in selecting a location. • Despite a world of alternatives, small business owners often

choose to stay in their home community, which may offer certain unique advantages that cannot be found elsewhere. • The entrepreneur may generally appreciate and feel comfortable with

the atmosphere of his or her home community. • It may be easier to establish credit with hometown bankers who know

an entrepreneur’s personal background and reputation. • Having personal connections in the local business community can

lead to invaluable business advice. • The small business owner probably will have a better idea of their

local residents’ tastes and preferences than would an outsider. • Friends and relatives in the community may be quick to buy the

product or service and spread positive reports about it to others.

9-1b Key Factors in Selecting a Good Location (slide 8 of 9)

SITE AVAILABILITY AND COSTS • Once an entrepreneur has settled on a certain area for

his or her business, a specific site must still be chosen. • If an entrepreneur’s top location choices are

unavailable, other options must be considered. • One alternative is to share facilities with other enterprises.

• Business incubator – A facility that provides shared space, services, and management assistance to new businesses.

• The purpose of business incubators is to see new businesses hatch, grow, and then move on, so the situation is temporary by design.

• Alternatives that are more permanent are the shared-office arrangement and “co-working” movement, which involves shared working spaces that allow workers to work and connect in the same location.

9-1b Key Factors in Selecting a Good Location (slide 9 of 9)

• Assuming that suitable building space is available, the entrepreneur must decide whether to lease or buy. • Although most small business owners choose to purchase,

there are a number of benefits to leasing: • A large outlay is avoided. • Risk is reduced by minimizing investment and by postponing

commitments for space until the success of the business is assured and facility requirements are better known.

• It is usually more affordable to lease in a high-image area than to buy in a prime location.

• The entrepreneur can focus on running the business rather than managing a property.

• However, there clearly are disadvantages to leasing as well. • A well-selected purchased property appreciates in value. • No permission is needed to make changes or additions to the property.

9-2 DESIGNING AND EQUIPPING THE PHYSICAL FACILTIES

• A well-written location plan should describe the physical space in which the business will be housed and include an explanation of any equipment needs. • The plan may call for a new building or an existing

structure, but ordinarily a new business that needs physical space will occupy an existing building, perhaps after some minor or major remodeling.

9-2a Challenges in Designing the Physical Facilities

• The general suitability of a building depends on the functional requirements of the business. • It should not be too large and extravagant nor too small and restrictive.

• Important factors to consider include: • The age and condition of the building. • Potential fire hazards. • The quality of heating and air conditioning systems. • The adequacy of lighting and restroom facilities. • Appropriate entrances and exits.

• The comfort, convenience, and safety of the business’s employees and customers must not be overlooked.

• The square feet of office area per employee has decreased in recent years.

• Office configurations have also gone through a substantial transformation, with a shift toward open designs.

9-2b Challenges in Equipping the Physical Facilities (slide 1 of 3)

• The final step in arranging for physical facilities is the purchase or lease of equipment and tools. • Research has shown that, overwhelmingly, owners

of small businesses would rather own their equipment than lease it.

9.2 Small Business Owners Choose Buying over Leasing

9-2b Challenges in Equipping the Physical Facilities (slide 2 of 3)

MANUFACTURING EQUIPMENT • Machines used in factories can include either general-

purpose or special-purpose equipment. • General-purpose equipment – Machines that serve many

functions in the production process. • General-purpose equipment requires minimal investment and is

easily adapted to various operations. • General-purpose equipment also offers flexibility.

• Special-purpose equipment – Machines designed to serve specialized functions in the production process.

• Special-purpose equipment offers a narrower range of possible applications and, thus, has little or no resale value.

• Special-purpose equipment is more expensive to buy or lease.

9-2b Challenges in Equipping the Physical Facilities (slide 3 of 3)

RETAILING EQUIPMENT • Small retailers must have merchandise display racks and

counters, storage racks, shelving, mirrors, shopping carts, cash registers, and other equipment that facilitates selling.

• Fixtures and other retailing equipment should create an atmosphere appropriate for customers in the retailer’s target market.

OFFICE EQUIPMENT • Every business office—even a home office—needs furniture, filing

and storage cabinets, and other such items. • Entrepreneurs should choose office equipment (like computers

and communications systems) that reflects the latest advances in technology applicable to a particular business.

9-2c Business Image

• All new ventures, regardless of their function, should project an image that is appropriate to and supportive of the business and its intentions.

9-3 LOCATING THE STARTUP IN THE ENTREPRENEUR’S HOME

• Home-based business – A business that maintains its primary facility in the residence of the owner.

• Launching a business from home has become a viable permanent option for an increasing number of startups.

9-3a The Attraction of Home-Based Businesses (slide 1 of 2)

• Home-based businesses are started both for financial reasons and to accommodate family lifestyle considerations, such as the following: • To get a business up and running quickly, and with little risk. • To do something you love to do, and get paid for doing it. • To be your own boss, and reap the rewards from your efforts. • To have the flexibility to spend more time with family and

friends. • To save time and money wasted on daily commutes.

9-3a The Attraction of Home-Based Businesses (slide 2 of 2)

FINANCIAL CONSIDERATIONS • Locating a business at home helps increase profits by reducing

costs. • Starting at home allows you to build your business slowly, without

the pressing burden of having to find the cash to cover rent for office space every month and pay other expenses.

• It also allows you to deduct costs related to space used in the home for business from any taxes that may be owed from the venture’s income, as long as you conform to the rules established by the IRS.

LIFESTYLE CONSIDERATIONS • Entrepreneurs who locate business operations in the home are

frequently motivated by the desire to spend more time with family members.

9-3b The Challenges of Home-Based Businesses

PROFESSIONAL IMAGE • Maintaining a professional image when working at home is a

major challenge for many home-based entrepreneurs. • If clients or salespeople visit the home-based business, it is critical

that a professional office area be maintained.

LEGAL CONSIDERATIONS • Local laws, such as zoning ordinances, can pose serious problems

for home-based businesses. • There are also tax issues related to a home-based business.

• Example: A separate space must be clearly devoted to business activities if an entrepreneur is to claim a tax deduction for a home office.

• Insurance considerations also affect a home-based business. • A homeowner’s policy is not likely to cover an entrepreneur’s

business activities, liabilities, and equipment.

9-4 E-COMMERCE: LOCATING A STARTUP ON THE INTERNET

• E-commerce – Electronic commerce, or the buying and selling of products or services on the Internet.

• The Internet can significantly boost a small company’s financial performance.

9-4a Benefits of E-Commerce for Startups

• E-commerce can benefit a startup in many ways. • It allows a new venture to compete with bigger

businesses on a more level playing field. • The Internet blurs geographic boundaries and

expands a small company’s reach. • An e-commerce operation can help a startup with

early cash flow problems by compressing the sales cycle—that is, reducing the time between receiving an order and converting the sale to cash.

• The shorter cycle translates into quicker payments from customers and improved cash flows to the business.

9-4b E-Commerce Business Models (slide 1 of 7)

• A business model is an analysis of how a firm plans to create profits and cash flows given its revenue sources, its cost structures, the required size of investment, and sources of risk.

• Online companies differ in their decisions concerning which customers to serve, how best to become profitable, and what to include on their websites.

9.3 Basic E-Commerce Business Models

9-4b E-Commerce Business Models (slide 2 of 7)

TYPE OF CUSTOMERS SERVED • E-commerce businesses are commonly distinguished

according to customer focus. • There are three major categories of e-commerce

business models based on the type of customers served: 1. Business-to-business (B2B). 2. Business-to-consumer (B2C). 3. Consumer-to-consumer (C2C).

9-4b E-Commerce Business Models (slide 3 of 7)

• Business-to-business (B2B) model – A business model based on selling to business customers electronically. • Example: Hewlett-Packard. • The dollar amounts generated by firms using a B2B model are

significantly greater than those for firms with a B2C model. • B2B operations come in all shapes and sizes, but the most

popular form of this strategy emphasizes sales transactions. • A unique form of B2B trade involves work outsourcing, which

helps connect freelancers and other specialists with companies that need their services.

9-4b E-Commerce Business Models (slide 4 of 7)

• Business-to-consumer (B2C) model – A business model based on selling to final consumers electronically. • Example: Amazon. • The B2C model offers three main advantages over brick-and-

mortar retailing: 1. Convenient use. 2. Immediate transactions. 3. Round-the-clock access to a broad array of products and services.

• B2C e-commerce businesses face unique challenges— payment security risks and data breaches, customers who refuse to purchase a product without first seeing or trying it, etc.

• However, they also enjoy the advantages of tremendous flexibility by being able to change merchandise mixes and prices quickly and easily modify the appearance of their online stores.

9-4b E-Commerce Business Models (slide 5 of 7)

• Many producers and wholesalers today are using a strategy sometimes referred to as disintermediation. • Disintermediation – The bypassing of a middleman by a

producer or wholesaler in order to sell its product or service directly to the final consumer.

• Consumer-to-consumer (C2C) model – A business model usually set up around Internet auction sites that allow individuals to list items available for sale to potential bidders. • Auction site – Web-based businesses offering participants

the ability to list products for consumer bidding. • Example: eBay. • Auction sites generate most of their revenue through listing

fees and commissions.

9.4 Selling Your Item on eBay

Step 1: Set up an eBay seller’s account, which is free of charge. Step 2: Create a listing for the item to be offered for sale. Step 3: Manage your listing to see if anyone has bid on or purchased your item. Step 4: Wrap up the sale with your buyer by communicating with the buyer,

receiving payment, shipping the item, and leaving feedback for the buyer.

Source: Adapted from “Getting Started Selling on eBay,” http://pages.ebay.com/ help/sell/sell-getstarted.html, accessed January 22, 2018.

9-4b E-Commerce Business Models (slide 6 of 7)

THE NATURE OF ONLINE PRESENCE • A second broad way of categorizing e-commerce models relates

to a firm’s intended level of online presence. • The role of a website can range from merely offering information

(information-based model) and basic content (content-based model) to enabling complex business transactions (transaction-based model).

• Information-based model – A business model in which a website simply offers information about a business, its products, and other related matters. • It is typically just a complement to an existing brick-and-mortar

facility.

9-4b E-Commerce Business Models (slide 7 of 7)

• Content-based model – A business model in which a website provides information (content) that attracts visitors, usually with the hope of generating revenue through advertising or by directing those visitors to other websites. • The content-based model does not provide the ability to make

purchases. • Transaction-based model – A business model in which a

website provides a mechanism for buying or selling products or services.

• Emerging platforms for online ventures include: • Blogging. • Podcasting. • Creating a following on YouTube or Pinterest to generate revenue

from ads and sponsorships, donations, subscription charges, or fees for access to live events.

9-4c Internet-Based Businesses and the Part-Time Startup Advantage

• Instead of giving up their existing job, many entrepreneurs start Internet-based businesses on a part-time basis while still holding on to their full-time job. • This approach reduces the personal risk of the

entrepreneur if the venture should fail. • On the other hand, holding on to a full-time career

while launching a new venture on the side can be extremely grueling due to the amount of hours that must be spent working two careers.

Key Terms auction sites brick-and-mortar facility business incubator business-to-business (B2B)

model business-to-consumer (B2C)

model consumer-to-consumer (C2C)

model

content-based model disintermediation e-commerce general-purpose equipment home-based business information-based model special-purpose equipment transaction-based model zoning ordinances

�CHAPTER�9��The Location Plan
LEARNING OBJECTIVES
9-1 LOCATING THE BRICK-AND-MORTAR STARTUP
9-1a The Importance of �the Location Decision
9-1b Key Factors in Selecting �a Good Location (slide 1 of 9)
9.1 Factors in Determining a Good Business Location
9-1b Key Factors in Selecting �a Good Location (slide 2 of 9)
9-1b Key Factors in Selecting �a Good Location (slide 3 of 9)
9-1b Key Factors in Selecting �a Good Location (slide 4 of 9)
9-1b Key Factors in Selecting �a Good Location (slide 5 of 9)
9-1b Key Factors in Selecting �a Good Location (slide 6 of 9)
9-1b Key Factors in Selecting �a Good Location (slide 7 of 9)
9-1b Key Factors in Selecting �a Good Location (slide 8 of 9)
9-1b Key Factors in Selecting �a Good Location (slide 9 of 9)
9-2 DESIGNING AND EQUIPPING THE PHYSICAL FACILTIES
9-2a Challenges in Designing �the Physical Facilities
9-2b Challenges in Equipping �the Physical Facilities (slide 1 of 3)
9.2 Small Business Owners Choose Buying over Leasing
9-2b Challenges in Equipping �the Physical Facilities (slide 2 of 3)
9-2b Challenges in Equipping �the Physical Facilities (slide 3 of 3)
9-2c Business Image
9-3 LOCATING THE STARTUP IN THE ENTREPRENEUR’S HOME
9-3a The Attraction of �Home-Based Businesses (slide 1 of 2)
9-3a The Attraction of �Home-Based Businesses (slide 2 of 2)
9-3b The Challenges of �Home-Based Businesses
9-4 E-COMMERCE: LOCATING A STARTUP ON THE INTERNET
9-4a Benefits of �E-Commerce for Startups
9-4b E-Commerce �Business Models (slide 1 of 7)
9.3 Basic E-Commerce Business Models
9-4b E-Commerce �Business Models (slide 2 of 7)
9-4b E-Commerce �Business Models (slide 3 of 7)
9-4b E-Commerce �Business Models (slide 4 of 7)
9-4b E-Commerce �Business Models (slide 5 of 7)
9.4 Selling Your Item on e Bay
9-4b E-Commerce �Business Models (slide 6 of 7)
9-4b E-Commerce �Business Models (slide 7 of 7)
9-4c Internet-Based Businesses and the Part-Time Startup Advantage
Key Terms