This post is an excerpt from my book DISTRIBUTED.
Entrepreneurs have to face a lot of issues every day. As an SME, you’ve certainly realized that competition is higher than ever, innovation costs skyrocket, plus hiring and building your own team requires huge efforts. Solving issues and staying on top of the competition have severe financial implications for the company.
For you as a startup, entering the market needs more planning and even more cost-efficient solutions. It’s not like storming through the door anymore. Even if you’re lucky to have full funding for your idea, building a new business is insanely hard today.
A business can be limited by location. In business, the location means access. You have limited access to tools, opportunities, talents which ultimately limits your potential to grow.
Limited by location
Do business where you are – but what if you are anywhere? I truly think the location is the most important factor that determines the success of a business, apart from its product. Even more, if you have a great product but you are in a bad location, no one will work for you or buy your product.
Your location can determine three main factors of your business: your cash flow, your team, and your growth. Solving the first issue usually involves the solution of the other two issues as well.
Your location basically means access. Access to a market, a group of prospects and a pool of talent. No matter where your office is, you will lose cash anyway in some way.
Let me show you an example. Let’s say you are a tech company based in a tech hub. We don’t even need to think about the Bay Area here, though that would the perfect example. Let’s say you are in one of the key tech hubs somewhere in the U.S. You spend insane amounts on office space. The living expenses are super high, so you have to pay yourself and your local team members a very competitive salary. Most of these tech hubs also have high taxes and every other service charge extreme prices. Overall, even though you have a talented and kickass team with a great office, you are losing tons of money in cash flow which limits your growth potential. Of course, having a fully backed company by investors can help or you might be the next pink unicorn – but chances are, you aren’t. Of course, with this high price, you will gain access to a wider pool of talent and opportunities.
Now let’s look at the situation from another perspective. You have a tech company based in a small town somewhere in the U.S. Your costs are low as there’s lower competition, plus the services are also cheaper there. However, you have limited access to new clients or better talent. No matter where you are, you will have some sort of competition and in time, you will see that the clients you have access to are circling around you and your competitors. You might be able to step out from the town of yours and cover the region with your services, but in time, this growth is still slow and low. Also, hiring new talents is insanely hard as most of the talent has already left the area for the high-paying tech hubs – even if you can find great talent, you have to pay much more to keep and retain them. Otherwise, you will stick to mediocre team members, which also affects your growth potential. Overall, even if you are not losing that much money from your cash flow as you would be in a key tech hub, you will lose on the long run by limiting your growth potential with your location.
Ultimately, there are five areas where a business can lose money: infrastructure– office space and tools that are needed to get things done – they all cost money. Production– anything that is needed to manufacture your product or maintain your service; if you are in the service industry, this amount will be significantly less than if you have a product or shop. Payroll costs a lot: team salaries and other team-related services. There is the management cost – things that are needed to run the business, including taxes. And finally, sales– anything related to market your business.
Your location means access. If you are a traditional business, in general, you have around 20% allocation on each of these areas. Your expenses align according to that, 20% on infrastructure, 20% on production, 20% on the team and 20-20% of management and sales.
If you are not limited by location, you have full access to everything plus you also don’t need some of these areas at a 20% allocation. This doesn’t mean that going along this way, you will spend less on your business, everything will become cheaper and you will win by saving a ton of money. This is the greatest misconception with distributed business and remote working.
If you are not limited by location, you have more freedom to balance this 20% allocation. You ditch the office and most of your infrastructure costs, but you still need tools to get things done. Let’s say you reduce that cost to 10%. You probably need to keep the production costs at 20% because it will affect your service. You incorporate in a more business-friendly location and reduce management costs and taxes by 10%. You then end up an extra 20% to allocate on team and sales. On your team, you will pay the same amount of salaries but for better talent. You might pay less for repetitive administrative work than you’d normally do now but still, you pay the same amount overall. On sales, you have more cash in hand, which will drive your growth forward.
Ultimately, having a distributed business won’t save you money but it does give you more freedom to become more flexible and the opportunity to focus your business assets where they can give more value to you.
Flexibility is the luxury of those who have full access to everything. By ditching your office and widening your location coverage, you will have more access to tools, talent, and prospects, which can help you grow your business in the long run.
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At Anywhere Consulting, we help entrepreneurs to launch, build and grow their remote business. We provide support and consulting services as well as educational products to overcome the challenges of remote businesses. If you are a freelancer who wants to launch a distributed business or you already have an established business but want to grow remotely, we can help you.