Owner, Yes. Operator, No.
People often ask me about the concept of opening a game store and keeping their day job. Most often, people in this group have a higher-than-average income and don’t wish to give up that income for the pay cut it would take to justify the store’s finances. They plan to hire someone to run it for them while they continue to earn the big bucks. It’s an opportunity to keep earning reliable income while enjoying the benefits of business ownership. And games at cost.
This article takes a broad look at the pros and cons of that business model.
Owner vs. Manager
A hired manager has a different mindset than the owner has. The two have different priorities and different methods of achieving their goals. In general, the owner looks toward the bottom line and the store’s long-term health. He doesn’t need to please anyone, so he’s free to make tough decisions. He’s more motivated to work another shift if money’s tight.
The manager tends to strive toward employer satisfaction and customer satisfaction. If customers are telling him he’s doing a good job, he’s usually happy, even if profits are down. If his bonus check (if any) is up, or if he’s meeting the carefully-defined goals his owner has in place, he feels he’s doing what the owner wants.
There’s another fundamental difference. The manager’s house doesn’t go up on the auction block if the business fails. He can walk away and use his experience as a resume point. An owner who financed his business with a home equity loan has a fundamental motivation that can’t be matched by an employee who lacks a deep financial tie to the business. Even one who set the business up with less risky financing might still lose a large cash investment.
Hiring a manager to run your store in your absence brings with it a great many risks. Some of them you’ll face with any employee, but others are heightened because of the situation. Let’s review the largest of these risks.
The manager could steal from you. In fact, it’s almost a certainty that your employees will steal from you at some time or another. Yes, even in small towns. Yes, even people you know. Yes, even him.
Employee pilferage accounts for up to 46% of all retail loss. Why? Greater access is a main reason. Shoplifters can only take what’s available to them, while employees have the run of the store—including the till and the safe. Shoplifting is more common, but an employee can take off with your Power 9, sticking $4,000 worth of cards in his pocket. The difference in the amount of theft in one case makes up for the frequency of theft on the other.
Employees can also take steps to conceal their loss. At the small scale, they shift blame to another crew member. “Floating” cash or inventory loss onto another person’s shift makes it hard to pinpoint exactly when the loss occurred (and therefore, who is responsible). They might simply steal up to the limits of your cash shortage allowance; if you allow $50 a month, they might just take $12.50 a week from an otherwise even till.
Thus, a manager, who might have both less supervision than an hourly employee, and greater access to assets and paperwork, is a great risk. He can drain substantial profit from your store and can conceal it from a superficial search. Managers might double-enter receipts for cleaning supplies, sell gift cards to friends at a reduced rate, or take product home to sell online while writing it off as an unexplained loss.
What if your manager interviews an employee who turns out to be a thief? He interviews the person, calls his references and hires him. After a day or so of training, he’s ready to let him fly solo. Six weeks later, your checking account has taken a huge dip. Only after careful research do you discover the extensive product returns the new hire rang up—all of which were fake returns so he could steal your cash. Your manager attributes it to bad luck; you might think that a background check could have revealed that he was wanted for theft from two previous employers not listed as references.
More generally, liability refers to the chance of a lawsuit stemming from the actions or inaction of your employees. If a manager decides on the spur of the moment to inform a customer that you don’t take checks because the customer in question is dressed poorly, unbathed and not one of your regulars, his impromptu choice could lead to a lawsuit for discrimination. If your manager laughs at a sexist joke made by a crew member in front of a female customer, she sues you for sexual harassment. It’s little consolation to know that she might name the manager in the lawsuit, too.
Underneath these worst-case scenarios you have to consider the lesser aspects of increased liability: an improper employee termination might lead to paying unemployment, or carelessness in the workplace might lead to a worker’s compensation claim. A manager might obligate you to a vendor purchase or fall for a scam of some kind.
Lack of Development
The early days of store ownership involve a steep learning curve. You quickly learn the difficult task of inventory management, develop relationships with your vendors and learn how much sales volume a single person can handle alone. If your manager gains that skill instead of you, you’re at a disadvantage. If your store manager leaves and you have to either take over or train a replacement, then you go through that experience again. Learning through experience is costly. It involves making errors and promising to yourself not to repeat them. You want those skills, but it takes much longer to gain them if you’re not in the trenches on a daily basis.
It’s hard to emphasize the importance of this cost, and it’s only partly because the cost is hard to measure.
The difference in attitude between a financially-obligated owner and a salaried or hourly manager means an enormous difference in performance. Look at every area of control your manager has: cash control, product ordering, scheduling, running events, discretionary use of product for promotions, etc. If each of these categories runs more costly than the owner would run it by a percentage point or two, the total amount of loss due to underperformance can easily exceed 10%. Knock 10% off of your bottom line, and you’re probably not showing a profit.
Try this experiment. Open up your financials. Add 3% of your net sales to your labor figure. Add 2% to your COGS. Add another 2% for various fixed cost increases (repair & maintenance, cash shortages, etc.). It’s ugly, isn’t it? Now figure that your sales will probably drop 10% off of your projections. Is the bottom number still black? It might be, but it’s probably a very low figure by now.
There is a maxim in management: only expect what you inspect. If you monitor average ticket prices, your salespeople upsell. If you focus on labor, your management watches labor. If you ask your manager how much he’s planning to spend on inventory, he’ll watch his buying budget. Unfortunately, you can’t watch everything. If you do, you’ll spend more time at the store than at your day job.
If you only own one location, there are really only two reasons for it. The first is the main assumption of this article: that you’re doing it to work another job. The main benefit you seek is therefore free time. Another reason for hiring a full-time manager is that you don’t feel comfortable performing the task yourself. If that’s true, then store ownership is probably not a good idea, but we’ll cover the topic of superior talent, too.
The main advantage of having somebody else run the store is that you can continue your day job. The income you gain from that job might exceed the loss of productivity caused by your absence.
The “free” time is not all yours, nor is it free. In addition to the salary you pay, you have to deal with the above costs and risk. Also, you can’t hand over all responsibilities to the store manager. Unless you’re insane, you won’t give your manager unrestricted access to your checkbook, for example. That means you have to spend time paying the bills.
You’ll also have to spend some time monitoring the store. Watch for sales trends to make sure nothing’s being neglected. Look for irregularities in your paperwork that might reveal theft. Yes, even for that guy you trust. Make sure your product purchases are within your budget and that your labor cost is running to goal.
Give your manager feedback. You might do this informally, by placing a call as needed. You might have to schedule periodic meetings after leaving your day job. Maybe you stop by for an hour each night before you head home.
Your paperwork isn’t the only source of information about the store. Talk to customers, too. They’ll tell you if your customer service has been falling off lately, or if the store’s been opening late, or if special orders have been handled badly. Besides talking to customers when you visit the store, make it a point to call them on the phone.
If you have a security system in place, spend some time watching videos of the crew at work. Do the employees sit on the counter and surf the web when there aren’t any customers in the store, or do they tackle their chores right away? Do they look up and greet customers right away when the door opens?
If your manager gets sick or injured, you might have to run the store or face closing it for a shift—or longer. Can you skip out on the day job on short notice to run the store? Or can you afford the loss of sales caused by closing? Which is more costly?
Perhaps you’re not the best person for dealing with customers. Maybe your ideal job is working at a desk in a dark corner, communicating with people only through e-mail. Short e-mails, at that.
If you’re best at the administration and weaker on the execution, it might be to your advantage to hire an outstanding people-oriented manager to take over those duties for you. Develop procedures that minimize the damage the people-person can do to your inventory with his poor math skills. Make the schedule yourself so Miss Congeniality doesn’t forget to have somebody open the store.
Some people reject the idea of hands-off management out of hand. For others, it makes sense if handled correctly. Later, we’ll discuss how to handle it correctly and the additional complications of supervising a store you hardly ever see.