Locate your operations at cheapest premises if location doesn’t matter

I vaguely recall reading a book on investing in the stock market many years ago. In that book, the author recommended buying stocks of companies which operate from premises which are, to put it nicely, not stellar. In the same breath, the author advised against investing in companies with new and impressive premises. The rationale is simple. Those companies in mediocre premises are paying low rents and thus have low overheads. As a result, their profit margins tend to be better than companies with monumental assets.

The same strategy can be used for startups. Of course, startups in businesses like food and beverage and certain retail which rely heavily on foot traffic have little choice but to pay high rents for premium locations. Even then, new ways of reaching to customers online without the need for these stellar premises are turning the location need upside down.

Many startups are not in businesses where their locations are critical to the success of the endeavor. It is tempting to have an address on your calling card that impresses the potential client. However you should resist the temptation even if you have adequate capital to do it. Making losses due to high overheads which come with the good image may give the startup a short lifespan.

Clients usually requires that you or your associates visit them to pitch your stuff rather than the other way around. What you fear is the client making a visit to your premises just before awarding your startup the contract. InĀ  any case, the client is likely not to be bothered by the shabby premises that you operate from in the event of a visit. That is unless the contract is worth millions and impression on image counts. For a startup though, that is not probable.

Therefore it pays to look around for the cheapest premises to house your startup. That way, you have a headstart in term of low overheads due to the bargain rent that you need to pay. This will give you leverage in terms of competing on price for your first year of operations. As your startup is not well known at this initial period, charging a low price for market entry is a reasonable strategy. With the low overheads, you should be able to still make a decent profit with that low price strategy.

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