Are you taking your building, equipment and fixtures for granted?
$14,000 a month. That was my rent in 2000 when the dot com bust hit. Another $14,000 a month went to the local power company. We started investigating a move from South Los Angeles to Riverside or even into Utah where the rent and the utilities would be less than half that amount. We eventually decided to stay put, knowing that some of our competition had a serious advantage over us in overhead costs.
Six years later, our landlord, who would not sign a new lease, gave us 90 days notice to move 25,000 square feet of manufacturing, warehouse, and offices that we had occupied for 18 years. The base cost of the move was $250,000 and resulted in our putting the company on the market for sale. Facilities matter. A lot.
In an interview that I conducted with Alan Goldsmith, one of the most successful bicycle retailers in the history of the bicycle industry, I asked what was the primary reason that most bicycle retailers have trouble crossing certain gross volume thresholds. He said that commonly his space was too small, and customers felt crammed. He noted that over and over he would bump up against a certain volume in a location, move to increase the space and immediately see sales increase again.
It would be impossible for me to cover in this space the dozens and dozens of aspects of facilities decisions: Buy or rent, long term or short term lease, main street or cheap, location location location, signage, interior design, customer flow, and so much more. And any one of these decisions can hurt you or help you.
I've known of owners who have made more money on the real estate than on the underlying business, and I know at least one owner who went bankrupt on the real estate even thought the underlying business was great. And please note that as this is written in January of 2015, there could never be a better time to buy a piece of commercial property. Is that a risk free investment? None is. Clearly, interest rates are never going lower than this, and are almost certain to go much higher. Prices may fluctuate and so you may see lower values in the future. But, based on history, they are actually likely to move up. In any case, you can fix your rent and control your own property.
Sign restrictions by the city may hurt you, but your landlord might be even more irascible that the city. I'll never quite understand that. But many of my clients who have locations in shopping strip malls are greatly restricted in signage. Shouldn't the landlord want you to prosper? Know what these restrictions are before moving in. Negotiate them as part of the lease.
The point of each of these marketing ideas is not to give an exhaustive look. It is more like a cruise where you hopefully get a reminder to think about these things. Facilities can be a major boon or boondoggle.
Action Steps for day 23:
- Take a hard look at your building. Is it large enough, well located, provide a good street view?
- Are you in danger of having the rent increased a lot, or being kicked out all together?
- Is your interior CLEAN, up to date, an asset in your sales effort, efficient?
- What changes could you imagine that might result in lower overhead or more sales?
- Are there equipment changes that need to be made to improve efficiency?
- Would buying a building be a good idea?