Sunday, April 21, 2019

The Nocturnal Financier

I may be a lot of things, but I'm essentially a Capitalist. A Capitalist believes in nocturnal finance. The way you retire is to have your money work for you while you sleep. For many, that's a 401K, but for the small business owner, it's the exploitation of labor, to quote Marx. Most small business owners have little in savings, and I'm ashamed to say, I'm not an exception.

To be a Capitalist is to put your eggs in the nest of others, hoping they'll warm and nurture them in exchange for payment. It's also to accept the rightness of your willingness to work for others back in your day as a nest warmer. That's the main difference between my nest egg and the nest egg of an employee. Rather than relying on the numerical supremacy of an index fund, I let some kid in their 20's, with little nest sitting experience, sit on my valuable eggs. Hopefully you discover the cracks early enough.

This Capitalist egg sitting may seem to fly in the face of the general social welfare, but I believe we can work towards a more equitable society while insisting people take the initiative to improve their individual situation. Only a cretin truly believes there's a level playing field. The game is rigged. Sometimes it's rigged in my favor but most of the time, not so much. I like the game, but it is a system designed by the winners to keep them winning. I know we can fix the game with a well thought out expansion (with a lot more players), rather than tossing the game (an egg toss).

I vacuumed my million square feet to get to my exalted seat known as "the middle." If I can keep the balls in the air long enough, I may slowly recede from my business while others do the heavy lifting. Because I have a bad back from that heavy lifting and no workers comp insurance. If I can raise up, mentor, or at least pay well my employees along the way, I consider that a double victory. One manages a game store now. Another is head buyer at a major distributor. I am a stepping stone, so I can't take credit for their victories, but I hope we came together to build something wonderful that positively impacted their future.

All of this could come crashing down with a couple bad months. Perhaps I injure myself. I have key man business insurance if I die, but a good maiming? Not covered. Perhaps a national tragedy keeps people at home. A major Bay Area earthquake, long overdue, could eliminate my entire community in a moment. There is no backup plan, no unemployment, no explaining the situation to the boss. The vast majority of my nocturnal capital is tied up in worthless cardboard. Does this instability and painful chance of failure make the true socialist feel any better about my exploitation? Doubtful, but there it is.

The restless sleep of the nocturnal financier means you're never quite rested. I taught my young nephew the phrase, "I'll sleep when I'm dead!" It angered his mother, but it should be the mantra of the small business owner. No safety net. No rest. No real time away. The boss is a jerk. The customers are unreasonable. The employees are stealing. Your partners carry knives for the inevitable stab to the back. I can't imagine life any other way, and if I had to have my labor exploited again, if I had to mind someone else's eggs, I would be longing for the sleepless nights of the nocturnal financier.

Monday, April 15, 2019

Game Store Tech

When I started in 2004, I was coming off an  IT career, so I wanted to be up to speed on retail tech. It was really the only useful skill I brought to the new business, that and the ability to research any project. 

I bought a new PC clone point of sale machine, custom made to handle the various peripherals. It was so complex, consultants were hired to work their black magic to get it all working. Could I have figured it out? Sure, but I respect expertise in IT and wanted to start out right. 

Setting up the POS required the consultants go through complex processes, hand written in notebooks. They were like a cabal of wizards, summoning profit into existence. While on vacation in France a year later (frequent flyer miles), the consultants came and fixed it when it corrupted itself during a power outage. I was troubleshooting the best I could from an Internet cafe in Paris. IT was inescapable.

In the back office, I had a Windows server running tape backups. I used a complex, Grandfather-Father-Son (GFS) tape rotation and took tapes home each night in a briefcase like some sort of spy. My laptop was a bulletproof IBM Thinkpad T30 from my days in IT. In the new store, I learned a lesson in security when a gold toothed homeless man walked into our Game Center and immediately went into the unlocked door to my office. I caught up with him as he was zipping up his jacket to leave, with my Thinkpad hidden within. I already had a new laptop on order that week, but it was still a painful lesson.

I should mention that before I started the business, I was running multiple Red Hat Linux servers at home. When the store opening became inevitable, I wiped them clean and installed Windows servers. Nobody has time for that crap.

15 years later, and a lot of things have changed, but a lot has stayed the same. Our POS is an iMac, not that different from my first computer, although most of my peers are moving to the cloud. I can’t imagine changing POS systems now and not moving to something cloud based. The innovation is happening with cloud based services, plus I can sleep at night knowing it’s all backed up offsite. The backup server in the office has been replaced by a (terrible) dinky Apple time capsule backup device and cloud streaming.

On the sales floor are four iPads. One iPad plays music through our Sonos system. Two iPads play board game demos which drives sales. The fourth iPad is locked down to allow customers to sign up for WPN events (a weird Premium store requirement). Nine staff members use smartphones capable of running transactions using either a plug in card reader or a new Bluetooth unit we just got in. I’m a bit uncomfortable expecting staff to use their personal phones to ring up sales in an emergency, but there’s always the junky iPad nearby as an alternative.

My goal is safe and ubiquitous computing. The thought of spending time fixing or upgrading a machine is irritating. We have a Windows laptop for events that reminds me of my old life, with its constant updates and problems finding printers. I'm not quite an Apple fan boy, but I appreciate the strong, Unix based underpinnings of their hardware and the extremely long product life cycle. My first laptop went six years before I replaced it, and we just resurrected it for my new manager. 

I can’t imagine spending time with some clunky tape rotation scheme. Still, when I go on vacation, I wonder if the consultants will come if the POS goes down in a power outage. They tend not to answer their phones. We spend a lot of time preparing for the reality the POS could fail at any moment. The cloud is definitely my future and I certainly don’t miss the chilly server rooms of IT.

Sunday, April 14, 2019

The Shiny Trashcan Effect

Greetings from debt purgatory!

We are half way through paying off our construction debt for our expansion project started in 2014. Do you remember 2014? Fantasy Flight Games was still an independent company, Magic was going strong and the big news story was the outbreak of Ebola. Good times. Our Kickstarter did fund successfully that year. We did complete the project, albeit two years late. We did send out all the rewards, and one refund to that jackass who likes to leave me (hidden) blog comments. That saga is a whole other story (it's in the book).

Customers occasionally come in, tell us how they're great supporters of ours, how they buy all their games from us and ... holy hell, you built a second floor!!! Yes, thank you, thank you. Mmm hmmm. I stopped mentioning it was years ago. Snark is not appreciated and we need all the customers we can get. Got debt to pay down.

So how are we doing? It's a bit of a struggle making loan payments and trying to grow during a period of industry transition. There are projects I would like to do. There's a white board in my office with $20,000 worth of stuff. Yet, we just improved the store in our bid to obtain Wizards of the Coast "premium" status, and we somehow came up with the thousands to do that.

Yes, thousands of dollars for a nebulous status. However, this is exactly what I had been asking for. Recognition of hard work and capital spent to improve a venue rather than shoeboxes of cardboard (even though the cardboard is more in line with success with the WOTC model). How could I not pursue this? When motivated, we can make things happen. In the future we shall refer to this as the Shiny Trashcan Effect.

Our sales necessary for growth, the needed engine to pay off our debt, have exceeded expectations. We saw a large jump when the space was complete, but it was a one time thing (about three times bigger than projected). We immediately went back to the grind. It brought home the fact that the space is really important to a small subset of customers (20%). That money spent on doubling inventory would have seen growth over years, but probably slower growth, rather than all at once. There's also the question of whether doing nothing at all would have led to the same growth rate, considering we struggled to focus the business in the Kickstarter and construction year. No, no, this will have longer term benefits, if we can leverage them.

Anyway, we're up 25% this year, due to a number of factors, so I'll continue to fantasize about that white board and work on projects that don't require intensive capital. And maybe we'll hit Premium status with WOTC and see some benefit there.

Wednesday, April 10, 2019

Finance and the Great Unknown (Tradecraft)

As my book was hitting the shelves, I had this sinking feeling as the store struggled. This would be my comeuppance, the game store owner who wrote a book and promptly went out of business. 2018 was the year we had an honest conversation about debt and finances and the various tricks used to get through a month. Cash flow in the beginning of 2018 was usually enough to cover a handful of days. Being a week behind on bills was normal. Worst of all, I didn't want to acknowledge it.

When our construction project was underway and the months slowly ticked by with its business disruption, I borrowed money to pay for the work, and the decline in business. Then I borrowed a little more. Then ... a little more. All in, it was over $100,000. Could I pay it back? There were no bank loan actuaries to put on the brakes and say I had enough debt. There was me, with a modest income projection, with a make or break project. If I stopped borrowing now, I would fail. There's not really a choice here. So I kept looking at the numbers I needed to achieve while in the back of my mind, laughing hysterically. Because I have a bit of imposter syndrome and part of that is never believing my own bullshit.

So in 2018, just a year ago, I took matters into my own hands and did what I said I would never do again, and took out a home equity loan. It's amazing anyone would give me one after flipping Citimortgage the bird, and re-negotiating my mortgage on my own terms, but it had been enough years, and all was forgiven. I refinanced one of my loans and infused extra cash into the business. The problems were finally acknowledged and as nobody else wanted to loan me money to do this thing, I did it myself, paying myself a reasonable interest rate, much to the chagrin of my investors.

I paid off a loan that had the most stringent terms, a security interest on my furniture, fixtures and equipment (which I am grateful for), with a loan from me, with the least stringent terms. Legally, as an owner, if the business fails, I am last in line to be paid. That's why my investors were reluctant to loan money. It's a crap position, as opposed to other personal lenders who took on senior positions, or security interests, or whatever made them comfortable.

The ironic thing is I get mail every day offering to loan me hundreds of thousands of dollars. None of my loans are on a credit report, they're all private. Sometimes I take the time to talk to lenders on the phone explaining, "Look, I don't need any more money. Money is cheap. I need revenue. Call me when you have a plan to increase my revenue." It amuses me because it's a large corporate position. Sears doesn't need another hundred million dollars, it needs a plan to be a better Sears. If you come up with one of those, well, you've got something they want to buy.

Coming up with a better Black Diamond Games is at the end of the day, my job. But for a while in 2018, I was looking around, hoping to maybe find someone who could take me up on that offer. The guy who wrote a book on starting a game store, looking for someone to do his job. That was 2018 in a nutshell. Thankfully, we're in much better shape in 2019, in all the ways possible. It's chaotic and stressful. Good material for a second book.

Thursday, March 28, 2019

Inclusivity and the Blue Hair (Tradecraft)

My store has a reputation for being an inclusive environment.

Much to my surprise.

You see, I haven't put up signs saying we're against hate or networked with the community to be more inclusive. I haven't sought out a more diverse staff or advertised in the Pink Pages. I don't have a particular store policy on inclusivity and I don't have any rules in my Game Center, as I think rules postings are only necessary when they're really, really necessary. History has shown only crazy people post rules (or make laws) when it's not necessary.

The reason why we have a reputation for inclusivity is we try really hard, now get your notebook out so you don't miss this, we try really hard not to be a dick.

When other people show intolerance, it's not a "he said, she said" issue. The intolerant person is shown the door. Because they're being a dick, not because of some political stance, rule or policy. Most of the time I'm not even there, as this activity happens in the evening hours during events. It's ingrained in the store culture, and staff are part of that culture. There's usually one trouble maker in every group (two in Magic).

As for hiring, I've realized inclusivity provides me a great opportunity to hire excellent people overlooked in a more conservative environment. I don't care about the color of your hair, your gender, your orientation, your identity, your race or even your politics, provided you can do the job well. I do want you to be clever, knowledgeable and customer service oriented. Because other hiring managers do care about all the superficial things, I often find diamonds in the rough. Note how selfish I am. Note that I am finding a competitive advantage and not making a political statement. I am not hiring lesser people to make a greater point. I am not being a good person, I'm just being self serving. Most importantly, I'm not being a dick. As with everything in the game trade, the bar is low.

I want to mention when I was doing research for my store in 2004, I visited the local comic shop, Flying Colors, with a friend. As we were leaving I mentioned, "Do I really want a life managing young people with blue hair?" That was what I saw at Flying Colors and being in the professional world, you would never see that. I had no experience with blue hair (my son later had blue hair for years) or really anyone who didn't file down their personality to fit into a corporate culture. I assumed blue hair meant trouble and weird problems and unpredictability, when in fact, blue hair meant opportunity. I really do want a life managing young people with blue hair.

This diversity grows the store and brings in a diverse crowd like I could not have imagined five to ten years ago. It's a hiring dividend, not the core value of the hire. The hobby has become mainstream. If you would have looked at my store a decade ago, it would have been the stereotypical "sausage fest" of all males, acting male, smelling male, being their stereotypical male selves and expressing their dumb ass stereotypical male opinions. I get it. You become so blinded by testosterone that you can't even smell the sweat or notice the pee on the seat. Testosterone in the air blurs the senses. That was the community, whether you liked the smell or not. For some stores that haven't adapted, this is still the community.

There was good and bad in that group, like any group, but it was an insular community, that repelled others, especially women. That is gone for the most part, or at least lessened. The hobby has spread rapidly and the customer base has expanded to all types of people and most importantly, we have been there with open arms. We didn't change, we just provided the open environment that allowed diversity to stream in, and the understanding that there will be no hostility or intolerance allowed.

Not everyone agreed. Not everyone went quietly. One edge lord threatened violence against me. As someone who's not a squishy liberal, and more libertarian (a liberal who returns fire), this had me a bit fired up. I will go down with the ship and take you with me. I bought a couple Louisville Sluggers, in case we wanted a little spontaneous staff batting practice. But like most cowards, they made a lot of threats, trolled me on the Internet for a while, and eventually disappeared.

In any case, there was no change needed for this transition, no Sluggers wielded, just an understanding we would make hard decisions to defend people who chose us as their home. If you're not a dick, how could you not? Embrace the blue hair. Blue hair is here to stay. If you really are a dick, embrace it anyway, for your bottom line. Fake it for the money.

Friday, March 8, 2019

The Game Trade Pivot

When a game hits peak popularity, it's not uncommon for it to be taken away from independent retailers in some form or another. It might be a retailer exclusive, or a publisher's attempt to spread the wealth (and power). If Target came to you after publishing a hot board game and offered you a bazillion dollars for an exclusive to the expansion, what would you say? It might kill your company, but you would have a bazillion dollars.

This morning I had two examples of pivot math, in which I needed to adjust expectations based on publisher removal of market demand. One is for Wizards of the Coast and the other for Ravensburger:

How many should I buy?
  • Saltmarsh: 30 days of Tomb of Annihilation sales (because those are my terms), with a 10% bump for growth, with this total divided in half because of removal of early release (it will be sold on Amazon the same day by idiot retailers).  I suspect Amazon gets half the D&D market. 
  • Villainous Expansion: Total sales of Villainous base game, divided by three, because it's an expansion, divided in half because of early Target release by months. Everyone who cares will already have it and coming out three quarters after our huge sales push means it will be cold.
A younger me might have decided to drop Villainous entirely and avoid it, especially after we sold 50 or so copies over the holidays as one of our top picks. That's a really small number for some larger stores, but out here in the burbs, we run shallow and wide. As for Saltmarsh, I might begin slimming down my D&D overall and start banging the drum for Pathfinder 2.0, which is coming soon. That's all counter productive though, so I just pivot and move on. I certainly won't push Villainous again or most Ravensburger games, nor will I be looking to invest time in jump starting Adventurer's League, which can't seem to gain a footing. I will cultivate my indifference. 

This gets to the problem of the game trade in general, without allies we have cold war enemies. Publishers want retailers to do some lifting for their product, but we have product PTSD. We're not willing to enter into new co-dependent relationship in which we're beaten in response to our love. So most retailers put minimum effort into promoting products and instead focus on well established events and reliable staples. It takes a tremendous amount of effort and tremendous love for these games to do otherwise. The key to success is a series of co-dependent relationships in which we don't get angry, we quietly pivot. But it wears you down, let me tell you.

Thursday, February 28, 2019

GMROI Application (Tradecraft)

This is a couple of posts from my Gary Ray, Author page on Facebook.  I've had this page for a couple years now and despite only a couple hundred people on it, there's far more engagement than this creaky old blog. I encourage you to follow me there, because there will come I time I give up on this medium.

Here are my posts, which I'll certainly use in inventory management or buying presentations in the future. It takes a rather arcane concept, Gross Margin Return on Investment, something I've talked about before, and uses it as a tool for ordering. Applying a tool, what a concept!

I don't want to spend much money this week on restocks. How many times have you been in that position, but you're not sure how to proceed?
I was in a seminar once and they suggested you work with your restock list with your distributor, going by code down the list, until you hit your purchasing budget. I found that astonishing.
Say you have $2,000 for purchasing and you really aren't sure where to spend it. This is where I was this morning and remembered GMROI, which I had just calculated for the store the day before. GMROI is Gross Margin Return on Investment.

For every dollar you spend, GMROI measures how much money you'll get back. Would you rather get $2 for your $1 investment or $1.50? You want the $2 of course, although you might decide you want to focus on short term velocity (turns) rather than long term return (GMROI). We have multiple tools in the tool box.
In my example below, I could spend my money on high turning card games for a short term gain, but the GMROI is just average. It's an average investment. If I need a snack run, I should probably do that order first, with its $2.06 return on every dollar I spend. Costco is my most profitable distributor, dollar for dollar.
What I used to do is place my Games Workshop order first, but now I see with GMROI that tactical miniature games are my lowest return. That's the last place I should spend my money, return wise. It also has a below average turn rate. It's marginal, but still worthwhile. It's certainly not my top priority.
So when I went through my orders this morning, I de-emphasized GW ($1.58 GMROI), made sure to re-stock every card supply option ($1.91 GMROI), and made sure my snacks were stocked (which I did on Friday), since it has the best GMROI of the bunch.
My store is healthy, but where you really see GMROI shine is with troubled stores or troubled departments. There have been departments where I've calculated sub $1 returns on my investment. In the GMROI example I'll link to, I was making 90 cents for every dollar invested in classic games. We shored that up, mostly by carrying far fewer of them.


I know from GMROI what department comprises my worst investment, but why is it my worst investment? Why are tactical miniature games my worst performing department when it comes to investing money?
The vast majority of that department is comprised of Games Workshop. I can see my COGS percentage number is far too high, 63%, when my average is 57%. What makes my margin so poor with GW? It turns out to be a lot of factors:

1. The base margin for most GW products is 45%, which is lower than many lines. 

2. Direct order products from GW are 35%, even worse.

3. My store offers a 10% discount for pre-orders, which brings a lot of product down to that 35%.

4. The splash nature of GW releases means I attempt to funnel as many sales through special orders as possible, at 35%, hurting my margin.

5. The splash nature of GW means I order heavily in hopes to avoid outages. This results in overstock, which is then clearanced at a discount.

6. The enforced once a work ordering AND the one week ship time for us means I can't rely on just-in-time ordering, like I do with the rest of the store, so I order deeper, taking more risks.

7. My 45 day terms with GW means I push my luck even further, which means when I lose, I lose bigger. 

8. My prize support tends to exceed my allowance of free product, to some extent, which is really a marketing expense, but it increases cost of goods.

So for that reason, tactical miniature games are my worst performing department. However, there are other considerations:

1. 4.1 turns is nothing to sneeze at. This is solid inventory performance, and if there was a worse performing department (there isn't), it might make sense to take advantage of this.

2. Metrics don't measure volume or profit, so Magazines might have better metrics, but I sell 30 times more miniatures making a much larger profit.

3. Tactical Miniature Games drives sales of paint and miniature cases, which are also weaker departments, but together make up even more sales.

4. Pre-orders and low margin special orders are risk free. It's low performing money, but it's free money.

5. The clearancing of product is painful, but GW products have brand value protection, so you'll always sell all of it, over cost, eventually, without a lot of work.
So what we see is tactical miniature games for my store should be of least priority, but they're a big enough draw to maintain, provided they're propped up by more profitable departments. It's not an area in which I should look to expand, unless I've exhausted all other options.
That's why when I had a little extra money from clearancing my last miniature game, I did the wise thing. I invested in ice cream.