When I was a teenager, I dated a girl on the other side of Miami.
My father was annoyed.
Miami is a big—very big—place. It’s spread way out.
I lived in North Miami, and she lived in South Miami. It took nearly an hour to drive from our house to hers. The miles and gas expense added up.
My dad wanted to know why I couldn’t find a girl on our side of Miami. His position was that could find a girl in North Miami and save the time and money involved in driving across town. I have to admit that I’ve asked that same kind of question of my kids. “North Raleigh?” I ranted. “You’ve got to be kidding.”
Love results in crazy behavior, especially in teenagers (and their fathers).
Business, however, is different.
What to Consider Before Opening Another Location
You need to make business decisions with a rational mind and a well-designed spreadsheet.
Opening a second location isn’t a decision to make lightly. It raises all sorts of issues and expenses.
- Will you lease your own space?
- Will you have to pay a receptionist?
- Will you house an associate there?
- What will you do about phones, Internet, and printing?
- Where will you store the files?
- How will you handle credit card charges?
- What will you do with checks?
- What are the ethics requirements in your state for second locations?
- Most significantly, at least in the beginning, how much will it cost you in time and mileage to drive to the new location? How will that play out when you drive over there and the client fails to show up?
My bias is against opening a second location (and I have four of them). It’s harder and less profitable than it looks. Plus, clients are more willing to come to your primary location than you might imagine.
The desire to open a second office falls somewhere below the desire to prematurely hire an associate, but it comes in a close second. There’s something totally irrational about opening a second office, but it’s a powerful wish for some.
I’d suggest you slow way down. Most lawyers I meet are struggling to make the first location work as well as it should. Focus on office number one before diverting your attention.
This is where I bump into a big wall of resistance with some lawyers. I try to slow them down, and they go into rationalization mode. They explain how they’ve run the numbers and how it’s a no-brainer. They’re really good at explaining things and, on topics like this, they believe their own bullshit.
The Drawbacks to Branching Out
Trust me: a second location is usually a bad idea.
If you need to make more money, you should likely go deeper in the current location rather than go broader by spreading yourself thin.
Opening a second office to make more money when you’re not fully exploiting the first location is much like having a second child to strengthen an already struggling marriage.
The second office, like the second child, weakens the entity. It forces you to focus limited resources on a greater number of concerns. As a practical matter, it puts you in the car driving around without making much money. You’d be better off sitting in location number one and doing the marketing work you’re avoiding. You’d be better off applying the principles of Networking 101 or building a better website.
The Two-Part Rosen Test
My system for deciding whether to open another location is simple. Here’s what I do:
- Define market size. Determine the market for the primary location. Figure out exactly how big the market is using census and court data. For us, that involves calculating the portion of the population falling in the demographic we target and determining the annual number of divorces in that demographic.
- Calculate our share. Determine how much of the market you’re taking. What’s your share? For us, we expect 30% of the market in our demographic. When we have that share, we’re prepared to spread ourselves out. Obviously, different locations will have very differently sized markets. Our Raleigh market is big. Our Chapel Hill market is incredibly small. Population is just one determinant. Define your market carefully and specifically.
Each business will have a different analytical framework for making a determination about adding locations. Your math may differ, but you should involve the numbers. This is about dollars.
Opening a second location takes on an emotional component for some lawyers. It shouldn’t. It needs to be a decision based on the solution to a math problem. You need to figure out where you can best allocate your resources and then carefully manage them to maximize your return. There are usually clients on your side of town you’re not yet reaching.
My dad was right. I should have found a girl on our side of Miami.
