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How Big is Too Big?

a personal opinion

There is a story about a owner who had two good service stations, sold them, and built a new several-million-dollar service station, and upon opening immediately began loosing money. It has not ended well. Lately I have noticed that owners who know about this and other similar situations have pondered the question, How big is too big? Nature limits the size of organisms, physics limits the size of certain phenomena, and market conditions limit the size of successful undertakings. To a owner thinking about building, where is that boundary?

Did he break any common-sense or business rule that we can observe?

Yes, I think that he did, but I had to think about it and compare it to other ventures that succeeded or failed.

Let's start with what he did:

  1. He sold service stations that were profitable.
  2. He built a new super service station. The note was so large that he would have to have many hundreds of thousands in gallons sold to meet the note.
  3. He would have to draw customers not only from the nearest several service stations but beyond these nearest service stations by several miles.

Here is what did happen:

  1. The existing service stations were strong and healthy service stations. They did not loose their customers to the new super service station. For a few weeks many went to "try out" the new service station, but fell back into their previous shopping patterns.
  2. Potential customers were not attracted by gourmet inside products.
  3. The state improved a major highway several miles away. It changed the shopping patterns of those potential customers beyond the existing service stations. This change did not affect the existing service stations, but it drew away the extra customers the mega store needed so badly.

These are the simple rules that we can infer from this story:

  1. If you cannot fit your new service station in-between the existing service stations, then it is probably not a good idea.
  2. If you need to draw customers off the existing service stations, then it is probably not a good idea.
  3. It's a gas service station! Your customers are not going to be impressed with gourmet products.
Copyright © - 2002 Dutch Hawkins Mandeville, LA USA - All Rights Reserved

December 22, 2002