Wei Wu Wei (Tradecraft)

Wu Wei is a Taoist term meaning "non action," or being in harmony with the universe. Wei Wu Wei then is action through non action, which means all your actions are in harmony. You maintain harmony, doing no more and no less. Applying this to business, an established business has a natural rhythm and pattern, it has a harmony all its own. The nice thing about this is, although you still work hard, you work happier with less stress.

What we're often told to do as business owners is apply disruptive ideas and concepts to our businesses, in hopes of jiggering it into performing. In reality, it turns out, doing less is more. Applying a little action through non action, a better strategy is to find things to do that enhance that rhythm and harmony, rather than disrupting it. That's essentially what I try to do as my management style and it's often about what feels right, as opposed to what might work. I don't think that makes me a mystical guru, it's just how I define my gut. If you don't feel the rhythm, you often won't understand the decision.

When my business is in harmony, when the employees needs are met, when the coordination of events comes off well, when we're focused on the customers, down to the cleanliness of the carpets, then sales will absolutely go up. The business succeeds. We've implemented management meetings for the first time this year, and although we have some big projects, a lot of what we discuss is wei wu wei stuff. Acting to promote harmony in the business and ruling out things that disrupt it.

At times this means I make what appear to be illogical decisions. I'll honestly declare that I don't want products like Modern Masters because it disrupts my business process and angers customers, regardless of what we do. Sell it? Don't sell it? Mark it up? Don't mark it up? It's a massively popular product that will still only comprise half a percent of my sales this year that I swear was half my headaches. It means I'll fire product lines, distributors, the rare customer and even events. We've stopped doing Yugioh twice, for example, and only through some strict controls to maintain harmony does it continue. It's not love and flowers harmony; our maintaining harmony is a notch below draconian. You know, like public schools.

There are mistakes I'll admit making that go against wei wu wei, that disrupted the harmony of the business. Toys and used video games, for example. Most diversification attempts rarely work if they don't fit with the natural patterns of our business. An online store is something we've considered but it doesn't really fit us. It feels wrong, out of sync with what we try to do. Whatever that is, it wouldn't translate online. There have been employees that have had to go, sometimes very quickly, when it was clear there was no harmony, or as we used to say in college, "You're disturbing my wa (harmony)." A lot of ideas will get bounced back to me, especially from my manager, as "I thought you were trying to run a business like X, why are you asking for a Y thing?" This assumes you've strongly defined X. Defining X and sticking to the plan is step one.

The Third Bucket (Tradecraft)

After the big bucket expenses of payroll and rent, we come to the third bucket, best described as "other." It contains the huge amount of money we spend on advertising (a little less than 2% of our gross sales), the enormous credit card processing fees (the highest in the industrialized world), the lightly regulated world of business utilities, (a larger small business concern than healthcare),  and being in California, sky high insurance premiums. Our insurance category includes  business insurance, workers comp insurance, and auto insurance for our spiffy van. Note the distinct lack of health insurance. I don't see that changing anytime soon with the Affordable Care Act, which pretty much bypasses us.

These four categories are two-thirds of our miscellaneous bucket, and if you're going to worry about expenses or try to hammer them down, you want to start there. Beyond these categories, there is a lot of discretion. When times are tough, the discretionary expenses are where I tend to cut, assuming I've already been doing my job on the top four.

This is were you'll see us diverge from many stores, as the remaining expenses include a lot of specific line items related to our business, or in the case of our most current year, high categories like outside services. Outside services for us included our accountant, a team of architectural consultants and IT people for our new POS system. We've been busy preparing for the future.

Lodging, meals and travel including my trip to the GAMA Trade Show, something I recommend doing every couple of years, along with the three game conventions we attend each year. As they say, you have to spend money to make money. Meals also includes the occasional employee spiff, like when I have staff work all day getting our POS up and running (this week). The least I can do is buy them a sammich, right?

So when times are tough, I sweat the small stuff. Otherwise, focus on the big expenses.

Paying the Rent (Tradecraft)

The second bucket in my three bucket expense model is rent. Rent is really about the lease, and there are two classes of leases. The first type of lease is the down market lease and the second type is a professional lease. Perhaps the world of real estate has better terms for these, but that's how I see them.

The down market lease is much like renting a mediocre apartment. Some guy has a space, you agree to pay month to month, and your financial exposure is limited. These leases appeal to shaky or under capitalized businesses and they're almost always in undesirable areas. Many game stores end up here either because the owners don't know any better, they have bad credit, they have strict, low budget rent requirements or their idea of a business plan to show a property manager is some scribbles on a napkin.

Once you've chosen a down market location, you've limited yourself severely. Parents will not want to drop off their children. Your neighbors may cause you problems. Your landlord is likely unresponsive. Crime is high and the area is dumpy. Primarily though, the location is just plain bad and geographically undesirable. You have created a gamer pit, mostly for older gamers and your chance at strong diversification, the key to a successful professional store, has been eliminated. You can run a store like this, a shaky fantasy den, but why would you want to? Why are so many game stores low market? This.

The professional lease is a serious commitment that requires much consideration on everyone's part. These are leases you'll usually encounter in good locations. They specify a number of years you're on the hook, and when I say you, I mean you personally. You'll sign a lease as both the business and as yourself, putting your personal assets on the line. The idea that a small business person can avoid personal financial obligation by forming a corporation is a myth.

To give you an example, our $2/square foot/month lease is for three years. As soon as I sign that lease, I'm on the hook for over $275,000. So put yourself in the position of a property manager and ask yourself, who am I going to trust to sign on the dotted line? Whose going to get to drive the Ferrari? It certainly won't be gamer den guy with his napkin business plan.

If my business fails, it now means I must personally declare bankruptcy or find a way to pay back a lease worth more than the average house. In fact, that number is what freaked me out when we moved to our larger location. It was a lease payment that I could no longer pay by going back to work. The business paid it with its revenue or I was toast.

With such a professional lease, you should now have the opportunity to build a solid business in a good location. It should be safe and clean enough where parents will bring their children and employees won't be afraid to walk to their car at closing time. It should have standards of cleanliness and repair. It should not tolerate shenanigans from your neighbors that are not specified. Our property managers can be hard asses sometimes, but I know it also works in our favor.

What Does a Lease Cover?
Leases are highly variable but they include what you have normally experienced as "rent," along with CAM charges. CAM, or Common Area Maintenance, means you're paying for the electricity in the parking lot, emptying the trash cans, and repairs to the roof or air conditioning. All of these things are negotiable in a lease, but negotiating will depend on your property manager.

Ours are all lawyers and won't play ball in most of these areas (but will in others) as they want standardized leases. However, most leases will have a bunch of junk that you'll not want to include, which means you'll want a lawyer to help you out with this. Before signing, carefully check CAM expenses and if you're serious, ask other tenants about past expenses.

Sometimes property managers pad their own compensation with these expenses. Ours owns their own maintenance company, pays themselves a management fee for managing their maintenance company and an administrative fee for administrating this management. Wow. Not surprisingly, our CAM is extremely high, probably 50% higher than it should be, but our rent is below market, so it evens out for us.

What your lease covers for repairs is also highly negotiable. It might cover interior repairs or it might not. Our last lease was like an apartment lease and when the plumbing broke, someone came to fix it. It was owned by a retired guy who was always lying on the beach in Hawaii. He would tell me to send him the bill. Our current lease leaves us responsible for everything inside the unit, and we've had to replace the toilets and fixtures along with repairs of doors and the like.

The key is to read your lease and know what you're dealing with, deciding if that will work or not. If you stay long term, which is what we're doing, it's clear in my mind that eventually I will have to fix absolutely everything. If you don't think this is fair, negotiate or find another location. When it came time to renew, we couldn't get them to cover plumbing, but we did get our base rent reduced by 25%.

I recommend you go for the professional lease. If you're going to put yourself out there and spend $50,000-$100,000 on a retail store, you should swing for the fence. Expect bankruptcy if you fail, but plan to succeed. Get your business plan sorted and expect to make a presentation to the property manager to win your case. Make sure you have money in hand to do this. They may not believe in your plan, but they'll be happy to entertain what they consider madness if you've got a fat bank account.

The Cost of Payroll (Tradecraft)

Last August I wrote about the three buckets that comprise expenses for my store operation. All stores are going to have these three buckets, with some larger than others, and the sizes changing over time. The bucket I want to look at today is payroll. This is probably of no interest to most people, but if you want to start a small business, you need to understand the various parts.

First, nobody in their right mind does their own payroll. You use a service. It's not that it's ridiculously complicated, because it's conceivable you could keep up with and figure out all the state and federal regulations. The real reason is liability. If you screw up your payroll taxes, you're boned. The same is true with sales taxes, but payroll is far more complicated and the likelihood of you screwing up is pretty good (for me it's a certainty). My payroll companies have screwed up a couple of times, racking up fines with the state in the process. I call them up and tell them and they take care of it, eating the fines and apologizing for the mistakes.

So for $70/month, I have a GAMA recommended payroll company deal with everything. They remind me to submit my hours. They keep track of employee rates, calculate bonuses and advances, collect taxes, and I even use them to collect my workers comp insurance. They file quarterly paperwork and provide me the forms to hand to my accountant during tax time. It's money well spent and when they called yesterday to see if I was looking to switch, I laughed. It's far too much hassle for far too little savings. Keep up the good work.

Typical pay period

Workers compensation insurance adds another 3% or so to payroll costs. What you pay will vary dramatically by state. It's also important to make sure you're classified properly by the insurance company. They have wiggle room, since there's not likely to be a game store classification. I know with standard business insurance, there are significant cost differences between hobby store and book store, for example.

The California default is Workers Compensation Insurance Fund, a quasi governmental organization that will likely have the lowest rate, but they will make you crazy, as you would expect from a quasi governmental organization (I used to work as an IT contractor for them; oh the stories).

Wages include the taxes shown in the chart. It's employee gross pay, minus taxes, which all comes out of your pot, of course. We require (or at least strongly suggest) direct deposit for employees so we don't have to pay the costs of cutting and shipping physical checks.

How much you pay your employees depends on a lot of issues, but I generally don't want compensation to be a reason they leave. I often find myself competing with large retail chains, who can pay better and with benefits, but I'm not terribly far off. The California minimum wage is currently $8/hour, and we pay well above that. In good times, I tend to give bonuses during record periods and try to avoid raises. Raises are great, but when times are tough, you've painted yourself into a corner. It would be horrible to have to let an employee go because you, the business owner, let your wage growth get out of control.

We are very low tech with payroll. We use paper time sheets. We send them an email of our hours. There is no time clock or technology involved. It's also, as you see, a fairly cheap service. If I were to look for a new service, I might check out the various "cloud based" payroll companies, like Paycom. If I were an absentee or part-time owner, I would insist on it.

The Ice Berg Cometh (Kickstarter)

Everyone's talking about the cancellation of The Doom That Came to Atlantic City Kickstarter project. It's hardly the first gaming Kickstarter to crater. I should know, with 21 projects under my belt, I've got two failed ones in my queue. That's about a 10% failure rate for me. One study reports that the overall Kickstarter failure rate is 3.6%.

In the scheme of things, that's probably not so bad. About 25% of new businesses fail in the first year, something that Kickstarter is supposed to assist with, since it gathers up the resources before the "company" begins serious production (The Doom attempted to establish a company with their Kickstarter cash, rather than just making a damn game).

Even after a company gets off the ground, a failure rate of 3% is average. One secret about small business is there is no year when you're not at risk, when you get to relax and say "We've made it!"As a Kickstarter supporter, it wouldn't be unreasonable to expect that 3.6% failure rate to be an ongoing threat, regardless of publisher.

So here is where I point out that the many thousands of years old system of production of goods has a reason for existing. There is a reason that if you want a pot, your entire village doesn't pay the potter up front and wait six to twelve months for him to make pots and deliver them late. There is a reason why the entire village doesn't trust the potter with their hard earned money. He's just a potter, not a damn saint. How many potters know how to handle a village worth of money? What percentage of people are likely to steal no matter what (security experts will say 10%)? Or steal if given a really good opportunity (those same experts say 80%)? So if you want a pot, you should really just go buy a pot. Or, you know, get the pleasure center of your brain tickled constantly with pot updates and new features the potter has added to your fancy, pot that you'll certainly get later than you want, if at all.

Kickstarter is not an investment, which is something you expect a return on, as in profit. What it has become is a one sided contract offering a way to pre-order stuff, with a 3.6% failure rate, 75% late delivery rate, and no recourse or consumer protections. It fails the friend test, as in it's not something I would recommend to an uninitiated friend.

When I charted out Kickstarter projects on Boardgamegeek, their ratings were average, no better or worse than what's on the shelf at the store (and some people believe this is inflated). It's possibly a great way to get things you couldn't otherwise, and there have been some notable bargains (that nearly bankrupted their established backers), but overall. lots of risk with average results.

My personal experience is that items from established publishers on Kickstarter tended to get produced and tended to be of sound quality, but they also tended to be on game store shelves at or shortly after the time of release. Games from unknown publishers have been alright or disappointing, or not ever delivered, despite really cool looking Kickstarter initiatives. But really, isn't Kickstarter supposed to be about supporting those people?

Changes at the Store

We're upgrading our entire point-of-sale (POS) operation with new store fixtures and a Mac based point of sale machine three weeks from today. The fixtures will replace our 9-year old counter and register stand. The counter is gouged, permanently stained with super glue, and irreparably grungy. The register "stand," stands only because it has no room to fall over. Perhaps it needs a new name, like Register Lean.

The register stand was designed for a cash register, not fifty pounds of point of sale machinery with a rats nest of cables. One shelf is held on with duct tape and the whole thing was made unstable on day one by boring holes through it. The new fixtures are "professional grade" from my favorite fixture company, Newood. They cost about four times more than the last batch of fixtures, but everything from Newood looks new many year later, compared to bargain fixtures that start to wear out after a couple years (along with collapsing on customers and other horrors).

New counter and register stand by Newood

The new point of sale system is Lightspeed, a Mac based system you may have encountered at the Apple store. Lightspeed is one of the few systems as robust as our current Microsoft Retail Dynamics system, but without the irritation of Windows-based computing and with a few improvements. Retail Dynamics has grown stagnant over the years, with little to no improvements or added features, allowing companies like Lightspeed to step up with new innovations.

Lightspeed especially shines in mobile POS, meaning when it's busy, staff can grab an iPad and help people in line, or sell a game or event voucher right from the sales floor. If you've seen the store lately, you know iPads are everywhere, in a variety of roles, so it's hardly new technology for us. 

Lightspeed also excels in the area of "ease of use."  Special orders and back orders are easier, for example. Customers can choose to have their receipts emailed to them, and once in the system, it happens every time they use their credit card. The interface is stunning and just a bit easier to use. Finally, there's a very nice E-commerce module that might finally allow us to have a web presence, if we can come up with a viable model.

What are we losing? Our Paladin Club customer loyalty program is very specific to our old POS system, so that won't be moving forward. I announced we would be moving away from that program three years ago, but we grandfathered in everyone who had a card. Now there's actually a technical reason to let it go. Everyone who has a card will retain their points and will have their points rounded up or down for redemption. There's no need to run out and use your points, but you just won't be accruing new ones as of mid-August.

Will we have another club program? Perhaps something, but I believe these programs are really, really bad for the business. The amount of money given away is tremendous, and even by grandfathering in customers, the costs remain high. Plus, with so many new customers, we have a two-tiered system of sorts, which isn't really fair. You can go back to my three year old post for a fuller discussion of this.

Why the big change? Point of sale companies want a better revenue source, as a company like Microsoft hasn't seen a dime for us in over five years. They now have mandatory maintenance programs and ours was long out of date. When asked to pay up, my response was thanks, but I'm fine. That worked out alright until our POS consultants stopped supporting Retail Dynamics.

The new consultants wouldn't talk to us until we were current on maintenance, which would have cost thousands of dollars. That opened the door to exploration, and with my personal switch to Apple products, it made sense to consider a Mac based POS. This was important to do now because our system is creaky and without a support contact, a POS failure could put us down for days, with a business system that makes money measured by the hour. As a former IT guy (really no such thing, like being a former Marine), having such a critical system without support was not acceptable.

On the whole, with better special ordering, back ordering, crowd management, and the future potential of an online store, I think this is better for not only the business, but for customers.

Wheaton's Law

When I first got into the game trade, I recall going on a tirade on the GIN, the game trade's message board, about some company that had annoyed me. As it turned out that guy was right there, rather than some faceless corporation, and I learned first hand that the game trade is a very small world. You might be used to being angry at big companies, and spouting off as your hobby, but the game trade is a bit more nuanced.

When dealing with the game trade, remember we're real people, we're right there. The gal manning the Twitter account or Facebook page is more than likely the gal in charge or not far removed from her. Not only might you wish to be a bit more civil, but you also have the power to change and direct that company. Good companies are always open to suggestions and listening to their customers. There are certainly companies I rail against, but my disdain is loudest when my access is limited.

Pokemon USA, for example, pisses me off to no end, partly because they're a faceless corporation with stupid policies, but mostly because I don't know anyone there. I can scream about them all day and nobody will email me or call me. If I send them an email, I'll often get an auto reply. Nobody there cares about anything I say. But other companies with similarly inane processes and policies can at least produce a human who will talk me off the ledge, or at least provide a point of contact for my disdain. So work with them, us, me. We're listening and we're often willing to discuss reasons behind what we do.

This is also true with "competing" stores. They do not need you, the customer, to be their heavy hitter. Lately store owners have been discussing harassment from competing store customers on their Facebook pages or those erroneous Yelp reviews (like gamers care about Yelp). This seems to be happening more often, sometimes without the competing owners knowledge, but occasionally a sleazy owner will encourage it. Follow Wheaton's Law.

Most store owners actually get along with each other quite well, even when they compete directly. Who the heck else can understand the crap we go through? Bad blood like this puts up barriers to cooperation, and cooperation, or at least willful neglect, actually helps customers. Do you want events on the same day at every store so you have to chose or do you want them spread out so you can play all week? Do you want me to sell the same thing as the other guy, but deeper and cheaper? Because that's what nasty competition looks like, and it's not necessary or helpful. You don't need to build bridges (I've seen customers try that), but you certainly shouldn't be burning them.