Wednesday, April 30, 2014

Chicken and the Egg (Interlude)

Everyone who writes a business plan does a tremendous amount of work coming up with expenses. It's a research project with known variables. Then they get to the income section of their projections. Yeah, income. So they go around asking, "How much income should I expect? "How much money will I make in this location versus that location?" The answer? No idea. If I knew that, I would have a store there yesterday. How about this: You expect a 5-8% net profit after a couple years of losses, so just project backwards. It's X revenue plus 5% beyond your expenses. But that's totally nuts, you say? Exactly. Sane people have desk jobs.

Construction projects are the same way. I want to build a mezzanine. How much will it cost? That's a very expensive question, in fact possibly more expensive than the cost to build the mezzanine. To get a cost for a project, you need to bring in experts to do the job right. You can't just have your uncle build this thing over the weekend while nobody is looking. That was the suggestion from our first contractor.

There's no eyeballing a big project like this. There are strict building codes, the Americans with Disabilities Act requirements, safety and fire codes, and ever stringent energy standards, including new ones going into effect this Summer. Once you go down this road, you'll be talking with the city, including the fire department, your property management, and your people, including architects, engineers, consultants and contractors. So how much will it cost? It will cost you to find that out. Some of this stuff is negotiable. Most of it isn't.

Knowing what it costs is knowing how to build it, which means your architects will need to spend weeks getting plans together so you can get a quote from your contractor. That process costs tens of thousands of dollars. Yes, you've read that right, you need to spend tens of thousands of dollars to learn how much it costs to build a thing, or in our case, whether it makes sense or not. Asking how much it costs to build something is like asking how much revenue I'll make in my new business. It's almost laughable. Many projects fail at this stage, my architects explained. Yeah, I wonder why.

Moving forward meant getting a loan. The loan is to do the project, but the first part of that loan is learning whether or not we should do it at all. The problem is the bank doesn't want to give you a loan to learn about a project, they want to give you a loan to complete a project, so you can make more money and repay the loan. You must project confidence. You are the most confident crazy person in the room. You must have backup plans and contingencies, which shows you know what you're doing is insane, so you've planned for it.  This is not your first visit to the insane asylum.

So imagine this conversation:

Me: I need to borrow many tens of thousands of dollars for a construction project.
Bank: Alright, and you know this project will only cost many tens of thousands of dollars?
Me: Uh huh.
Bank: But you don't have the plans yet.
Me: Well, I need to pay the architects with the loan so they can develop the plans.
Bank: How much will that cost?
Me: tens of thousands of dollars.
Bank: So you're not sure it will be many tens of thousands of dollars.
Me: Oh no, definitely many tens of thousands of dollars.
Bank: You mentioned a Kickstarter. What if that fails?
Me: Oh, uh, don't worry about that.
Me: I need to borrow many tens of thousands of dollars for a construction project.
Bank 2: Alright, and you know this project will only cost many tens of thousands of dollars?
Me: Uh huh.

And that goes on for a while. It's not as terrible as it sounds because this is the reality of such an endeavor. The only difference is nobody will give you a new business loan, the one where I tell you to make up a number plus 5%. That's just never going to happen without putting something behind it, and no, not your house, nobody wants your crappy house any more. Huh, no. We've seen how that worked out.

They will, eventually, give you that construction loan. The basis of such a loan is primarily about your track record, and your credit score, because if you've been in business for ten years, you've managed all sorts of shenanigans and survived. Construction is shenanigans at the highest level. Epic level shenanigans.

Our Kickstarter is slated for mid May and we need your support. We'll have enticing reward levels that provide really cool things, so take a look when we put it up. We still need many tens of thousands of dollars.

Sunday, April 27, 2014

Expansion Project: In the Beginning (Tradecraft)

Once you've established your business, decision making is mostly about what makes you the most money while being true to your mission statement. A mission statement should be your ethic, your core values, rather than saying your mission is to make the most money. That's your duty, not your mission, at least if you have a corporate structure. Without a mission statement, you're ethically blowing in the wind, chasing easy money and engaging in shady practices. It's easy to fall into that trap when all you've got without a mission statement is the duty to be profitable.

The mission statement is about serving the community, fairness, and being a place we want to work and a place customers want to shop. So you move forward, trying to be profitable, and trying to do the right thing (your mission statement). It's very easy in the beginning to flail about without a mission statement. I recall my mantra being "Stick to the plan," in reference to my business plan and its statement. 

Moving to the Next Step in my business was saying we had plateaued and needed to do the Next Thing, while sticking to the plan. When I say plateau, the store has grown about 10% a year, on average, every year, for ten years. Arguing that we had plateaued was met with the counter argument created by our own success. A plateau requires a peak, which is a failure, in a sense, a downward slope. It's something we didn't have yet. 

Let me tell you, after the first quarter of this year, with Born of the Gods, no Yugioh, a flailing Games Workshop, dull board game releases and a dead Dungeons & Dragons, we've got our plateau, complete with requisite downward slop. We're fine, but 2013 was a peak. In fact, it's reported many of those Magic only stores are beginning to fold like houses of cards (which they figuratively are). We've plateaued while they're falling off the cliff. So we have our justification for expansion: Strong, peaked growth, in need of the Next Thing. 

This is my round about way of saying that the next decision, how to expand, has nothing to do with growth or the mission statement. It's about what I personally want. You might think I make that type of decision daily as a business owner, but a truly strategic move based on personal motivation is something that rarely happens in small business. What I want is to run a store. There will come a day when I will not run a store, but I do not want to run multiple stores. I do not want to manage managers, which takes all the things I dislike about small business and makes it my primary activity. I like to tinker. I'm an operations guy. That means build one store and make it awesome. I've learned not to fight my nature. 

For most stores, the next step, the Next Thing usually results in a move to a bigger location. You need more space, so you wait for your lease to run out, and you move to a bigger one. The problem here is the reasoning for the move, the desire for more game space. As we all know now, the future of retail is increasingly about being a service oriented business. In the game trade, that's exemplified primarily by events, followed by all sorts of add ons and possibly a hybrid business model, with coffee, food, beer, whatever when you've tapped out your core model. 

The problem with game space is it's expensive and it gets used infrequently. Having a big game center is like running a hotel where the rooms are only rented on the weekends. Hotels jump through hoops to get conferences and other businesses throughout the week to make up for this, but their model is fundamentally about putting someone, anyone, in those rooms for some price, before the opportunity is gone. So what do game stores do who want big spaces for events? 

If you live in the sticks, rent is cheap and it's not a problem, but most metro areas of the US run around two to three bucks a square foot a month for a reasonable location. We'll call it $2.50 a square foot. So a 1,000 square foot game space, what we have, a minimal game space, runs you an additional $2,500/month, a 2,000 square foot runs an additional $5,000 a month and a 3,000 square foot game center? Oh man, how you are you going to come up with that $7,500 a month, just from events? 

Lets do some bistro math. If you have a store in a metro areas with 1,000, 2,000, 3,000 and 4,000 square feet of game space, with each having 2,000 square feet of retail space, and rent is a third of their expenses (using a model where cost of goods is half your overall expenses and rent, labor and other are the second half), here's what each store would have to gross each year to break even:

Total Space Rate Rent Annual All Expenses Annual Sales Needed
3000 (us) 2.5 7500 90000 270000 $540,000.00
4000 2.5 10000 120000 360000 $720,000.00
5000 2.5 12500 150000 450000 $900,000.00
6000 2.5 15000 180000 540000 $1,080,000.00

The math is a bit back of the napkin, but work with me here. Who runs a million dollars store in a metro area so they can have a giant event space? Nobody does this, especially when that 4,000 sqft game center is rarely filled. Nobody does any of this, except the first example, which is 3,000 sqft (2,000 of retail, 1,000 of game space). That's my store. Beyond that? Beyond that it's just too damn expensive, so you move to the sticks. Oh, and the average game store is estimated to do $250,000 a year in sales, maybe $300K, so what we're talking about here are top stores.

For us, moving to the sticks to chase cheap real estate is a blatant betrayal of our mission statement. It's saying we're doing it for the money, exclusively. We lose our nice place to work, our exceptional customer experience, our desire to appeal to a broad audience. Worse, what happens when we no longer need this square footage and we're sitting by ourselves, lonely in our warehouse, with years left on our lease? When Magic deflates, and we just got a taste of that, that square footage will become an anchor and all of our other customers aren't going to come visit us near the airport or car dealerships because it's a pain in the ass. 

My solution is building the space in a way that doesn't incur recurring costs, which in our case is building it upwards. We're doing it, but that is not a reasonable option either. I'll explain that in my next post. 

Thursday, April 17, 2014

Game Center Expansion Drawings

The Game Center expansion project is beginning to feel like a business plan. That's a good thing, because I'm generally able to accomplish my projects if I put a lot of effort into a plan. It's also a bad thing, because a business plan in the retail sphere has to account for thin margins, so it's a roller coaster, where each day you're not sure if it can be done. Yesterday I felt it could be done, so my mood is good! Other days? Not so much.

We're now in discussion with the contractor and we have an outline for our Kickstarter project. When will the Kickstarter begin, you eagerly ask? We're looking at the June time frame. Meanwhile, we're starting to reach out to those we'll need for the project, including creators of custom rewards. I won't announce that yet, but I do feel honored to be able to work with people I deeply respect in the publishing field. We're looking for more ideas in that regard, in case you're a publisher and have some.

Kickstarter customer rewards focus on various "gym membership" levels that allow for open play during scheduled event times, removal of nominal event fees, "paladin club" discounts at the higher tiers, and, of course, some extra perks. For example, we're working on an exclusive, Black Diamond Games themed, professionally developed, Pathfinder adventure. Most tiers include public recognition on our Wall of Heroes. This will all be reserved for Kickstarter supporters and not available afterwards, at least for an extended period. The details are being hammered out now, so there's room for change and suggestions.

Publishers will also be invited to participate, with recognition on our Wall of Heroes and possibly a larger focus with a poster or logo presented prominently (that's being researched). We're interested in publisher "sponsorship" in this regard and welcome ideas. Finally, a few retailers may request my consulting services. I will visit your store and write a report or work on a problem you have. It feels awkward and conceited, but I wouldn't offer it if I didn't know there are those I could help. I have spent many hours helping friends and colleagues with their new stores, and if I can do it to get this project off the ground, I'm happy to be that guy.

To whet your appetite further, below are new conceptual drawings from the architects.

Tuesday, April 15, 2014

The Fellowship (Tradecraft)

There was once a conference between Native Americans and Tibetan Buddhists, which many thought was interesting since the two had such obvious similarities.  People were intensely curious and when asked what happened at the meeting, they were essentially told, "It's none of your business." Not, none of your business, you don't need to know, but none of your business, you couldn't possibly understand. There is similar fellowship among small business owners.

It doesn't matter how big your business might be, or what you do, or how long you've been doing it, when you meet a fellow small business owner, there is an instant fellowship, an instant connection. There is so much unspoken in these meetings, so much shared experience despite differences, that nobody else could possibly understand.

You can't talk to your spouse, employees or vendors about your experience, not truly. Nobody knows the trouble I've seen, except that guy. He knows. That guy who also owns his own business. It's a constant struggle without a net, a constant battle against entropy and the need for growth. Grow or die is a pretty common mantra. It's about dodging and weaving against both competitors and the government. It's about the many hands in your pocket, and hopefully the capacity for charity that far exceeds what you could have accomplished as an individual. It's about gathering customers, who constantly fall like sand through your fingers.

This fellowship transcends everything else, including class, race, and especially politics. Although most small business owners who are Republicans will assume you're also a member of the club, that is a conceit on their part, as there's no correlation between politics and small business ownership that I know of. What you do have, however, is a respect and understanding of something deeply American.

I wouldn't call it patriotism, but you're a member of the capitalist club, something deeper than politics, as you are exemplifying the American ideal, whether you acknowledge that or not. You not only do it, but you do it legitimately, unlike the crony capitalism that plagues our country. Nobody gave us tax breaks to move our businesses and we don't have a Washington lobby. You're just trying to make payroll, and somehow float that tax check, while making orders, selling product and planning for the future. You're just doing your thing, your many things, over long hours, while sacrificing time with your loved ones. It's not a 40 hour work week, it's an all the time work week. This fellowship is deeply rooted in the American dream.

You and your fellows will do this while others carefully, painfully step through life in fear of losing their jobs, which they usually hate, but perform so that one day in the future they can find happiness, by not doing something. Or worse, they don't think they can jump ship to do the thing they love because their world will fall apart. Yes, it will fall apart. I recommend a deliberate dismantling. When members of the fellowship shake hands and smile, there is a bit of shared mad glee in the falling apart they've wrought. From chaos comes opportunity.

Saturday, April 12, 2014

Game Center Kickstarter

Part of managing our Game Center expansion is the necessity of putting quite a few carts before their prospective horses. You have to pay architects many thousands of dollars before we can learn if we can actually afford the project. We need to apply for a loan to pay the architects before we know if any of this is viable. We need to begin planning our design and testing things like new chairs before we pull the trigger on buying over a hundred of them. So I can say with some certainty that we're planning to add a Kickstarter component to our Game Center expansion.

The Game Center expansion is actually an ideal Kickstarter project. Unlike asking you to get our store off the ground, adding furniture, fixtures or equipment (known as FFE), or acquiring inventory, the Game Center is not an asset we will own. The expansion of the Game Center is a tenant improvement, so it's adding value to someone else's property, and since we lease our space, it's not ours. It's instead an impermanent addition to Black Diamond Games that will be used by the community for as long as our business is in that location. So it makes sense to attempt to "share the load" on the project. Plus, with Kickstarter, the project can be better.

We're severely cost constrained on this project, since I need to demonstrate it will give us a solid return on investment (ROI) and there's only so much of a loan we can afford to acquire. It's a very expensive project already, with architectural and engineering costs approaching new BMW territory. Believe me, sometimes I wonder if a new BMW would be a better decision. I suppose you should know that with this project, I won't be driving a BMW, and in fact I'm putting up my cars as collateral. I've got quite a bit of skin in this game.

This project will strengthen the community focus of our store. It will allow more events, bigger events, special events. Since we've been thinking about this for years, I can say with certainty that expanding our Game Center is the right decision.

When we add a Kickstarter component to the mix, it does several things. First, it provides a a buffer for unexpected eventualities. I've managed projects before. Heck, I was a project manager. However, problems arise, and under our current budget, fixing problems will cause pain to the store.We can endure a good amount of pain, but it adds risk. Kickstarter allows the project to proceed with a cost buffer, in case of problems.

Second, Kickstarter allows us to take a step back from the ROI. It allows us to shoot for the moon, if people will share the dream with us. For example, we can purchase tables and chairs of a higher caliber, rather than disposable "Lifetime" Costco chairs that are hard to clean. We can integrate electronics to help us manage events. We can introduce "privacy curtains" for member areas (that's a new thing). We can put in better flooring that's both easy to clean and comfortable to stand on. We can generally expand the project planning to be of a more premium caliber. So the Kickstarter both ensures the project happens and makes it significantly better.

This week we were approved for our loan by Opportunity Fund, a California microfinance lender that helps community based small businesses. It turns out banks still turn down the majority of businesses that apply for loans, and this non profit has stepped in to help us.

Next week we hope to have the architects basic deliverable for the contractor. But now? Now we move forward knowing that with a Kickstarter component,  this is going to happen one way or another. There are still many variables. Costs are still being determined. Negotiations with our property manager will need to ensure our lease is extended past our loan date. The city has to approve the final plans, although we're very strongly front loading that with proper project planning with the architects. Kickstarter? Kickstarter can be both a project guarantee, a project enhancement, and a vote of support from our community.

With that vote of support will come perks. We're still working out the details. Besides various forms of acknowledgement, we're planning on implementing a gym membership model for our Kickstarter supporters. Imagine a reserved, "premium" area where you can play the games you want, when you want, and if we can do it, the aforementioned privacy curtains to cut down on noise and distractions. We're also considering commissioning a project or two from the publisher community. Imagine a custom Pathfinder adventure from a well known author with a Black Diamond theme, available only to Kickstarter supporters.

We're also looking for ideas to allow publishers and possibly distributors to participate. Sponsorship of various sorts will be available and a wall of prominently displayed logos or even framed posters is likely going to be part of this.

We're still brainstorming this area, so if you have ideas of your own, please share them below. For the most part though, you get to help us help our community by expanding their space. Also, I want to ask you to please spread the word that this is coming. Let your friends know it's on the way. Kickstarter is all or nothing, and awareness that this is on the horizon would help our cause tremendously. Thanks!

Friday, April 4, 2014

Hello! (Tradecraft)

Why do I say hello when you walk into my store? It's because I'm enthusiastic that you've taken a moment from your busy day to visit me. I'm honestly excited. It's a miracle to me, even after ten years, that people continue to visit. A miracle and a mystery. Think about it, where is it written that I would lease some place for years, a quarter million dollar investment (liability to some) and you would know to come to this place to consider buying my wares? Where is it even written that a store is a thing?

It's custom. It's thousands of years of tradition. You need a thing, and you just know to find a merchant, knowledge handed down through the generations, parent to child. You are visiting my store. I am honored. I wish to know more. I wish you to be comfortable. I say hello.

There are other reasons to say hello, but that was the big one. Other reasons include people who don't belong. It has been shown shoplifters are less likely to steal from you if you engage in this way. "Hello there! (I see you)." After a decade of doing this, I can also tell if you're a bit off by how you respond to that greeting. If you're evasive, perhaps you have ulterior motives. Perhaps you wish to steal, you're casing the joint, or you're just a sociopathic bastard in need of supervision.  Or perhaps you're twelve and you haven't learned to say hello yet. Dammit people, teach your kids to do this once they can walk.

There is the 80-10-10 rule of shoplifting. 10% of the people will never steal, regardless of the circumstances. 10% of people will always attempt to steal, even with cameras and alert staff. 80% of people may steal, under the right conditions. Store security is about discouraging that 80%. That's what the security expert told me.

Besides those with criminal intent, saying hello helps me ferret out the, well, the batshit crazy customer. Here's the thing about retail, eventually every person imaginable will walk through that door. And you will say hello to them. If they are off their meds, they might be dangerous to myself and others, and I would like to know that as soon as possible. They might walk in with a fuming gas can of gasoline  and slam it on the counter, with a glint in their eye (this has happened). They might be selling religion, which, let me tell you, on a slow day, can be a heck of a lot of fun for me.

So what else do we know about hello? Well, you certainly don't say hello when they first walk in the door. The first ten feet inside the store is the Decompression Zone. Paco Underhill, in his must read classic, Why We Buy, describes it. Customers are disoriented from their time in the outside and need to transition to the inside. The sounds, the change in lighting, and a moment to make sure they haven't made some huge mistake and walked into some sort of Pulp Fiction gimp situation. Let them be. They're not here yet, at least consciously.

The Decompression Zone is where I put things that don't matter, because this part of the store is invisible when you enter. It's also where things that aren't that stealable go, like chess boards and Heroclix and dollar junk toys from China, when I had them. Put something important in the Decompression Zone and you will forever be pointing them out to everyone who just passed through it. Everyone who buys a chess set from me, walks into the store past the chess sets, gets greeted, wanders around for a bit, and asks me if we have chess sets. It's alright. I know.

Customer also turn to the right about 75% of the time upon entering a store, another Paco Underhill gem. So we make sure the stuff to the right is muggle friendly, stuff that doesn't trigger so much cognitive dissonance; think Hasbro. On that right side wall is also where we keep our jigsaw puzzles, the crown jewel of muggle gaming, and an area of regular speculation as to what we should put there to replace them. One day I want to make a store in retirement that is a kind of geek anti store, throwing out everything I know about retail. To the right, up front, will be a twelve foot tall statue of Asmodeus surrounded by our Dungeons & Dragons section. No, I could never do that, but the exercise is fun.

So then you say hello, after they stop blinking and looking confused, emerging from the Decompression Zone. You do it every time. You do it for regulars. You take a moment when you're with another customer to say hello upon pain of a severe brow beating by me. If you can't say hello, a wave, a nod (for regulars) or some sort of acknowledgment is acceptable in a pinch. Something must be done to greet them, or they may leave and never come back.

Oh, and get outside the castle, for the love of the gods! Standing behind the counter and saying hello works in a pinch, or when you're crazy busy, but given the opportunity, and really, I wish we had staff to do this for every customer (we do during the holidays), lower the drawbridge and go out there. I'm not the crazy steward sending you out from Minas Tirith to your death against an army of bloodthirsty orcs who just sacked Osgiliath, you need to engage. You will come back. Minas Tirith means "watch tower," so you're watching for customers so you can engage. Alright, I'll stop that now.

What is there after hello? There is the follow up. Seek out the customer in their shopping environment. Ask them a question. And here, I want to say, don't ask them a question with your hello, especially in the Decompression Zone. Let them settle, even if it's for a few seconds. Also make your follow up question one that doesn't have a yes or no answer.

Are you doing alright? Are you finding everything alright? Those are bad, but good efforts. If you're lucky, you'll get a reflexive no, followed by a question. If you're not lucky, they'll turtle and you'll never know what they're looking for. Is there an age you're looking for? Are you looking for a good strategy game or a lighter game? What edition are you playing? I personally find this hard, but it's rewarding.

What else? Be friendly. Smile. Stop talking to your customer-buddy about your army. We have a lot of cusotmer-buddies, but to the uninitiated, they're just our friends, or regulars, and they're an outsider looking in. They find it disconcerting, especially when a customer interaction with a regular, if unimpeded, might last ten minutes. If you're a muggle, that certainly doesn't happen at Target, so you must be good friends. This is the biggest, single complaint customers write about our store, and it's a game trade hazard. Be welcoming.

Finally, thank you! Thank you every time. Thanks for coming. Thanks for buying. Thanks for just looking. Thank you! A friend of mine came in to talk and I thanked him as he left. He came back at me: "I'm your friend. You don't need to say thank you." I apologized of course, and as he went to leave again, I couldn't help thanking him once again. Thank you!

Tuesday, April 1, 2014

MYOB (Tradecraft)

After nearly a decade of owning my own game store, it's tempting to be cynical. The hobby game trade is a perpetual mess. You see new retailers ask the same insightful questions you once did, about why game store owner's can't get organized, how this or that organization has our best interest at heart, and how if we just changed one small variable, the trade would be so much better. Yeah kid, been there, done that. It would be easy to sit back and watch it all burn.

Active cynicism is outrage. We have a culture of outrage, daily button pushing on every topic, carefully tailored to our personal interests. Outrage is a lazy emotion that lacks the ability for change. It's cynicism with the volume up to eleven. Why would you point out a problem to a business owner when you could just be clever on Yelp? Outrage has nothing to do with fixing problems.

In the game trade, I could be outraged that my trust was abused by a supplier. I could be outraged because a publisher called us names, or a publisher did the usual approach of using small retailers as a spring board for big retailers, which means once we make something successful, it's taken away. As if it were ever ours to begin with. The unfair reviews and literally crazy customers can cause outrage. There's just so much outrage potential, and sometimes it feels like the alternative is being cynical, not caring at all. Snickering and talking about cat piss game stores and buggy whip salesmen, usually with people who have no idea how retail actually works.

The middle ground, what I've learned from the veterans who've been at it longer than me, is to simply mind my own business, in a very literal sense. When it comes to product, Jim Crocker of Modern Myths describes it as catching waves. We catch a wave, ride it as long as we can, then paddle back out again. That's the specialty retail model. It sounds exhausting, doesn't it? It is. It's the desire for things to be solid and unchanging that causes us to suffer in these ways, our energy sapped when our expectations aren't met.

When minding your own business, the amount of stuff you can ignore and be successful is staggering. The three things you must pay attention to are: your customers, your customers and your customers. Everything else, for the most part, is none of your business. Who are your customers? What do they need? How do you serve them? That's all.

Strategically, you've got to have your eye on the next wave. You've got to gauge the wave you're on. You've got to do all the little surfing related tasks before and after to make sure you're prepared for that wave. Your equipment needs to be up to the task and you have to be in good condition and warmed up. Research is so very important in picking your location and checking the weather forecast. You might even seek some guidance. You do the thing, then you do the next thing. The waves may come. They may not. That's the nature of the waves. No need for either outrage or cynicism when you're minding your own business, focusing on what's in front of you.