Wednesday, January 2, 2008

How to Make a Million Dollars in the Game Trade

Start with five million dollars and work your way down from there. It's an old joke, but it illustrates the general belief that this trade isn't where you work to make your fortune, and most likely if you've got a fortune, it's at risk if you dwell here for long. Nevertheless, there are those hardy souls who want to make a go of it. If you do, I suggest you take the strategy recommended from another joke: A first business should be like a first marriage: do it for the money with a clear exit strategy.

Old Fashioned Retail. Retail is the tier that many wannabe game traders think is right for them. Let me tell you, if you're going to do it, the absolute worst way is to start your store from scratch. This is because of the very low residual value of a game store and the very high costs of starting one. People will throw around crazy numbers about store values, like it's your net profits times five years, or twice this or that. Good luck finding someone who'll pay that.

The reality is that the value of a game store is tied up with its owner. They have the knowledge and expertise and when they walk out the door, that's it. I've instructed my wife and investors, in the event of my demise, to liquidate the store as quickly as possible. Don't even try to make it work. Because of this, the value of the store is what you would get in a fire sale. It's the true value of the inventory and fixtures, which is probably about a quarter of what's sitting there. Oh yeah, and don't forget to deduct the sales tax too, even on the fixtures. No good will value, no sales data value, it doesn't matter. It's the same value in year one as it is in year ten or twenty. It's an economic racing engine without the hotshot driver, worth no more than the sum of its parts.

Therefore, the best way to get into retail, is to find a good enough store with a burned out owner. That owner might have been like you a few years before, but at least you aren't going to burn through the tens of thousands of dollars of startup capital and the tedium of building up clientèle from scratch. There's a technique to buying a store, but you'll learn that later. Provided it doesn't have a bad location or a bad lease, it's probably salvageable.

Innovative Retail. Better yet, find a way to leverage your knowledge or ideas to partner with a retail store. For example, if you're really intent on this, design a drop ship website that gets fulfilled by a retail store and partner with them. Another idea I have is for a holiday game store in a shopping mall. I'm too busy to do it myself, but if someone approached me with a business plan, I would consider it. Get in, make a bunch of money, and get out. Then there's always the micro store idea, like running a game kiosk in a shopping mall. It would sell only top selling games, like Magic cards, D&D and maybe some starter sets for various games. Perhaps it would be a referrer store to the "big" store elsewhere or maybe it would refer customers to their full service website. Perhaps represent a game store at regional game conventions, handling all the sales and marketing for them, in exchange for a cut of the profits. Most of these ideas will allow you to keep your day job and dabble in the trade.

Manufacturing. The first tier of retail is where many dreamers start. They've got an idea for a game and they doggedly shop it around. Some do this for decades; I think they're loony. If you've got one and you can't let go, make a mock up and go to the annual Gama Trade Show. Shop it around and see if people in all three tiers show interest. You could sell it direct to retailers, through distributors or sell it off to another manufacturer.

I've got my own ideas for manufacturing in the game trade. It goes like this: Don't re-invent the wheel, find a need going unmet. Yes, you're creative and could make a great role-playing game or miniature game, but what does the game trade need right now? It's accessories. They need good-enough game accessories either not being provided, and here's the kicker, or being provided at such a poor level that you could walk in and eat their lunch. Talk with other game store owners about need and who can't provide product, and you'll come up with a list.

My plan goes like this: Find unmet need, make contacts to sell it, manufacture and QA in China, drop ship it to whoever is selling it, collect check.

Distribution. It's possible to represent a product to the market, but usually you'll do it outside the distribution system. For example, you could become the sole distributor of some cool miniature line from Germany. You could approach stores and maybe even the big distributors about carrying it. It's often something done by retailers, since they have a built-in market for the product, both for testing it out with their customer base and providing a legitimate presence for potential store buyers. However, unlike the toy trade, which often requires reps to sell the toys (I can't buy Thomas from RC2, I must buy it from a rep), only the hottest products are sold independently. Expect the manufacturer to cut you out of the equation when it takes off.

Synergy. There are many people in the trade who branch out. As mentioned, there are retailers who act like distributors. There are also retailers who are manufacturers or publishers, such as Eden Studios, located on the second floor of the Zombie Planet game store. There are manufacturers who work in distribution, like the makers of Zipwhaa games, or Wingnut Games and Impressions, a consolidator. It's often easier to branch out into the industry if you're already there.

Money. Most of these ideas are low cost options. I think the housing market was the source of much small business expansion, providing easy capital to potential entrepreneurs. Some of these ideas could be done for pretty cheap, probably for less than twenty thousand dollars. So how do you make five thousand dollars in the game trade?

1 comment:

  1. There was a seasonal board game kiosk here at the mall. I don't know how well it did, but it seemed to have at least as many customers as any other kiosk the couple of times we were there.

    Most of their stock was the kind of mainstream schlock most of us have come to despise, but it also had a few euro and specialty board games (my current term for non-euro good games like Fantasy Flight).