Saturday, March 15, 2014

First Rule of Game Center Expansion

The first rule of Game Center expansion should have been:

  1. Don't talk about Game Center expansion.

Why? The unknown variables are enormous. We've got the city, the property owner, the gaggle of consultants (architect, electrical engineer, mechanical engineer, lighting consultant), and the contractor and subcontractors involved in giving estimates. Plus your financier, the bank, is salivating at the prospect if your business is established, or rejecting you outright if you're not. My advice for the future (or my past self using a time machine) would be to avoid talking about it until the last possible minute, as in, "Please excuse us folks, we're closing our Game Center for a week while we install a second floor." "Whaaaaaaaauuuut?"

Since I've already talked about this wildly variable project with a huge chance of failure, I suppose I need to post an update. People have been asking. Our current situation is a classic Catch-22. In this scenario, the architects needs to proceed with devising the very costly "permitted" plans, including using a gaggle of consultants. It's a Honda Accord level expense, for those who like my economy car financial analogies.

However, the catch is we don't know we want to proceed with the project until we can present these plans to the contractor for a more accurate construction estimate. Plus there was the question of whether the bank would give us a loan without the architectural plans.

Many a project dies in this intermediate stage, I'm told. This is where risk enters business. It actually took me a while to realize that, because most of my risks since our move nearly seven years ago have been small. Continual, daily, but small. I haven't made a big risk decision in quite some time. That muscle was feeling a bit flabby. I am now risk averse. It's what happens when you run a profitable business and you consider a change that could nuke it. That risk muscle is the one competitors use to smack you around with, by the way. It's easy to have balls of steal steel when you've got nothing to lose.

We already have pretty architectural drawings, tentative city approval, and a big smile from the property manager. There are sunk costs hovering around a used Civic. So what to do? Well, you take a risk, but try to make it as small a risk as possible. Risk management is about getting more information.

I spoke with the bank to find out exactly what they needed to give me a loan. They were so very happy to see me. Really, quite ecstatic. Sit down old friend. Banks love to talk to businesses when the business doesn't actually need the money. If I had spoken to them trying to open a store, they would laugh in my face. But ten years of being in business? Some of those years profitably? Oh yes sir, please take a seat! I won't mention my last bank negotiation involving my mortgage.

It turns out a $50,000 business line of credit to do whatever the heck I want is a handshake. Really it's a two page sheet about your business and proof your corporation actually exists. But they don't care what I do with the money; no architectural plans needed. Interest only for five years, 6% plus or minus, and if you don't pay it off in five years? No problem, fill out the sheet again and we'll just roll it forward (big smile). I'm not special, this is just the deal for those who qualify.

Over $50K and up to 10% of my annual gross income and there's a personal credit check, which again, is what you would expect when applying for a credit card, but a lot less than say, a mortgage. Oh, and the whole thing takes four days, compared to four months or more for a commercial mortgage or refi. Money, it seemed, would not be a problem. Getting the investment to comply with my Return on Investment (ROI) scheme is another story and remains to be seen. In other words, I can get the money, but I haven't decided if I want to spend it yet.

The architects, meanwhile, worked to find out exactly what we needed from the city to move forward while having plans that are just complete enough to satisfy the contractors.
Wiseman: "Did you speak the exact words?"  
Ash: "Look, maybe I didn't say every single little tiny syllable, no, but basically I said 'em, yeah."
This is important because you don't want to spend Accord levels of cash to explore a maybe project, but might be convinced to spent the smaller sum of Toyota Yaris money (sorry, no Honda was cheap enough to compare). Hopefully we'll have that compromise soon, which should allow us to present what we have to the contractor for a quote (my brother), while working towards the full plan to satisfy the city.

That's where we stand at the moment. We've been working on this since Summer. There have been no delays at any point in this project, even a single day of hmmm, let me think about it. Full speed ahead. Will it happen? I believe it will. I give it a 75% chance at this point. If it doesn't happen, it won't be because of acquiring funds or planning, it will be because, a) It became way, way too expensive and we decided not to, or b) someone important along the way didn't want to cooperate at a critical juncture. There is also the unlikely. "C" involves "outside influences," like a serious economic crisis or the collapse of the game trade. We'll just call "C," other.

The goal is to seat 120 people, legally, with the blessing of the fire marshal, and to extend our lease another 5-7 years. As painful as it sounds, it's probably still a lot easier than opening another game store.

Damn. The first rule of a second game store:
  1. Don't talk about the second game store.


  1. Completely agree. Our expansion wasn't nearly so complicated, but I wish I'd never said anything until we were at the breaking-down-the-wall stage.

  2. A typo that works: competitors and their "balls of steal"

  3. Funny. Fixed, but I left the original there as well.

  4. Gary, what keeps an Evil Landlord from letting you do all this expansion work, waiting for the lease to expire, kicking you out, ordering the same stock, and changing the name on the door to White Ruby Games? I apologize if you have covered this before, but is there a non-compete clause (or something) in your lease?

  5. My expansion work has limited value to the property owner. In fact, the space next door had a mezzanine and when the tenant left, they tore it out.

    The way this works is I need a particular return on investment for the project and the terms of the loan and the lease need to match up with it. For example, I need to be able to pay off the loan in five years, have my lease extended for five years, and completely re-coup my money on the project based on improved revenue, all in five years. If I can't do that, the project doesn't work.

    As for the evil landlord scenario, they are way too smart to start a game store.

  6. Honda Accord is good. Great gas milage. Best long term investment.

  7. Read the whole article and the main thing that sticks out to me is "contractor (my brother)."

    I think the first rule of business is: never involve family members. :) Given my personal experience with every single contractor I've ever worked with, I say to you: good luck! And I hope next Thanksgiving you're still willing to eat together. :)

  8. Actually, my brother built out our current space, on time and on budget. So I have a high degree of confidence, especially when I've got architects and engineers handing him the instructions (and not my whims).