Will you do us the honor and join our team of authors?

To write for the SohoBlog, contact us at [email protected]
(Shakespearean prose not required.)

“There Is No Place like Home” for Your Business

Some people say that “home is where the heart is,” meaning they always long to be in the place where they feel the most comfortable. For most people, “home” is the place they lived in for the longest. Living in a place for many years allows you to create an extensive social network that provides support and a sense of belonging.

Despite this, when people ponder where to start their own small business, they are often tempted to move out of their comfort zone, literally. Many people believe (and rightfully so) it is easier to start a business in urban areas, so they decide to move out of the rural area they grew up in. Another reason people are drawn to move away is the thought that being close to friends and family will be a distraction and will interfere with their efforts of building their new business.

While these are valid arguments, new research, which was published in Management Science this year, suggests the contrary. Olav Sorenson from Yale School of Management and Michael Dahl from Aalborg University researched the impact that starting a business close to home has on the success of the business. They analyzed information from 13,166 Danish start-ups and found that, relative to a newcomer, an entrepreneur with an average tenure of 6.4 years in a region had a 9% lower failure rate and earned roughly $8,172 more in annual profit.

What is it about “home” that helps businesses flourish?

First, you know it better. You know more about the region’s history, culture, and local customs. In life and in business, understanding the culture of the community you are active in is crucial to the creation of successful and fruitful interactions with the people in it. Not for nothing, businesses that decide to go international analyze the local culture and usually seek the help of local executives before entering the market.

Regional embeddedness, a term Dahl and Sorenson use to describe an individual’s attachment to a place, can also affect entrepreneurial spirit. When you know a place well, you also notice what’s missing in it. Deep understanding of the positive and negative aspects of a place can be an opportunity for an entrepreneur to create innovative products or start providing much needed services. Moreover, when starting that new business, being a local can help people acquire all the financial and logistical resources needed more easily and efficiently.

Last but not least, being close to family and friends is rewarding and can help you start and keep going when times are good or bad. It is proven that people who are able to balance work and family are happier, and being away can sometimes make that balancing job much harder.

All and all, it seems that being close to home is also good for business. Even though not every small business owner have the luxury of building a business close to where he or she grew up, the ones who do clearly gain both emotional and financial benefits from it.

Based on: Dahl, Michael S. and Sorenson, Olav. “Home Sweet Home: Entrepreneurs’ Location Choices and the Performance of Their Ventures.” 26 April 2011. Management Science, 58(6) 1059-1071. Accessed at SSRN: http://ssrn.com/abstract=1596810. 5 Aug 2012.

Related Posts

Starting a Small or Home-Based Business

5 Steps To Create An Ideal Home Office
Making small business accounting easier
Tags: , ,