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Analyze Your Small-Business Location and the Surrounding Environment

The very first section of your business plan summarizes how the environment around your business will affect your company’s success. It examines the industry you’re in, your customers, and your competition.

The first factor that affects the success of most small businesses is location because it often determines who your customers are and what businesses you compete against. When you’re clear about the geographic scope of your market area, you can evaluate the composition of the population, economic conditions, and competing businesses.

If your business serves multiple market areas, you need to assess these same issues in each area to arrive at a useful analysis upon which to plan your business.

Especially if your business relies on foot traffic and spontaneous buying decisions, where you place your shop or office can mean the difference between success and failure to attract adequate visibility and activity. So make sure that you spend serious business-planning time weighing the pros and cons of your location and make an equal effort evaluating the business environment of your market area.

The Internet has given new meaning to location. Most bricks-and-mortar companies also have websites. More and more companies are doing business entirely on the Internet. For many of these e-businesses, driving traffic to their website is the key to success. When you think of it, that’s not all that different from a mom-and-pop store looking for ways to get people in the door.

Location can be critical in another way. Suppose that you’re starting a small software company that will depend on highly trained software engineers. You have to locate your company in a place where these kinds of people live — or at least are willing to move.

You’re likely to find them in Seattle, Washington, or San Jose, California, for example. You may have some trouble, though, if you set up shop in Mountain Home, Arkansas. That’s important to remember as you begin planning your business.

Complete the business environment section of your business plan in three parts.

  • Describe your business or industry arena, including the trends you’re seeing. Note whether the market is growing or receding; what it takes to enter the arena; and any technological, regulatory, or other changes you see on the horizon.

  • Describe your customers by stating where they live or are located; facts about their age, gender, income, marital status, and so on; and anything you know about why and how they buy products like yours.

  • Describe your competitive environment, including the strengths, capabilities, and growth plans of major competing businesses and how you plan to differentiate your business.

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