Saturday, November 12, 2022

Price's Law or Exponential Incompetence

You are probably familiar with the 80/20 rule, or Pareto's Principle. I've written about what I call Altuchers Rule or 80/20/20 (20% of your 20% are your core clients). Now let's look at Price's Law, and how it might be useful in thinking about small business. The law states half of the total contribution is made by the square root of the total number of participants. If the language sounds vague, it's because it was originally about contributions to academic papers. It has been applied to the workplace somewhat successfully though and if you've worked in enough places, it certainly rings true. It's horrifying, but not surprising.

I've had small business colleagues complain about the productivity of their staff, with complaints getting more numerous as their business grows. In small business, the owner is usually a workhorse. Employees are reluctantly hired to carry some of the load. We want to do more and employees allow us do that, sorta kinda. As you grow your staff, you look around, and realize the same people as before are doing most of the work, or perhaps one more of the several you recently hired. Maybe if we hire another couple people, we can break through this? Price's Law says good luck.

To give you an example, if you have a staff of six, under Price's Law, two are workhorses, and four are contributing a minimal amount of work. You tried to hire good workers, but it didn't work out like you expected. Twelve employees and eight are just getting by. Ten thousand? Only 100 performers. We grow into increasing inefficiency. This is not new, but it's shocking if you don't have broad work experience. It's also why very experienced owners are reluctant to grow. They know the inevitable outcome. I can tell you stories of dead wood, both people I worked with and the pain of realizing that I was the deceased wood.

Many successful owners are used to being in the competent category, and probably never had time to look around to see the under performers. Under performers are still contributing, but there's a tendency for them to naturally obfuscate the differences between them and the performers. People are taught that if they can't stay busy, they should at least look busy. "If you can lean, you can clean." Incompetent managers are no different, so there's a lot of smoke in organizations, with new projects and initiatives, but not a lot of fire. Managers are not immune to Price's Law.

So what can we do about this as small business owners? 

First, let's be clear that the so called incompetent still contribute, just no more than is absolutely necessary. There's even a grievance movement afoot to work in this fashion. I would also argue, this is the nature of most people. Most people are working out of necessity, not passion. If you're that individual, find out what you're passionate about and seek out that feeling in a field that works for you. 

When it comes to hiring, you can and should attempt to hire around the incompetent, looking for top performers. We don't owe anyone a job and there is no assumption business is some sort of employment socialist utopia. We don't want these under performers, who need to go find their passion. We just end up with them.

Of course, if the person doing the hiring is incompetent, you'll get more incompetent workers. There is some research indicating that low performers can't even identify top performers and end up hiring people at or below their competency. The competent are so different, that the incompetent not only can't identify them, but are turned off by them. It's important to allow the performers to hire and insist they look for the appropriate signs of competency. As if the performers didn't have enough to do already! In my experience, you're likely to be only 50% successful with your hiring, but that's still better than Price! 

Second, most people just do what they're told at a job. They're afraid. They're unsure of what needs to be done. Some are waiting for you to instill competence into them with training and direction. You can bend the competency curve with some attention to their needs. Unfortunately, I think most of us are crappy managers, also known as being incompetent. 

Most of us started a business because of passion for something, and that something probably wasn't managing people. When it comes to training and experience in America, a good manager or good management training is damn rare. I've had such poor managers in my work experience, that it often came down to meshing with personalities, rather than discovering good leadership. I certainly don't claim to be a great leader myself.

If you have an employee who is not naturally competent, it's awfully hard to turn them. It's what we look for in individuals we want to groom to become managers. Do they identify problems? Do they take the initiative to solve them? Can they perform over time or do they lose interest? Can they work independently or do you constantly need to tell them what to do next?

Third, assuming you are stuck with the square root of your employees being competent, reward competency. Don't lose those people. Most large organizations can't identify them, because, as we now know, they're incompetent (also don't forget Dunning-Kruger). With wages going up dramatically, it's hard to compensate the competent more, when the pool of resources is tapped. 

There is some resistance to increased compensation for performers. I have bumped up against push back against increased compensation for performers, as there's a socialist element in the culture that equates uneven compensation, for whatever reason, as unfair. I've had employees compare paychecks and question why one person was paid a dollar more an hour than another. This is considered normal now. They expect wage transparency, and uneven compensation is an uncomfortable discussion. 

So there you have it. Really this is just a name to describe what you already knew. If you disagree with this, if your experience differs, you are probably a great manager. You can identify and hire talented individuals with skills and ambition like your own. You can encourage, train, and compensate your staff to a high level of performance. You are the function of the square root of the rest of us. I look forward to your book.

Friday, November 4, 2022


We were talking in a mentorship forum yesterday about how we decide what to buy. Of course there are metrics, but then I mentioned witchcraft. We use witchcraft. Another mentor chimed in that he too used witchcraft! What is witchcraft?

It's tradecraft really, but not a skill or metric. Witchcraft in this context are the many subjective elements of any given product, a product we have never seen. Here are some of those elements:

  • Publisher reputation. How do I feel about them? I like making money, but I'll buy more or less depending on how I feel about the publisher. It's sometimes personal. 
  • Safety stock. Is this product likely to run out? Am I being told it will run out? I just placed a top up order of Root, because it was clearly the last shipment for the holidays. Is this a top tier product I don't want to run out of? I don't want to be out of anything D&D, for example, so I don't mind ordering beyond my normal threshold. Nobody with cash reserves loses money on Magic overstock; eventually it sells for more than you bought it for ... if you can wait.
  • Customer Demand. Do I know of a predicted high demand? Is there buzz? Are there known problems? What are my customers saying? How is game room attendance? I look up every Games Workshop release on Reddit to hear the buzz. Is this a re-packaged boring product? Is it a good value? Are the rules good? Are they crying because they want it, but can't afford it? 
  • Frosthaven lands in the US
    Do I Have Room? It was clear in this forum that some of us have reduced our gaming space due to increased inventory. If I order a lot of this product, will I have room? I have a pallet of Frosthaven on the way, but if I had more than one pallet, it would be a space problem.
  • Is the Theme Popular or Not? Cat themed games do well at the moment. Political and sports games always do poorly for me. Games with great miniatures often sell, even if the rules are ho hum. What if I was offered Cathaven, a beautiful miniatures game of cat politicians playing baseball? Oh no!
  • Is it Devalued? Is the publisher known for discounting their product? Is it a commodity product sold like stocks? Most CCGs are known to be hot or cold before they're even released. A devalued product might still get purchased, but as a one shot. It's disposable. A company like Games Workshop is so good at protecting their brand value, I can always clearance their miniatures and make all my money back, unless it's a book, cards or dice. 

Upcoming Magic: The Brothers' War Set Booster with Commodity Pricing

  • Is It Limited? AEG allows for early retailer release of some of their board games. Some of these games are just alright, but when the Internet is removed from the equation, and I get a true regional demand for a product, I realize that even an alright game will sell very well as an exclusive. A game in which I might normally order two copies, now sees me ordering two cases.  Sometimes premium product is a bit of a downer, like a lot of Wizards of the Coast Premium store exclusives. Just because supply is limited, doesn't mean demand is high.
  • Is It Already Out? Sometimes you'll find the "new release" already being sold on Amazon or it's a Kickstarter left over. Sometimes distributors will sell a game as new that's actually just a reprint. If it wasn't for boardgamegeek, and past experience, I often wouldn't know! We are a front list driven trade, so old stuff is death.
  • Can I Afford It? What does my Open to Buy worksheet say? Some buys, like Kickstarter orders, are only an option when I have disposable income. If you pay in advance, you may not have the cash this week. Q4 doesn't have me backing many Kickstarter projects, as I save to pay off my debt.
  • Does It Solve A Problem? I might be looking for a product line. For example, I would love to find a line of miniatures bags that are well priced, well stocked, and always available from distribution. I don't have the volume to order from a dedicated bag company. On the other hand, I don't need another dice manufacturer.
  • Packaging. Is it difficult to display? Is it in a tube? Does it come in a plain cardboard box (chess sets). Does it need to be put in a display case? Display cases are the kiss of death and there's limited display case space. 
  • Theft! There are product lines we don't carry because they attract professional thieves. We'll no longer carry caps, wallets or purses, for example. If you can imagine it on a blanket in front of a train station, I don't want it. And yes, our stolen goods were being sold on a blanket in front of a train station.
  • Offensive. Will this cause controversy or do I find it personally offensive? Is it racist, sexist, overly sexual, or otherwise out of step? Some games intentionally try to push buttons, and honestly a lot of people love them. Cards Against Humanity was practically demanded by customers, and we sold nearly 2,000 copies of it. Do I feel good about that? Nope. Do I feel bad enough to give back the $90,000 we made with that line? Nope. Do I cary it now that it has cooled off? Nope.
  • End of Life Issues. Can I get rid of it easily at the end of life. If you sell online, are there restrictions on where you can sell it and at what price? Board games are easy to clearance, but Role Playing Games die on the vine. 
There you have it, some witchcraft!

Thursday, November 3, 2022

8 Thoughts on Retail Purchasing

I'm co-hosting an AMA on retail purchasing for new stores today and thought I would summarize my purchasing advice. I've been purchased 14 million dollars of games since 2004, and purchasing is now my main function working from home. Here's some advice:

  1. Focus on What Works. 80% of my sales are from 10% of publishers, roughly 30 of them. Get right with this 80% and you've achieved most of your purchasing objectives. It's not an issue of "if" but "how much."
  2. Pre order Most Things. I pre order everything. You might decide to only pre order from the aforementioned 80%. The primary reason to pre order is: a) I almost always get what I want, b) I almost always hit the street date, and c) It frees up my time. I do not look at "dailies" or pay attention to most marketing communication from distributors. I have instructions to auto-ship orders when they hit "free freight."
  3. Back Order Essentials. I have $62,000 of pre orders, but only $900 of back orders. We are a front list driven trade, so the new is vastly more important than the old. I place my orders online by hand, so I regularly see what's back in stock.
  4. Track Your Purchasing. I use an Open to Buy (OTB) spreadsheet to track every purchase so my purchasing budget is balanced. I know when my inventory is bloated (most of the time) or when it's lean (almost never).
  5. Budget and Cash Reserves. I don't budget, (OTB is not a budget tool, just a tracking tool), but I have a cash reserve. Even if I'm following my Open to Buy spreadsheet, variations in monthly sales can leave me in a hole. Having a $150K sales month followed by a $100K sales month means that even if I kept my inventory stable in month one, I'll still have problems paying bills in slower month two. If my purchases were good, I'll resolve it in the future. In the short term, I probably have about $25K of bills I can't pay without a reserve.
  6. Your Best Hat. Purchasing is just one hat you wear, and it's easy to rush purchasing decisions between other tasks, maybe while standing at your point of sale system. Make purchasing special. Find a quiet place where you won't be interrupted with a stretch of time to contemplate what you want. With more time comes more options. You can go off script and open direct to retailer accounts or back Kickstarter projects. Prioritize purchasing and purchasing will expand and reward you.
  7. Buy For Your Particular Sales Team. You are probably your sales team, but think about the product you're ordering. If you have a mostly passive sales staff, the product you buy will need to sell itself. Product will need to be obvious. If you have a demo program, you'll want games that demo well, meaning you will have to be part of game demos, including attending trade shows, conventions, and local game nights. The more active your sales team, the more you will sell, but know what works for you. Purchasing is not aspirational.
  8. Exhaust Port. You can't get another portion if you haven't finished what's on your place. Have a system for clearancing dead product. There's no shame in an in-store clearance section. Game conventions are great for moving bulk overstock. And of course there's the Internet. The system is in a closed loop and you need to move the dead stock to buy new stock. If you personally move your mistakes, you'll get better at buying decisions.

Tuesday, November 1, 2022

Gaming A Broken System

Out of college I took a job for a short time as an assistant teacher at a school providing therapeutic services to kids. These kids had autism, severe learning disabilities, and most common, trauma that resulted in emotional outbursts. These were kids that were unable to be served in mainstream schools, or so it's said. It would be the most challenging job of my life, which is to say it was awful. I left as soon as I was accepted to graduate school, and I still remember the look of disappointment on those little terrors. It haunts me.

Kids were expected to improve and be mainstreamed back to regular schools, age out, or for many, end up in a group home when their behavior devolved. Most had messed up home lives or in utero drug addiction. My job was to try to get these kids to learn anything, while not hurting anyone. Some kids were super bright, and I was able to teach a unit on The Hobbit and some elementary Japanese.

Some kids were not so gifted. We had one kid, Tom, who was completely unable to focus. Tom was rewarded with a piece of candy for every math problem he attempted. Eventually I developed a reward system using trading cards, and we got rid of the candy. For now though, Tom would sit at his desk, do a problem every ten minutes and eat his candy. He would laugh at the other kids, "Suckers!" Tom was gaming the system. He was clearly in it for the candy rather than the education. I never forgot Tom.

Sometimes I feel like Tom. I'm a store owner crushing it right now. The system is broken. Suppliers are in disarray. Most of my suppliers cannot properly send me an invoice, provide tracking numbers, or cash my checks in a reasonable fashion. These would seem like core competencies, no? 

I regularly find myself dividing up pre orders in fear that a distributor can't deliver. Often they can't, because of logistics, lost orders, or they didn't pay their bill and got cut off. Focusing my job as a buyer and finance, has hyper focused me on these two areas. I get the impression that a metaphorical Harry was keeping their systems together, and everyone has lost their Harry. One does not simply replace their Harry. And nobody really understands what their Harry does until he's gone.

Meanwhile publishers are moving to Amazon in droves to avoid the bottlenecks. I am the little boy eating his candy and calling everyone sucker. I am master of a broken system, not just due for replacement, but actively being replaced while I'm blissfully unaware, crowing about my success while on a massive sugar high. This is where it becomes imperative to have good publisher relations, direct accounts, Kickstarter orders in the pipeline, and an ear to the ground. I am Tom, but I am also Harry. 

I would mention how unstable the game trade seems right now, but has it ever been stable?  That's the one certainty in all this. Time can be defined as just one damn thing after another. Such is the game trade.