I HAVE A FRIEND named Danny Piecora. He and his family operate two Italian pizza restaurants in the Seattle, Washington, area. I said to him one time, “This is such a great concept. We could grow the heck out of this thing.”
He said, “What do I need it for?”
Danny is making a good living. He has no desire to become a “major player.” He does not want to deal with the headache and heartache of becoming involved in tremendous corporate growth. He enjoys his life, his family. He just bought the real estate under his store. He does not need or want a third or fourth store, never mind a thirtieth or fortieth store. Danny is a smart guy. He knows himself and what he wants. “To thine own self be true.”
Another guy might realize that he could never manage a huge company-owned concept with tens of thousands of employees, but he could take a simple concept—perhaps a variation on the “take and bake” pizza idea—and package it into a $50 million franchise. Other people understand themselves well enough to know that they would be happiest running a single sandwich shop in Texas or at most a handful of sandwich franchises. “To thine own self be true.” That's the first step.
Precisely because revenues tend to be lower for new retailers and gross margins tend to be, well, marginal, retailers should first look to expand in “safe” ways, without the cost and risk of additional retail outlets. Having a “hidden wellspring,” a source of revenue separate from normal retail operations, is one secret. One of Starbucks' strategic advantages was having the Costco wholesale account for coffee beans. Top Pot Doughnuts, which has two stores in Seattle, uses its excess manufacturing capability to provide doughnuts to other restaurants and food service stores in the area. Other approaches are less obvious. Danny sells pizza at Bumbershoot, a major Seattle street fair, and at the Puyallup Fair, the largest county fair in the state of Washington. Such sales can create a substantial increment to retail in-store business. There are people who sell $10,000 in Kettle Korn in a single week at a county fair. Danny could also market his special pizza sauce at his store. Some restaurants have a small shelf of items for sale; others establish a small retail store next door. Danny could sell his sauce or pre-made frozen pizzas through one of the high-quality grocery stores in the area, becoming the preferred local alternative to Tony's Pizza.
Also, think “education.” Everyone from the local potter to a famous chef can parlay educational courses into extra business and brand loyalty. Such activities can range from demonstrations that draw customers into the store to full-blown classes that would bring in additional income. One glassblower has coordinated with the state university so students receive college credit for his classes. Women's shops can offer fashion shows, makeover clinics, and fittings for intimate apparel. Outdoor stores can do lessons or safety workshops on different sports, from rock climbing to snowmobiling. Remember, Elephant Pharmacy built a large part of its concept around the education of consumers.
Parlaying the Internet into additional sales is another way to make incremental dollars. Very few “pure” retailers exist anymore. Catalog companies have moved to the Internet, and many are opening retail outlets, including the venerable Lands' End, now a part of Sears. Retail companies use the Web as just another sales and marketing channel. There are bicycle shops that began with brick and mortar and moved online, and there is at least one bike store that began online and later opened a retail store. The Internet does not favor large, established concepts over the entrepreneur. The medium belongs to the company that can show the most imagination. Integration of every marketing channel is the name of the game.
Sticky Fingers Ribhouse, a small chain of barbeque restaurants in the South, began augmenting its restaurants with a catering business and with a wholesale business involving its barbeque sauces. Now the sauces are available in more than two thousand groceries, and the company's Internet business offers priority delivery of everything from a rack of frozen barbeque ribs to pecan pie and T-shirts. While the wholesale and mail order business today represent only a small part of the chain's overall sales, the wholesale business is growing at 40 percent annually and mail order has doubled every year since it began in 2002. In addition to expanding the revenue base, the two side businesses are excellent vehicles for brand awareness and brand exposure in markets where Sticky Fingers does not have restaurants. As Starbucks learned, the mail order business helps pinpoint possible areas for new physical stores.
A little imagination goes a long way in the real world as well as in the digital world. Around the Northwest, many of the local farms are going bankrupt. One of them, Remlinger's Farm, decided to turn agriculture on its head. The owners built picnic shelters and designated meeting areas that people can rent for company meetings and gatherings. They built a little amusement park, a petting zoo, a climbing structure, and a miniature train. They grew a “pumpkin patch” for Halloween and held other child-oriented events. They provided food service. They converted a house into something like a Trader Joe's super market. They sold fresh produce, fruit, frozen pies, cheeses, wine—you name it. All branded, of course. The lesson? Retail works in a lot of dimensions. Even the smallest operation can think in terms of vertical integration. Just because I am a farmer doesn't mean I am limited to growing corn. Just because I am a pizza maker doesn't mean I am limited to tossing pizza dough into the air.
Such approaches to expansion are not free of concerns. You might face channel conflict between different companies reselling your products, or you might see poor sales without ever knowing that competitors are paying incentives to obtain better placement in the aisles of a store. The handling of returns can be an issue logistically. A related problem is that a lack of inventory depth may make it difficult for customers to find exactly the right product, especially if your product comes in different sizes or colors. Ensuring that resellers are properly trained can be difficult, as well as ensuring that the brand is properly presented and positioned. In fact, many of the issues with using other retailers to sell your products are exactly those faced by franchise operations and licensing, approaches that are described in detail in the following sections. Serious thought and proper planning are requirements to enable this manner of expansion to succeed.
If you have the personality, the desire, and the concept, though, one day you will want to expand the good old-fashioned way—by opening more stores. Before you do, think hard about the particulars. Some concepts have limited expansion potential. A fine restaurant with a great chef, a small interior design firm, a bookstore with an erudite proprietor—any retail operation that depends primarily on the skills of the owner/operator is limited to the two or three stores that this individual can personally manage. Surf shops, ski shops, kite shops, T-shirt shops, guide outfits, equipment rentals, charter excursions—there is an entire class of “tourist” or outdoor concepts that flourish close to scenic areas or recreational centers. Their viability diminishes as a square of the distance from the attraction. If the locality is the hero, or the person preparing the product, then the concept has limited capability to expand. (A beach shop or restaurant or charter service or similar business could expand, of course, up and down the coast to become a local or regional chain, as could a ski-related concept in the same mountain region.) The good thing about retail, though, is normally the product is the hero. If the product is the hero, the concept has a tremendous potential for expansion.
Expansion is something that most retailers look forward to, but too many people expand for the sake of expansion. They have one successful store and they figure they can manage another one, so they expand. However, you need to be very careful about making assumptions about how successful you can be in a new city—or a new neighborhood. It is much harder to develop clientele, control costs, and maximize efficiency in unfamiliar territory. Understanding each trade area is a prerequisite for success. So is understanding your operational strengths and limitations relative to where you plan to expand.
Several early steps will smooth the way for expansion. One is to estab lish a broker network to ensure the rapid acquisition of new sites (or relocations for an established chain). Early on, local brokers fill this need. As you expand, regional and national brokers need to be involved. Another thing to do early is to develop relationships with major mall property managers, those who own multiple malls, many of them in the most desirable locations. The largest ones in the U.S. are the Simon Property Group, the Taubman Company, the Westfield Group, and the Rouse Company/General Growth Properties. Other fast-growing retailers may provide access to excess property, unique terms through sub-leasing, or property that can be co-developed. Big Box stores and other mass merchandisers also seek complementary brands as subtenants to augment their offerings. Even if these relationships do not result in formal strategic alliances, the informal partnerships might unlock some attractive locations. Finally, identify and hire an external design firm, site surveyors, engineers, and others to speed planning and the permit process for potential new locations. As your organization grows, you will need to begin establishing relationships with service technicians and with companies that provide facilities management.
To put expansion in context, two or three stores provide a very good living for someone not planning to expand. If you plan to expand, you and your partner(s) will live somewhat less well as store income is plowed into growth. Typically, three successful stores set the stage for serious expansion. Three stores give you solid operating experience, and the net income should be sufficient to pay for the next store. At 12 to 15 percent, the net annual income of three stores is roughly the cost of the build-out of one new store of the same size. You will move somewhat less quickly if you fund all of your expansion out of cash flow and somewhat faster if you borrow or seek additional investment capital. At this point, you are still learning to walk so there is no rush.
From both a financial and management standpoint, a mom-and-pop-sized operation can open one new store a year. At six stores or so, you take another step on the ladder as you begin to hire senior managers and leverage marketing and operations, especially if the stores are clustered. This is also the time that you have to begin taking infrastructure seriously. Oakley, which makes fashion eyewear, outdoor performance wear, and accessories, was a wholesaler for the first 20-odd years of its existence. The company opened outlet stores to relieve inventory and to test a retail concept. At six stores, Oakley found it had a winning proposition. It had also reached the limit of being able to beg, borrow, and steal employees and corporate managers from the wholesale operation to run the retail operation. The company put together the team and systems needed to go further with its company-owned stores.
At ten stores, you begin to feel that you have a real company. You can probably open two or more stores a year. At 25 stores, you take another big step. You now have a lot of purchasing clout, you can hire more specialists, and you can open stores faster and faster. At this point, the speed of deployment is proportional to the teams and systems you put in place and the real estate strategy you developed, particularly if you expand out of your region. Potbelly, as one example, has gone from 25 to 50 stores and should exceed 80 stores in about three years. Oakley expanded from 15 to 30-plus stores in one year and should continue to open about 15 stores a year for some time, a fairly expansive rate. Chico's, with more than 550 stores, has been adding another 90 or so stores annually.
Store numbers also relate to potential investors. If you have fewer than 20 stores, venture capitalists may be interested in your concept. At more than 30, investment bankers are interested. At greater than 50 stores, Wall Street will definitely be knocking on your door to analyze the opportunity for an initial public offering (IPO). At 75 to 100 stores, you will have proven that you have the personnel and systems to become a major national chain. Many entrepreneurs go public as early as possible, often with the “encouragement” of their venture capitalists, in order to obtain additional capital to continue growth and to enable the initial players to get their money out, usually as part of a planned “exit strategy.” Going public, however, has its own pressures, the biggest being quarterly reporting that can promote short-term thinking. An IPO is not a step to be taken lightly.
Once you begin to roll, you can use the economic model to tell your real estate development team how many stores they need to open each year to keep up with the chain's sales projections. Similarly, the physical constraints of finding the right locations and of spending six months to locate, execute a lease, and build out each store puts an upper limit on projected growth. On $1 million in sales, each store nets $150,000 a year, and weekly store net income is $2,885. It is a simple calculation of the number of new stores open for so many weeks of each year to determine the projected new income, minus of course the cost of construction and inventory. Such numbers become the basis for a 3-year planning cycle.
Expansion can take many forms. This section describes the variety of ways and their corresponding strengths and weaknesses.
This is the most rapid way to expand and the least risky financially. It provides the most revenue for the least capital investment, but also returns less overall revenue and true value than company-owned stores. With rapid expansion comes the difficulty of creating a national management structure and managing the complexity of national distribution early in the organization's life. The key to success is a simple concept with excellent operational systems supported by excellent operating manuals and training. Franchises require fairly good investment in field personnel who can identify the right people as franchisees and find the right locations to support the concept. Quality control is the biggest problem, and protection of the brand is the biggest concern. Remember the poor ice cream restaurant in Chapter 1, “It's About Your Values.” Other headaches range from failed franchises to franchisee lawsuits.
For franchisees, the value comes in the ability to buy into an established brand for a fraction of the cost of creating a new concept. Also, mom-and-pop retailers who feel that they cannot compete with national brands may take the strategy of joining them. It is hard for a local ice cream shop to compete with a high-quality national brand such as Cold Stone Creamery, as one example. Typical franchise fees run $10,000 to $50,000 per location. Because design and construction standards are already established, the total startup cost, including build-out, could easily be half of that for a new concept—under $250,000 for some quick-serve restaurants. The “turn-key” setup usually includes everything, all the way down to the cash registers and computer systems. The franchisee benefits from the chain's national adver tising, its buying power, and its distribution system. In exchange, the franchisee pays royalties ranging from 4 to 8 percent and a marketing fee that runs another 3 to 5 percent so that the franchisee's annual cost can total from 8 to 15 percent of revenue.
For franchisees, the biggest risk is that the national chain franchisor may locate another franchise too close to your store so that it cannibalizes sales. (Some franchisees avoid the problem by buying a franchise territory, usually a much larger market in a particular area.) Franchisees are also limited to products provided by the franchise itself. A quick-serve franchise restaurant cannot add nachos to the menu on its own or make up a special kind of sandwich that locals would like. Other rules designed to enforce consistency often get in the franchisee's way. One franchisee complained that he could not put up team schedules or other local school announcements because the only allowable signs were those with the franchise logo. Other problems can be more serious. The national franchise may not develop new product lines, or it may do a poor job of marketing, or it may respond to financial difficulties by increasing product or equipment costs, squeezing the franchisee's income. An individual store may do very well, whereas the national franchise itself could go out of business.
That said, many of the most successful chains, particularly in food service, are built on the franchise model. Speed of market expansion and quality control and consistency are the heart of success.
Licensing is a variation of franchising. Licensing gives the licensee the specific use of something—a company or product name, the formula, the product itself, or some combination. A licensor typically does not have the responsibility to support the licensee, nor does the licensor have control of the licensee's operations, as is true of a franchise.
Consequently, the costs to the licensee are usually lower than to a franchisee, but the licensee also receives no operational support and no direct marketing support. From a practical standpoint, licensing for most retailers will apply only in very specific applications. When Starbucks wants access to space controlled by another company—at an airport terminal, a grocery store, or a bookstore, for instance—it licenses its name and product line to the other vendors and operators. Starbucks consults on the design, provides the product, and trains the trainers, but it has no formal power over the operations other than making sure that the licensees execute to standards (for instance, make lattes properly). Under U.S. law, a loosely written “license” can turn out to meet the definition of a “franchise.” A legal specialist is needed for any poten tial licensing opportunity.
Company-owned stores are the most capital-intensive route for expansion, which means they usually expand the slowest. They are, however, my preferred manner of expansion. My overwhelming concern is to protect the brand. Company-owned stores provide the greatest capability for a retailer to control quality of the product, the presentation, the staff, and the brand. For a brand seeking to differentiate itself, the company-owned approach is best. Company-owned stores also provide the greatest overall return on investment. Consider a concept that has a franchise fee of $25,000 and store units that generate $1 million in revenue, of which the franchisor receives 5 percent. After 10 years, each store will return to the franchisor approximately $525,000 ($50,000 a year plus the initial fee). A company-owned store netting 15 percent on $1 million in sales will return $1.5 million over 10 years. The retailer will have spent $400,000 on the build-out (annual revenue divided by 2.5) and will have the cost of depreciation. Even so, a company-owned store with $1 million in annual revenue will easily return $200,000 to $250,000 more than a franchise over a 10-year period. If you have ten stores, that represents $2.5 million. Further, a standard Wall Street valuation of retail stores is 24 times earnings. (By comparison, Starbucks' P/E ratio is 50 as of this writing.) If each store nets 15 percent and the chain as a whole nets 10 percent, then a ten-store, company-owned chain has earnings of $10 million and a valuation of $240 million, far higher than a comparably sized franchise.
Another way of looking at expansion is to use the net income of the concept from the very beginning as a signal as to whether to franchise or to own each store. Maybe your concept will not generate as high a rate of return as I prefer, but the concept is still financially sound. Franchising might be the best approach for concepts on the lower end of the scale in ROI. However, the very best concepts are the most successful financially. They take longer, but company-owned and run concepts ultimately deliver more revenue and assets to the company itself. If you are going to do all this work, reap the rewards yourself. Even if you do not want to go national, a nice regional company-owned concept can be personally rewarding and financially successful. You can pay Midas $25,000 and 5 percent of your revenue, or you can build a great muffler chain yourself—assuming you know how to compete.
Chains can increase the rate of expansion by using other approaches besides pure company-owned expansion and pure franchising. P.F. Chang's China Bistro, the upscale-casual Chinese restaurant chain, has a double-barreled approach to expansion. For every P.F. Chang restaurant in an area, the chain plans to develop several smaller, fast-casual Asian restaurants called Pei Wei, which diners can enjoy closer to their homes or businesses. Sales from the two related concepts reinforce each other. Brilliant! It is worth noting the benefits that P.F. Chang's has from its relationship with the venture capital firm Trinity Ventures. Trinity has been involved in rolling out Jamba Juice and Starbucks. This experience has been as valuable to P.F. Chang as the funds Trinity has invested to support expansion.
What follows is a summary of other approaches to expansion.
Two approaches, one from a franchise standpoint and the other from a company-owned standpoint, try to blend the best of both. One is the concept of a master franchise licensee who owns the franchises for an entire area and sublicenses them to others. Quiznos uses this approach. The other takes a proven operator from a company-owned store in one region and assigns the operator a new territory. The individual oversees all of the stores in the new region. In return, the operator receives, for example, 10 percent of the business. As a part owner, the operator has a vested interest in the success of all the stores. Outback has used this approach successfully. Both approaches attempt to get the equivalent of a regional supervisor to function in more of an entrepreneurial role. Usually the exit strategy for an area licensee is to sell his region back to the parent company at a defined multiple of earnings once he has built out his territory. The sale assumes, of course, that years later, the concept has endured and the parent company is solid and desires to buy back the region.
Sometimes an entrepreneur buys a brand and retains the name with the idea of growing it, as Bryant Keil did with Potbelly. Or entrepreneurs may buy a substantial existing chain with the goal of reinvigorating it, as the new owners of Eckerd Drugs seek to do. Sometimes a large chain will buy a smaller chain in a related category to diversify its own business, maximize operational expertise, and drive revenues of the new business. Too often the larger chain does a poor job of running the smaller chain and often both companies suffer. A few years ago, McDonald's bought Mexican, pizza, and chicken concepts, but the acquisitions caused the company to lose focus on its core business. Seeking to revitalize its core hamburger business, McDonald's has begun selling off most of those other businesses.
More typically, an acquisition occurs with rebranding in mind. Acquisition can give a retailer instant presence and credibility in a market. Acquisition can be costly or it can be a relatively inexpensive way to obtain good real estate as well as brand presence. Such purchases also bring potential management and financial headaches. A major part of the due diligence in an acquisition is to determine why the other chain can be acquired. In many cases, the acquired company is struggling. You need to avoid thinking that your concept is so good that it can succeed where the other did not. It may be that the chain's economic model is weak or that it has a large portfolio of poor locations or expensive leases.
Of course, there are also legal and administrative expenses, but the biggest potential costs may be in the minds and spirits of the employees you inherit. An exodus of employees can drive up training costs. Unhappy employees can result in poor service and lost business, particularly for a brand with loyal customers, who might be looking for subtle clues in employee behavior as a signal as to whether they should continue to frequent the establishment. One of the most difficult tasks in acquisition is conversion of one store to another. The best guideline is to make the conversion as quickly as possible. The longer you wait, the more uncertain employees become, the more second-guessing there is of new management by old staff.
Quick, positive support of the staff can ease the transition. When Starbucks bought The Coffee Connection in Boston, some employees bolted, unwilling to work for an out-of-town chain. Others took a wait-and-see attitude. We immediately put a team in each store to help with the transition and to explain our plans. When employees realized that they would receive better training, higher pay, medical coverage, and stock options, they changed their mind about what some of them thought was conquest by a competitor.
An acquisition should include “hidden” benefits. The Coffee Connection had learned that Northeasterners preferred a lighter coffee roast than what Starbucks sold, and meeting this immediate market demand sped up our decision to provide a wider variety of coffee blends. The lighter roasts later proved to be successful on the East Coast and in the Midwest. The Coffee Connection also had an iced coffee beverage. The recipe was not very good—servers made it by pouring the blend into a machine from 5-gallon buckets—but the drink sold well. This is a fact we noticed in our due diligence prior to completing the purchase. Buying The Coffee Connection accelerated our research and development of ice-blend coffee drinks. The formulation we developed was considerably different, but The Coffee Connection provided the perfect name: the Frappuccino™ drink. Today the Frappuccino™ category represents a tidy percentage of Starbucks' overall sales. Acquisitions should be about more than adding stores or increasing your company's revenue base. Acquisitions should also make you smarter and put more tools in your brand marketing toolkit.
As a complement to company-owned stores, joint ventures represent interesting ways to extend the brand. Joint ventures enable expansion for half the cost and half the risk, although potential problems exist in a concept that attempts to serve two masters. A joint venture needs to have a compelling business or social reason, an opportunity to launch your brand far beyond where you might be able to reach otherwise.
I have believed for many years that the greatest sales opportunity in retail lies in inner-city America. Such areas have tremendous population density, and everyone has heard of the major brands. Few retailers venture there, though such areas have proven successful to those companies that do invest. Earvin (Magic) Johnson, the former L.A. Lakers' basketball star, has been a catalyst in bringing new retail ventures into inner-city neighborhoods. After meeting with Ken Lombard, who was the president of Johnson Development at that time, I wrote a one-page proposal to Starbucks' senior management outlining a joint venture to open Starbucks stores in various inner cities. There was some skepticism about whether a 50-50 joint venture made financial sense, but Magic was an icon to the African-American community and I knew the stores would do well enough to justify the effort. Howard and the rest of management were willing to try the experiment for the “soft” reasons of being a small part of revitalizing communities. Magic was excited about the Starbucks proposal. He crystallized the underserved nature of the neighborhoods where he went to church in central L.A. There, he said, the only coffee he and other people could get was at convenience stores. “I want the folks in these neighborhoods to get the same good products you can find in every other neighborhood,” he said.
When we opened the first store in Ladera Heights, more than 250 people showed up, including basketball player Shaquille O'Neal and other celebrities. Once again, we learned operational lessons from doing something different. Magic recommended that we provide sweeter products, more flavored syrups, and baked goods with the coffee drinks for this market. We took his advice, and the stores have done well financially—enough to justify the “hard” reasons for the venture. If you do partnerships such as this, do not settle for a one-off project. Look for relationships that are symbiotic and will lead to multiple stores. These have more impact on the communities and provide a sounder basis for operations. Before I left Starbucks, we had opened 30 stores with Magic; there are more than 60 now. Since we went into inner-city neighborhoods, 24-Hour Fitness and Washington Mutual have also done cooperative deals with Magic's development firm in Los Angeles.
Whether supplementing its retail business by adding wholesale channels, as Starbucks and Top Pot Doughnuts have done, or supplementing its wholesale business by adding retail channels as Oakley and Nike have done, a business can draw from the added economic wellspring of a second channel by minimizing conflict between the two. For a wholesaler-becoming-retailer, the biggest challenge is to convince existing wholesale customers that a retail outlet will help create additional brand awareness and therefore bring additional benefit to their own stores. A scuba diving shop might sell a collection of Oakley glasses and an Oakley dry bag, but the customer might not know that Oakley also sells ski gear, bicycling gear, or watches. For Oakley, which remains best known for its sunglasses, having a store that showcases all of its products together provides the customer with a total view of what Oakley is about. By broadening awareness of the entire product line, the retail stores help drive everyone's business, including the retailers that are wholesaling parts of the line. Oakley's advertising also generally promotes the Oakley brand rather than a particular Oakley store, so that it drives business to every retailer that carries Oakley products and not just its own stores. The company's marketing goal is not to take business from the local bike shop or other Oakley partner, but to increase the overall number of Oakley fans.
If the economic model is the engine of success, the retailer has to do everything possible to tune it up. The numbers have to be solid and the financials need to be substantial enough to drive expansion. My preferred method of expansion is company-owned, but then I am interested in higher quality concepts that tend to have higher margins. Other concepts might prosper through franchising. Most financial analysis focuses on cutting costs, but increasing revenue is equally profitable and a good deal more fun. Chapter 6, “Merchandising: Maximizing Your Profits,” showed ways to increase gross margins and return more profit.
If the most difficult question a retailer faces is when and how to open the first store, the next most difficult question is when to embark on the road to major expansion. Assuming this is your desire, there is a pragmatic way to know whether you are expanding too soon or not soon enough. You are expanding too soon when you have not obtained all the efficiency and profitability from your initial store or two, when there is more money to be made by running them better. You might extend your business by finding new sales channels, by introducing new product lines, or by expanding to new day parts. Here is another reason to know the industry average for gross and net margins for your category and to know how your competitors have extended their businesses.
Another way to tell that you are expanding too fast is if your service model collapses. This is the surest indicator of problems with the qualitative aspects of expansion. Rapid expansion is not the same as reckless expansion, and every step of the way must be taken in the context of protecting the presentation of the brand and preserving the authen ticity of the concept. Expand only when you can maintain quality control. All it takes for the wheels to come off a food concept is to have a food-borne illness as the result of poor quality control. All it takes for the wheels to come off other concepts is to have two or three dirty stores or low sales that result from poor hiring practices or slipshod inventory management. Because of the Internet, bad experiences by even a few customers can lead to widespread negativity and to your concept becoming irrelevant. Other symptoms of qualitative problems are the same as those of other stressed businesses: high personnel turnover, a drop in sales, and headhunters recruiting your staff. Pay attention to these warning signs, and put a brake on expansion for as long as needed to make the necessary changes.
Although the desire to be the first in a market forces the issue of speed, it is more important that you move intelligently through the expansion process. Make sure that your concept has really taken root in current markets. Make sure you have fully fleshed out the concept. Make sure every new store enhances the brand positioning and does not detract from it because of a loss of quality. Make sure your organization does not implode from the stress of overly rapid growth. Do not let the business reason for expansion push you into taking actions you are not prepared for, which are the operational challenges of expansion. What I mean is this. You have a great new concept—food, clothing, consumer electronics, whatever it might be—and others begin to copy it. For business reasons, you want to expand quickly to cut off competitors. But if you have no infrastructure, no people, no processes or systems in place, you are moving too soon and your expansion is likely to falter. You also know you are expanding too soon—or at least, too fast—when you choose the wrong location, or settle on a secondary location, just to get open, or lower your hiring standards to fill your staffing needs. Conversely, you know that you are not expanding soon enough or fast enough when the economic model is working, the operational systems are functioning well, and you are paying overhead for highly trained managers who are underutilized. At this point, it's time to move.