Tuesday, June 30, 2015

The Question (Tradecraft)

Prudent prospective small business owners inevitably come to this core question:

How do I predict my revenue numbers?

In other words,  how do I know if people will come, if I can successfully advertise, if my business plan makes any sense at all? How do I know if it will work? This is a critical question that separates the entrepreneurs and small business owners from those who don't have the stomach for it. The answer, of course, is you don't know.

It's a leap of faith. You can research this leap, calculate the distance, the acceleration required to make it up your variously sized capital ramp, but in the end, it's a leap. Those who crash and burn sometimes have miscalculated but others were victims of variables that were unknown or changed faster than they could adapt. The public will call those people fools, public including your friends and family who might snicker behind your back.

Those who succeed at the leap are not applauded for having balls of steel or predictive powers. Nope. They got lucky. Perhaps they tapped into some American business cabal that allows them into the upper echelons of society. Because small business owners are rich, right? People don't know anything about your leap because they've never contemplated The Question. They also don't know you make more leaps, more calculated risks, all the time. After the first couple of volatile years, your chance of failure is level, but it's just as high in year four as it is in year fourteen.

Once you start a business, successful or not, people will see you as a cow to be milked, an ever present source of money to be given back to society, since you didn't really earn it anyway, due to your lucky stunt ramp. Every school will see you as a potential donor, the state will insist on fees and taxes the public is unaware of, some of which they just created, and the federal government will hold you to a tax rate big business would scoff at. Especially in the beginning, every one of the people asking you for money probably makes more money than you do, including government employees, teachers and enlisted military personnel. All of them.

My original point though, is there are those who will have a crazed glee in calculating the ramp angle and those who will shake their head, dismissing the insanity. Know which one you are. Crazy ramp angle calculators need people to help construct ramps too. If you're stuck in a job, doodling ramp calculations, make the jump. You'll never stop doodling, ever, even if you fail.  If you're working a job and just can't wrap your brain around the lunacy of these people, let it go. It's as crazy as you think.

Sunday, June 14, 2015

The Problem (Tradecraft)

You know what the problem is. As a business owner, you know.

Yet we're inundated with customer feedback forms, requests to speak about our "incident." Tell us where the bad company touched you on this doll. Initially this strategy felt like people were listening. Companies were being pro-active in tackling customer complaints. They really cared.

Nowadays, absolutely everybody does it and most requests for customer feedback are ignored.  It feels like they just want us to touch their creepy doll. They're going through the motions. They know what the problem is and: a) don't want to fix it, b) lack the power internally to fix it, or c) they're measuring whether their bad behavior is annoying enough people to have a financial impact, like General Motors with dead customers. But not knowing? They know what the problem is. They know.

The helpful part:

If you don't know, find out. Before you go out and annoy your customers with one more survey, do some house cleaning. Make a list of all the problems you know about in-house. Lines too long. Clutter and cleanliness, your windows clogged with old Pokemon posters, That Rude Guy (TRD), the things that have kind of bothered you but not enough to impede operations or keep you up at night. Work on all those things first. Then ask the question and ask it publicly.

Open it up to mass criticism and accept your suckitude. At this point, in stage two, you've already decided you're about fixing what's broke, you've already done a lot of work to improve your business, as opposed to willful neglect, the usual small business approach to problems. After you've completed all your known improvement projects, you should welcome customer feedback and more projects for improving your business. Also, customers will notice your efforts and will be more likely to add problems into the hopper, because they know you'll do the work. But don't ask just to ask.

Add all these things to your list and never stop improving. Eventually these "dumb" things that weren't big enough to annoy you will go away and you'll be working on process improvements that delight customers and make you money. But you'll never get there until you take down those old Pokemon posters first.

Tuesday, June 2, 2015

Credit (Tradecraft)

This is a bit of a rambling post about credit.

We are told early on to make sure our personal finances and our business finances are separate. Commingling is the term to describe the grave offense of mixing your personal monies with those of your business. The basic advice for building business credit applies to us: incorporate (including LLCs), acquire an EIN number, a business bank account, and business credit cards.

After these basic steps, I highly recommend you draw a business salary so you can separate your personal day-to-day finances from the worries of the business. I can tell you there have been several personal financial crises over the years that would have been far worse if the business was in trouble, and the reverse as well. However, when it comes to credit, separating out personal from business is much harder.

There is the myth that once you establish your business and form a corporation, your business will be on the hook for future debts and not you personally. The truth is there is no creditor that I know of who will allow your small business to take on risk without your personal guarantee. This means your personal credit is always a factor with business credit. If you have personal credit problems, you have business credit problems. Worse, it's a double standard, which I'll get to a little later.

Working with creditors in the game trade will help your business, but there is no building up of a business credit history as with your personal credit. Alliance and ACD don't report to Experian that you paid your bills on time in May. My business credit report (yes, that exists) has three creditors on it, despite having over a dozen actual accounts open that would show payment histories of many hundreds of thousands of dollars a year.

This formal credit report is generally ignored by everyone, and in the game trade, your Dun & Bradstreet (DUNS) number is also not considered.  The information on my business credit report is vastly incomplete with the data about annual sales and employees probably reported at various times through our history, the income when I first opened and the number of employees probably seven years ago (we have six now).

My incredibly incomplete and inaccurate business credit report from Experian 

The reason to open business specific accounts is really for separation purposes from your personal credit. Although they'll all require you co-sign on a loan or line of credit, you want to quickly establish business specific lines to keep your personal credit clean. These won't show up on your personal credit report. In fact, they often don't show up anywhere, at least while they're current. The double standard I mentioned is that often your business debts, if they're on your personal credit report, will be judged against your personal ability to pay them back, impacting your personal ability to take out credit.

For example, I have a construction loan that landed on my personal credit report. It's about the size of my mortgage payment and based on my personal income alone, it's impossible for me to make all my payments. I'm an average income individual with essentially two mortgages! Logic plays no role in this, banks just assume that I'm hyper leveraged, since they won't include the businesses ability to make payments. When you've commingled your credit like this, you've done yourself a grave disservice (I'm working to fix this).

Likewise, when I was disputing a fraudulent equipment lease with a credit card processor, my personal credit was dragged through the mud while we came to a settlement. A $45 lease payment by my business grossing hundreds of thousands of dollars a year was hurting my personal credit. The stupidity of that is how many big companies get small businesses to put up with their shenanigans.

The only time I've been asked for my business incomes ability to repay a loan was during the mortgage crisis, when the bank wanted me to have a larger income than I was reporting so they didn't have to consider me for a government sponsored repayment program. They took my business statements and tax forms and showed they had absolutely no idea how to value a business or what a reasonable profit margin looked like. I was wealthy in their eyes, making about three times my actual income. Three times my income wasn't a bad guess if I were working in financial services, as they were. This lack of even a basic understanding of how small business works is probably why banks rarely consider your business success when you're looking for credit.

This puts you in the incredibly frustrating place of having a business income in the hundred of thousands of dollars, yet when you apply for a loan, being treated like you've got the income of a store manager schmo.

It's a common complaint across all small business, and my guess is it has a lot to do with small business default rates. According to my credit report,  the late payment rate in my industry is roughly 20%. That construction loan I mentioned is from a community funding non profit with a default rate of a staggering 10%. That is an enormous number! Credit cards, in general, average 2-3%.

So keep your personal and business credit separate. Keep your nose clean or both will be impacted. Your best bet if you need money is to amass the cash.

Thursday, May 21, 2015

Can You Take It? (Tradecraft)

Yesterday was the most expensive purchasing day since I opened my store. Modern Masters II shipped, with $15,000 of invoices. Many stores are scrambling to pay for this order. Some have been pre-selling it like mad, at prices lower than necessary, because they don't have the money. Many stores don't buy on credit, so this $15,000 or larger hit (some stores claim orders easily twice as big), needs to be paid up front.

In the long run, this is losing them money. This is a product that has a current street value 30% higher than the MSRP. That's based on retailers opening boxes they received early and valuing cards. Although speculators will try to lowball estimates so they can buy low from fools, retailers now know better.

Yet, many retailers still sell below MSRP.  I will admit, we sold a small amount of ours early at a small discount while we gauged demand, but now? Now this is a limited product with a known high value with a pretty final supply number. Our main concern now is selling it too quickly. If I show up Monday morning and it's all gone, I've made a different mistake.

So what do you do if you don't have enough credit? Ask for it.

Call your distributors and ask for terms. Get a credit application and take what they'll give you. I've got 30 day terms with every supplier who offers them. Some started at 7 day terms, the financial equivalent of training wheels. Some started with ridiculously low credit limits (which we mutually ignored). Over time you can boost the term period or the limit.

Once you get them, pay invoices religiously. Getting terms gives you time to sell things appropriately. You can make sales projections, instead of hoarding cash and starving your store for something that hasn't been released yet. Then, if your projections are wrong, you can liquidate unsold product at the tail of the market, rather than gumming up the works and devaluing it in the beginning. This is to everyones benefit as you act like a business person and less like a scavenger.

Rather than scrambling to pre sell enough product at a discount to come up with a COD order, you now order enough to sell through your finance period. Can I sell $15,000 worth of Modern Masters II in the next 30 days? Can I ever! The best thing is I only need to sell a little over half to pay the invoice. The rest can be sold over time, the store supported by other products that were bought on time.

If you've got a credit card, ask for a credit limit increase. They can only say no. If they say yes, your credit score is likely to go up as your utilization rate drops. You're penalized on the percentage of credit you're using, so using a lower overall percentage of that type of credit only helps you.

"Businessman, see? Roots in the community. 
You're just a scavenger."
If you don't believe credit cards are good things and you can't possibly be responsible enough, I invite you to reconsider. You are a business person now. You are a professional. Roots in the community.  If you're in year three or year five of your retail business, you have grown as a person. You have proven yourself responsible. Business is managed risk and maybe it's time you step up and manage it.

You will make more money this way. If you get 100 boxes of Modern Masters II and you have to sell half to raise cash for your COD order at an 8% discount (the current Ebay discount), you've lost nearly $1,000 by not selling in store at MSRP.  You've lost a whopping $4,500 based on projected street values.

You want to be treated like a professional and not a scavenger. Here's where you live up to your side of the bargain. Step up, get your finances straightened out, make the money. Diamonds the size of testicles.

Monday, May 11, 2015

Inventory Categories (Tradecraft)

Managing inventory is a difficult process. It's a mix of objective criteria with your subjective feel for your store. It's what happens after purchasing, and as you know, purchasing is about being able to predict the future. So it's no wonder subjectivity plays a role in inventory.

Most of my posts about inventory management are about nuts and bolts, tactical deployment for finding value and recycling capital. Turn rates, sales per square foot, and similar metrics are about squeezing out value. But what about inventory strategy? Inventory strategy tells you when to apply those tactical tools. We're attempting to win the war (making money), by picking our battles. 

That led me to inventory categories, a classification that allows me to pick and choose where to deploy metrics. Not every game or game system gets inventory tactics applied to it. Here are my inventory categories. You can see there are many exceptions to the rules. The solution is to build rules about exceptions.

Full Line Exempt: Games in this category are exempt from the rules. Inventory metrics are ignored. If it's in print, I have it. I reserve this category for the top game in a department, like Pathfinder, 40K or Chessex dice. There are large, psychological advantages, "top of mind" marketing, to exempt categories that go beyond metrics. 

In the mind of the customer, I want them to associate these top brands with my store. In the case of a game like Pathfinder, that means I'm going head to head with Paizo direct for customer sales, so I have their novels, every flip mat and map pack, and all those fiddly little card packs that nobody ever buys. I want customers to know that if it's in print, we've got it.

Full Line Managed: Similar to full line exempt, except I take a very liberal view of inventory metrics. For example, Pathfinder recently moved from full line exempt to full line managed, meaning I drop products that haven't sold in a long time, even though they are still in print. In our case, it was 18 months. Our overall Pathfinder turns are around 5 a year, so an item that sells every 18 months is at .75 turns. Garbage. Moving from full line exempt to full line managed usually represents a major shift in customer behavior.

Managed: Inventory metrics are applied, usually with a minimum of 3 turns a year. The vast majority of items are in this category. Very rarely I'll move a Full Line category into managed, often talking to staff about how it lost its "amnesty." Sometimes this is jarring to customers. D&D 4 went from full line exempt to Managed overnight with a slash and burn approach to poor sellers, some of which hadn't sold in years. Some of which still reside on our clearance shelf today

Exempt: Inventory metrics don't apply. This is reserved for games deemed "merchandising" or the rare game that I carry for personal reasons. This category has gotten smaller over time. Exempt also includes new lines that you're testing out or building up. A new miniature game, for example, requires a critical mass of inventory before it begins to turn. You give that game an exemption, at least for a while. How long is up to you and hotly debated.

As an aside, living in earthquake country, everyone is encouraged to have a 72-hour bag, in case you have to get out of Dodge in a hurry. These carefully crafted bags contain enough food, shelter and equipment to keep you alive for three days, but most experts recommend you bring one comfort item. It might be a Bible, a deck of cards, or your favorite book. That is your one exempt item. If you're going to have a personal exempt item for your store, try to limit it to one, if you can. 

Seasonal: This is a tough one to manage in our field, but we definitely have seasonal items. For example, we sell the vast majority of jigsaw puzzles between November and March. We still sell puzzles throughout the year, but we make sure we stock up strongly for the season, and let inventory draw down towards the end. Classic games, toys, and holiday themed items also fall into this category. During the Summer we try to stock up on travel games. Before big Magic releases, we stock up on card supplies. Seasonal inventory gets a pass as you build it up and generally doesn't get scrutiny until the season is over. Then it gets dumped as fast as possible. Our store on December 24th only vaguely resembles our store on December 26th.

There you have it. Thanks to Jim Crocker and Ryan Johnson for pointing out areas I overlooked.

Thursday, May 7, 2015

That Cards Against Humanity Game

My general take on this game:

It's in bad taste, it's simplistic, and kind of dull as a game, other than trying to gauge the depravity of your friends (which can be amusing). I've played it once.

Why is it popular? It's an artifact of our times. We're deeply attached to identity politics, how lacking much else, many people (especially young people, it's argued) have taken their self identities as concrete and irrefutable, looking for offense and hoping to pillory anyone who disagrees, whether it's a web article or a coffee shop that serves the wrong type of bagel.

We live in a culture of perpetual outrage, and increasing fear of giving offense. You can have your business or your job taken from you with the wrong tweet or when someone has been slighted by your employee. Lacking strong cultural ties, we make up new identity constructs, and man, do we grow attached to them. We not only spend all our time immersed in our new identities, but we take great offense when that identity is questioned. 20 years ago, Cards Against Humanity would have gone nowhere. It would have been simply, offensive. 

It's popular because Cards Against Humanity offers up an evening of offensiveness as a way to step back from self identities and closely protected beliefs that are ultimately bullshit and empty of meaning. It's more a therapy tool than an actual game. Personally, I find that kind of boring, but if your life is a rigid, oppressive self identity paradigm, or you've been forced to live within one, it might let you take a step back, possibly providing some empty space to find some much needed humor.

It's hard to explain this game without coming off as an apologist. Does this make light of real oppression? Real racism? Real homophobia? Does it scratch all the isms? Most certainly. Does it justify oppression? I suppose it depends on which of the infinite number of self identities you're bringing to the table. Oh, and I'm not saying your self identity is bullshit. I'm saying all self identities are ultimately full of crap. That glimmer of humor provided by Cards Against Humanity, that brief open space, might just give you a taste of that. 

Or maybe I'm entirely wrong and it's as bad as people say. Maybe I'm standing on a soapbox of privilege, defending an instrument of evil while the world burns. I can't decide. 

Sunday, April 19, 2015

Mature Markets and Board Games

We've got a very diverse game store. Sure, we don't sell comics or frisbees, but we try to sell a wide variety of games in the key, four hobby game areas: CCGs, RPGs, Board and Card Games, and Tactical Miniatures. We use strong inventory practices to make sure each department is healthy. Diversification has been our calling card for years. Yesterday I realized two game companies now account for 43% of our sales so far this year.

The first one is an easy guess, it's Wizards of the Coast. They produce the biggest game in the game trade, Magic the Gathering, along with the comeback kid, Dungeons & Dragons. They also dabble in board and card games. The second game company is a bit of a surprise, it's the Asmodee Group with the other 16%. Asmodee Group owns Fantasy Flight Games and Days of Wonder, which is how they've gotten that second position. You wouldn't notice this if you weren't reading game trade news.

Our top 15 games account for 62% of sales.
The top 30 usually accounts for around 80% of our sales.
We sold games from 195 different companies.
What's most interesting to me about Asmodee, is they've bought the top position in the board game market. Each of our other game categories is what marketers would traditionally call, mature. There's a market leader with well over 50% of sales. Those games have been Magic: The Gathering, Warhammer 40K, and Dungeons & Dragons (until recently and that's another story). But what about board games? Board games has lacked a market leader, from that traditional definition sense.

Has Asmodee done it? Not quite, but close. Our Asmodee Group board game market share is 36%. Our next closest company is Wiz kids, with 7.5% market share. Their our Pepsi to Asmodee's market leading Coke. After Wiz Kids, it drops off significantly, like a mature market.

Why does this even matter? First, it's interesting that the French holding company that owns Asmodee Group, that buys things like parking, lots is also keenly interested in Ticket to Ride and X-Wing as a means to make money. It shows a faith and understanding of the global hobby game market that is not expressed elsewhere, especially when it comes to actual money. You can say what you want, but backing it with millions of dollars is the best speech.

Anyone with even a modest amount of money could do this, but they haven't until now. Does this represent a cultural shift? A cultural shift is what we're all looking for in the game trade. A cultural shift means we're not in a bubble, in a cyclical phase. It means this is the tip of the iceberg, an indication we might be catching up to Europe really. A cultural shift will mean we view money and risk differently. Not only will we be more willing to take risks, but other, more mainstream entities will as well. This new opportunity brings a huge amount of instability with it, which has traditionally been dangerous for the the game trade.

Second, it marks a maturation of the market and how board game companies will position themselves moving forward. It will likely mean a change to the distribution model. Not only is it likely exclusives will be pulled, such as with Days of Wonder annoyingly being sold only by Alliance, but Asmodee is positioned to distribute themselves, much as we do with Wizards of the Coast and Games Workshop (the other market leaders). That will only strengthen Asmodee as they bring in additional publishers and titles from Europe.

There are lots of retailer grumblings about the distribution model right now, with a lot of that aimed at how distributors handle Asmodee Group products. Distributors are acting as the ultimate arms dealer in these boom times, selling to us as well as Amazon and a slew of online stores. How each does this is a major bone of contention among retailers. Do they fulfill brick and mortar first or last? Do they sell to Amazon? Do they "floor" games for Amazon, holding them back? A direct to retailer model (which exists already with FFG), would be appreciated, especially if it came with organized play support. If we can do it with Games Workshop, why not with a company with three times the sales volume?