Starting a New Game Store: Choosing A Location (Part 5)

In part 4 we went over inventory. In this section, we're looking at the costs associated with choosing a location. Location costs will depend on a number of factors, such as where it is in town, store size, signage requirements and improvements it needs to have done.

The first step, before we even look inside your space, is signage. You generally have no choice when it comes to signs. You have to conform with the signage standard set by your landlord and by the city. For my first store, I had a light box and a new sign cost about $1,500. For my second store, I had channel letters. It required a contractor's plan be submitted to the city planning office for approval. That sign cost $7,500. You have no choice in the signage decision, so keep that in mind when choosing a location. Nicer areas generally have nicer signs.

Going inside your store, the first question is how big is it?  The amount of inventory plays a key role in size. You've got $70K of inventory starting out, which you'll buy slowly over the first year. That takes a lot of space.  You could just barely squeeze it into 1,000 sqft, but 1,500 would be much better. 

You also need game space. I spent a lot of time figuring out 1,000 sqft of game space is the perfect size for almost everything you can do in the game trade, other than really large Magic events. You could go smaller, but ideally we would get you in a space where you can stay long term. Many small stores end up moving after their first lease and that's risky and expensive.

This puts us at around 2,500 sqft of total space. Going back to Part 3, that puts rent at around $1.25/sqft/month to stay on budget. That's not impossible to find in a metro area (which seems to average around $2-3), but it tells you right away that your game store won't be in a prime location. It will likely be on the outskirts of what's considered a good area. You might decide to cut the size a little smaller and give yourself 1,250 feet of retail space and 750 sqft of game space, or some other combination so you can start out in a better location.

This is a problem for retailers in the game trade. The business model is rigid due to a combination of MSRP and a discount structure. It doesn't allow the flexibility you need for a variety of game store expressions. If we were in the toy business, we could modify the plan based on our desired location. We could raise prices, for example, and cover that extra rent. In the game trade, there is a rigidity that keeps stores necessarily down market.

Triple Net: When we talk about rent, we're including triple net, also known as common area maintenance (CAM) charges. These are things like the power to light the parking lot, fixing the roof, and generally anything outside of your space. Leases are all different, so carefully consider what's included and what's not. My first least required our landlord to fix the plumbing and interior infrastructure, while our second lease found us buying toilets and doors. When I'm quoting rent numbers, I'm assuming CAM charges are included in that total amount. 

When comparing spaces, carefully examine CAM charges and try to factor whether they're reasonable or at least comparable to other locations. Try to determine if CAM charges tend to stay the same or fluctuate over the years. Talk to the neighbors, if you can, both about the CAM charges and the likelihood they would renew with the current management. 

You don't want surprises, like a landlord that likes to randomly re-pave the parking lot or tar the roof, passing the charges onto you. My previous rent was high, but the CAM charges were low. My current rent is below market, with very high CAM charges. Luckily those charges are high enough to prevent surprises and I get a check back each year of unspent monies. 

This article is just going over the money side of choosing a location, rather than the softer, subjective questions, but here are a few: You want a solid location with good street visibility. You need parking for those 50+ people you'll want seated in your game center. Is there a train station or bus line nearby? Are there anchor stores that could bring people to your area or are you isolated? Is there a turn in from the street to your parking lot or does it require a U-turn? It's also much better to be in a smaller location with high traffic than in a large light industrial space in the middle of nowhere. 

Rent and advertising play an intimate role. If you find an isolated location to save on rent, you'll compensate by having to constantly advertise. Likewise, you might find a place that has excellent foot traffic above your budget, and you can skimp a bit on advertising to afford it. How much can you skimp? You could probably shift a couple percentage points from "other" to rent. 

Location Improvements: Finally, there is likely going to be some improvements needed in your location, like wall demolishing, wall construction for your event space or bathroom upgrades. My first store had minor improvements, while we spent $15,000 building a separate game space in the second store. We're currently doing a six figure mezzanine project, since we've got a clear ROI and a new 7 year lease. Your choice in location will have a lot to do with how much work it needs. Sometimes you can get the property owner to pay for improvements, but a new store is risky and they're unlikely to want to do anything but white box the place (an empty shell). We'll assume very minor modifications of $5,000. 

The tally:

First month's rent: $1.25 * 2,500 sqft = $3,125

Rent deposit:  $1.25 * 2,500 sqft = $3,125

Sign: Worst case scenario: $7,500

Location Improvements: $5,000

Total: $18,750 (location costs)

We've got you into an empty space. We've got your inventory budget figured out. We're approaching $90,000 so far. Still with me? 

We'll go over furniture, fixtures and equipment (FFE) in part 6.

Starting a New Game Store: Inventory (Part 4)

We discussed expenses for your new game store in part 3, coming up with a very general overview of what you'll be spending. Now lets look at the gross sales you need to fit this model:

Using our cost of goods number, we'll work backwards to find we need $234,267 a year in gross sales to hit our cost of goods sold number in our model. That's pretty strong sales, but not impossible. It's close to what I grossed in my first year of business. This is still a theoretical number for the moment, the real meat and potatoes is when we want to figure out how much inventory we need to hit this number. How much inventory do you need?

You want as much inventory as you can possibly get. However, I'm going to add another consideration to this model, ROI. ROI or Return on Investment is what keeps this discussion rational. It's how we'll measure success going forward. There's an old joke about running a game store. How do you start a million dollar game store? Start with 10 million dollars. We want to make sure we don't over invest. Even if you do have the money, spending too much, blowing your ROI, is just foolish.

There is a reasonable amount of time and an unreasonable amount of time to get your money back from this investment. Most game stores that even manage to get their money back are unreasonable, but we're going to assume we're reasonable people. We'll get back to this later when we calculate all your expenses, but basically a 3-5 year ROI is reasonable. 3 years is what I would want to see from a professional endeavor. 

We'll say 5 years is reasonable because you may be lacking experience and need more time to ramp up. What I mean by ROI is not the standard investment definition, but the amount of time to get all your investment back through profit.  Can we do it in 5 years with the model we've created? I have no idea. I'm making this up as I go. I'm pretty confident though.

Forgetting ROI for a moment, we're going to work with turn rates to show how your inventory performance will hit our sales goal. We'll work backwards, assuming that your experience level will result in certain performance levels which will inform how much inventory we need to bring in over the first year.

We're working with the $140,560 cost of goods number here, dividing it by the turn rate you expect starting out. Your turn rate is your inventory performance or how many times you can turn it over (sell through it) in a year. This assumes you're building a long lasting, broad spectrum game store, rather than a Magic clubhouse. You can skip a couple levels if you're running a Magic shop, but it will be a brittle enterprise that won't stand the test of time and likely won't get you to your goal of a mid-50's salary.

What this basically says is the more experienced you are in this endeavor, the less money you'll need to make the same amount of money. Something we never talk about in the game trade is this: experience is valuable. An experienced store owner can start up a store quickly, hit the ground running, dial in inventory, have an understanding of product from day one and they'll be able to sufficiently promote it with events and advertising. An experienced owned can do the same job with $42,168 less inventory. It also means they'll hit their ROI number much sooner than an inexperienced owner and will need less startup capital.

So with no experience, you're going to need a lot more startup capital, with that $70,280 number being just your inventory requirement. The good news is this investment won't go to waste. If you survive, you'll learn the trade and that bigger investment will go to work for you. In fact, we're counting on it to get you to strong profitability and your target salary. 

This is all a WAG (Wild Assed Guess), PFA numbers (Pulled From Ass). This is as good as you're going to get at this stage. Business plans are waggy PFA based documents that are all about the thinking and research and have little bearing on reality. This is the area you will dwell in for the first couple of years starting your business. Wondering if your WAG is right. If your PFA numbers are accurate. This is your first gut check. 

If you're still with me, the next question: Do you have the starting inventory dollars needed? If not, consider gaining more experience. Even if you do, you'll need far more than just inventory to get started. We'll look at the rest of the expenses, checked against a reasonable ROI, in Part 5. 

Starting a New Game Store: Expenses (Part 3)

Now that we've determined your salary in part two, the next step in building your successful game store is determining your expenses. Right here I'm going to tell you I can't figure out your expenses. The type of store you want, the scope of the store and your location are going to mean your expenses are wildly variable.

Figuring out your expenses, however, is the bulk of the heavy lifting in figuring out your business plan. Sales, as we'll learn, is a wild ass guess. Expenses? You can nail those down with research and your success will have a lot to do with that work. I do really well with sales projections, but I failed miserably in figuring out the expenses of my first location. Not enough research.

What we can do with expenses is generalize. We generally know the ratios of expenses for most game stores. Also, since we want you to have a substantial income from your business. We're going to assume you follow these ratio guidelines. Yes, you can have your store in a low rent area in a tiny community, but you won't hit your income projections. So take these generalizations with a grain of salt. Figure out your own expenses projections so you can plug them into the discussion.

We're going to use something called the Three Bucket Method. This is used in restaurants and it's generally true with retail. It basically says that after Cost of Goods, your expenses will fall into three buckets: labor, rent and other. Nobody has perfectly sized buckets, and during the life of your business, your bucket sizes will change. But generally, after COGS, figure generally equal sized buckets. It looks something like this:

Again, you can cut this pie in a variety of ways, but the kernel of reality in this chart is your salary. Everything else flows from that number. So lets look at each category:

Cost of Goods is what you paid for your games, plus shrinkage and credit card fees. This is a high number, with room to improve. As you get better at this and your volume increases, your cost of goods percentage will improve. This is good, because you can shift some of that money to labor for some time off (I recommend starting by bringing them in one day a week). My cost of goods is about 4% better than when it was at its peak. That's a lot of money!

Labor is your salary of $31,200 for the first year. Get your COGS down to 57% and you've saved enough money to pay for that one day a week off person. Employee 002. If I was your investor, I would insist you make this your goal.

Rent: Hey, if my salary is $31,200 and rent is about equal to labor, doesn't that mean I'm spending $2,600 a month on rent?  Bingo! It's a model, but that's not an unreasonable amount of rent.  It's going to wildly depend on your location, but you generally get the idea. Here's how $2,600 a month in rent looks based on your monthly rental rate:

My first store was 950 square feet. My current store is about to be 4,300 square feet when we complete our mezzanine construction.  Going below 1,500 square feet is pretty rough.

Other is a pretty broad category.  It includes a bewildering number of expenses. I recommend researching this and crowd sourcing from as many store owners as possible. When looking at a location, talk to nearby tenants to better understand what's covered in rent and what's not and how your landlord handles common area maintenance.

I went two years in my current location using my neighbors dumpsters. It was included in CAM charges in my last location. Not this one. They were awfully patient to let me get away with it for so long. That's a $360/month expense I hadn't calculated.

Here are my expenses from my first full year in business in 2005, adjusted for inflation (which gets us close to our percentages):

Any one of these expenses could be a lengthy conversation, but lets save that for another time.

The big reveal in this post is we can now calculate your cost of goods, which will effect your inventory value and your initial investment. Our COGS over the course of one year in our fancy model is $140,560.  How much inventory do we need then?  It's extremely complicated. We'll talk about inventory requirements in Part 4.

Starting a New Game Store: Salary (Part 2)

As discussed in part one, our goal is to get you to your $51,939 annual income running your game store. Your income is distinct from your salary, which you will draw from day one. You won't get to this higher income level for years, while your business grows, but you will begin paying yourself your smaller salary right away, even when it means borrowing from startup losses to do so.

Startup losses is a reserve fund you will set aside for a period of time while you lose money running your game store. Yes, you will pay yourself a salary with money you didn't earn. That's how it's done in the beginning.

Why is it important to draw a salary from the beginning? Stores that don't plan this in the beginning often never figure out how to make it happen. If you've got a store and you are not paying a salary to the manager, which is probably you, you don't have a real store, a thing with value you could one day sell or live off of. You have a sham hobby. That might sound harsh, but what is really there without you feeding it your free labor?  If this is you, understand you are playing a different game than the rest of store owners. Your expenses, your income, all that discussion, needs a qualifying asterisk next to it. * Does not pay a managers salary.

Paying the managers salary and not just grabbing money from your savings, does a couple things. It allows you to modify your lifestyle to fit your salary and avoid having personal financial problems that effect the store. You learn to live within your reduced means. It also works in reverse. When the store is in trouble, when payroll is due and you're not quite there yet (me this month), it's nice to know your personal house is in order, rather than having money be a professional and personal crisis simultaneously.

Having a salary also means you've set up payroll and you're paying taxes, and social security and getting that framework established for when you have employees, which you absolutely will as soon as possible, based on your income goal. You can't work every day of the year, although you might for a short time and being closed because you need a day off is stupid. Payroll services are ridiculously cheap, and act as a kind of insurance against screwing up the most treacherous areas of small business regulatory navigation.

Your salary is not just the money you make, it's a placeholder for when you walk away from your business. One day, you will want to walk away, whether it means retiring, selling your business or starting a new one, or growing large enough that you take a bigger position in your company. If you don't have this replacement salary built into your business model, you'll never be able to do these things. Many businesses close because they have no concept of how to hand off this position to someone. The only option available is liquidation.

How much salary should you make?  First, how much money do you need to make to survive for a few years? You have to be brutally honest with yourself here. This is going to be your new life for a while. If you have a significant other or kids, everyone needs to be on board with your new income level. If you have to make significantly more than the market rate we'll be discussing, this is not for you.

Second, how much money would you need to spend if you paid someone else for this position? If you need to make slightly more than the market rate, make a personal note of that and keep that salary stable in the future, rather than growing it with inflation (which you should do). My salary started high but didn't grow for the first five years or so. It's still higher than I would pay my replacement, but at least I know that. If you get this business off the ground and get to the next stage, you may decide this is really not for you. You then have the option to transition to something else and hire a manager rather than losing the value you created.

The average store manager salary nationwide is $44,525, according to Glassdoor, which is very close to my salary (a portion of my income). That's too high starting out though and most game store managers are fairly new managers anyway, and don't need to start in the middle. An entry level store manager makes around $30K, looking at the Glassdoor data. A $15 minimum wage, which may be coming (it is in California), translates to $31,200. That's the number I'm going to use for this example. We'll assume you can pair your expenses down to live off $31,200 as well as hire a manager locally for that amount in the distant future.

Going forward we'll built that $31,200 salary into the expenses of your business plan. That still leaves $21,739 of additional income you'll have to earn through profit, projected down the road. Starting off with this profit projection is critical to your capital needs, and we'll work that into your plan. The next step is to bake that salary into your expenses while also providing your new business with enough capital to eventually hit your $51,939 income goal. We'll work on these projections in part 3.

Starting a New Game Store: Motivation (Part 1)

Say you want to start a new game store. It's a dumb thing to say, but work with me. Maybe you're passionate about games and just love to expose as many people as possible to them. Maybe you can't stand working on one thing and you've got a kind of ADHD that requires you flit about, performing many different tasks, but such strong OCD that they all have to be done amazingly well (if this is you, please email me your resume). Whatever your psychosis, the best way to start a game store is not to start a game store.

First, I would suggest finding a way to tap that passion differently. Volunteer at a game store to run their game night. Seek a marketing job with a publisher either full time or part time. Try to get a sales job at one of the distributors. All of these people are starved for talent because they pay laughable amounts of money to really passionate people. The retail tier of the game trade is the only one that requires a great sacrifice of capital for you to get started.

You might also find what you want is not really to start a store, but to work for yourself. If you have a job now, investigate doing it on your own. I was in IT before this and even if I were a bad IT consultant, I would have made more money than opening a game store. Plus I wouldn't have worked many hours to do it (because in this example, I don't have many clients). The game trade looks inviting because it has a low barrier to entry. That low barrier is also why it's often a terrible choice for thoughtful individuals with capital to invest.

If you're really intent on doing this, I would suggest getting a job at a game store or at least something in retail. If you're sneering right now about working for someone else or the paltry pay you'll get in retail, this might be a sign it's not for you. Still, this is the best way to get a small bit of the experience you need. Pretend you're going to prison. Get your affairs in order. Reduce your expenses significantly. If you're someone who likes nice things, not made of paper, cardboard or plastic, this is going to be rough.

So maybe you've vacuumed your million square feet of store, you've paired down your personal expenses, and you're still intent on starting this game store thing. What's the first question you should ask? The first question is not what you should carry or where you should locate the store. It's not what drinks I should load in the cooler so I can make money on Coca Cola and Kit Kats. The first question is: How much money do I want to make?

Everything comes from this first question. There's how much money you need to make. There's how much money you would like to make (all the moneys). You need to take a hard look at your age, your material needs, your local economy, and the fact this may take a decade to get well established. How much money does the ten year older you need to earn to be happy, to possibly get married, to buy a house, to start a family, to start a college fund, to retire?

If you've got skills and a profession now, you're going to be giving up some of your best earning years to do this. Comparing your game store "happy" amount to your potential earnings in your profession might stop you cold right there. The opportunity cost is tremendous. I gave up a million dollars of potential earnings over the past decade by owning a game store. Still, what's the price of happiness, right?

In the next installment of this series, I'm going to move forward using this income number needed to get this theoretical business going. I'm going to assume you're a single earner and this is your household income. It will assume this amount earned will come in time, and not be achieved for several years, but will be achievable with this properly run store.

We'll use the US Census Bureau median household income from 2014 of $51,939. I won't even attempt to adjust it upwards, because lately it has been going down, another reason retail should give you pause. It will take great risk and effort to get to average. This number might be way above average in some regions of the country, such as the South or some of the Rust Belt, and you're welcome to adjust downward or just live a little better. In any case, when starting out on your plan to succeed, start with what you need, not what you have.

Part 2

Ask Your Questions

Every few years I ask you guys to ask questions you want answered about the game trade or about how I do things specifically. My specialty is retail, of course, so I'm not an expert on distribution or game publishing, although I'm happy to research what I don't know (an opportunity for me).

I honestly thought I would never be doing this for as long as I have, mostly because I figured I would master it and move on. Retail is surprisingly resistant to domination, however. It's a wildcat, and just as you've got its legs pinned, it bites your neck. Pin its necks and it smacks you in the face with its tail. It grows bigger during the fight, changing the dynamics constantly. You keep fighting or you get off and hope you can climb a tree fast enough before it eats you alive.

So ask your questions about the wildcat. What do you want to know about game trade retail? Or my store? Or ask about Title 24 ASHRAE 90.1 compliance and low voltage foot candles with specification lensed troffers (our construction project).

Deliberation

One thing that stuck with my from college came from a philosophy class at San Diego State University. It was taught by Jack McClurg who retired the year after I graduated and passed away about 12 years ago.  This was one of those classes you took to be around a whirlwind of intellectual thought developed to fine tune your mind, with no hope of getting better than a C (at least for me). I took his classes every chance I got, knowing I was going to be intellectually stimulated but that my GPA would get hammered. Dr. McClurg taught the Analects of Confucius, specifically the concept of Li, or deliberation. He was a self identified Confucian and taught this subject best.

It has been 25 years since then, so if it sounds garbled it's on me, but basically you develop a moral competence through deliberation. You spend a great deal of time asking difficult questions within a framework of developing morality. Once you deliberate, you act, and you're done. You live with your answer and move on. The moral development gets questioned and developed, the decision does not. If the foundation is strong, the decision is sound. People are often haunted by their decisions, but not if you're a Confucian. There's a freedom through such deliberation.

Once you have this moral competence developed, it's easier to make better and quicker decisions based on your training and track record. This has a direct application to business, as we too want to develop a moral framework from which to act. We are, theoretically, centered around the happiness of our employees and customers. What this means, how we go about this wisely and not foolishly, is our moral training. It you're a jackass, this won't fix that, although the Analects of Confucius will try to set you straight.  If you're legitimately trying to help people, it's a powerful tool.

 It's what most of our retailer discussions online are about. How would you handle this questionable situation in satisfying a customer or employee need? We develop our moral competence through such discussions. We share our thoughts. We often realize our peers are not on such a moral road and break off with those who are. Decisions are made. We live with them. We seek out the next challenge. That's it in a nutshell. The Analects talk about how to go about all this, with the guidance focused on reinforcing relationships within family and society. You can't get more pro business than that.

Construction and Acceptance (Tradecraft)

We're entering into the final stages of construction at the store. It's a frustrating time with a focus on bringing customers into the store while it remains crowded, dusty and at a much smaller event capacity. A friend commented that he saw one of my mailing list coupons and how I had resorted to pulling rabbits from hats.

During these times of frustration, my mind tends to grasp at straws, or more accurately, I grasp at new projects to distract myself from ones I can't influence. This week I became obsessed with Jeeps, going so far as to test drive a couple new Wranglers. Granted, I have a Jeep, the one I bought just a year ago, so the logic of this requires an in depth discussion of philosophical vehicular matters, that I won't bore you with.  The shorthand for that discussion: "old man truck." Obsession with projects is generally how I skip through life. Finding the right one? That's the trick. Construction is one I don't recommend.

What I've learned over the past four months of construction is a kind of reverse engineering of a game store with event space. We went from no space, to space, to just about no space. The levers of control are different right now, and knowing how those levers work is to understand the current scenario. It also provides a glimpse into how the rest of the game trade functions on a daily basis.

Events that aren't card based generally don't fire properly or don't generate revenue. Card events are king, and without general events bringing in customers regularly, CCG events create some brutally spiky sales patterns. I can now better understand how some game stores surf CCG releases, surviving wave to wave. I'm constantly checking the calendar to see when I'll get my next hit of game store heroin, otherwise known as a CCG event.

The inventory lever is the big driver, as I learned early on in the first store. As we pack our 2,000 square feet retail space into 1,200 square feet, I'm noticing it doesn't matter much. The vast majority of games are "spine out," and in my mind that's retail death. Turns out it doesn't matter. Turns out I could one day carry 40% more inventory without any trouble. That's the theory at least.

Sales and promotions are just as powerful with or without event space, but you can't pull that lever too often without exhausting your customer base. Last month was our best sales month to date, excluding Decembers, thanks to a focus on ding & dent and clearance items. You can't do that all the time though. This week I looked around to see what else I could liquidate. Paint got the discount treatment. However, there are only so many rabbits in the hat.

Threats and Opportunities (Tradecraft)

For quite a while, I've written about how the success of hobby games will create new opportunities but also new threats to independent game stores. Threats come from new players and new strategies to dominate this market. Hobby games is a tiny but growing market, having just exceeded 1.2 billion dollars in sales, according to ICV2. That's a rounding error for some of those seeking to dominate.

Target does $72 billion dollars a year in sales, and they've announced their hobby games are seeing double digit growth. Therefore, it's not surprising to see them twist arms or create deals to dominate the game trade, announcing they'll have 50 new exclusive games shortly, many of which are showcased at Gencon this week. They've contacted publishers and bought out entire print runs of games. It's also  rumored, they've strong armed Cards Against Humanity into selling to them. CAH has already been spotted in the wild at Target. I guess once you stare down restroom protestors, carrying CAH is no big deal. Other upcoming Target exclusives you would normally see in the hobby game channel:

• Oregon Trail
• Machi Koro: Bright Lights, Big City
• Codenames: Deep Undercover 
• Ticket to Ride: First Journey

On the publishing side of things, we have Asmodee. They've dominated the fragmented board game market and have become the top hobby board game publisher through company and license acquisitions. Any MBA could tell you the hobby board game market was the last frontier of hobby games, without a market leader. So they've been on a buying spree, the company itself owned by a French holding company that buys things like parking lot businesses. Asmodee now owns the following:

• Asmodee (of course)
• Fantasy Flight Games
• Days of Wonder
• Catan (license from Mayfair)
• Spot It
• Z-Man Games
• Plaid Hat Games

They now dominate the board game market and have reduced discounts for retailers, resulting in the transfer of huge amounts of cash from retailers to Asmodee. I'm estimating that discount change generated hundreds of thousands of dollars for them. My own store makes hundreds less each month because of this reduction.

Finally, Good Games, a store and distributor from Australia, opened their first US store in Indianapolis. Their goal is to put stores in downtown locations in the US. This is their 26th store, so they know a thing about retail. You might not think we should worry about a large chain of game stores dominating after seeing Hastings implode, but the Hastings problem had more to do with mismanagement than market forces.  Good Games is interesting to watch because they've got their hands in every tier of the game industry.

Good Games announced yesterday that their publishing arm, Good Games Publishing, will allow Cool Mini Or Not (CMON) to distribute their games worldwide. The distribution exception is Australia and New Zealand, since Good Games already owns a distribution business there (Let's Play Games). So yes, they're involved in every tier of the industry.

So I've listed some of the threats. Where are the opportunities? Game store owners are fed up with game publishers telling them they're on their side, while crafting side deals, working with shadow distribution systems (PSI), and ignoring their needs in the industry trade group. Everyone wants to be successful and make money at this, but it's clear the small retailers will be at the mercy of larger companies without better representation. 

There is no way the small game retailer can leverage their numbers without representation, and we lack a trade group willing to do that. I believe we'll finally see game retailers get organized with their own trade group or possibly a division of an existing organization. This has been tried before, but the timing seems right this time. 

The Two American Businesses

There are two types of businesses in America.

Small business involves raising money through hard work or taking on personal debt to do something better than the guy down the street. When the local game stores were all terrible, I started a game store because I thought I could do it better. It was a basic model that any Economics 101 student could understand (I'm assuming, as I've never taken Economics 101).

Big business involves raising money from other people to leverage big opportunities that change the economic landscape. Selling games online at a loss and making it up in data services would be an example of this. It's a bit counter intuitive and it relies on the faith of investors who will lose millions as you conquer a concept, rather than a local market.

When you fail at the first type of business, you lose your house, your car and often your marriage. You have skin in the game, yet you will never have more than modest accomplishments. Nobody gives the owner of the first business a dime without their personal guarantee.

When you fail at the second business, it's to be expected. It's a stepping stone to success, they'll tell you. 30-40% of start ups fail and up to 80% never see a return on investment. You get to keep your house and your car and your wife who has grown accustomed to your MBA induced salary and your country club membership.

The goal of the second type of business is to crush the first type of business. The point is to be a disruptor, to change the playing field. If it takes a series of bankruptcies to get to that roughly 1 in 10 clearly successful start up, then so be it. If it take re-negotiating contracts because your lawyers are bigger than mine, so be it. If it means the banks have a problem when you're in debt and not the other way around, so be it. I once bent my bank over a barrel and made them do my bidding. They congratulated me at the end. That's every day for business number two.

Remember the two types of businesses when you're praising someones acumen in the marketplace. Are they the kind of business owner who creates value and solves a need or are they a disruptor for the sake of disruption and their personal fortune? How do they treat their community? Most importantly, how do they treat the people who make them successful?