I've watched hundreds of businesses make their first major strategic decision before they even open their doors. They pick a location.
Some cluster with competitors. Others deliberately avoid them.
Both can work. Both can fail spectacularly.
The difference comes down to understanding what your business actually needs from its location. Most entrepreneurs skip this analysis and follow their gut or copy what seems to work for others.
When Clustering Makes You Stronger
Research shows that when an anchor firm operates in a particular industry, other establishments within a two-block radius show 15% to 18% higher employment in that same industry. The cluster attracts more than you can achieve alone.
Anytime Fitness built a franchise empire on this principle. They target urban and suburban markets where fitness options already exist. Their 24/7 access model works because customers already know where to look for gyms. The cluster created the search pattern.
Restaurants follow the same logic. Top-rated restaurants concentrate near city centers and near each other. Customers prefer venues where they can choose from multiple options. You reduce their decision-making risk.
The Canadian fitness market shows this dynamic clearly. The market experiences moderate growth and high competition, but it shifts toward hybrid models. Businesses that cluster gain access to:
Shared supplier networks that reduce costs
A larger talent pool already trained in your industry
Customer traffic generated by the entire cluster
Knowledge spillovers from nearby competitors
Manufacturing and technology sectors create tightly connected communities. Silicon Valley became Silicon Valley because venture capital firms, startups, and tech workers all relocated to the same area. The ecosystem feeds itself.
When Standing Apart Wins
But clustering has a dark side.
Hudson's Bay struggled with identity in a crowded retail landscape. The company got caught between competing market segments, trying to serve both its traditional base and younger shoppers. It relied too heavily on historical legacy while competitors invested in modern retail environments.
The result? Hudson's Bay filed for creditor protection with over $1 billion in debt, closed 80 stores, and laid off 89% of its workforce.
Location alone didn't kill Hudson's Bay. But being surrounded by competitors who moved faster exposed every weakness. The cluster amplified their problems instead of solving them.
Some businesses need geographic differentiation. Quick service restaurants benefit by diffusing from each other. When consumer taste varies widely and traveling costs matter less, spreading out makes more sense than clustering.
Modern examples prove this point. Shopify dominates e-commerce from Ottawa. Atlassian built a $50 billion empire from Sydney. Wise runs e-banking from Tallinn. These companies chose locations based on talent availability and operational costs, not proximity to competitors.
The Framework That Actually Works
Your location decision depends on three factors:
1. Search costs for your customers
Do customers know where to look for your product? Restaurants cluster because people search for "restaurant districts." Fitness centers cluster because people search for "gyms near me."
If customers don't have an established search pattern, clustering wastes money on expensive real estate.
2. Your competitive advantage
Can you win on differentiation or do you compete on convenience? Anytime Fitness uses a focused differentiation strategy built on accessibility. They cluster because their 24/7 model stands out even among competitors.
Hudson's Bay had no clear differentiation. Clustering exposed this weakness.
3. Resource requirements
Do you need specialized suppliers, trained workers, or industry-specific infrastructure? Manufacturing and technology sectors cluster because they share these resources.
Service businesses with remote work options have more flexibility. Location matters less when your talent pool spans continents.
What This Means for Your Business
Stop asking where your competitors are. Start asking what your business needs.
If you sell products where customers comparison shop, cluster. The traffic benefits outweigh the competition.
If you offer something genuinely different, test whether clustering helps or hurts. Anytime Fitness clusters successfully because their model differentiates clearly. Hudson's Bay clustered unsuccessfully because their offering blurred.
If your operations depend on specialized resources, cluster near those resources. If they don't, optimize for talent and cost.
The Canadian fitness market shows both strategies working simultaneously. Traditional gyms cluster in high-traffic areas. Digital-only platforms ignore location entirely. Hybrid models test both approaches.
Your location decision accounts for up to 60% of your success or failure in the first three years. Make it based on your business model, not on assumptions about what works.
The entrepreneurs who get this right ask better questions. They map their customer search patterns. They identify their true competitive advantage. They calculate their resource dependencies.
Then they choose a location that supports their strategy instead of hoping their strategy adapts to their location.
That's the difference between building a business and hoping one emerges.
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