Tuesday, May 23, 2017

Now with Video (Tradecraft)

In the past, I would have never considered creating a video for anything other than something dire. You know, like a plea for cancer treatment money for my dog or a Kickstarter video. I am not at all comfortable in front of the camera, but my views have changed. This is mostly because my viewing habits have shifted towards YouTube for many of my hobbies. Anything technical, for example, is much easier to understand with a solid YouTube video.

One of my favorite video series is Oh Hey There! with Jeff. I'm sure Jeff and crew does a lot of work to set up and plan his videos, but the core of this series is a basic topic, demonstrated in a straightforward manner, without the usual endless futzing around you find on YouTube videos. Jeff has my undivided attention for the 2-4 minutes his videos usually play. So Jeff is my inspiration for making my own videos. If I had to plan them any more than what was in my head, If I had to buy equipment, if I had to script them out, I honestly wouldn't do them, which means I need to make these crude productions quick, useful and to the point.

I've done three so far, posted publicly to my Facebook page, but I just uploaded them to YouTube so you can watch them here. I think the best topics are areas where we've managed to do something clever, but where there's also room for improvement. I can talk about great store fixtures, because I'm also stuck with some crappy fixtures. I have a great setup for CCG play mats, but my set up for miniature mats is abysmal. My card dispensers look great on the wall, but they probably lose me sales and I don't recommend them. I could do this all day, as most of retail is a compromise. How you compromise sets your tone and your style.

Anyway, here they are! They're in order, and I know the first one is probably the weakest:


Choosing Slatwall Gondolas

How to Display Mats

Pros and Cons of Booster Displays


Friday, May 19, 2017

Narrow Windows (Tradecraft)



There's an interesting article here that talks about the aspirations of employers and what they actually get. It's exemplified with the chart above, which I would much rather riff off than the actual article. I've managed people as a line manager in large companies and it's significantly different in a small business. There is the obvious difference between skill sets in say, an IT department, than your typical minimum wage job, but the basic issues remain.

To start, as a general rule in this country, just about everyone without a severe cognitive disability, is employable somewhere. This is important, because as a small business owner, I regularly employ across the spectrum we see above. My problem, the problem most small business owners have, is we have a much narrower window of compatibility compared to big business. We have fewer positions and they're not fillable by most people.

I need an employee to master half a dozen important skillsets while showing competence in customer service. A bigger business can always shoehorn in an employee into a narrower slot. I did a lot of those jobs in my life, from word processing specialist, to chauffeur to car washer. Those jobs required you do one thing, and had little customer facing interaction and a low bar for competence.

My business tries hard to find the right fit, like every other business, but inevitably we hire employees outside the upper right box. We need competent and outstanding nice guys. If you're incompetent and nice, there's no car wash position to shunt you off to. If you're an asshole but great technically, there's no back office word processing job to keep you away from customers.

Parents regularly suggest their children apply for positions with us, but the reality is our needs and requirements are far narrower than larger employers. In fact, we never hire someone as their first job. There's too much baseline employment training we don't have time to teach.

We can train people for the job, but there are those for whom competence will be elusive, even as they master some skills. We might love that a person is great on the computer and is great working on technical tasks, but if they can't smile and develop customer service skills, or if they can't put their ego down long enough to let those skills shine through, there's not much we can do with them.

While a larger business will employ the entire spectrum, we essentially have only two viable categories: nice and competent (line employees), and nice and outstanding (managers who will eventually shine elsewhere). All others need not apply, or if they're already hired, they're usually on their way out or we're exasperated they're still around. There's exasperation with the large employer too, but in our case, we're far more likely to fire the assholes and we're always looking for an excuse with nice incompetent guy. Large employers will always keep the assholes if they're competent, while the incompetent ones can often outlive their managers.

If this all sounds arrogant and demeaning, let me tell you, nobody recognizes they're an asshole more often than store owners. Amongst my peers, it's pretty much a given you self identify if you've survived more than a few years. You've had to make hard decisions, often because people try to regularly take advantage of you.

Myself? I needed to step away from daily work at the counter because I was most definitely becoming an asshole. Just ask my manager. Don't be so surprised. To stay in the same exact job for nine years, you've either found your true calling or you've reached your level of incompetence, which for me was competent asshole in need of something else to do. I was lucky as owner to be able to carve out a new job that fit my skillset, but others aren't so lucky. It's a good enough reason as any to close your store.

Tuesday, May 16, 2017

So, You Need Some Money (Tradecraft)

One of my minor claims to fame is I'm one of the few store owners who has succeeded in leveraging the hell out of my store, while still surviving to profit from it. This is what happens when your Intelligence stat exceeds that of your Wisdom. So let's talk about the need for cash and how to go about getting it.

The worst way to acquire cash is an equity stake. This is when you seek investors to take a permanent chunk of your business in exchange for operating capital. Why is this bad? Wherever you are right now, you're betting your business will be more valuable in the future. In fact, that's what those investors are expecting. Once you take them on, they will be there until you buy them out or you close your doors. Every month I send checks to these guys. It took a lot to get them on board, and a longer than reasonable time for them to see their ROI, but you would have a hard time dislodging them now.

Ironically, equity investors are often the easiest people to convince to give you money when you're starting, since you've got little to offer other types of lenders. If you're just starting out, most will be wanting this to be a professionally structured investment, but in the back of their minds they're probably thinking this is more charity than an investment. It's a great way to get your friends wives to dislike you.

It's your job to prove them all wrong. If you do decide to take them on, spend the first grand of their money to hire a lawyer to craft a shareholder agreement (I waited ten years to do this). This document will explain how to (dynamically) value the business, how to buy out partners, and what happens to shares in cases of divorce and death of investors. You don't want their angry ex wife as your new business partner, she already hates you.

Also, the best investors are silent investors, meaning you own 51%+ of the business and they don't work in it under any circumstances. Keep them away, as it ruins relationships, pierces the corporate veil that protects them and generally leads to arguments and dissolution. Form an LLC or corporation and buy them lunch once a year at your annual shareholder meeting. That's a good degree of contact.

Although I say you should own 51% of the business, consider your business plan to determine if that level of income is enough for you, assuming profits down the road will make up a big chunk of your income. What I see out there are successful businesses with near equal partners, where none of them are capable of earning an income because of how value is divided. They rely on the SWGJ (Spouse With a Good Job) to make ends meet. I'm at 75% and I think that's about as low as I would want to ever go.

The next best way to generate some cash are private lenders. This works best if you're already profitable but have a great plan to generate more income with minimal risk to the business. We did this with our mezzanine expansion project. If you can show you can currently make the loan payments without your plan succeeding, you'll have a much easier time convincing private lenders. Honestly, if you need your plan to succeed to survive, you're better off saving up some additional capital before taking on lenders.

Private lenders will want a Promissory Note and perhaps an additional agreement they'll get their money back. They are high up when it comes to dissolution payments, so they're not in a bad position to start. Some of ours wanted security agreements, with liens on our furniture, fixtures, equipment and inventory. One was crafted as "senior debt" which put it before other loans. Some loans were reduced in interest by offering games at cost for the loan term. All of these loans have me as a personal guarantor of the loan. The goal for us was to take out these loans for a five year term, but pay them off early at our convenience. We're in our second year of loan payments without any missed payments and our sales are up 15%, so it has paid off so far.

Make sure your investors are aware of their new position with any new loan you take out. They are generally last in line when it comes to winding down a business. In the event your business closes, the required order of payouts goes like this:

  1. Employees (wages, sick and vacation time)
  2. Government taxes
  3. Lenders with Senior/Secured Debt
  4. Other Lenders
  5. Shareholder loans (something to consider when a shareholder is a lender)
  6. Shareholders (including you)

Crowd Funding is a way to generate some cash, but it's a poor option for store owners. You can read about my successful Kickstarter in this blog (and in the upcoming book), but it only succeeded because I leveraged industry contacts. In general, a new store has nothing to offer a non existent community of backers. An existing store can sometimes succeed with a Kickstarter with a promise of future services, recognition of goodwill,  and various tchotchkes. Our $26K Kickstarter generated about $15K of cash and a whole lot of entitlement for a project that ended up costing $133K. On the plus side, we met most of our private lenders from the Kickstarter project.

There are other methods I write about in the upcoming book, such as community lenders (we got a loan through one, but paid it off before construction began), SBA loans (available to existing businesses or new store owners who own a home), and traditional tricks of the trade, like credit card cash advance checks and the now nearly unobtainable HELOC (Home Equity Line of Credit). The best way, by far, is to be smart and stockpile a bunch of cash.

From Sperennial Financial





Saturday, May 13, 2017

Benevolent Dictatorship (tradecraft)

I hear stories all the time from retailers who have had their stores hijacked. Perhaps it's the customer using your RPG section and generous return policy as a library. Maybe it's the players who come to your Magic events decked out in your competitor's t-shirts and playmats. Then there are rogue employees who manipulate employee discounts to game your system. How can you possibly manage this chaos of your own creation?

Luckily I have this useful tool for you to use, a magical utterance. It goes something like this: "No." The store is yours. We work with people who enjoy games and gaming systems. They often see reality and your store as a game in itself, a system worth gaming. They like to skirt around the ragged edges of the rules to define their own win conditions. As a gamer yourself, you may feel this is normal behavior. In fact, it is not. You are the benevolent dictator of this banana republic. Policies, procedures, rules and general codes of behavior exist to serve the needs of your business and protect the inhabitants. When the system is being gamed, feel free to flip the table.

This assume you understand your needs. A good benevolent dictator needs a vision. You have to understand what a well functioning benevolent dictatorship looks like. Otherwise you're just insisting on an extra scoop of ice cream because you can. Because benevolent dictator. A solid vision means you're building community, profitability, and have an idea of the unfolding of your plan. There will always be someone who wants to challenge the plan, but that doesn't mean you need to re-write it. The return policy is just fine. There's no need to write a customer dress code because of one jackass. You don't need to re-write your employee manual regarding employee discounts. You just say no.

To balance this, the benevolent dictator has the bonus Feat of being able to say "yes." I never contradict my managers who are following policy, but there are occasionally situations where a simple yes will enhance a customer or employee experience. You want to buy a $200 army bag but you would like to substitute a two inch foam tray for a pre cut one for your army? Yes. You're a well meaning customer and you need to make a return after the return period because of a mix up? Yes. You need to leave work early? You're willing to buy those Age of Sigmar models I can't get rid of at a larger discount? You would like more comfortable work shirts? Yes, yes, yes.

The benevolent Yes and No are why a "4-Hour Work Week" is bogus, why there is really no such thing as a successful absentee store owner. Someone has to say No and Yes and if it's not the owner, it has to be someone with a nearly equal amount of power. That's a rare thing in a dictatorship.



Monday, May 8, 2017

Dance of Desire (Tradecraft)

When I think about long term plans for the store, whether it means keeping it well into retirement, selling it later, or keeping it going after my death, I'm reminded the value of the business is the dance of customer desire. It's an elegant, free form dance of constantly shifting movements in which your partner is thousands of people and their desire for joy. Sometimes we forget we sell joy and happiness, since after a while our passion for games can wane. This dance creates waves throughout the organization that informs sales, purchasing, finance and personnel. It's the finger on the pulse, the ability to listen to the music and adapt in time.

The tendency is to think of a hobby game store as a static business, in which we sell the same stuff day in and day out. Sometimes customers will walk in and try to get a deal on some box, since it's been there for months, not understanding that this static, unmoving box is a vibrating string in our symphony of retail, having been sold half a dozen times since they last visited us. The dance is dynamic.

The movements are constantly changing. Our ability to dance and change to the music is our strength, our security even, as large stores can't possibly hope to adapt as quickly as us. If we were static, for just a moment, we would be devoured. We don't just dance for customers, we dance for our very lives. We move to avoid being devoured by the slow moving leviathans of retail.

It's not just stock that's dynamic, it's every element of the business process. There's no better way to see this than visiting a store that has lost its manager. The staff go through the empty motions, the dance they've been taught, without any connection or understanding of the movements and their purpose. I was at a store once that continued to demo a board game that hadn't been in stock for months. Their manager had set up this demo program and then disappeared. They showed me this great game, I asked to buy it, they declined. It didn't exist. They were dancing without a partner.

My goal as an owner is to teach the dance to my managers who will then teach the moves to staff. There's no way staff will grasp all the nuance of the dance, only the movements with correction needed occasionally. I can't claim to have mastered this model, as I still dance myself, rather than fully focusing on developing the dance and passing it along. That's the problem with game stores and determining their value, as they really don't have any unless the manager is entirely off the dance floor. The dance instructor does not come with the sale of the studio.

Removing yourself from the dance floor is a Catch-22 of sorts. It assumes you have someplace to go, another dance to engage in. Yet, until you do it, until you're off the dance floor, you don't know if your choreography was properly transmitted to your dance troupe. So you disengage slowly. Your troupe thinks you've lost interest and have abandoned them, but it's the only way to build value, to let them do the dance. Does your staff know how to pivot and turn to the rhythm of the music, to the response of the customer and the trade, or are they just going through the moves, like some stiff and empty karate kata? Do they listen and adapt or do they use demo games to sell false promises? You don't know until you disengage. You can't really disengage until you have a new dance. You can't have a new dance until you decide to stop dancing.



Wednesday, May 3, 2017

Sales vs. Discounting (Tradecraft)


Sales

I believe, for a variety of reasons, that the only good sale is a clearance sale. A clearance sale should be like putting down a rabid dog. You want to end this situation quickly without delay. That dog is not getting any better. It's unsavory work. This means a clearance sale with a deep discount up front. If I could perform this unsavory task out in the woodshed, even better. For some stores that means the Internet. There's no shame in doing this. It's the circle of life.

As I've mentioned many times, purchasing is a zero sum game. If I buy $100 of Games Workshop product today, there needs to be $100 of stuff I sold I don't re-order. When that $100 of sold product doesn't happen, I'm in a purchasing deficit, something my Open to Buy spreadsheet will tell me. Sometimes it's like this example and it's only $100, in which case I don't worry about it. Sometimes it's $5,000 like I found with Modern Masters last month. Now I care. There's no way I'm going to have a clearance sale to make up $5,000, but I need to do something, right?

A more mature store would go $5,000 in debt on purpose, a hedge on what's clearly a long term profitable product. My maturity level is not that high, mostly due to risks taken with construction that has left me cash poor. So I have a clearance sale. I look around and see what needs to go. I say look, but it's mostly my retailing nose. There's a metaphorical odor to departments that need pruning. It might seem instinctual, but it comes from being the head buyer while watching sales reports, every day for years. "When's the last time we sold that?" turning up my nose.

We take the stuff, mark it down, usually 40% or so, and put it in our clearance section. Then we contact our painstakingly created network of people interested in these things. If you just put it on a shelf and let it linger without such a network, that dying dog will haunt you. Through the miracle of social media, we're able to ask our community for help and they'll show up to take this stuff off our hands, often within minutes. Now I'm wishing I started this post with a barn building metaphor.

Here is where some retailers will not be happy with me. "Are you not discounting, Gary?" "Did not the venerable Dave Wallace tell us not to discount?" "Aren't you training customers for the sale? "Why didn't you get Old Yeller his shots?""Old Yeller's death is on your hands, Gary!" Other than the questions about the dog, these are all things I've actually received.

Discounting

Discounting is different from sales because it's a systematic, day to day, low margin activity on product you intend to keep around. It drags down your bottom line. This is unlike a clearance sale, which is a one time hit to your margins, in exchange for cash flow to build high performance inventory.

There are some things that will never sell for MSRP, like boxes of Magic. However, my CCG turns are 10 a year, and a box of Magic takes up as much space as the box of tissues on the counter. Selling some boxes of Magic (ours are $120) is better than selling no boxes of Magic (at $145). I do make the value judgment that selling some at $120 is better than pissing in the pool and selling them for $95, but that's a whole other post and an experiment Lincoln Erickson of Rooks Comics & Games (in Bozeman, Montana) might share with you if you corner him at a trade show.

You can certainly discount and survive, but why would you want to? There are stores that regularly discount board games 20%. I just did a sales per square foot analysis of my store for the book I'm writing and board games are space hogs. They take up twice as much space as RPGs or miniature games and ten times more space than CCGs. Why would you take a giant space hog of a department and then give away nearly half your gross profit?  Give up already and sell some used video games. Since GameStop wants to eat our lunch by going deeper into hobby games, used video games, the only thing they do well, is my new go-to. Eat that lunch.

The bottom line on discounting is it kills your bottom line and it wastes vasts amounts of your energy. It's a failure of creativity. It's hanging onto a category of product that you have no business selling. Let it go and find something more profitable to sell. If your community is a bunch of savages and everything is discounted, perhaps there are too many stores.

Below is a chart that shows the tremendous amount of work it takes when you go down the discounting road. We'll assume this quarter million dollar a year store is profitable now and wants to maintain that same level of profitability. A store with $250,000 a year in gross sales, with just a 10% discount, now has to sell $321,430 of product to make the same amount of gross profit. You have to work a third harder for the same money. Bump that to 20% across the board and you have to sell $450,000, working 80% harder for the same money.


Those doing this will argue that their sales go up when they began discounting, but when you press them for the numbers they usually don't see the increased sales needed to justify discounting. Also, costs don't stay the same. It's likely staffing and other costs will increase to handle this load. Giving away the store isn't cheap.

So sales are putting down a rabid dog, quick and with as little drama as possible Discounting? That's a recipe for overwork and lost opportunity. Find what works at full margin or find something else to do.

Monday, May 1, 2017

State of the Store

It has been six months since our big construction project completed. Our store square footage is now at 4,300, an increase of a third, all directed towards event space (with a 10% loss of retail space). We've added many new events and expanded existing ones as we moved from a very crowded 65 seats to a much more casual, fire and building code rated 121 seats. Even when full, there's plenty of room to get up and move around.

Measured by seats, this is not a huge game center, although it's a far more comfortable place than many stores. We were complimented yesterday on actually being able to see when playing games. The design process included architects, designing the game center to code as a public assembly area, exactly as we planned to use it. Design also included a lighting engineer. The lighting engineer went over the entire plan, including vetting brands of fixtures.

The result is our game center is a comfortable place to be, for sure. We experienced it at capacity for the first time Saturday, so I know we'll have a discussion this week about what that means for events and staffing. As we know from researching whether to build this space or not, at around 75% capacity, customers perceive a space as "full."

We have increased staff to keep up with the added event traffic. We now have nine people on payroll, mostly part time, some still being trained. To be honest, some I haven't met yet. I'm sure they're great. Before this year, we had six employees, so I guess increasing by a third tracks with the square footage (not that this is how staffing works). Our theft level has also gone up, with a regular parade of thieves and rip off artists, some of whom we're still waiting to return so we can inform them of their status. I've moved product out from behind the counter in hopes extra staffing and traffic would result in higher sales. It has, along with higher theft. Our staff needs loss control training in a big way.

Money wise? Sales are up 15% for the year, an astounding number for a teenaged store. Sales are up across the board. The goal of the expansion was more people coming, more people spending money, personal hopes for a more stable income, and that seems to have come about. I can't put my finger on anything special as the driver. Magic hasn't pulled its weight for a while. Board games haven't quite recovered from the Wheaton Effect upswing. One day I dream of bringing back Warmachine, because I know people are still playing and it's sales model is structurally different, but the money isn't there for us (I figure about $10-15K).

With most games doing just fine, but not great, the only thing I can point to is the fundamental change in our business model, Third Place Theory delivering on its promise. Events lead to stronger sales overall. We still have some running debt from construction that we'll need to address this month, since brushing it under the carpet with credit cards is getting tiresome. It's possible to defer bills for quite some time with a card, and although I enjoy the frequent flyer miles, suppliers charge a small fee for this service, and it's time consuming. I've been in denial and it's time to admit we still have some debt from the process. Overall though, we're profitable and we're hoping for our first seven figure year. We've flirted with seven figures for a number of years now, pulling back to drop Yugioh (a six figure hit), a year transitioning from chasing gross to shoring up profitability, and of course, missing our mark last year due to six months of construction.

2017 is a wait and see year, as we hope to stabilize from a major shock to the system. We just bought new store fixtures, a row of gondolas. It was a large, but necessary expense, since we've got a row of fixtures that promises to murder a small child at any moment by collapsing. We've made small investments in getting our Magic singles online, a new thing we do that has resulted in a little extra income but a huge opportunity to increase our in-store offerings through more aggressive buys. We'll likely need to upgrade our iPad kiosk as the new TCGPlayer software overpowers the hardware.

I finished the first round of revisions for the book last week. The book is turning out as I imagined it, thanks to my excellent editor, Jeff Tidball. Jeff added excellent editorial insight, including making me better explain things. I can't just mark a concept as "Tradecraft" and assume everyone is in the know. About 25% of the book resembles blog content you see here, but even that has been improved upon beyond recognition. Another 25% is personal, behind the scenes stories, some of which are only known to my business partners and close friends.

The process so far has taken about two months, with the revisions far harder than the initial writing, since I had to answer some tough questions and develop a lot of new content. I think I've maintained the focus on my core competencies which means I've avoided areas that you might want to know about where I would be speaking from ignorance. This is not the ultimate guide to game stores with a comprehensive, how to on how to run a store. There are a couple e-books on running stores out there, and they're certainly complementary and aren't in any danger of being replaced.

That's it for now! Let me know if you have any questions.