Sunday, June 30, 2013

Buy A Store

There are a lot of people looking to start a game store right now. The game trade is doing quite well at the moment, so it looks like easy money. At the same time, this is probably a good time to sell if you've been doing this for a while. You can claim success and move on with the next stage of your life. How often is that possible in the game trade?

So my advice to prospective new game store owners is to talk to successful existing store owners about buying their busines.* I write about this because it almost never happens, with most stores bought by current game store owners. My reasoning is that most game store start-ups are created for the wrong reasons that have little to do with business and more to do with personal passion and interest.

So step back, check your ego, and consider what's the best business decision. Do you really need to spend tens of thousands of dollars on startup losses, money that evaporates into the ether, or could you find a successful store today? Could you put your mark on an existing business?

I'll also warn you to be careful. I think we're in a CCG bubble, so any store worth having has been around longer than the bubble. Look at their POS and project their CCG sales backwards to before that time, say a 5-year average from before 2010. If that store could be profitable with those CCG sales today, then perhaps they'll survive later. Avoid "Magic" stores as they'll be gone in time. Leave the rest of their sales intact, as they've likely grown that market more organically.

Also avoid a "Buy a Job" unless that's really what you want. If you want a business with growth potential and a future, look for strong management with processes and procedures that don't tie the owner to the till. Does the owner have weekends off? Take vacations? Have a plan for retirement (clearly, if they're talking to you)? Ask to see their Policies and Procedures binder. Or consider that a major detriment in negotiations if it doesn't exist. Have an accountant look at their books, especially their income statement. Use my three buckets to get an idea of where their expenses should be.

What will you pay for an existing, successful store? It's hard to value one, or any current business really. There are many ways, which you should research. Still, it's far less risky to drop $50,000-$100,000 on a known entity than to start one from scratch.

*Not me though.

Friday, June 28, 2013

Store Rescue

I'm on vacation/home sick, an unfortunate combination, and decided to queue up a marathon of my favorite new show, Bar Rescue. I absolutely love this show. An expert in the field shows up to a failing bar and applies his knowledge, mostly a hard earned social science, in hopes of saving the business. I enjoy it because retail has similar concepts, and those are the kinds of ideas that ignite my passion for business. Even better, there are some commonalities that have direct cross over for my own business. Here are some core concepts.

Staff. Somebody needs to lead. If not an owner, then an empowered manager. They need to be qualified and enabled to make decisions, including hiring and firing staff. Even better, have multiple people like this. Also, there's almost always an impediment to success, a toxic individual, possibly the owner, who keeps the business from performing. Those people need to be reformed, nudged out the door, or kicked, if necessary. It needs to happen fast. I know I've had my share of under-performers, burn outs, unsuitables, and even thieves, but it's easily made up by our fantastic team of all stars, leaders, go getters, and future greats. Without the right staff, you're doomed.

Cleanliness. While people will get sick or die from an unclean kitchen, a clean retail store is a requirement for getting customers to feel comfortable enough to shop. Odd smells, stray trash, dirty bathrooms, and a grimy cash wrap are sure to show customers you don't care about what you do. With a game store, a dirty place gives the appearance that you are the lazy, slovenly gamer stereotype, rather than the professional business owner. I honestly can't feel proud of my business if it's not clean. I can't look a customer in the eye and claim to have much to offer if I can't even keep the shelves clean.

Length of Stay. Like food and entertainment in a bar, a retail store profits from length of stay. Our Game Center, when we first opened in our new location, increased retail sales by 60%, as events both required and fed into the need to buy product. Other areas that impact length of stay is the environment, like music, the previously mentioned cleanliness, and our kiosks, like our Fantasy Flight Entertainment Center and our Tabletop videos. A mom's lounge, a simple place to sit, will allow a customer to shop while their less interested companion takes a load off their feet. Displays like our painted models, or even seemingly unrelated displays of product in interesting positions, all hope to increase length of stay to increase sales. In the past we've had a miniature village and champagne flutes full of polyhedral dice on display to grab the eye and hold that interest. We need more capricious displays like this.

The Numbers. Bar Rescue will measure pours and analyze food costs (30% is the target) in hopes of making the business profitable. We do the same thing, with our three bucket approach, our constant attempt at reducing overhead, and tricks of the trade to lower cost of goods, such as used product. You often don't know where to begin if you can't identify the problems, and the numbers elucidate the issues.

The Community. Customers are key, but there are many types of customers along with competition that drives you to create a unique value proposition. A game store in a college town will be different from one in the suburbs that will be different from one in a heavily urban area. Demographics of race, education level, and income will determine customer interests, and thus what you sell. Will you be a card centric store, a value driven operation or can you take the high road when it comes to stock and pricing? The game trade isn't terribly flexible here, unlike toys, but there is room for some variation. Regardless, customers are king, deserve respect, and anybody who doesn't understand this should be shown the door.

One final commonality is the delusional nature of failing business owner of both types. Small business owners who are failing often can't see the obvious signs in front of them. They can't see the trees for the forest. A bit of advice I got early on was to walk outside, stand around for a couple minutes, and slowly come back into the business, taking the time to view it like it's your first experience. Simple tricks like that allow you to see obvious problems, and vacations are often perfect for coming back fresh, questioning what has always been done, if it doesn't appear rational, with new eyes.

Tuesday, June 18, 2013

Fall Down Seven Times

Something that tends to throw people off who don't own their own business is the sheer number of times we business owners bang our heads against the wall attempting to find the right path. Finding the right combination of advertising, for example, requires learning as much about what doesn't work as it does what does. If you're not accustomed to this process, it appears wasteful, foolish and maybe a bit insane. But if the definition of insanity is doing the same thing over and over expecting a different result, the definition of small business is doing different things over and over until you figure out the best path. 

Succeeding at small business is learning from mistakes and you can't learn from mistakes unless you make a bunch of them. That requires throwing a lot of stuff against the wall to see what sticks. In my retail business, there's a certain amount of flex in my system for this very activity. I bring in new product to try out, gauge effectiveness and either bring in more or blow them out. We have "vulture" customers, a term I use to describe those who only shop us for our clearance items. They essentially pick the bones clean from my trial and error, serving a useful purpose in my economic ecosystem.

Am I foolish to buy these things? Only if I don't learn from the experiment. There is no harm, no shame in trying new things, finding they don't work, and moving on, at least as long as you do it within your parameters for experimentation. What you learn to do over time is fine tune and speed that process, whether it be new product that doesn't work, a dying product line, or even an employee that isn't working out. Where I would once lament, hand wring and make myself miserable over these difficult decisions, I've now learned to cut my losses as quickly as possible, even clearancing an item or line the day of release, if I've somehow miscalculated. 

You have to have the stomach for this in small business. You have to see money as a grease to lubricate your economic engine. Without grease, without trying new things constantly, performance wanes and can seize up as you're caught unaware. Customers have a short attention span, so although they may like today's new releases, they're already thinking about what's next. Will there be an expansion? A second game? Will they return to what they were doing? If you're not always willing to get out in front of that, you're going to have problems. This includes advertising, which has a finite shelf life, as well as employees, who in retail, are there until they're Next Thing comes along or for the younger ones, their real lives begin. To do this small business thing, you must enjoy the process, accept or even revel in your failed experiments, and get back up to do it again every day.


Saturday, June 15, 2013

Exit Strategy

There's a rather horrible saying that your first marriage and your first business should be all about the money with a clear exit strategy. If you're contemplating a game store, most likely you've never heard this before. Most small businesses (and first marriages) start from a place of passion, with a commitment for the long haul. Commitment is good, but an exit strategy allows you to keep things in perspective.

Part of your business plan should be thoughts on how you will gracefully depart from your beloved business. It should include clear rules on how to buy out partners, how you will valuate that buyout and the time frame in which that will occur. For yourself, you should consider what failure looks like, as well as success. Failure is going to be about the money and you need to draw the line or risk losing everything personally. Will you risk your home? Is there a clear line in the sand you wish to draw in regards to debt? Drawing the line in advance prevents the slow creep of debt.

Departing while successful seems kind of a dumb idea. You've worked so hard, taken so much abuse from the naysayers, why would you "give up" now. But it's important to consider this. Not only should you know what failure looks like, but you should define a "win" condition. A "win" condition may mean your business is in a place it could be sold profitably, or you could decide your initial objectives are met and you have new objectives.

Objectives should be rather subjective, I think, as in building a strong gaming community in city of Gamerville, or revitalizing role-playing in the region. Objective goals are rather empty, I'm finding, as in, build a store that does $1,000,000 a year. So what? That's just a number on a piece of paper and doesn't take into account your passion or that of your employees. Building a salary you can live on is a great objective, but that's more a staying strategy, not that there's anything wrong with staying. Defining success can be as difficult as determining when to quit.

An exit strategy has a couple fine points to it, one of which is it allows you to do other great things with your life. It might mean you've won the store battle, and perhaps you want to open a second store. Perhaps you want to move into another area of the game trade like distribution or game design. After nearly a decade doing this, I can see why the trade tires you out with all the small time shenanigans. An exit strategy could leverage your skills to run any number of other small businesses. I constantly (half) joke that my next business will be a Subway franchise.

An exit strategy can also be of benefit if you find yourself sick or injured. If you've ever been to a trade show and seen the average game store owner, let me tell you that carrying an extra 20 pounds, I'm in the featherweight category. If you're going to throw caution to the wind and game like you just don't care on Cheetos and Mountain Dew, well, consider an exit strategy even more so.

Here's the real kicker though, an exit strategy will help make your business better. If you want to leave you business or have any hopes of selling it, or expanding to multiple stores it in the future, you need strong managers and even stronger processes. Building strong and consistent people and processes makes businesses great. We're not talking about once size fits all processes or mindless policies, and we're not taking about four hour work weeks, we're talking about empowering your employees to make the important decisions that make your business profitable and your customers happy (that perfect middle ground).

By always assuming that you will not always be there, you avoid adding your own idiosyncratic processes and procedures into the mix, or worse having no processes and procedures. Even if you're a single store operator, work on building consistent policies and procedures. Even better, write them down. Have a manual where this stuff is written and change it over time. Make it a living document not a dusty book on the shelf. You need to write this yourself and you can't borrow someone elses. Living means it not only changes, but it's unique and it's yours. It may be such a part of your retailer DNA that you never look at this stuff, but you'll find current and future employees will, and they'll likely be more invested in it than you ever thought. Everyone wants to know what's expected of them and I know my single biggest frustration in working for others was not knowing what they wanted, and usually because they didn't know themselves.

So an exit strategy means a bit of your ego is removed from the picture. You're building an institution that can live beyond you, whether it means you're in the ground or next door running your new sandwich shop. You've created something of value, rather than a twisted mess of "what you did" to get by. Nobody wants your crappy game store if only you can run it, but a clearly run business with documented policies and procedures, possibly with an experienced manager in place, has actual value.

Best of all, you've not only increased your ability to sell your business to the next guy or gal, but while you're still enjoying it, you can now take a vacation, have sick days, go to trade shows and plan a retirement with income, not just a one time, fire sale payout. An exit strategy pays off now in both a better run store and an improved quality of life.

Wednesday, June 5, 2013

The Money Disconnect

We're often taught to equate our time with our income, to do a cost benefit analysis of whether, say, washing your car is worth an hour of your time compared to a $10 car wash. If you make more than $10, you might assume it doesn't make sense, where if you make less, well perhaps you should look for a bucket. Never mind that washing your car is good exercise, that work is noble and enriching, and that you'll do a better job of it, just do the math on the back of a napkin and you'll see for yourself.

Money, for most people, is a theoretical concept, and it doesn't require you make a lot of it. You put in the time, you get paid, you spend it, mostly on things you don't want to spend it on, with a sliver, if you're lucky, available for things you do. Most of us don't see how the sausage is made.

As a "knowledge worker," we tended to abstract money with exercises like theoretical budgets (that nobody ever followed with no penalties for going over), cost-benefit analysis, and various hocus pocus involving technology savings. In contrast, as a small business owner, and especially a retailer, I can't afford such economic mysticism, or more accurately, I'm brutally punished financially if I engage in it. Long term savings, like word of mouth advertising, is a bonus that pays off so far into the future that you won't even recognize it when you see it.

Being a game retailer, especially, is to see the granularity of money, seeing how all the pieces come together based on the $3.99 transaction, the most common unit of measurement. In the game trade, these tiny units of measurement fuel a small profit margin business that grosses in the hundreds of thousands of dollars. Even a smaller store deals with sales around $200,000+ a year, mostly fueled by those $3.99 transactions, usually with a tiny margin of around 5-8%. Not only does money become granular, it becomes tightly controlled. This changes your brain chemistry, your thought processes.

As an aside, I want to be clear that this approach to money does not necessarily make you especially politically conservative, although many conservatives would like to assume such things. I still believe in public assistance to get people back on their feet, taxes to keep the roads from crumbling and regulation of things like fertilizer plants. I still believe that government can do good. There's nothing inherently conservative about small business ownership, only a growing distaste for government waste, which is an across the aisle trait. Where I'm often at odds with people, therefore, is not politics, its how they visualize and organize themselves around money.

People who don't use $3.99 units of measurement, who still see economics as an abstract, just don't click with me anymore. We need to talk about something else, or risk sounding like the crazy uncle. They might see the big picture, but they can't see the small one. This includes friends and family, local government, and various vendors and customers. Once you've seen how the sausage is made, you can't un-see that. It doesn't make me cynical as much as it makes me eminently, painfully practical (not necessarily thrifty), and probably hard to live with. That's just one way being a store owner will mess with your head.