Entropy

It's my birthday today, which usually leads to grim thoughts of mortality, net worth and life focus. It's just how I'm wired. What I wanted to touch on in this post is entropy in business. The main theoretical concern of a new business is return on investment. You put in $100,000 to start a new business, not an insane amount of money, and you expect that money back in a reasonable amount of time. Your first goal is to become "profitable," meaning you stop hemorrhaging cash. That might take 12-18 months. Your next goal is to pay back that $100,000. A reasonable expectation might be 3-5 years. For a game store, it might be far, far longer than that, if ever. It really depends.

After that 3-5 years, you should be hitting profits, but you'll also start hitting some entropy points that will put additional financial pressure on your business, especially if your profits are low or non-existent or you've got longer term debt. For example, we're in our sixth year now, and we're on our second POS machine, second office server, fifth (or so) vacuum cleaner, and we're beginning to look at replacing some of our worn out store fixtures. Tomorrow we're re-painting our game center and having the carpets deep cleaned. Most of my thoughts about the future seem to be about re-focusing on the next thing. If keeping up with the current stuff doesn't bury you, getting clocked by the future can do you in.

This is normal. It's your typical retail "two steps forward, one step back" approach. However, if you're barely hanging on, entropy, and the stress it brings on, is what's most likely to kill your business. It's not slow sales, bad health or customer theft, it's just the inability to keep up with the inevitable breaking down of what you've built or the changing times you can't keep up with. It's evident in once great stores that look tattered and ragged, unable to afford to keep up with the image desired with their initial investment. It shows up often in stores with dead inventory on the shelf and broken promises to bring in the new stuff soon. They've got problems with their distributors or UPS keeps messing up, or so they claim. On the positive side, if you've hit entropy, it means you're probably experienced enough to recognize it and you've got a bag of tricks to combat it, including simplifying and cost cutting. Dealing with entropy, therefore, is also a kind of badge of honor. You've made it! Now do it again.

In my previous business, which was, believe it or not, a mildly profitable BBS system in the 90's, it was the Internet that killed us. Some successful BBS systems transitioned to ISP's (Internet Service Providers) back in the day, but that took a ton of money and foresight. It meant your BBS had a stockpile of cash for that transition, and most were hobbies at best. We were able to transition to a kind of Internet hybrid gateway, but lacked the resources to take the next step, so we realized early on that we were finished. We hadn't paid off the debt from the previous transition, so transitioning a second time was out of the question. That's where a lot of businesses are right now. They're hanging on, not really able to grow or expand due to the poor economy and staggered by existing debt. They hope to avoid the inevitable entropy: a dead POS system, a broken air conditioner, or the landlords devastating common area maintenance bill for replacing the roof (or in my case, continually re-painting the poles in the parking lot or mowing non-existent grass). These businesses are in a two steps back, one step forward mode.

Two steps back, one step forward is how I feel we're operating most of the year and the retail metaphors seem to reflect that with such favorites as death spirals and circling the drain. This just reflects the instability of such endeavors, and hopefully it sorts itself out during better times. I try to combat it much like how I fix my aging car. I try to fix things as they arise for fear of getting buried by entropy. I can live with one broken thing on my car and in my business, but there's a sense of hopelessness that arises when they begin to pile up.

That said, I'm waiting for my credit card period to close next week to bulk up on my holiday inventory and buy a new store fixture or two. I'm also planning a trip to the New York Toy Fair in February in hopes of finding new areas to expand the store. Most of my profits this year will go towards debt, but I can't imagine not focusing some of my energies on the future. Two steps forward, one step back.

Gnomes of Golarion (Pathfinder)

I resisted picking up this book for quite a while. It was recommended by numerous friends and customers, but like many of the people who playfully ridiculed me when I announced I was reading it, I had a dim view of gnomes. Gnomes haven't had a solid place in D&D mythology. They were an add-on race, not quite the hobbits (halflings) and dwarves we know and love, and definitely not like the various flavors of exotic elves. If halflings were rogue-like and dwarves were fighter-types, the gnomes were meant to fill a magical role. Worse, they were associated with the lame: illusion magic (AD&D) and bards (3.x). They were instantly despised by everyone I knew. Then there were the tinker gnomes of Dragonlance, the Ewoks of that series. Man, people hated them. Gnomes were literally in a deep hole and thankfully, Gnomes of Golarion digs them out.

Gnomes are fey, we learn. They come from the First World and are forever doomed to seek out new experiences or risk a horrible curse. This curse, called The Bleaching, drives the gnome towards new experiences and justifies their manic behavior. Stop seeking out the new, and The Bleaching takes you. The Bleaching is the average gamers worst nightmare: becoming a dull, middle aged, white guy. You can literally die from boredom as the color leaves you and you fade away. Take it from me, it's a nasty curse. A chapter on The Wonderseekers, those who try to save gnomes from this potentially deadly funk, provides for both a new Pathfinder faction and some great character motivation.

Everything in Gnomes of Golarion is centered around The Bleaching. We get a full evaluation of gnome culture and behavior based on this driving force. It all begins to make sense as we see manic gnomes, deeply devoted gnomes, and highly creative gnomes. There is every level of experience seeking, including the sexual (hooray for adult Pathfinder), with the exception being dull repetition. Expect great things from a gnome artisan, but not anything you've seen before. They take lovers of various races, but tend to tire of them quickly. We learn that when you want artistic inspiration, you find a gnome. Let the dwarves handle the solid, run of the mill stuff, like bridges. Everything a gnome does is related to this search for new experience so they can avoid the curse of The Bleaching.

To envision what a society of such gnomes would look like, we're presented with over a dozen gnome settlements. We've got gnome holy sites, underground gnome hideouts, tree villages taken over from elves, and my favorite town, Umok, a secluded woodland village in which the gnomes have befriended the forest animals to protect them and give warning. Gnomes, like other Pathfinder races, aren't all pillars of virtue, so we have gnomes deeply enmeshed in the drug trade (pesh), gnome arcanists in Cheliax that support the Church of Asmodeus, and other interesting moral compromises gnomes make for their survival in the world of the bigguns'. This section is perfect for dropping in a gnome settlement during an adventure. If the party is looking for something interesting and creative, it's likely in a gnome town. Anyone playing a gnome will probably choose one of these interesting places as their home.

The section on weapons was inspired, although I would have liked to see more artwork. The thunderstone powered devices and Flask Thrower are fantastic. The section on the gods is well done, re-contextualizing gnome beliefs based on their new central premise. Finally, there are rules for The Bleaching, including using it as a curse if players don't properly play their curious gnome. You can also play a Bleachling, that dull, middle aged, white guy who wants to be left alone with his lawn (they develop a new propensity towards druidism).

The book is a slim 32 pages and retails for $10.99. Gnomes of Golarion provides a role for gnomes in the Pathfinder universe. They're no longer that expansion race, another annoying little guy. They remind me a bit of how the high elves were made into Eladrin in D&D 4, yet the gnomes of Golarion are now firmly rooted in this world, at least as rooted as any gnome can be. Am I inspired to play one? Are you high on pesh? No, but I can definitely appreciate a free spirit who wants to properly take one on.

6th Anniversary Party (Sunday)

We will be celebrating our 6th anniversary on Sunday at the store from 10am-6pm. Yes, it has been six years, with the first three at our dinky store in Walnut Creek and the last three in our huge store in Concord. In case you were wondering, we've got another two years left on our lease and we've already started re-negotiations in hopes of staying another five years beyond that. In any case, you should really come to our party on Sunday. It's customer appreciation event that includes free food and drinks (amazing tri-tip sandwiches), fantastic door prizes every hour (below), demonstrations by the Society for Creative Ananchronism (SCA), sales specials and ongoing gaming in our Game Center. It's all free and fantastically fun.

Paizo sent us autographed copies of the Pathfinder Core Rulebook, Advanced Player's Guide and Seekers of Secrets

ACD Distribution sent us a giant chibi Cthulhu plush

Scars of Mirrodin banner and super special collectible Magic life counters from Alliance (they're worth about $50 each). On the bottom is a Fortress of Redemption from Games Workshop.

The local chapter of the Society for Creative Anachronism (SCA) will be at our party. Here are a couple of photos of them from our grand re-opening three years ago:

The Celebrity DM

Some of the counter talk at the store lately has been around the well known game masters of yesteryear. These are guys who ran legendary role-playing games, usually D&D, but often older systems, some of which they wrote themselves. Younger gamers don't quite understand the reminiscing, so I began describing the role-playing games of the past and how they differ from today.

First, if it's not already obvious, back in the day, the late seventies and early eighties for me, there were a lot more people playing. D&D especially had a player base that was probably ten times bigger than it is today, and when I got a purple D&D box set for Christmas one year, it was because it was THE hot gift, not a staple of of a nerdy niche hobby. A lot of us stayed with the hobby long after the fad faded, but the player base remained pretty big throughout my childhood. As an aside, my childhood after moving to California was pretty miserable until I began making friends in middle-school through gaming. It was sports for nerds.

Second, the game was incredibly subjective. I recall going to a couple Orccons back in the mid-eighties and playing D&D in the open gaming room . The place was absolutely packed with D&D games, ranging from simple pen and paper affairs to foam cut out dungeons built up several feet high. When you sat down at the table, you didn't know what to expect. House rules? All rules were house rules, as the game rules, rules as written (RAW), were more a suggestion than a codified map of play. Gary Gygax openly told DMs  in the DMG that players could go screw themselves if they didn't like it (more or less).  It's not that people were taking liberty with the rules, it was that they were open to so much interpretation that the game experience varied dramatically based on who ran the game.

At one point I recall signing up for an official tournament game, to get a feel for what the real rules were like. They were no less subjective, and superimposed was a ridiculous scoring overlay that tried to give points based on arbitrary actions. Oh, you searched the wizards beard for the missing key? Great, one point for you and an extra day of rations. How clever you are. It was not fun. That said, my favorite adventure of all time is Hidden Shrine of Tamoachan, a tournament adventure that forces the party to race through a dungeon before the poisoned air kills them. Good times.

What the game needed, what it required, was a certain type of person to run it. That person had a basket of skills, including organizational skills, basic social skills, a ton of creativity and most importantly, the ability to tell a good story. There weren't books on how to do this, so there was a lot of fumbling around trying to figure this out. There were way more really bad games than good ones and we made every mistake, including the ones that pissed off our parents and teachers.

A general grasp of the rules was important, but that wasn't so hard. It was not uncommon back then to know all the rules, and possibly even what page they were on. We had three "core" books for quite a few years and we would often try to outgeek each other by showing our mastery of those tomes. We could flip to certain sections by touch, as the books began to wear (usually combat and treasure tables). It reminds me of young students of Tibetan Buddhism whose spiritual practice is to study and memorize one text. Knowing the rules was not about who had the most money to buy stuff, and perhaps that's why everyone took a turn at DMing.  Nowadays it's about the guy who can afford to buy all the new releases, and the players who leach off him. Honestly, if you want to get a vision of what that looked like, think modern day Pathfinder, rather than D&D. Fewer rulebooks, but lots of adventures. TSR would screw that up later.

Like painting miniatures, DMing is craft, not art, and anyone can learn to do it. Nevertheless, some did way better than others, taking the bare bones framework of the rules and spinning a mesmerizing story around it. Within my own game group, I freely admit that I was not one of these legendary story tellers. We had several good ones. Jim excelled at modern games, spinning spy tales with clever villains like Taskmaster in his black Porsche 911. That guy was always one step ahead of us. Stefan was a genius, and I recall eating up his game sessions until he inevitably lost interest not far in. Russell would tell the best stories, the writer of the group, although his game design wasn't as good as some of the others. I had a secret DM at one of the city rec centers, an amazing old guy whose name I can't recall  (a college student) who had written a giant, multi level dungeon that we had no hope of ever finishing. He had a grasp of the natural world that blew my mind, with vast underground cave complexes filled with rivers and lakes.  I kept that game to myself, a prized treasure every Wednesday afternoon. Despite obvious skill in some, it was still craft, and we were all learning. Anyone could do it and over time you got better.

That sense of craft is what kept me in the game long after my friends moved on, running D&D games in dot-com conference rooms and later at my house with wait lists of players, not because I was a DMing genius, but because I was seriously invested in the game when there were few people like that left. Again, I will freely admit not being great at it, but that's what having a hobby is about. I'm a professional game store owner, not a professional dungeon master. I reserve the right to suck at my hobby, but endeavor to improve.

Modern D&D takes a lot of the subjectivity out of the game, but it still requires the same set of skills to run a successful game. It's easy to forget that when your game prep is now divided between story and drawing battlemaps and painting miniatures. The story telling can take a back seat to the energy and effort of running tactical combat. Regardless, a good game master brings it all together and any game system can be the platform for a fantastic game, provided you've got a good game master.

Fall Role Playing Sales

I did one of these for Summer a couple months ago, but here's how things are going for Fall. I was inspired by ICV2 numbers that showed Pathfinder tied with Dungeons & Dragons for first place. As for ICV2, their numbers rarely reflect my reality and their methods are far from scientific, and they don't include the mass market, where D&D is stronger, and they've never asked me what I sell, but I think you can generally get a picture of what's going on at a lot of stores. In other words, I give it the authority of cocktail party chatter; something worthy to take note of, but I wouldn't invest in it. Take note new game store owners. Just chatter.

Top 10 Role-Playing Sales

1. Pathfinder Advanced Player's Guide
2. Pathfinder RPG: Core Rules
3. Dark Sun Campaign Setting
4. D&D Ess Heroes Of The Fallen Land
5. D&D Fantasy RPG Box Set
6. Warhammer 40k: Deathwatch
7. Pathfinder RPG: Bestiary
8. D&D Essentials Rules Compendium
9. Legends Of Anglerre
10. Rogue Trader: Into the Storm

What strikes me are the sales for the Pathfinder Core Rules. They're once again sitting at the number two position, after the hot book of the period (another Pathfinder book). As I've mentioned in a previous post, 64% of our Pathfinder sales are from their five core products (I'm including the GM's screen).

But is Pathfinder our number one game? I believe it was for a short time, just as Essentials was hitting. I made a grand pronouncement on Facebook that Pathfinder had hit our number one spot. That may have been premature. That was before I crunched these numbers and realized Dungeons & Dragons Essentials has been hitting them out of the park, and although Paizo is sitting at top positions on the chart, Essentials has re-invigorated the D&D line. It has been a mini re-release of D&D, adding new players to the game and inspiring the base. I've been selling Essentials products to teenagers lately, new gamers, something I haven't done much of in several years. 


Top 5 Role-Playing Games

1. Dungeons & Dragons
2. Pathfinder
3. 40K RPG/Dark Heresy/Rogue Trader
4. Legends of Anglerre 
5. Dresden Files RPG

The question: does D&D Essentials have staying power or is this a blip on our radar? There's a lot of player grumbling about Essentials, but grumbling about your game is 36% of all player activity, followed by lamenting the prices (12%) and cursing game designers for heresy (9%). Kidding.

What interests me about the numbers is the continued success of FATE based games. Anglerre, Dresden, Spirit, Starblazers, and now Diaspora lock in FATE as a popular system, not just popular in indie circles. Honestly, if you put out a book with a FATE logo on the cover, I will buy a bunch, I can't say that about a Pathfinder or D&D compatible product. Compatible D&D products are tarnished for at least a generation.

Gut Reactions

One of my jobs is that of product buyer. I'm constantly inundated with new product information and it's often hard to decide what to buy. Sometimes, if I'm at a loss, I'll piggyback on someone else's opinion. "How many did she buy?" might be the question to my sales rep, referring to someone in the industry with fantastic taste and a nose for what's good. Lately that list has grown smaller as retailers have quit the business, either voluntarily or less so, or perhaps we've diverged in our style of stores and our tastes are no longer compatible. What I have realized recently, however, is that my gut is often right. Trusting it just took time.

There are four consistent gut reactions that I can trust:

Bleck tends to be right on the money. Products that are cheap, gimmicky, or sappy sweet will always lose me money, and it's only when I disconnect my gut from my brain that I'm in danger of bringing them in. It's not quite greed, but usually there's a feeling that these are the kinds of things stores like mine should have, rather than taking my own situation into account. Bleck is dangerous, almost as dangerous as Cool!

Cool! is ironically the most dangerous reaction, as my gut tends to override my brain. It's on the opposite side of the gut reaction spectrum from Bleck, in which my brain attempts to convince my gut that it's wrong. Cool is what leads to bringing in really cool stuff that nobody can either afford or find a valid reason to buy. Cool is dangerous in both selection and depth of purchase, often leaving me not only with the wrong product, but a LOT of it. Cool will lead to bankruptcy real quick. Avoid too much cool.

Meh, is powerful. Meh is the response I get from most games, and they deserve a Meh. Meh has been my reaction to the supposed big hits of the year at the last two trade shows I've attended. Other vendors give me astonished looks when I pronounce my Meh. Still, I didn't trust my Meh reactions, and instead ordered a bunch of Meh, bowing to peer pressure. Meh is situational, of course, and only I can tell you if your Cool is my Meh. I have learned to trust my Meh. Meh is anything collectible miniature, branded games, and gimmicky geek junk. Meh is half way between Cool and Bleck on my brain chemistry scale.

Hmmm, is the reaction that I want. It's half way between Cool and Meh, as in, this really doesn't light my fire, but I could see how it could. Usually I have a group of customers in mind when I get a Hmmm. I just went through a jigsaw puzzle catalog from a new vendor and there was a lot of Bleck, like puzzles with kittens in Christmas stockings, but there were about a dozen or so Hmmms, like nautical puzzles and faeries. These Hmmms I will buy.

As an aside, I am the Anti-Puzzle, and any puzzle I pick out is guaranteed not to sell. Puzzles are generally the only area in which I tell a sales rep to send me X amount of their best sellers. If I like it, it won't sell, but I'm getting better at it. We'll see with those sailing ships and faeries.

These gut reactions are, of course, balanced with oodles of sales data and an understanding of my customer base.

Bleck ----- Meh ----- Hmmmm ----- Cool

Defcon

In my head are various cash positions that characterize the health of my business. There is a distinct feeling of dread or elation whenever we transition to a new condition. Check them out and see if they correspond with your personal finances or the finances of your own business. We'll use the Defcon scale, considering this a cash defense condition. Nobody ever talks about this in business, it's too personal, but it's on everyones mind.

Defcon 5: Very healthy. All of my invoices are up to date, paid in cash and there's a healthy cash reserve in the bank. How much of a cash reserve? How about 3 months of operating costs. Honestly, coming out of a big expansion, this tends to happen only during the holidays or Summer months. Stores at Defcon 5 have opportunities that others do not, such as the ability to buy out failed businesses that hit Defcon 1, or taking advantage of sales on both merchandise and supplies. They can maneuver quickly and they have a reserve to fall back on when things go bad.

Defcon 4: Healthy, at risk. All invoices are up to date, paid in cash, and there's a small cash reserve. Credit is available, if there's a problem, but it will be expensive or will at least have some additional cost. Unfortunately, this is where I operate most of the time. A small cash reserve can be measured in how many days until we're out of money. During good months, it might be weeks. When it's only measured in days, Defcon 3 is around the corner.

Defcon 3: At risk. My invoices are never intentionally late, but if money is very tight, or I'm intentionally tweaking cash flow, I might fall back on bank credit to cover expenses, always paying them off in full. This is a bad place to be because it often adds additional costs to the business. There is no cash reserve at Defcon 3, which limits opportunities and increases risk of failure if something bad happens. This is my worst operating condition to date, yet orders arrive, payroll is met (including my salary), and the store continues to do fine. Always paying my salary regardless means I'm rarely in the incredibly stressful position of having both the business and my personal finances in crisis simultaneously. That leads to the crazy.

Defcon 2: Failing. Everything is being deferred or put on bank credit. Some might start borrowing money from themselves or friends at this point. There is no operating cash. Credit cards and loan payments are only getting minimum payments, instead of paying them off  in full every month (as we normally do). Something will need to improve soon or the end is near. This is circling the drain. A lot of business that I read about trying to apply for special SBA loans during the worst of the recession seemed to be in this boat. They're probably gone now.

Defcon 1: Death Spiral. Credit card payments are late or credit has been cut off. Sales are being used to cover operating costs, with orders not being placed at all, or infrequently. The shelves are looking bare. Suppliers are only accepting COD, as you've burned your credit. You're personally out of money and your friends you've borrowed from are annoyed with you. Perhaps you're job hunting or have hired a clerk to run the store while you re-focus your life. Eventually the quality inventory will be exhausted and the sales of the dreck will no longer cover expenses. Does the landlord chain the door at a certain point? I've only heard rumors. I know of a couple stores right now in this position. It's the dreaded inventory death spiral.

My point in writing this is to encourage you to keep these conditions in mind, or create your own scale. The minute you cross a line, you can begin planning how to improve your position. Sometimes you can wait it out, especially when you know a big sales season is approaching. Still, many businesses have just been unlucky and that ship never arrives. Other times you may need to ask for help. Ideally you have planned ahead and have cash and credit to fall back on. In the worst case scenario, you should have an exit strategy.

I recall having a very concerned discussion with a business partner during the recession, when everything was doom and gloom. The conversation started with the question: "What does failure look like?" If you don't know what it looks like, how will you know when to quit? Will you go down with the ship? Being able to recognize Defcon 1 was what I came up with.

Our Little Pricing Experiment

Six weeks ago we announced pricing tiers for Scars of Mirrodin, the upcoming Magic release. Those who paid cash got it for $95, the Visa/Mastercard/debit price was $100, and those who paid Amex/Discover pre-ordered for $105. This was in response to a new law that allowed tiered pricing for credit cards; the cash discount was always something we could have offered. That promotion ended today as the new set releases (come get some). The results were interesting (but hopefully not as inflamatory as my last little experiment).

First, we sold a ton of boxes for the first time. There are several reasons, including Scars being a good set. There's an old sociology story about a factory where they studied how lighting effects productivity. They made it brighter and productivity went up. They made it darker and productivity went up. Sometimes when you pay attention to people, they act because ... you're paying attention to them. Humans do that. They call this the Hawthorne Effect. That's a big reason for our higher sales. We posted our experiment on the blog, Facebook, and put a sign in the store. So the big take away sales-wise, is promoting something gets results. Can I get a collective "Duh?"

Second, somewhat related to the first point: as our price got lower, we attracted quite a few more people. Some of them were our regular customers, but there were also quite a few sharks. If I want to use my own nomenclature, they're more parasites. These were Internet Magic buyers who sensed blood in the water (I still want to call them sharks). They came in looking for even lower case prices. They saw us bending and wanted to see how far. If you want a reason to never discount in store, to clear out dead inventory off site, and to avoid any blood in the water, this is a good example of why. A couple even wanted us to slip them boxes before the release date. Major time wasters, this lot. I haven't seen this happen in my store for years and I think they were clientele from one of my competitors who flips a lot of boxes. There's your card player loyalty in action. It made me realize why Magic makes me cringe, a commodity product that I put on the same mental level as soybeans and hog bellies. It's a great game, with some fine casual players, but the economics of it are just wretched and it makes people dicks (just look at me now).

Finally, the meat of the issue, the take away, our percentage of cash sales was 89%. Another store that mirrored our offer got a 50% cash buy rate. The goal was to educate our customers on how expensive credit card fees our to our business and that seemed to work. Our normal percentage of credit transactions is 75%, but for Magic boxes it's pretty close to 100%. We also didn't get any Amex purchases (there's usually one or two guys looking for another point back from Amex).

How do the economics really work? The real difference between cash and credit is much less than the 5% price difference we were charging, 10% for Amex and Discover. It's about 2% for Mastercard and Visa  (we pay 1.6%) with debit at a flat $.65 fee. Discover is only slightly more than the first two, with American Express at around 3%. If I were to do an experiment like this again, I would probably include debit with the cash price, if for no other reason than to have a discussion about how much cheaper debit is than credit. It also counters the banks, who now encourage consumers to have merchants run their debit cards as credit, since they get a cut of the higher fees I'm paying. Two can play at that game.

So the meta. Are these open discussions about business a good thing? Is piercing the veil of company image and carefully manicured marketing buzz the way to run a retail store? It works for me. My customers appreciate the insight. Those who want can ignore it.

The Hawthorne Works