Thursday, December 8, 2016

My Top 20 Game Companies 2016 (Tradecraft)

Five years ago I did a top 20 analysis, finding those companies comprised 75% of my sales. My top 20 this year is down to 66%, with hundreds of companies below them on the list. Lets call that a win for diversification. 

That said, Wizards of the Coast has grown tremendously in my personal market share, with nearly double the sales of the second company on the list, which is itself double the third, and so on. Dungeons & Dragons is tremendously popular and even with Magic being a bit slow, it's significantly larger than it was in 2011. Things weren't so stark five years ago.

The big industry news since the first chart is Asmodee North America, which now owns the board game segment, having acquired all or most of four companies on my previous top list (five on the list, if you include themselves). I say most, because our Mayfair sales are not on the list without Catan, which is now licensed to Asmodee. The board game market was ripe for the picking, with no market leader, unlike every other game trade segment. 

I know you guys like these charts far more than my blabbing on, so here they are:

Chart from 2011:

Tuesday, December 6, 2016

Your Business Plan (Tradecraft)

So you've written a business plan. If you wrote it strictly for yourself, good for you. The level of planning required to write a legitimate business plan puts you in the highest category of prospective business owner and your likelihood of success is now higher. You can refer back to it when times are tough and know your plan is well researched and solid.

If you wrote your plan for someone else, they're going to be looking for some key components in your plan and will want to know about you as well. Why would you need to share your plan? For one, you may be looking for some premium real estate to lease. If you've been doing this for a while, property managers will court you, but if you're new at retail, they would rather not take the risk. I had to present my business plan to my first property owner and interview to get the space. For my second space, my signature was good enough. If you can't qualify for premium space, you'll end up with a crummy, month to month location in the wrong part of town. Nobody wants that.

The other reason is you may want investors, and nobody should give you money without a solid plan. In fact, even if it's a relative or a close friend, you owe it to them to do the work to develop your business plan. It's an exploratory process that familiarizes yourself with the industry, demographics and competition, and your plan on how you'll make money, including crafting financial statements and marketing plans (an education in itself). Business plans make you lucky, which is the word dumb people use to explain why you did something they could have done, if they had felt like it (you'll hear this a lot).

So what would I be looking for in your business plan?

  • Skin in the game. Nobody is going to write you a blank check unless you've got a significant amount of your own money invested. You can forget about "sweat equity" right now. Your sweat doesn't pay my bills, it just makes them mildly damp.  A small amount of money invested will probably not be worth my time. I'll want to total capitalization upwards of six figures.
  • Passion. Do you need passion for games?  Not necessarily, but you need curiosity. Better would be passion for the big game, that of running your small business. If you get excited about cost savings and making signs, you are kind of a weirdo, but you're my kind of weirdo. There are people who do this because their dad is buying them a job or they got an insurance settlement or they need a place to go upon retirement. There's probably not much passion there. This is one of those ridiculous professions you do because you simply can't imagine doing anything else.
  • Cost Savings. What are you personally doing to cut the impossible costs of building this business? Are you painting the walls? Building fixtures? Are you doing your own IT, accounting or payroll? Show me you can get your hands dirty and aren't planning to hide in your office. Tell me about the long hours you expect to work for the next few years.
  • Work experience. It would be best if you had experience in game retail, possibly vacuuming your 1,000,000 square feet. If you don't have game retail experience, then perhaps you have general retail. If you have no experience, you better have extremely impressive, extensive research on the game trade from multiple perspectives, with multiple interviews and preferably some professional analysis of your plan. Nobody has the answer in the game trade, but collectively, the game trade has some pretty well established methods. I know people who interviewed me before opening their store who now have world class establishments. I know even more people who talked with me that never opened (also wise).
  • Work history. Have you held a real job? Was it for more than a couple years? Do you hop around a lot? (I did, that's not a good sign). Do you have enough experience to understand baseline normal in the work world? Does your experience show deep focus in a tiny area or do you have a broad spectrum of experience? Are you handy? Were you an Eagle Scout? I want to see flexibility because whatever you think is the biggest part of this job is probably no more than about ten percent. This will take years to develop before it's successful and I don't want you to bail early when it gets hard.
  • Bootstraps. Everything in business is earned. There is no stealing customers or benefiting by being in the orbit of someone more successful. The Internet is not there for easy profits. Business in specialty retail is earned, one customer at a time. I want to see a plan on how you'll attract prospects, turn them into customers with your unique value proposition and retain them with your superior service. If I see shortcuts, I know you're not for real. If I don't see you planning to open in an underserved area, I will be suspicious.
  • Third place. How are you using Third Place Theory? Do you have game space, concessions, or some other service oriented revenue generator? Third Place is likely critical to your Unique Value Proposition. If you have experience in concessions or whatever your UVP happens to be, all the better.
  • Financials. You'll need to make balance sheets and P&L statements and if I'm investing, I expect to see them annually. If you had someone else make these for you, you better understand how they work. I'm going to ask you about gross sales, net profit margins, labor percentages and inventory turnover. I want to see you understand how all the pieces work together.
  • Marketing. I'll be looking for a multi faceted marketing plan that goes beyond social media. "Facebook" is not a marketing plan. "Word of mouth" is not a thing you can count on. Nobody really knows what works for their business until they try, so it doesn't have to be correct, it just has to be part of the plan. It would be great if there was a budgeted amount of money for traditional media marketing as well as some ideas for guerrilla marketing and things like local conventions.
  • Show Me The Money! I want to see a Return on Investment in a reasonable amount of time, with a reasonable growth curve. This should be baked into the business plan at every level. I should be able to point to a month on a calendar and expect my first check, if I'm an investor.  It's easy to forget when you're struggling to break even that all that money needs to be paid back and then some. 

That's it! Also, I'll be the first to point out that many of the things I'm looking for are my own shortcomings. I'm looking for weaknesses and how you'll make up for them. I'm looking to see if you're friendly and personable. We're going to be working together for years.

Monday, December 5, 2016

Good Times, Bad Times (Tradecraft)

Asking introspective business questions is the hobby of good economic times. Where is my industry heading? What is the future of retail? How do I buy out my competitors or open new stores? Why does Amazon seem hell bent on removing humans from all elements of their business? There is clearly a lot of extra processing capacity in your brain if you're asking the big questions. You are clearly not on the brink of failure. This is fine, but realize you're doing it when it's happening.

Big business asks these questions too, and it usually results in bad decisions, like mergers and acquisitions (the majority are losers) or building an extravagant headquarters, or the hallmark of too much money, designing a self driving car. Idle big businesses with their problems sorted and too much cash, tend to act poorly. It wouldn't be unreasonable for investors to ask for that money before the stupid happens. It's like taxes. if you can't figure out a good use for that money, give it back to the people.

Bad times are where it's at. Oh man is it easy to focus with three days of cash flow and the rent nearly due. Day to day survival focuses your mind on business fundamentals, pleasing customers, mentoring employees, moving product. There is dangerous short term thinking too, but for now it's about survival. Bad times are when you're carefully tracking your finances, building cash flow models, finally figuring out how to create that Open to Buy spreadsheet. I'm so content in bad times I'll sometimes take extra risks in good times because I enjoy the rush. That's not good.

What if you could trick yourself into a "bad times" mentality while prospering in good times? Assuming you're not killing yourself with stress, wouldn't that be useful? There's probably an unpublished book there somewhere, "The Seven Bad Times Small Business Habits for Good Times." This is from the "those who know, do not speak" camp of business owners, the successful ones with their noses to the grindstone, even when times are great. I don't know their names, they're too busy to socialize. However, I would buy their book, if they weren't too busy to write it.

Tuesday, November 29, 2016

7 Things About Me

I just had an hour meeting with one of our event coordinators. What I generally want customers to know:
  1. I like our customers. The customer interaction, after twelve years, is still the best part of the job. That's despite my being a painful introvert. I must sometimes be "bad cop," and I accept that role. All blame should be pushed up to me. All credit should flow downward to my excellent staff. If you don't like something, I'm your man.
  2. I'm agnostic. What games I like and don't like personally aren't part of any business equation. Speculating on this is a waste of time. I also keep my gaming away from business decision making so I can remain a happy hobbyist, and I do a lot of personal gaming work. I recommend doing the same, despite my attempts to always sell you the new shiny. I'm rooting for the success of every game I carry. However, if I don't carry a game, it is literally none of my business. Dropping a game can put me at odds with my customers, and the sad part is, it's often those who supported us the most. I know this. The betrayal is real and I can't fix it.
  3. I'm an apologist. I will make up excuses for quite a long time before I give up on a game or an event. I'm often the last one to know. When we dropped Warmachine, nobody had bought half the models for a full year. $10,000 of decorative tin. It was a revelation. Other stores in the area had dropped it a year or more ahead of me. I was the last man standing. Even my staff knew before me. I don't like to admit mistakes and I don't like to upset the balance. Truth be told, not a week goes by that I don't think of a scheme on how to bring it back. Just ask Charlotte.
  4. I'm not dumb about it. I'm not always smart though. I have to make a lot of hard decisions about what we carry, what events work, how we do things, and this is just basic survival for a store. If you look around, you will find a) a lot of stores are going out of business, and b) a lot of stores are starting to look the same. That's because the path to success nowadays is increasingly narrow. This is due to increased costs, increased competitive pressure, and a change in buying habits. Those who can break out of the obvious model are worthy of study.
  5. I'm an enabler. When it comes to events, I want to help. I want to provide terrain, prize support, GM incentives, whatever it takes to make an event fire and for enthusiasts to promote the hobby. Enthusiasm is the hottest commodity in our store, and customers are the supplier. It usually doesn't take much, so please ask. If I'm not getting product on time, ask. If events could be slightly better with an accessory, ask. Sometimes the small things aren't on my radar. I had an angry event coordinator ask me why I didn't have the latest release of his CCG. I had never heard of his CCG before the email. Sometimes there's a disconnect between events and purchasing. I've created a customer only Facebook group for all our major gaming categories so there's always a way to speak more candidly about what's going on.
  6. I built a community center. Well, we did, but I'll continue to use "I" for this post. It's built, but we need the cooperation of the community to use it. That means I need the community to gather round, within the business constraints of using that center. It has its own set of loose rules and requirements that work to promote the business so the center can stay open. It's not my job to run an event for you, it's my job to facilitate events. One day it may be my job and the events will be amazing and expensive and far narrower in focus. Meanwhile, we need coordinators.
  7. I'm thankful. I really am thankful for our community. They've stayed with us over the years. They kept coming after construction dragged on for months. They spend money freely with us despite so many other options. We (I) want to do right by them. We want to provide a haven. We want to provide entertainment. We love to hear that they enjoy our space and feel safe and invited. That they all keep coming is a kind of miracle that I've never fully understood, it's the forest I can't see for the trees.

Saturday, November 26, 2016

Where Do We Go From Here?

With construction complete, our new game center sits at around 2,000 square feet with 121 seats, double what we had before. It's really more than double, since that 121 is 121 civilized, fire inspector approved seats, with plenty of room to move around. That's what struck me once we had the tables and chairs put in. So the question some might ask (including me) is where do we go next?

The answer is nowhere. Part of the construction included a seven year lease extension. Seven years is a huge number of years. When I was 18 I turned down the Marine Corps because they changed their program from a four year program to a six year program. Who knows where they'll be in six years? Well, I know. After that seven year lease, we'll have another five year option. Personally, I will have just spent a bunch of money putting a kid through college at this point and I'll be eyeing retirement.

Lets forget about after for a moment. What does a store like ours do for the next 7-12 years? A sentence strikingly similar to armed robbery? We mostly do a lot of behind the scenes boring stuff, which includes paying off our construction loans as quickly as possible. There are no big plans while we have a couple thousand dollars a month of loan payments. We need to get rid of those, along with a lot of what I call "running debt" that will hopefully go away by the end of next month.

As we get the loans paid off or we comfortably grow into our new economic reality (we make more money because we invested in the space), it's likely the first thing we'll do is increase inventory. We've been increasing inventory about 10% a year for many years now and it's an economic engine that results in increased sales each year of around ... wait for it ... 10%.  I think we could easily double our offerings right now, without any more thoughts of expansion. We could spend six figures on new games without blinking. So that's a solid plan going forward.

Once the loans are gone, common sense will likely get thrown out the window and I'll fantasize about things like coffee shops, second stores (bought or started), and other boondoggles, but really, that's years down the road and a lot can change by then. For now we're trying to get our events dialed in, transition staff from part time to full time (over the next couple of years), and work on running the store like a grown up business, rather than the seat of the pants start-up mentality we've always had (a profitable model with a lot of missed opportunities).

Friday, November 18, 2016

Nothing But Net (Tradecraft)

We're approaching the time of year, as store owners, when we're asking two important questions: How do I get rid of all this excess, taxable inventory before January 1st? Followed by, "How should I spend all this windfall holiday money?" I want to combine the answer to those questions into the focus of this piece, net profits.

As small business owners, I think we're obsessed with gross. Gross is easy to see and track. You know your gross at the end of the day. It's a nut in need of cracking. It's a bragging right. Net? While gross is an ingredient going into the cake, net is the cake itself, the finished product. Net is what a business should strive for, but it's complicated enough to calculate that it's often a by product of your business. Whenever you measure something, you skew the results towards that measurement, and focusing on gross over net is a prime example.

I mention this now because you have an opportunity to clear a lot of inventory and decide how you will spend a lot of money following the holidays. The game trade is growing fast, spiraling upwards really, and there are those who will help you grow your net and those who will take advantage of your sales channel with low margin product.

As you you sell through inventory this season, you have the opportunity to dump low margin mistake product and re-focus that energy into more healthy areas. We dropped our 40% gross margin Yugioh a couple years ago, letting go of $100K of annual sales, but coming out at the end healthier with better cash flow and our highest net ever.

Same goes for low turning product lines, like many miniature games. You have to accept that you're going to upset some customers with this decision, but if it leaves you healthier, it's better for everyone. Our one turn Warmachine line got dropped this year, and although I constantly look at ways to make it work, it's better off left in the past (but I haven't given up).

Finally, anyone whose not giving you a strong margin (I think 45% should be the floor), needs to be carefully examined and measured against extremely high performance metrics. We recently had the most epically low tiny margins recently, when we were informed Gamelyn Games would be reducing margins to 25%. Don't know whose fault that is, don't much care. Just say no or mark it up.

Product is easy to focus on because you can tweak it on the fly. Other areas to increase your net:

  • Labor. Minimum wage increases for me means labor is increasing 11+% a year, which means almost 4% of growth goes just to maintain profitability (the average retail growth is less than 3%). Consider dropping unproductive shifts. Send people home early, if necessary. 
  • Debt. Retire as much debt as possible, especially high interest loans and those with higher payments. That's where most of my holiday windfall cash is going this year.  If you're serious about net, work on being debt free first.
  • Unnecessary Costs. So many people are afraid of credit in this industry and happily pay for COD tags. There are also those who don't have a primary distributor, spreading their orders across too many suppliers to where they're not obtaining higher tier discounts. Work on these things.
  • Unnecessary Expenses. Our payroll service has gotten expensive and we recently sold our van to save $99 a month on auto insurance plus an average of $100/month on other auto expenses. That was like retiring $10,000 of debt for me. Pound on your expenses. 
What is a good net profit? 5-9% is the general consensus. Would you rather have a $500,000 a year store at 9% or a $1,000,000 a year store at 4%? I'll take the low bragging rights $500K store every time. Focusing on net can mean turning your back on gross profits, something you'll need to explain to those who follow such things (like your spouse or investors).

Any other ideas on increasing net?

Monday, November 14, 2016

Four Small Business Stages (Tradecraft)

Over the years, the strategic focus of my business has changed dramatically. I started as a one man shop, with three days off my first year. I gradually hired employees so I could have a life. Eventually I expected employees to handle most of the business. Finally, I'm developing a way for the business to self perpetuate without me. Here are those stages:

Building the Basics
In the beginning, you decided how clean your store would be, what kinds of customers you wanted to attract, the products you would sell and the general attitude you would have towards your customers. You did it all, down to picking out what brand paper clips you would go with. A successful store owner spends years dialing in these variables in conjunction with customer feedback and help from peers.

You learn what works, what doesn't, and you watch the business grow and decide "more of that" is good. Many store owners are happy to stop here. Heck, I could envision a retirement store where it's just me, doing this, with the lights off when I go home for the evening. However, I needed more from my current business, so I had to move on from here.

Building Policies and Procedures
You learn fairly quickly you can't do this alone. You can't work 55-60 hours a week, year after year, without burn out. I did it for my first year, but I learned I needed to delegate to continue. Building policies and procedures is how you delegate. You built the basics, you know what needs to be done, now you need to streamline, document, and implement a plan for other people, rather than the seat of the pants method you used in the previous stage. Many owners can't delegate. Many owners can't develop processes and procedures and are only happy wheeling and dealing and making it up as they go along. Many owners can't develop the trust needed, which will almost always result in some element of betrayal through the years.

Building A Management Team
This level is an abstraction beyond Building Policies and Procedures. In this stage, you're empowering other people to manage both people and processes. You're giving up authority and control in hopes of maximizing your time elsewhere. Elsewhere may be a new business or second store, or it may be a real or metaphorical beach.

This is a difficult stage because although you may fully understand your policies and procedures, and be able to delegate tasks, you now have to manage managers who may have their own vision and ideas, some of which won't be yours. You have to be able to let go of many strongly held policies and procedures as they get re-interpreted and optimized by new managers. You have to be able to remove your ego from the process and not be the face of the store.

Your job is to remove obstacles in the way of your staff, to set the stage for new business, and to lead strategically into the future. Many people can't or don't want to get to this stage. There's nothing wrong with wanting to run your shop and see customers every day. I personally find customer interactions the most fulfilling part of the job. It's kind of a luxury though if you want to move forward.

Making Yourself Obsolete
Succession planning isn't just what would happen if you're hit by a bus, although that's important too. It includes plans to allow for your business to run smoothly by focusing on big picture goals. For example, I'm interested in developing a program where managers are prepared to train replacements in short order, making my need to re-train a manager unnecessary. Being obsolete also means my managers can handle hiring everyone, including a new management team, developing better policies and procedures on their own, and understanding the basics of the business as they evolve. The hardest part for me in this phase, is letting go of each of these components and accepting when good people come up with good ideas.

My job at this stage is understanding where my industry is headed, learning trends in the business world (it's bleak), dealing with financial planning for upcoming or recently completed capital expenditures, and mentoring my managers for their more autonomous role. That's what I want it to be, but I'm really not entirely up to speed in all these stages. I'm still the buyer. I'm still managing managers. I'm still developing processes and procedures and expressing my cleanliness goals to staff. I've got a long way to go, but I can dimly make out the way.

If you've got a better way of summarizing these stages, I would love to hear it. I'm sure I'm not saying anything ground breaking.