Friday, April 13, 2018

Consultants and Preparation (Tradecraft)

"A consultant is someone you ask the time and they take your watch as payment."

I learned this saying as a teenager and found it amusing, but there's a kernel of truth to it. You want to know the time, you have the tools at your disposal, but you don't know how. My free advice, because I'm not a paid consultant, is learn to use the tools. Here's where to start:

Write a business plan. What, you've never written a business plan? What a great education! It's a research project, one where everything you learn will have a direct impact on years of your life. You can't spend too much time writing a business plan. Write it from scratch and get feedback. Find a SCORE member to vet your plan and share it with people who know more than you. It's like your first script in the movie business; try to get it in front of people who can help you make it happen. I talk a lot about the business plan in my book, without actually writing a plan, because that exercise is something you should do yourself.

Also write a marketing plan. Budget money for marketing based on a percentage of your expected gross sales. Nowadays, with social media and online advertising, as little as 1% can make a huge difference. When I started it was recommended you spend 2-3% of your gross on ads, but that included a lot of cable TV, radio ads, print ads, and the dreaded Yellow Pages. My advertising last year was .76%, and I have a hard time justifying spending more. My advertising budget my first year in business, 15 years ago, was 4% of my gross. I actually paid more in marketing my first year in business than I did last year with four times the revenue. Create a plan, try to make it more diverse than just Facebook, which is a boat filling with water, and create a schedule. Spend more money when you think sales will occur.

Network with peers. Facebook is key nowadays, while 15 years ago it was Delphi forums. A good group to start is Opening A Tabletop Game Store. From there you can branch out into many other places, where more than likely the signal to noise ratio won't be as good for you. Find like minded individuals. Compare notes and triangulate when given advice. There is good advice you can use, good advice that doesn't apply to your situation, and bad advice. Two out of three things you hear will be useless. Note the people giving you good advice and pay attention to them. They are your spirit animal.

Read a lot. I have a blog post here with resources. My advice, which almost nobody does, is delve into reading about retail and not just the game trade. Some of the stuff I lecture on at trade shows is right out of retailing books, illuminating rocket science to most people in the game trade. Many older retail books have the details wrong for today, but the strategies are generally solid. I also keep up on retail news by getting Retail Dive in my inbox, which covers retail trends. Get out of the game trade bubble and remember you're now a retailer. Diversify away from distributors early.

Consultants? If you do all of these things, you'll probably be able to tell time. It's unlikely you'll need a consultant. If you're like me, a completist who's never satisfied until they know every angle, you might find peace of mind by budgeting a little money to bring in outside help. I spent a thousand dollars on a feasibility study when I first started, a gut check with the goal of making sure the numbers in my business plan were likely to work in my proposed locations. Since we're making up revenue projections, it's good to have some clarity on whether that's feasible. One of your final questions is: Can I do THIS, HERE. Worst case scenario is your consultant tells you the time you already knew and you're out a grand, which nowadays isn't even a lot for a nice watch.

Thursday, April 12, 2018

Rules of the Game (Tradecraft)

My shifts at the store start at 10am and I'm out before events start. I like my days to be quiet, and most of my customer interactions are the lunch crowd, a group of regulars I've enjoyed for over a decade. There are people who shop at my store who have no idea who I am or remember me fondly from olden days. Events, and the vast majority of sales, occur in the evening so when I started noticing new signs in the store, I knew what that meant. That particular behavior or policy confusion was happening.

While in grad school in Buddhist studies, we briefly touched on the Vinaya, which included the code of conduct for Buddhist monks and nuns. These were not top down, high concept, engraved on stone tablets, but rather hundreds of rules created as needed to tweak behavior. These are rules to allow people to do their spiritual business without being distracted or disrupted by the unruly, which might be other monks or perhaps their own tendencies. It's stuff as granular as not leaving a chair outside after you've used it. This kind of stuff might seem granular, but 2,500 years later, it offers a historical insight into what people were actually doing, since only crazy people create rules for problems that don't exist (a singularly modern American problem).

I run my store much like this. Part of Third Place Theory is creating a welcoming place where common activities can be engaged in without it being overly restrictive. There is no promise people will get along and the fact they won't get along with everyone is part of the deal. You will play games with people you don't care for, whose politics you disagree with, whose culture is not your own. Mission accomplished. Civilized society shall continue as we break down tribal barriers.

Our code of conduct is the unwritten and unspoken, "Don't be a dick." This does require staff to occasionally tell people, "Hey, you're being a dick," but it's rare when people show shock there's not a sign banning their dickish behavior. This did require some training of staff early on, and some staff were getting steamrolled back in the day. New staff can occasionally panic a bit and get a little too animated when people break the rules. Assertiveness training is a thing. Calling people out for bad behavior is not something we teach people nowadays. It's a damn shame.

What you will learn from reading the Vinaya or running a game store is people will generally skirt right up to the edge of the rules, and then take a step or two over. A Vinaya example is "Not to purchase another floor carpet as long as the former is not six years old yet." Imagine the conversation: "Joe, we told you when you started with us you could have a floor carpet and replace it when it's worn out, but your desire for fancy stuff is getting in the way of your goals, so now everyone has to give away new carpets if they're less than six years old. Joe, you're literally why we can't have nice things. No Joe, I used literally correctly this time." We have the same issue with policies where we need to finally put up a sign because there are those who will abuse the system otherwise. My guess is Joe the Monk wasn't the only one with new carpets, just as we don't create new rules for that one guy who brings product from the retail space into our Game Center.

Saturday, April 7, 2018

Wages (Tradecraft)

I was messing around in Excel, thinking about how many employees a store could reasonably expect to have at various sizes. My store is in the reasonable range of staffing, but I have mostly part time people I would love to transition into full time. They don't quite fit this model as California minimum wage is 45% higher than the national rate (plus they tend to make over even that). Still, I wanted a model that would fit the nation.

Below is what I came up, a model that's more something you would find in a player's handbook than a business plan. It's not exactly how a business would operate, but it's a baseline. It assumes some things:

12-15% labor costs. As a percentage of gross sales, a range of 12-15% is optimal so I included both 12% and 15%. I tend to skew lower.

Manager salary of $40,000 a year. That is a pretty low number, but this is a low earning trade, so I went with this number at the bottom of the curve. For California, a non exempt employee would make around $44K salary, so it's even higher here.

Note that at $200K-$300K, the manager can't even earn $40K without taking profits, which assumes these stores are always owner-operated buy-a-jobs. This model also assumes a multi million dollar store is still paying managers $40K, which probably won't happen, as we see a stratified management structure.

FTE Compensation. This assumes a full time minimum wage salary of $15,080 a year. Again, not an ideal compensation rate and in California it would be $22,880, but it's a place to start.

1:8 Manager Ratio. Another number from the retail trade which may not track exactly with what we're doing is having one manager for every eight line employees. For the vast majority of stores, this will never be a problem, as it kicks in at well over a million dollars a year in revenue (perhaps 5% of stores).

Profit Margin. Ask the general public what they think a retail store nets and they'll be wildly optimistic. When I made a post showing how my 10% net profit broke down across my business, the response was willful disbelief. Game stores make in the 5-10% net profit range. One year I mentioned in a trade show presentation I had an 11% net the year before and the audience broke out into applause. This number is only useful for imagining total compensation (below).

Total Compensation. Assuming the owner is also the (first) manager, you can figure out what a business owner is likely making by adding that $40K salary to profit. Pew Research says the range for middle class tops out at $125K, which could be a king's ransom in the Midwest but is pinching pennies in a big coastal city. You can play games with this, such as realizing a store owner needs to make $1.25 million dollars a year with an average (7%) net profit rate to break the middle class ceiling. Good luck with that. I think the average store nationwide is probably in the $350K range, which is just barely middle class, which means half of store owners are likely living in poverty.

Feel free to nitpick. It's a model. Remember that level 10 game store owners need to seek out and challenge the Master of the Broken Wind in mortal combat to proceed to level 11.

Thursday, April 5, 2018

Hedonic Goods and Your UVP (Tradecraft)

I'm brainstorming for an upcoming presentation, so here are some thoughts about game stores and the UVP:

Game retailers are in the business of selling "hedonic" goods. That's a fancy way of saying we sell crap you don't need. We're not in the need game, we're in the want game. Hedonic goods are products that provide pleasure, fun and enjoyment. Because we're in the want game, we can't operate a store like we're in the need game, selling utilitarian goods.

We have to provide something special that ties into that pleasure, fun and enjoyment. We are part of the product experience and we need to provide a level of value that enhances that experience through our value proposition. We can't run a traditional store with a traditional value proposition and we're in danger if we simply rely on a Useful Value Proposition. What we need is a Unique Value Proposition.

The traditional value proposition in retail, the one you still see with utilitarian goods, is the three legged stool. You've got reasonably good service, reasonably good selection, at a reasonably good price. When was the last time you chatted about a new brand of potato chips to the cashier at Wal Mart? How many special orders a day do you think they take at the grocery store? How often do you think people say "I'll just buy that cheaper online" at the gas station? The biggest mistake you can make running a hedonic store is to running it like a utilitarian store, although plenty of utilitarian stores attempt to go beyond the traditional model to make shopping with them special.

When I first opened my store 2004, I ran it using this traditional model. I focused on customer service, I stocked every game I thought anyone could possibly want (more than was smart), and although I held the line at MSRP, I would regularly buy liquidated goods to offer the occasional great deal. I had no events, no game space, and although I worked many hours a week, I was home by 6 each night. My traditional value proposition in a hedonic market was an extremely limiting model. I had to master every traditional metric to stay afloat. It worked, but it was not the future of retail and I didn't want it to be my future.

Every game store owner intuitively know the traditional value proposition is not an effective model for them. My traditional value proposition worked because I was running a traditional retail establishment with proper capitalization. Most new game stores tend to be undercapitalized and utilize new tools to squeeze profitability out of nearly nothing. They've got a useful value proposition, and although it's a brittle model, it works with enough sweat.

A useful value proposition offers something important to the hedonic customer beyond the traditional three legged stool of the traditional value proposition that's so easily replicated on the Internet. The most common useful value proposition is in store events and a fairly tight focus of inventory and knowledge in one well understood arena: Magic: The Gathering. Even today, a good percentage of game store owner chatter is about what's happening right now with Magic: The Gathering. Those who aren't completely reliant on this useful value proposition right now likely started with it, so it's deeply ingrained in store owner culture.

There are other areas of the Useful Value Proposition that the average game store engages in. This is stuff I still talk about on my website, since my marketing presence hasn't gone beyond this level:

  • Engaging displays
  • Multimedia wonders
  • Clean-Well Lit-Friendly
  • Demo game library
  • That guy/gal
Developing a Useful Value Proposition is why game stores exist, but it's also a baseline for retail survival in this age. Stores like Sears and Toys R Us failed to be useful. They barely managed to maintain a traditional value proposition, yet alone providing a useful service, and unique was beyond their wildest dreams. With enough money and momentum, such as with giant corporate retailers, a traditional model is still sustainable for a while longer. For the rest of us, developing at least a Useful Value Proposition is basic survival. But is it enough?

As giant retailers struggle to define UVP as Useful Value Proposition, top game trade retailers are struggling to find their Unique Value Proposition. As we lack money and momentum, we need to find safety in a rapidly changing retail landscape. We not only fight against Internet retailers, who sell things, our core business, as a loss leader, but the Useful Value Proposition store is constantly fighting against new game trade competitors. The barrier to entry for new stores is incredibly low and it doesn't take more than some folding chairs and a magic binder for them to suddenly become useful.  Some retail markets see a steady stream of pop ups, in a tug of war with their customer community. Useful simply doesn't cut it any more. 

It should also be noted that a true Unique Value Proposition is built on shifting sands. What's unique today may be only useful tomorrow. My first business was running a BBS system with hundreds of subscribers. This was before the Internet. We had a captive audience. We were unique. When the Internet began opening up to the public, we spent thousands of dollars becoming a hybrid BBS, with Internet access, our own domain with email and for a time it worked and we maintained our UVP. 

The next change was customer direct access to the Internet and many BBS systems became Internet service providers. However, we were still paying off debt from our last investment in our UVP. The shifting sands buried us and we weren't able to adapt fast enough. Most of those ISPs are gone now, as their entire business model became a commodity offered by the telephone and cable providers. The value of a Unique Value Proposition is only as difficult as it is to replicate by competitors. However, investing in a Unique Value Proposition is treacherous, but worthwhile, as you are at least miles ahead of the Useful Value Proposition businesses. While you're trying desperately to adapt and grow to new trends, the Useful retailers will be left in the dust (which is what I believe will happen).

So what's a Unique Value Proposition for hobby game stores? It's something a pop up store can't replicate without resources or money. It lives in the philosophy of Third Place Theory, providing a social outlet in a cold world. It's embracing "experiential retail" as their unique model. Examples of a UVP:
  • The coffee shop, bar, restaurant
  • The mega event center
  • The vertically integrated store
  • The liquidation king
  • The taste maker (supercharged demos)
Some of these examples are self explanatory and many are uniquely positioned, but the one I want to mention, because it doesn't require a bunch of capital or connections, is the taste maker. This is an area pioneered and talked about by game retailers Steve Ellis and Travis Severance and it basically requires a strong emphasis on demoing games at a very high level. 

Imagine what would happen if you had 3-10 demo tables and every month you taught customers the games on those tables, rotating them every 30 days to keep them fresh. Several things occur: 

First, you've created a unique experience in your store and the ripple effect of your sales efforts creates demand in your community. Rather than sitting back and waiting for customers to come in, you are creating the demand by showing off a pleasurable, fun and enjoyable product. 

Second, you have turbocharged employee knowledge, which puts you well beyond the traditional value proposition in retail. If you have three tables of demo games a month, it means every staff member has learned 36 new games that year. Increase the number of tables and you increase the power of this model.

Third, and the biggest reason to give this a chance if you're on the fence or dubious, is the massive increase in sales. Sales skyrocket upwards of 400%. You start focusing on finding new product for the hopper. You take larger stakes in games you know from experience you can sell. You stop dabbling with product and focusing on a system, rather than a stream of board games, ten a day at the current rate. You have created a Unique Value Proposition in your hedonic arena.

The taste maker model requires a staffing level and management expertise most stores will struggle to obtain, and thus it's unique and not simply useful. A general rule of thumb is if it's easy and cheap, it's simply useful. If it's hard or expensive, it's likely unique. The key is to not find yourself tapped out of resources with your unique value proposition when the next shift occurs, or you could find yourself running a BBS in the age of the Internet. 

Saturday, March 31, 2018

What's a Game Store Worth - Follow-up (Tradecraft)

I wanted to write this follow up to document the discussions we had on social media about the previous post. There were a variety of responses. Several store owners reported the example sale matched their experience pretty closely when selling their store. Several retailers thought such a store was vastly underpriced and a bargain all day long. Some would never buy a successful store because the barrier to entry and low costs made ramping up a new store to such income levels fairly easy - which I would concur if you have the experience. The exception was a "buy a job" to park a child in need of something to do, and I'm watching a store owners perform that painful hand off right now.  For the most part, there was gnashing of teeth about the low value of the business.

I mentioned in the previous article it comes down to a kind of classification for the business. Game stores deal with this all the time with insurance. When we get business insurance, there is no "game store" classification, so we fight agents in how they classify us, usually a book store or a toy store. One classification is usually more expensive than the other, so we argue for the better one, because why not. If you didn't know this, you should go out right now and re-shop for insurance. In the case of business valuations, a game store has this same classification problem.

An example of a healthy retail store with healthy valuations is the hardware store. Hardware stores play an important role in communities, with its competitors usually being other hardware stores more than the Internet, unlike the game trade, where we compete against not only other stores, but Internet retailers, distributors and publishers! It's an appalling situation that horrifies other retailers. It should scare away anyone interested in the game trade.

The hardware store, lacking such horrors, has a strong valuation of 3-4x net (seller's discretionary earnings) plus inventory. If our example game store were valued as a hardware store, it might go for over $300,000 rather than the fire sale price of $62,000. When I asked other store owners what they thought the example store was worth, it was in this hardware store range.

Some thought the game store valuation overlooked inventory, but that wasn't the case. The game store valuation intentionally ignored inventory values, much like valuations of the most endangered business species on Earth, the lowly book store. Independent book stores have been thriving lately, as have game stores, but I doubt that has increased their valuation. Book stores are valued in the 1-2x net range with no consideration of inventory. Another valuation method is a percent of net, 15-20% plus inventory. Without comps available for game stores, it's not unreasonable to assume one should be sold like the book store.

The problem is we all know on the surface the game store is undervalued because we all know, as store owners, we could liquidate the example game store for more than this valuation. It likely has $75K-100K in inventory.  However, because we have no records of sales, and no prospects for one, that's exactly what happens in most situations, a liquidation sale. If you've got experience in a liquidation sale, let me know what you would expect to gross from a well run, graduated sale of this level of inventory.

We are again back to the problem of selling the first house to a bunch of cave dwellers. Without comps we are simply shut out of the sellers market for our businesses in a chicken and egg scenario. It will take some sort of tectonic shift in the retail tier of the game trade before we see professionally run game stores sold for worthwhile valuations. You go first.

Wednesday, March 28, 2018

What's a Game Store Worth? (Tradecraft)

I just got back from meeting with our business broker. We were curious how much the store was worth, considering we have people interested in buying shares from our investors. Our broker asked questions about our operation, making sure we had strong policies and procedures and I wasn't integral to the success of the business. If it can't function without me, it has no value. Someone has to have their hand on the wheel, but it doesn't need to be me. They looked over three years of financials, and went back to the office to do some research.

So what is a game store worth? Depends on what you can get for it, and unfortunately, there were no  records of game store sales, at least in California. I was told what I already knew, store owners tend to start a game store for fun, out of passion, without much concern for a return. Finding an owner is likely going to be finding a gamer with a dream.

Game stores tend to fold rather than sell or they quietly pass on to existing managers. It's an industry in which it sucks to sell a business because traditionally game stores don't sell. When you sell your house, you need comparable sales in your area, but trying to sell a game store is like selling the first house to people accustomed to living in caves. Therefore, creating a business valuation for a profitable game store required some guesswork.

It starts with a highly subjective weighted average, a multiple of net income over three years. The most recent year is obviously more valuable than the first year in that calculation. I would tell you those multiples, but again, it's highly subjective, PFA (Pulled From Ass) numbers.

This average is then multiplied by a magic number. That number is where research comes in. If you can find sales of similar businesses, it doesn't take much to divide their sale price by their net income. Like a turn rate, it's a subjective number that reflects what's normal in the marketplace.

An undesirable segment might have a multiple of one, as you attempt to sell your buggy whip retail operation. A desirable segment with high energy customer engagement might have a multiple of two. A crazy desirable business with a well known name (usually restaurants) could go as high as five. For a retail business with no data of comparable sales? The multiple they went with was 1.5.

When you look at net, we're assuming the owners salary is included, and if not, it's added back in, which is likely to kill your illusion of profitability. Pay yourself from day one is the advice everyone will give you. Any sort of bonus achieved through negotiation, guile, or witchcraft is also added back (like free rent for whatever reason).

All debt incurred by a business is on the original owner and plays no role in the calculations. So my construction debt is mine to keep after the sale, which means selling is something I would be loathe to do until it's gone. My accounts payable, which for my business is as high as $50K at any given time is also mine. Gift certificates are an exception as they are a debt that stays with the business, so that reduces the final value of the business. You could argue some of that ancient gift certificate money is not real, so maybe you negotiate a third of that isn't included.

Any discretionary spending is pulled out which increases your income, which for me was a key person insurance policy, half my cell phone bill (on a family plan) and travel, which I consider essential and is tax deductible, but is it really necessary? No. I know some business owners that have over 100 personal items reducing their taxable income included on their balance sheet. It's not something you can pull off with investors, but it's a positive when it comes time to sell.

The number I ended up with was not significantly higher than what I could have gotten with a well run liquidation sale. So could I sell my store? Yes. Would it take a long time to sell my store? Yes. Would it eventually be worth it? Well, I also need to reduce my sales number by a 12% broker fees, so probably not.

Finally, there were some ways to increase my valuation with stronger sales, better cost of goods management, and labor that would need to stop growing while these higher sales occured. At best it would increase my valuation by 20%, which would probably make it worthwhile.

In the future, if the retail tier steps up its professionalism and retailers run their stores like actual businesses, valuations could increase, but again, not by a lot.

To give you an idea of sales numbers (not my numbers):

Saturday, March 24, 2018

The Mature Business Plan (Tradecraft)

"So if you don't have an updated business plan, do you just look at the previous year and try to do better?"

"Well, ahh, yeah."

I had a business plan when I first started and it saved my life. My mantra was stick to the plan. As the business continued to prosper and evolve, the plan was always in the back of my mind, but eventually it became an artifact of our history, rather than a living document. It's so old, at the time I didn't even have the name of the store sorted out:

This is not to say I don't do businessy plan things. Every year I write an annual report for stockholders that does an industry analysis, looks at threats and opportunities, and includes those wonky financial reports that I've grown to love and hate. I handed those to a business broker this week who encouraged me to write a new plan.

Note they didn't say update my plan, because if it hasn't been updated in 14 years, I essentially don't have a plan. I don't intend to sell the business, but having a plan is integral to any sort of hand off, including if something were to happen to me along this journey. I also know no experienced retailer will ever believe their business is marketable, so they're all reading this with skepticism right now. I would have to actually sell before they believed it was possible.

When I first realized I needed a plan, there was quite a bit of pride and a tinge of resentment. I just wrote a damn book about the trade, and keeping my ego in check was never a strong suit. I fantasized my first paragraph would start:

Look here bitches....

A new business plan for a new store is a lot of research, industry analysis, a mission statement and financials that are more wishful thinking than likely outcomes. It's an endearing attempt to show you did your homework, and might be useful to convince a friend or close relative to invest. But an established business plan?

That challenges every aspect of my knowledge of the industry and my business. Where do I think the industry is going? What's likely to happen in the next five years with our current location? How do I truly feel about my management team? Or our ability (or inability) to manage? How do I handle marketing when social media, our primary method, is in turmoil? And those financials... How optimistic should I be and should I base it on past performance even though we're in new waters? Most importantly, and this has certainly changed along the way: What is my mission? I think all the anxiety surrounds that last question, because I'm certain I'm off course when it comes to my mission.

When I was in high school I spent half a semester in "bonehead english" due to a scheduling conflict. We had ridiculous writing assignments like: Describe the changes you would make if you were king of the world. I would go to town and draw on my D&D fantasies and write an elaborate treatise about how things would be if I were king. The other kids would kick back and pace themselves on this joke of an assignment. The meta of this, the point of the exercise, was to keep us busy while the wrestling coach read his magazines.* Who was the bonehead here?

An established business plan needs to keep the meta in mind, the point of the exercise. You have a business that's profitable, so no need to posture. Just describe how you'll make it better and more successful for the foreseeable future, for anyone who decides to become a stakeholder. Who knows, maybe the plan will become a guide. Maybe the mission will present itself, if you choose to accept it.

* Eventually I got moved to a regular english class and the teacher would publicly praise me for my adequate work, much to the irritation of my friends who knew I wasn't a (complete) bonehead. 

Friday, March 23, 2018

FLGS Distribution and Codes (Tradecraft)

Friendly Local Game Store is up for pre order by most game distributors as of today. I thought I would list all the distributors and their product codes and spend a few minutes telling you about product codes in the game trade.

Here's the list, with their product code, not including a bunch headed to Australia:

Let's talk about product codes. GPW is my publisher Gameplaywright, associated with Atlas Games (ATG). That's why you see GPW (if the distributor carries Gameplaywright) or a combination of GPW and ATG (GPW pickypacking on Atlas). 

Some distributors listed don't normally carry Gameplaywright, which publishes niche but important products like The White Box Essays, Things We Think About Games, Hamlet's Hit Points, and The Bones. It's the meta of game publishing. There are a total of six Gameplaywright products out now, so that's why FLGS is number six. When you see an ATG code, it usually means they stretched to bring it in under the Atlas Games umbrella, which is pretty cool. 

While I'm boring you talking product codes, let me point out that pesky space in the Alliance system. It's a space that has vexed me for years, as identical product codes between distributors wouldn't search if it had that space or if it lacked the space when searching with Alliance. Alliance recently changed their system to ignore spaces, which means you can now easily use other distributors codes when searching with Alliance. 

That's especially important for Alliance as they've gobbled up distributor sales from competitors, especially with their exclusives, Asmodee being the critical one that kneecapped everyone else. Alliance went from a once every other week distributor with me to a once a week distributor, and part of that is difficult things to find with other distributors are now going through Alliance.

And finally, you'll see Atlas listed as AGG with PHD and ATG with other distributors. That's because the game trade has no universal standards for company product codes. WizKids might be WZK or WIZ or whatever the distributor felt like assigning that publisher on that day. There is no central authority to standardize codes. This is one of those horrible things that falls under "institutional knowledge," where only experienced people in my store know the various codes between distributors. We have several hundred of these codes we deal with on a daily basis and it's common for a junior employee to look up one code in one distributors system and erroneously put it in a point of sale field for another (a do over).

It gets worse too, the publisher can suggest codes for a product, which is welcome, but they or the distributor can also change codes. So you might be searching for a product WIZ1110 (or WZK1110) only to learn all the codes have been arbitrarily changed and it's now WIZ1111. If it's a marginal product, sometimes I just stop looking for it rather than trying to find it by name.

Finally, I want to encourage store owners to carry the book, rather than buying it just for themselves and staff. Most game store owners were once customers and this book diverts those customers to a more professional path, which benefits them, their competitors and the game trade in general.

Monday, March 19, 2018

Three Factors of Risk Management (Tradecraft)

I'm meticulous about vehicle maintenance and that's because I believe most accidents and mishaps happen when three negative factors are involved. For example, a vehicle in poor mechanical shape could be one factor, such as the overburdened shocks I just replaced. Weather or road conditions might be the second factor. The third factor could be a lapse of judgment or another driver making a dumb mistake. I've found when those three factors come together, events out of my control ensue and people get hurt. Since I have a Jeep with a solid front axle that tends to wander if I don't pay close attention, I'm always driving at the speed limit with great care, with one factor in effect at all times. So what does this have to do with business?

You can apply the three factors of risk management to businesses as well. I was reminded of this with the Toys R Us bankruptcy and immediately did a quick risk assessment of my own business. Now, to be fair, if you've got three factors on your mind, you're always looking for those three factors, which is both a strength and weakness. In the case of Toys R Us, their three factors were: Unsustainable debt, failure to cultivate and maintain a Unique/Useful Value Proposition (UVP), and a failure to prepare for coming demographic changes.

Any one of these three factors could kill a small business. Two of these factors can be survived by a market leader like Toys R Us. But all three of these? That's death and I'll tell you why. If you aren't doing your job now (UVP), and you aren't positioned to do your job in the future (coming demographic changes), why in the world would I want to invest in your debt ridden business to keep it going?  Toys R Us is a classic example of sunk costs with no future, a hole you find yourself at the bottom of with a shovel. Stop digging. But whatever, I'm really not qualified to analyze Toys R Us, but I do see how their case applies to my small business.

I've got debt from expansion, much like a Toys R Us at a smaller scale. I have a Useful Value Proposition I wish were more Unique, but I acquired debt to better my UVP. I feel I have strength in meeting future demographic changes, as we're able to pivot and invest towards the future of experiential retail.*

I could rate each of these issues on a scale of one to ten and decide if my business is worth saving, or in my actual case right now, re-investing. That's actually what I did recently before deciding if I should personally re-invest. I've got one factor in play and two moderately risky factors.

I would call my current risk moderate if it were someone else's business but as I believe in the management, I consider the risk low. I certainly have way more going for me than the $460 million dollar a year behemoth that was Toys R Us. Let that sink in a moment. Now, driving my Jeep back from the GAMA Trade Show in a blizzard? That was three factors of white knuckle driving all day long.

* The most important factor is I'm still profitable, unlike TRU with their debt load, but let's ignore that for now. 

Saturday, March 17, 2018

Subjective Decisions on Existential Matters (Tradecraft)

"Russians don't take a dump without a plan. And senior captains don't start something this dangerous without having thought the matter through."

--Admiral Josh Painter, Hunt for Red October

Policies and procedures are the heart of my business. It's what keeps it going the 85 hours a week the store is open, while I'm only there 24. We have policies and procedures about everything, which results in safety, quality (consistency of experience), and a focus on our Unique Value Proposition. So when a new law went into effect in California in January, forbidding me to have a policy, I raised an eyebrow. We have policies forbidding employees from wearing shorts, but I can't have a policy about hiring dangerous felons.

This came about because of our flawed criminal justice system and the fact those who have paid their debt to society were being screened out of jobs. With increased transparency in all aspects of life, we now know our criminal justice system is rather flawed, racist, classist and generally a brutal regime. I used to want to be part of it (dodged a bullet). With the unemployment rate at around 4%, non college grads are often screened from getting a job, so you can imagine what happens with applications where the "Have You Been Convicted of a Felony" box has been checked. This is a justified attempt to fix the bias against those who have paid their debt to society. However, not surprising with the government, the implementation is flawed.

While I support reintegrating ex felons back into society, how we went about doing it in California was a bit ham fisted. Here's how it now works when I try to hire a new employee:

  • The candidate goes through an extensive hiring process.
  • The candidate is presented with a conditional job offer. 
  • Only then can I run a background check on the candidate (now required by Wizards of the Coast, but most employers don't do this at all -- which makes this a perfect crap storm for us).
  • If a criminal record is indicated, everything stops. We are forbidden from having a policy on what happens at this stage, forbidden from a policy on what constitutes a danger to our staff and customers. We're not allowed to say we can't have sex offenders in a room full of children, although businesses dealing with drugs can have a specific policy (they must have had stronger lobbyists).
  • We now have to make a subjective analysis of that candidate. We have to look at their criminal record on a case by case basis, despite having no experience in law, and decide if they should be disqualified from the job. We can't have a policy that says sexual predators won't be hired here. We have to look closer than that ... somehow. As my attorney wife asked, "What if a woman is convicted of murdering her abusive husband?" I'm somehow being asked to untangle questions like this.
  • Now we provide the candidate with a letter stating why we can't hire them with a copy of their background check within five days. Or, if there's no policy about what happens next, the junior person in the organization is given the ability to decide themselves if the candidate is a clear and present danger.  
  • The candidate can respond back within five days, with more information, and it goes round and round.
The result of this policy is hiring managers are now making life or death, subjective decisions on existential matters. Of course, this is not satisfactory to any business, so although you can't have a policy on what criminal convictions aren't acceptable in your organization, more than likely businesses will have a policy that the hiring train screeches to a halt when a conviction pops up. 

Every flagged candidate will have to be vetted by someone in the business authorized to make subjective decisions on existential matters, most likely officers of the corporation or at least senior directors. These are people who can stand behind a decision that could result in either a very thorny legal liability or the possibility of great harm coming to employees or customers. This decision must come within a very narrow window of time.

Should we hire this murderer? You've got five days to consult with a VP, an attorney, draft a letter and get everything squared away so your dishwasher or retail clerk can be hired, not hired or if you're late, bring a lawsuit. Or maybe just don't hire right now if the attorney is not in the budget. Or maybe hire in another state, if you've got multiple branches. I know this is hard for anyone not running a business to understand, but the risk of this being handled poorly is great physical harm or a lawsuit that could drive a company out of business.

As the quote says, "senior captains don't start something this dangerous without having thought the matter through." One does not simply hire someone in California without the entire organization prepared for battle. Whether you're a mega corporation or a corner store with five employees, you better be ready for battle with every new hire. So no shorts allowed, but murderers? Let's hear what they have to say.

Finally, this is another example of a law that small organizations will likely ignore, big companies will absorb as the cost of business in California, but medium sized companies will have difficulty with the implementation. Don't get stuck in the middle.

Thursday, March 15, 2018

The Magic Market

Imagine a stock market where companies regularly leaked financial information right before the announcement of quarterly results. Imagine individuals who sell questionable, unconfirmed rumors to investors in attempts to manipulate stock prices, while simultaneously offering to buy that same stock from them. Imagine investors who are told their stocks are just for entertainment purposes while investing in a market that knowingly manipulates stocks to increase or decrease value.

Imagine a market where conflict of interest is the ideal business model. Imagine an industry of brokers who know all this is happening, but also know it's vitally important to maintain the fiction of this model. Pointing out the inconsistencies and what would be obvious fraud in a regulated market, is inherent to the profit margin of this unregulated market. It's also a system where pointing out the fraud to investors only results in rebukes from investors. The Kool-Aid is strong with this crowd.

I'm not talking about Bitcoin, I'm talking about Magic: The Gathering, a game considered an investment by many of its players and the cornerstone of the billion dollar hobby game industry.  Most everyone in the industry relies on this game to keep the system afloat. Even Martin Shkreli. convicted of securities fraud once considered investing in the Magic market.

What eventually got Bitcoin and other crypto currencies on regulators radar was the sheer amount of money involved. It wasn't the rampant embezzlement, corruption, and money laundering, it was that there was beginning to be an awful lot of money being made without government oversight. Before regulation, Bitcoin buyers were called "enthusiasts," rather than investors. Sound familiar?

With venture capital money flowing into Magic related companies, you might think enthusiasts might be on the brink of becoming investors. I doubt tens of millions of dollars is enough to get on the radar, with Bitcoin currently valued at 41 billion dollars. What's more likely, I think, is questioning this whole model as the Magic "market" declines. Nobody wants to kill the golden goose, but when it starts looking like a ragged chicken that poops on your front steps (I may have personal experience here), it might be time for some introspection.

Wednesday, March 7, 2018

Pathfinder: The Jeep of RPGs

Paizo just announced their playtest for version 2.0 of Pathfinder, their role playing game. As a retailer, I can say it's about time. I was against it before I was for it, but eventually I became a big Pathfinder supporter after not only becoming disenchanted with D&D 4 as a player, but I also realized the Pathfinder release cycle was going to blow D&D out of the water.

As a retailer, the Pathfinder formula was undeniably good, provided you could overcome the drag of Paizo direct to consumer subscriptions and the deep discounting all RPGs face online (many couldn't and there's animosity there). Paizo even sponsored me to teach other retailers how to stock Pathfinder. So I like Pathfinder and I'm glad we're finally getting a long awaited 2.0, and I will support the playtest at a deep level. But why is it like the Jeep?

I'm a Jeep fan, and Jeep fans have the same authenticity issues as Pathfinder fans. Pathfinder is essentially a 17 year old role playing game that's been updated a few times. At its core is the D20 system, which went through a 3.0, a 3.5, Pathfinder 1.0 and now Pathfinder 2.0 (it lives on in D&D 5, but that's another story). Fans love their D20 and are loathe to jump ship. If they haven't at this point, they've found their True System. Jeep also goes through versions, with die hard fans as well. Jeep fans are a bit nuts, with their slogan "It's a Jeep thing, you wouldn't understand" as their excuse for the completely irrational decision to own such an impractical, unsafe, uneconomical, and uncomfortable vehicle. But the heart wants what it wants.

With Jeep safety and economy improvements, fans lament the brand has lost its soul and authenticity, often despite it's ever improving off road prowess. Slant the windshield slightly or use aluminum where there was once steel and the sky will surely be falling with callbacks to the previous versions as the Last True Jeep. For Pathfinder, a new edition promises to be faster and more efficient, and of course, there are already those complaining about changes to the new edition. The similarities in fan bases is uncanny.

Of course, the reason why Jeep builds a new model are similar to why Paizo needs a Pathfinder 2.0. Everyone already has the old product. No matter how much you love it, use it every day, and swear you'll never change, a company can't continue making a product after ten years and hope to survive.  Paizo is in year 10 of Pathfinder 1.0 and likewise, Jeep is just now phasing out their JK Wrangler model introduced in 2007. Both were wildly successful, despite naysayers, and their new versions should remain so. Of course Paizo doesn't have government safety and economy standards to deal with, but they do have competitive forces that require they develop a faster, more streamlined system with modern design sensibilities (you know, like D&D 5).

So there you have it, an odd comparison nobody asked for, but one that's on my mind. You can expect a Pathfinder 2.0 to be very much like the new Jeep Wrangler JL. It should be evolutionary, not revolutionary. It should change where it needs to and not where it doesn't. It should be true to the spirit of the original, D20 to its core, and better where it can be. If you want a revolution, the door is on your right. It's a Pathfinder thing, you wouldn't understand.

Sunday, March 4, 2018

The Most Boring Blog Post In The World (Tradecraft)

Laziness? Fear? Arrogance? The fact this was a pain in the ass to make? Your pick of why I haven't posted the formulas for Open to Buy before now. There's an example in my book without formulas too, so I thought, what the heck, how hard could this be? Do the thing. I'll even name it The Most Boring Blog Post In The World so people can easily find it when they ask.

I once talked about Open to Buy at a trade show and a guy came up afterwards with a bunch of people surrounding me, and told me my example numbers were off. He was roundly criticized for bothering me with minor discrepancies from an example, but hey, examples should be correct. But that also meant I've been reluctant to start throwing around C2s-E2s because they would inevitably be wrong somewhere. If you do find a discrepancy, please let me know.

This example assumes you're starting with no money in your purchasing budget. On day one you have only your cost of goods to start with and your purchases to subtract from. Then we just add that balance going forward and voila, you've got a spreadsheet you'll live with for the rest of your professional life. Create a shortcut. Back that puppy up.

Here's a link to this example file.

You can copy and insert lines like this forever, especially once I discovered that +1 trick with the date. Mine is nearly 5,000 lines long and has a ton of columns, along with many financial charts that use this data (which I prefer to Quickbooks).

Wednesday, February 28, 2018

Business Ethics

I used to believe the purpose of a corporation, my corporation, was to maximize shareholder value. It sounded good when I read it first in Neal Stephenson and when you're dealing with a single digit net profit in a typical retail store with hundreds of thousands of dollars in sales, it's important to keep your eye on the ball. Maximizing shareholder value was a survival tactic. Later it became a way to avoid buying unnecessary stuff, what my investors referred to as "pimp value." I could justify a pinball machine or a van with a dragon on it through various logical gymnastics, but they eventually went away as they did not maximize shareholder value.

I don't believe my job is to maximize shareholder value now. Things have changed. This maximization was a tactic to obtain profitability, and with profitability, you discover strategy. My strategy, when I'm profitable, is when I have the chance, to make things better. It's amazing what happens when I'm not refreshing the checking account balance twice a day. There is time to think about long term goals.

Making things better might mean supporting a veterans group or giving vast amounts of games to Toys for Tots. It means having a zero tolerance stance on bullying and socially unacceptable behavior, even if it means banning long term customers. It means we have a succession plan in place to keep the community alive if I get hit by a truck. I can think of a dozen things I should be doing, but I'm not due to our just alright financial position. This is not to say I'm some great leader in the community, as I've spent most of my time hurtling towards the ground and just barely missing.  If I can do more, I will, and the reasoning is if I don't, who will?

We've got a federal government captured by crony capitalism who wishes to pretend the system isn't rigged, while rigging the system. We've got state government that wishes to legislate prosperity, even though they have no idea how prosperity occurs. They're happy to let the chips fall where they may, because they'll still be there, along with their high value donors. In other words, I've lost faith in our leaders, and the last leadership pillar left, the last ones not captured and corrupted entirely in this country, are small business leaders, who have their finger on the pulse of the community. I've essentially lost faith in humanity, lost the ability to believe that collectively, through government, we will act in our own best interests. Those who can make positive change, should make positive change.

I also can't handle the reality that if corporations are deemed to be people, with their own voice, and their purpose is to maximize shareholder value, then all corporations are essentially rapacious assholes. I suppose the key for a larger corporation is to express values and make sure leadership, including boards of directors, are on board with not being rapacious assholes. If you're just starting out, perhaps have this conversation. Thankfully, we know pursuing a strategy of ethical behavior, both in investing and business management, pays off quite well. It's just hard to put that strategy in place when you've spent years contorting yourself, trying not to hit the ground.

Sunday, February 25, 2018

Your Financial Success (Tradecraft)

I've got a good friend whose an author and wealth manager and we were talking about my new book. He said, "You've done a great job creating a successful store, but you've completely failed to plan for your financial future. We should do a writing project about that." Ouch! As most of what I've learned from small business comes from failing, before succeeding, it sounded like a good idea. In the short term, I wanted to write something that might be helpful to new and existing store owners. If the book were still in progress (it's at the printers), this might be a final chapter.

As a small business owner, there is no "best time" to save for your financial future. I'm referring to retirement. Investopedia gives the advice of how much you should have saved as a multiple of your salary. At 40, you should have saved two times your annual salary, at 50 four times, and it goes on. The reality of starting a small business is something is always taking your financial attention away from the critical job of saving for the future.

When I started out, I was on a basic survival, shoestring budget for quite a long time. I nearly halved my income to start the store, going as far as placing my house on an interest only mortgage, just to make it work. My salary was still well above market. I had the luxury of a house and a small retirement fund already because I had a good paying career before. Because I re-invested after three years, building out a larger store, this survival salary lasted me five full years. During that time we adopted a child and my wife left her job on disability. This put great strain on our finances. Then the housing crisis hit and finances went into a tailspin for a few years and I nearly lost the house (but came out well ahead, which I talk about in the book).

When my fortunes improved, I spent money on the store once again, buying a pinball machine and a van and basically all the things I had put off. My notes from our annual Board of Directors meeting had a directive written on the top: "NO MORE PIMP VALUE." Personally, I had also engaged in adding pimp value. I had an indulgent spending period after a fasting period. I bought a new car. I indulged heavily in hobbies. I went a little nuts. In the future, I've got not only construction loans for another three years sucking all my spare money, but a white board with about $20,000 worth of projects. I've also got a dream of doubling my inventory. There is no good time to save and there won't ever be one, if I wait for it.

The best time to save for retirement, as a store owner, is right now. Besides life's financial demands, the store will never stop requiring your money and attention. A small business has often been described as a mistress (manstress?), with strong demands of time and money that never cease. If I were starting over, I would have taken my subsistence salary, and built in retirement savings. My meager salary would have been maybe 10% higher. Perhaps I would have to save 10% more money before I started. I advise new store owners to build their store around the salary they need, but I never discussed the meaning of need. You will give up years of strong earning potential to start a store, as my father warned me. You'll be voluntarily putting yourself in a hole. If you can come out at the other end with some retirement savings, that hole won't have been nearly so deep.

My book won't be making a lot of money, but I'm thinking of dedicating all the proceeds to the retirement savings I've missed out on. Pro tip: try to find multiple income streams. Strangely, I've saved for years for my son's college fund, but as I've told my wealth management friend, that's because I'm more afraid of being a bad father than living in a cardboard box. If you're reading this and have a store, start saving now. If you're creating your business plan, bump up your salary requirements to include retirement savings so you can avoid the mistakes I've made.

Finally, realize the business will always demand every spare penny you have. Always. It's up to you to manage your Return on Investment (ROI), which means taking money out as part of the process of putting money in. I've made ROI a critical part of the planning process in my book. Anyone can make an amazing store and overspend on the build out. A good retailer understands the value of capital and sees a long ROI as wasteful and failure of sorts.

There is such thing in small business as enough. There is modest business growth without constant reinvestment. You most definitely need to grow or die, but it doesn't always mean reinvestment. Part of your dreams for your store should include a strong financial future for yourself. Planning to ride into retirement with a retail store earning income in an unknown retail environment 20 years from now is a very dangerous plan. Think about how retail has changed in the last 20 years: malls were hot, ecommerce and Amazon were in their infancy, Magic was just a card game and no the economic driver for just about every hobby game store. As small business owners, we are constantly changing and evolving to meet new demands. When you're 85 years old in a retirement home, you will not be in a good position to pivot your store to meet such demands. Start saving now.

Tuesday, February 20, 2018

Board Game Soup (Tradecraft)

You've heard me and my peers talk about diversification and you want to enter the competitive board game market. Perhaps you do other things well or perhaps you're starting a brand new store. Here are some things to keep in mind:

Market Leader. In each local board game market there is generally a market leader, a brick and mortar store already serving local customers. Unlike a game like Magic, it is difficult to gain traction if there's already a market leader. Customers tend to be loyal to the leader, and since just about every type of customer is more loyal than a typical Magic customer, there's a stickiness you might not be familiar with. Mercenary board game customers tend to shop online almost exclusively, so you'll rarely see them unless they're low on card sleeves. I struggled as the second fiddle board game store for four years before the market leader retired. Now I wear the mantle and bear the responsibility.

What is In The Past. Buying new board game stock based on online rankings is like trying to buy financial stocks based on their past performance. Most games, even great games, become irrelevant to you once the market is saturated, which can happen in days rather than years now. Old games are old. Focus your energy on upcoming games, especially ones on wish lists.

Boardgamegeek rankings contain interesting data, a lot of it irrelevant to your needs, but the most important element to a BGG listing is how many people want it. A great ranked game that nobody wants is irrelevant. A poorly ranked game that a lot of people want is a curiosity. A great ranked game that everybody wants is a pretty sure thing.

Soup Stock. A good soup needs a base, a savory stock to build around. There are also psychological sales elements you need to crack, such as how many games you need before it's perceived in the mind of the consumer that you're a legitimate board game resource. That number of these stock, evergreen titles is probably in the 20-30 range, which would form your initial base. Rotate them out if they stop selling.

So although I just told you not to focus on what has come before, there are evergreen titles that you simply can't help but sell well. Make a well informed list, pick 20-30 and stop there. Talk to retailers and distributors. The worst thing you could do is attempt to mimic some Hotness list or the top ranked BGG games. That way lies madness. I should know, I once stocked the top 100 on BGG and I'm a nut. What a disaster.

Also, ignore customers who aren't intent on buying right now. They either wish you to carry things they love (but already own) or want other theoretical people to buy a game so they can play. Board game enthusiast customers will give you bad advice. Finally, an inch deep and a mile wide is your mantra. Do not stock deeply until you have long term sales patterns. No matter how well regarded the new thing is or how many people want it, don't assume you can move a ton of product.

Front List Driven. You're only as good as your next board game. Once you have your base figured out, you'll be adding delightful new ingredients to your board game soup from across the game trade. Pay attention to pre order requests and focus your money on hot new games. From now on, this is what you want to focus on, so avoid backfilling with evergreen titles. It's tempting, but don't do it. For every new game, check out rankings online, see how many people want it, and still be cautious when ordering in quantities. It's far better to run out of games that have too many. We just got back from a convention this weekend where half a dozen games from The Hotness went unsold at a 40% discount. We over ordered great games and they are now dead to me. Plan to run out.

Expertise. I think you can run a game store having never played Magic, having never rolled up a D&D character, or having built a 40K army. It would be dumb to not do these things, but you could sell Magic, D&D and 40K without knowing a damn thing about them. You'll sell them better with knowledge, but you could do it. Board games are not like this. Somebody better know their board games or you'll have a heck of a time with them. The reason is board games sell best to new customers who need guidance on gateway games. The more experienced customers already know what they want and they tend not to buy from you.

More than any other category, board game customers tend to "graduate" away from you, but you get them during their formative education, so you have to make the best of it. If you don't know board games, engage in a crash course. Start a board game night in your store and attend every session. I did this for the first few years of being in business and it helped tremendously. Even better, keep going, become an expert, play games at trade shows and have first hand knowledge of games before they come out. When they do come out, have demo tables to show off these games and make sure staff are trained to do so.

Marketing. One of the most valuable assets my store possesses are Facebook Groups dedicated to various game types. My board game group is gold. I can tell my customers about upcoming releases, post photos of new games, and field questions. Because it's private and focused just on board games, I can be candid. I can give my opinion. I can confess my ignorance and ask for their help when I need it. They have my full attention and I thankfully have theirs. So when a new game shows up, my marketing efforts result in sales the same day, not the once a month when the average customer shows up. This means I can stock smarter, lighter, and turn games faster so everyone benefits.

Kickstarter. Should you back Kickstarter games as a retailer? As a new store, I think the answer is probably no, mostly because you'll have a difficult time moving the quantities necessary to participate. As an established retailer, we've had very good success backing projects, especially ones where we order and pay after the project is complete. I think it's recognized that retailers lose every time when they tie up capital at the beginning of a project. So some projects can work, but if you're just getting into selling board games, you don't need to dabble in Kickstarter. Wait until you have demand and your marketing apparatus functional. Then try to get customer pre orders before you delve into a project. Our most successful backed projects sell out quickly upon release to customers who pre ordered months before.

That's about it! Just some thoughts on how I do it.

Monday, February 19, 2018

Report to Stakeholders 2017

This is our third public report to stakeholders of Black Diamond Games, Ltd. It provides insight into how we do business at our one store. Being in a suburb of a metro area surrounded by hundreds of thousands of people, in the prosperous San Francisco Bay Area, our way is just one way. Unlike many smaller markets, it's possible for us to see strong growth for decades, without resorting to opening multiple stores. It's a relatively prosperous area with customers far less price conscious compared to other areas of the country.

A stakeholder includes employees, event coordinators, shareholders, distributors, publishers, private lenders and our customers. Private lenders funded our Game Center expansion in 2016.

We are a single, brick and mortar store with the vast majority of our sales made to local customers. 2017 saw us enter the Magic online singles market through the new TCGPlayer Pro. Although we're late to the online singles party, Magic online singles now accounts for 1% of our sales over the last 12 months. That's not very much, but it served the important purpose of allowing us to better serve our in-store customer by having a larger selection and a method to sell off locally unpopular cards. Our best selling game in the store is Magic and the best selling "item" in the store is Magic singles. That's probably true of many stores. 

2017 Summary

Sales in 2017 were up 14%, as we capitalized on our expanded space. While the large Magic events this space was designed for never materialized, we instead saw a doubling of our nightly events, with a wider variety of events and the same events held on multiple nights. We were hoping for a 5% sales increase through this expansion, so 14% is pretty phenomenal. That's good, because as usually happens, our expenses were higher than forecast.

Sales were well over a million dollars for the first time and lagging profit margins throughout the year finally hit a respectable overall level in December. Despite our high level of profitability, we also had high levels of construction loan payments that left us little operational wiggle room. Paying supplier bills on time in 2017 was a challenge, but I'm told our tardy payments are still way better than most stores (which is kind of sad).

That's a minor complaint though. As I told one investor today, our cash crunch means I pay expenses and high loan payments AND still go on vacation, BUT we have little money for future projects. It's  frustrating but it's also an enviable position for most store owners. We will make our loan payments and bide our time until we have capital for the Next Big Thing.

With our 30% bigger space, we also saw bigger expenses: Insurance doubled, interest payments doubled, and labor increased around 15% as we added staff to handle the influx of customers. Wages also suffer from the steep increase in minimum wage, which will continue to rise every year indefinitely. Outpacing wage increases is going to be a challenge for all California small businesses for the foreseeable future. Our high tech lighting and HVAC meant we only saw a 5% increase in utilities.

Winners and Losers
2017 was a rebound year for sales. As much as I discounted 2016's sales numbers due to construction, 2017 sales likewise saw huge increases for the same reason. 2017 was a year where diversification played an important role. Half our sales are CCGs and board games and both those categories were flat or down.

We saw enormous sales in other departments, with notable ones being RPGs and miniature games up 50%, and our fast growing geek apparel department growing over 300%. It grew 168% last year and it's becoming a larger part of what we do. We're in year 15 of this business when you would be expecting low single digit growth, so these are pretty extraordinary numbers.

This year saw a lot of retrenching of existing games. Warhammer 40K dominated miniature games with solid 8th edition releases. Dungeons & Dragons and other RPGs have shown great strength and interest, and our sales are accompanied by four nights a week of role playing in our Game Center. Most of the CCG decline was Pokemon missing a beat and missteps by Wizards of the Coast with Magic. Magic was down slightly for WOTC in 2017. Our expansion into online Magic singles didn't help in this area either, as sales of singles were down 3%, despite greatly increasing our singles catalog.

Board games remain a chaotic category. Kickstarter continues to see increases, and although it's only about 10% of the US market, it saw a 30% increase in funding for hobby games in 2017. That said, it would be wrong to think game stores are shut out of this market, as many of our top sellers in 2017 came from backing Kickstarter games as a retailer, notably: Gloomhaven, Massive Darkness, Dark Souls and The Grimm Forest.

From this article.

There seems to be an attempt by the larger board game players to flood the channel in defense of their position. A good example is Asmodee sending us a huge influx of new and reprint games on a weekly basis. Games Workshop and Wizards of the Coast also seem to be stepping up releases in a crowded marketplace. I'm told some customers are not only burning out on the release cycle, but are seeking the lowest prices to keep up with the fast release cycle, not a positive development for brick and mortar retailers.

The huge influx of board game releases averaged around ten new board games a day. The end result is great games unable to gain traction in a crowded marketplace and overwhelmed retailers dumping great games, often before they even hit the shelves.

There are simply too many good games and not enough customers to buy them. It's not uncommon to stare at our new release table with six unsold games, half a dozen copies deep, with stellar reviews. It's no longer enough to just have great product all the time, we need new ways to engage customers and show off the best of the best. We are of course in a board game bubble, but it's a resilient bubble with enough flexibility, enough channels to find customers and continue for quite some time.

2018 Plans
I'm expecting 2018 to stabilize, which might not sound exciting, but it's what we need right now. My Magic experts believe the next release of Magic could break the downward spiral. Brand value protection is becoming the norm with board games and if we could develop a demo program in 2018, I think we could see some great results.

Miniatures in 2018 will be about Star Wars Legion by Fantasy Flight Games. We're going deep into this game, with enough copies to score an early demo game with my assistant manager dedicated to getting it on the table to teach and show off. Whether Fantasy Flight can handle stocking a game as broad as legion while managing organized play remains to be seen (I only have to look at X-Wing to have my answer). I went deep with Legion because Fantasy Flight gave us the opportunity to work to make this game great in our store while also protecting brand value online. Games Workshop does the same, which often leads to great successes with that brand.

Role playing in 2018 will see more early releases by Wizards of the Coast, with Mordenkainen's Tome of Foes likely to be similar in popularity to Volo's Guide. We're attempting to run a Dungeons & Dragon summer camp in June. The camp has been well received by the online community, although it hasn't resulted in sign ups. We'll continue to market that.

At our current sales and profitability level, even modest growth would appear to be a win. However, with all of our costs rising well above inflation, especially labor, we need better than 4% growth every year. This is true for every small retailer in this state, whether they know it yet or not.

My 2017 plans included transitioning to full time employees and the like, but that will have to wait. Our debt levels mean we'll need to run lean for a couple more years at least. We really didn't have a solid idea of what our finances looked like until we had our tax forms in hand for 2017. On the plus side, regardless of your political views, 2018 should be a better year tax-wise, and that will result in more opportunity for the business.

Saturday, February 17, 2018

The Creaky Game Trade (Tradecraft)

Before I bought the Black Diamond Games van, I bought a Toyota Land Cruiser. This was going to be the store's adventure vehicle, with a cool wrap and our name in big letters to attract street traffic to make up for our anemic sign. The Land Cruiser's claim to fame was Christian Kane once ran it out of gas on the way to a music audition (the gauge was broken). The old Cruiser looked amazing on the outside, a weathered, ancient vehicle that had surely seen quite a few exciting trips.

When I started the test drive, well, that was another story. The beast took a while to get started, then it trundled down the street like an ancient tractor. If you looked behind you, you could see the road passing by through the cargo floor. As I picked up speed, the thing began to cough and sputter and eventually it simply stopped working, leaving me stranded in an LA intersection, the owner next to me swearing it was a minor setback. It turned out the battery was attached with a bungee cord that came undone, but he never could get it started again and I shook his hand and walked away, leaving my Ebay deposit with him. I considered myself lucky. The game trade is like that Toyota Land Cruiser.

The common saying for game trade retailers is two steps forward, one step back. There are no easy profits, no sure things, and more than likely, when something gets hot, the publisher or distributor or some idiot retailer will open the pot and let off the steam before it becomes a big deal. Large retailers know the game trade eats its young, so they work hard to capitalize on good games quickly, bringing in large quantities, demoing games extensively, mastering organized play, so when the publisher-distributor-retailer inevitably screws up the product, they will have already capitalized on its popularity. Two steps forward, one step back. The game trade can't get up to speed without feeling like an ancient tractor about to blow a gasket. It's like a piece of crap Toyota Land Cruiser that continues to exist entirely because of nostalgia and now that there's big money involved, that vehicle is no longer acceptable.

Times are changing and people are freaking out. Asmodee has dominated the final frontier of the game trade, the board game market. It's natural in any mature market for a leader to dominate roughly half the sales in its category. Then as the market gets even more mature, you see fragmentation, but we don't see that yet, we only see a quick domination of the hobby board game market by Asmodee through acquisitions.

It was such low hanging fruit, it's mostly a surprise it didn't happen sooner. Hasbro could have done it if they felt like it. Asmodee does not wish to ride in the piece of crap Toyota Land Cruiser, where you can see the road fly by through the holes in the floor. They want a new vehicle, bereft of clatter and empty promises of goodwill. They need something that can handle high performance. And that's what they get with exclusive distribution.

Exclusive distribution combined with brand value protection is a terrible deal if you're a crappy retailer. If you can't manage your finances, keep tabs on your inventory or the only tool in your toolbox is a product discount, you now have serious problems. If you rely on the holes in the floor of the vehicle that is the game trade to jettison weight to keep your vehicle moving, you are going to have a harder time moving forward. It's not just Asmodee though, Wizards of the Coast is being run more like a corporation than a typical game company, as is Games Workshop. These companies could care less if your wheels fall off because of their increased product release velocity. You are being forced into a vehicle where you must make smarter decisions on the front end because you're now restricted on the back end. Do you have the guts to take your crappy Land Cruiser on the highway?

Wednesday, February 14, 2018

Working for Yourself (Tradecraft)

My assistant manager asked me what brought me happiness and my response was never work for anyone else. It was kind of a smart ass answer, but I thought about it all day and what it meant to me. If you're young, and many game store owners are young, without a lot of experience in the workforce, you may not have much experience working for other people long term.

When you work for other people in a professional setting, as opposed to a limited service job, there's an expectation of progression. They ask dumb questions like "Where do you see yourself in five years?" It's a dumb question because most people see themselves somewhere else. They want to see if you have commitment, even though it's not yet deserved. 

You might start as a junior bottle washer with the expectation that over time, you might become senior bottle washer, head of the bottle washer department, or maybe even director of sanitary glassware. A boy can dream, right? A solid progression encourages you to invest yourself in that business and gives you a gold ring to strive for. It also gives them permission to manage your performance on your way up the glassware sanitation ladder, a process that irritates the hell out of an independent spirit. "You might have cleaned glassware with a brush at your last job, but here at Brushless Bottle Washing Incorporated, you shall use the steam invigorator or nothing at all. Our way or the highway at BBWI, junior bottle washer."

So that independent spirit swears off clean glassware and starts their own business. This is where it gets a bit complicated. Working without a boss requires a level of self motivation and goal setting few people possess. It's not that they're lazy, it's just they've never been educated on how to be an independent person. It's not taught in school, and in fact, if you're good at school, there's a chance you've been culturally assimilated into being a good employee.

Most people not suited for independent work will have their business crater in short order. It will never be about their not being managed or the stress of not knowing what to do, there will be other reasons, like a hostile market, or bad timing, or wanting to spend more time with their family. This is a known problem and not surprising. These people constantly blame others because they lack the flexibility to weave and dodge as they progress through the marketplace. They're standing still like a target.

What surprised me in small business is there's nobody there to fire you, when often that would be best. There's nobody there to lay you off when the company has ran out of money. There is nobody there to send you home because you just told another customer to get stuffed. There's nobody there to tell you you've washed enough bottles, so how about you take the director position. There is such thing in small business as having worked long enough, yet there's no place to go. If you believe in the concept of Return on Investment, it's likely you're just now reaping the reward of your business just as you're the most burnt out you've ever been. Yet you soldier on because it would be economically foolish to go back to washing someone else's bottles, right?

Those who have been married a long time will know that the only thing required to keep a marriage together is two people who don't want it to end. You can fight, you can withstand abuse, you can be terrible partners who enable bad behavior, but unless someone throws in the towel, you're still married. You'll talk to friends getting a divorce and think, wow, we've gone through way worse than that and we're still together. As many times as I've referred to my small business as a mistress, it more resembles a long term marriage with a lot of ups and downs, times when it should have ended and no clear exit strategy. 

Personally, I worked the counter for nine years, never getting a lunch, rarely taking a day off, before I finally said I need out of this relationship. Like anyone desperate in a relationship, fleeing was my first thought, but my manager stepped in and essentially fired me. I was promoted to director of sanitary glassware and was sent to the office to be more businessy. It certainly saved the business and it never occurred to me that was an option. Even after nine years, I needed someone, anyone to step in and tell me what to do. I had the key to my chains in my pocket, but nobody ever told me how to use it.

I want to say my issues with self management ended there, but it's a daily struggle to figure out what I should be doing, what goals to set, and there's always the question of whether I've had enough. I take a lot of time off nowadays and I understand the problems faced by retirees. The goal of a business is to be capable of running without the owner. However, the owner needs a place to go, a purpose after the business. Finding that purpose when you've spent years struggling to survive isn't easy and it would be far easier to start a new business, to put my head down and struggling not to fail, rather than learning to surf or mastering Italian lawn bowling. There are hopefully new opportunities on the horizon. One thing for sure though, I would never work for someone else.

Just a reminder to order my book, if you like what I write. Thanks!

Tuesday, February 13, 2018

Friendly Local Game Store

Almost a year ago to the day, I announced my intention to write a book. It was naive in its early concept, but we eventually got it done. Today it went live for pre-order. You can order it now for delivery in March (or pick up at the GAMA Trade Show). Electronic only versions, Amazon editions and game trade options will arrive later in May, but if you want a physical copy, it's hard to beat the pre-order deal with free digital content.

When I wrote that post a year ago, I expected the book to be a collection of blog posts interspersed with personal narrative. It turned out to be a whole lot more. Blog posts make terrible book chapters, it turned out. I didn't know exactly how terrible they were until I saw them in a Word document, puny and insubstantial. A blog post is supposed to be pithy and to the point, with a lot of assumed knowledge and at best a nugget of a concept. When I tried to turn those posts into chapters, it wasn't just about expanding a post, it was a full re-write. 

Chapters need themes with supporting concepts hanging off them. They can't assume the reader is "in the know." I can't put "Tradecraft" at the beginning of a chapter and pretend everyone knows what I'm talking about. Having an editor who wasn't a retailer also meant I couldn't get away with anything. All my concepts needed to be explained and the math crunched. That turned out to be a very good thing. The book shines because of my editor and is polished to a brilliant sheen due to my industry outsider, proof readers, who took issue with my business slang and occasional mean spirited discourse.

The obvious question if you read this blog is should I buy the book? I would say the book is inspired by the blog, but it's not a collection of old stuff or even re-worked stuff. It's about 80% new content and the other 20% has been worked over to be much better than the original content. So yes, please buy the book. You won't feel cheated after being a loyal blog reader.

The book has two concepts in one. The first concept is how to build a profitable game store. There are many ways to build a game store and even several that work. Writing this book was an exercise in best practises. It's one thing for me to say what I would do in a blog, but it's quite another to distill a concept down to what I truly believe will work for my readers, folks who may have hundreds of thousands of dollars on the line. 

The premise for this build is getting the owner to a middle class income in five years. That income is roughly $55K a year, a number that might seem overly ambitious to an existing store owner, but is the median household income in this country. So some people will think I'm insane to shoot for such a high income, while professionals will laugh that I'm essentially aiming for the middle. Who invests six figures and five years of their life to aim for ... the middle??? That sums up the game trade pretty well. Working our darnedest to achieve the middle. 

The second concept of the book is a personal narrative. I wrote a book that I wanted to read, which is not a book about building a game store. As an established retailer, retailing books bore me. I read them anyway, but oh man are they tedious. So the second part of this book, interspersed with the how-to,  is my story. It's a narrative of all my mistakes and victories that roughly corresponds with the how-to chapters. Every store owner has singular reasons why they succeeded along with unique failures. It was glorious to write a chapter on how I think you should run your business and then tell stories of how I completely screwed up that area when I tried to do it. If you find my how-to stuff preachy, feel free to skip it for the much more fun narrative. 

The narrative also goes over what was happening in my life during the 14 years of owning a store. There were major illnesses that almost ended my marriage, a new child was born, and I almost lost my house, but turned that defeat into my greatest victory. My attitude had to change over this period, as there was too much on the line. I think you'll get to know me in this book, which is a little scary. 

Thanks again for reading this blog. If you look back far enough, you'll see I had no great plans for this thing. You can find my 40K army lists and photos of my Dungeons & Dragons games. You'll find grand pronouncements of how to do something then descriptions of terrible failure that contradict what I said. I've enjoyed writing it and plan to continue. I hope you enjoy the book as much as I enjoyed writing it. Please let me know what you think of it.