Think Twice Before Opening a Second Office Location

Can a company expand geographically to new areas? In my experience, the answer is “not easily” unless the company is a retail or consumer-based company, where the expansion represents new locations to sell goods or services. Several times in my life as an entrepreneur, I’ve gotten to the point in my businesses that I wanted to be able to reach new customers and pools of talent more easily, so I decided to open a second office location. I have subsequently failed at it so many times that I’m going to call myself an indirect expert on the topic.

When I got out of graduate school, I ran a management consulting business, which was a bit of a misnomer since I had no particular expertise other than an MBA, which means I knew a little bit about a lot of things. My consulting business eventually ended up providing consulting services through government contracts and I attempted to start various satellite offices to replicate the success I was having. All of them failed. I run a software company now and we have tried to open physical locations in other places with little more success than I had in my twenties. Even though I was aware of the pitfalls of having the company in multiple locations, I thought that we could be more successful from having learned the lessons from my previous experience. I also thought that a software company would be more scalable than a consulting business so that it would be more possible to be successful. I was wrong.

Here are the reasons why it is difficult (if not impossible) to have different locations for many businesses:

You will need a mini-CEO and/or office manager for each office. It is very difficult to find a person to run, essentially, a separate company in a different physical location than the mother ship, the company’s headquarters. It takes a lot of talent to run a business, and, although a location of a company is not a startup per se, it is sort of its own entity. Finding the right person for this job is especially difficult.
Every company has a culture or feel or set of values. It is very difficult to transfer that set of values to another environment that is physically disparate and removed from the home base, especially when the people in that other location have not been trained or brought up in the mothership. In my experience, each office takes on its own personality and culture, which makes it very difficult to scale the company while preserving its culture. I used to think it was just a problem with my leadership (and it may be), but when we started out years ago we licensed our product to Intuit, and I noticed that they had the exact same problems we did with multiple offices. Every Intuit office that I visited was not 10 percent different from the headquarters–they were like a whole different company. Interestingly, this is one reason why I would rather have employees working from home than working from a different physical location, if that were the choice.
People need to communicate in person. It’s true that technology allows people to do a lot more remotely than before, but you still need the connection and depth of relationship that only comes from close proximity. There’s really not a lot more to say about this. Texting someone has two units of depth out of ten. Email perhaps has three units of value because your emails can be longer. Talking by phone or FaceTime might have five units of value because you get to feel out the person a little bit more, but in-person contact is up around 8 or 9 units of value because there’s no substitute for going face to face with someone.
It is hard enough to run a business with one office location, so carefully consider both the tangible and intangible costs of opening a satellite office before taking the leap.