#2 | Why is a good location important for a great business?

People's voice - A study on Indian small businesses

Have you ever noticed how businesses take pride in the location of their shop? Just like e-commerce websites take pride in their domain name, physical businesses take great pride in the location of their store. I remember a phase when one of my cousins was getting married, and the unique selling point that was mentioned to the potential bride's family about the groom was that his father owned a shop in the main bazaar of my town. That's how much pride a physical location holds.

A good business location provides excellent business. It can attract new customers and retain existing ones. Therefore, a prime location is a great customer acquisition strategy. Even in large shopping complexes, having a shop on the ground floor is significantly more expensive than having one on the first floor. By having a shop on the ground floor with great visibility, the additional cost paid for the shop is justified, and there is no need for additional marketing efforts to acquire customers.

In this edition, we will examine the factors that influence the decision to establish a business. This study was conducted in collaboration with People+AI, and you can read the full report here.

Factors for starting a business

The decision to establish a store is a blend of the shop's location, the demands of the local community, and the expertise of the business owner. The selection of products and services offered must align with the neighbourhood's preferences to ensure a steady flow of customers. We will dive into each of the three factors in detail below.

Location

Business owners place a high emphasis on the visibility and accessibility of their establishment to their target customers. For instance (#6.P1), an exam prep bookstore owner in Prataphgarh (UP) chose to open his shop right outside a college, recognising the prime location and the presence of student crowd around.

I figured this location would be suitable because there is a college (nearby) in Pratapgarh, which is the only degree college in the area. When the college is open, there is always a crowd of children, which is my busiest time. - #6 | P1 , Book store, Prataphgarh (UP)

Similarly, (#20.S11), a grocery store owner in Coimbatore, opened her grocery store, after observing a vacant shop in a location frequented by weekend shoppers at the Sunday market.

(On Sundays) a farmer’s market is set up in the empty space over there (nearby). There is usually a lot of rush here, making vehicles difficult to enter. Therefore, people who are buying vegetables will definitely come and purchase items from here (in my shop). So people around 4km, 8-10 km away from here, they will come and buy everything and go. - #20 | S11, Grocery Store, Coimbatore (TN)

Neighbourhood needs

The second crucial factor in opening a store is understanding the needs of the local community. Business owners often consider the distance a customer must travel to buy a product. If buying certain things is difficult because the shops are far away or not easily accessible, they want to open a store closer to potential customers. For example, (#2.S3) observed a rise in tall residential buildings and aimed to cater to customers who were travelling long distances to buy furniture and opened a store closer to the vicinity.

I selected this location because it is in a market area. I saw that wedding things like sarees are purchased from clothes shops. Furniture is also used during weddings. There is Shanti puram colony 2 km away, and it is a big and nice colony. I have seen outsiders visiting there and building new houses, so they need furniture. How will they go 5 km away to purchase furniture? If you are 1 km away and you do things here, those things will not be done 5 kms away. The service that you give here, 5 km away, will not be able to give that service. - #2 | S3, Furniture Store, Prayagraj (UP)

However, this approach can have a downside. The proliferation of numerous similar businesses in an area can lead to market saturation. Therefore, business owners must strike a careful balance between accessibility and market competition.

Owner's expertise

The third component of establishing a store relates to the business owner's expertise. Although some elements of managing a store can be learned through trial and error, certain businesses necessitate prior proficiency. For instance, (#7.A1), who operates a car garage and sells spare parts in Bhandara(MH), initiated this venture due to his acquired skill of repairing cars from his former job. He decided to start his own business after mastering these skills.

I had some technical knowledge about this work (from before). I had interest in this so I chose this business. I have interest in cars very much and that is the reason I started up this business (four wheeler garage and spare parts store). - #7 | A1, Mechanic Garage, Bhandara (MH)

In some instances, entrepreneurs test their business on a smaller scale, such as a home-based business, before transitioning it into a full-scale store. (#4.S5) chose to initiate a saree business from her home, capitalizing on the unique insight that she could source high-quality sarees from Kolkata, not Surat, which are favored by Marvadi women in her community.

Initially, I operated the business from home. I specialize in selling unique products, specifically pure fabric clothes. I am the only one in the entire Pratapgarh region who sells pure fabric clothes. I exclusively purchase pure fabric and sell it. Additionally, I also buy designer clothes. Pure chiffon and georgette fabrics are not sold here. Only clothes from Surat are available. I source my products from Jaipur and Kolkata. Kolkata has pure georgette fabric, while Jaipur has the craftsmanship. Unlike all other shops here, I obtain my products from Jaipur and Kolkata and do not buy anything from Surat. - #4 | S5, Clothing Store, Pratapgarh (UP)

Where do they struggle?

When a small business owner is choosing where to open their shop, it's like making a big bet. They know being near their customers is key. But, if there are too many similar shops around, it can hit their earnings hard. Right now, they're going by gut feeling, not facts. This approach is risky. A wrong choice can be really costly, turning into a tough situation.

Conclusion

The importance of location for a business cannot be overstated. The conscious positioning of a business determines visibility, accessibility, and overall convenience, all of which have a bearing on business success.

The full report of this study is available to read here 👇

If you are excited about building AI solutions for India, join the People+AI WhatsApp group to brainstorm ideas and attend exclusive events.