The Flea Market Way

I’ve recently created a truncated form of business plan describing a low-budget way to start a game store. Get inventory, get some fixtures, and focus on creating a gaming community. Build the need while you upgrade the store to meet that need.

  • It doesn’t require your full-time attention. Keep working your day job while you bank for the store.
  • You can get started with the cash in your wallet. Literally, you can begin work with $100 or less.
  • Your timeline for moving into a “real” store could be a couple of years or as little as 6 months.
  • The very first customer to buy this PDF has reported that his sales are about double the conservative estimates I use.

Get The Flea Market Way in PDF for only $4.99.

Planning for Wizards Premium

One of the key questions you must ask yourself when you plan your store is the question of whether to build for the Premium store designation from Wizards of the Coast.

I recommend pursuing the Premium status for (nearly) every store owner. The requirements run parallel to your larger goals of building a great store, while the benefits increase sales for one of your largest game categories. It’s a no-brainer for 99% of stores.

Wizards provides a checklist for pursuing premium status at https://media.wizards.com/2019/wpn/new_wpn/premium_quality_checklist.pdf. It’s broken into several categories: design, housekeeping, accessibility, and information all fall under the larger header of aesthetics. The sister category, customer service, includes staff, customer interaction, play experience, and amenities.

Let’s look at a couple of representative items from each category.

Design

The design standards require a visible, permanent sign. Isn’t that the kind of sign you’d want if you want to attract customers? At no point outside of the shoestring model (which I don’t recommend) would I ever suggest having an invisible or temporary sign.

Signs are your most cost-effective method of advertisement: their number of impressions divided by their cost is good, but when you stretch out the number of impressions over the sign’s lifetime, you reach an impressive efficiency. A good sign pays for itself.

Merchandising standards state that your departments should be clearly defined. That’s a good idea in retail anyway. I recommend identifying each department with internal signage and further recommend that you brand each unique department with its own color scheme or graphic design. Customers should know if they’re in the board game section or the role-playing section.

Lighting should be “excellent overall,” which is good advice. There’s a mathematical formula in retail that can be broken down to “lighting equals sales.” The better the lighting in your store, the more sales you’ll have. Replace blown bulbs immediately. Add spot lighting where necessary to highlight key displays.

Tables and chairs should match. Tip: Advantage Church Chairs offers fantastic, long-lasting, attractive chairs at a great price. I no longer recommend Lifetime chairs after many attempts to exercise their warranty have been denied.

Likewise, you could go down the rest of their list, and all of their requirements are simply good retail decisions. Still, familiarize yourself with the checklist before you plan and build your store, and it’s easier to meet those metrics when you apply.

Housekeeping

The next section on the Premium checklist regards what they call “housekeeping.”

At the top of this list is a general “clean environment.” By that, they mean that the store in general should be free of clutter and trash. The area behind the counter, which is a common work station, should be uncluttered. Ideally, as much work as possible is done away from this station and out of the public view. If it must be done there, it should be minimally obtrusive and put away when it’s done.  

Likewise, the windows, shelves, game tables, floor—anything the public can see—should be neat and clean. Have a schedule for cleaning each place on this list and an oversight system to ensure it’s being done.

Your restrooms should be clean and supplied. Well…yes. They should. Making sure that restrooms available to the public are clean and stocked should be a priority for anyone who welcomes the public into his or her business.

Accessibility

The checklist has a section ensuring accessibility. You can use the Americans with Disabilities Act  as a guideline for the retail section of the store, but you must also take into consideration traffic flow in the game play area and the ability to reach the store.

Information

Policies and information should be posted where customers can see it. This information includes things like return policies, a code of conduct for using the game room, prizes given for events, and anything customers are likely to need to know. Posted signs should be printed (not hand-written), multi-colored, branded, framed and affixed to the walls or in freestanding acrylic signs on the tables.

You must have a posted event calendar with upcoming events posted.

Staff

Staff should have a “positive and professional manner.” That’s not exactly a discrete and measurable metric, but it’s like the judge famously said—“I know it when I see it.” Common courtesy is a good starting point, but policies regarding suitable subjects for dialogue and topics to avoid keep employees on the right path.

For example, at FLGS, employees are not allowed to discuss politics or religion, and they are not allowed to malign any customers, employees, other stores, or any of our business partners (including manufacturers and distributors).

Staff should be wearing company-branded materials: uniforms, lanyards, or however you distinguish your crew to customers. FLGS uses polos or t-shirts, plus branded badges. Each badge has the employee’s name and two to three areas of expertise about which they bring extensive knowledge.

Customer Interaction

All customers should be welcomed. Employees should not be dismissive of anyone for age, gender identity, ethnicity, or whatever personal issues they might have. If they walk in the door, they should feel welcome.

Customers should be greeted upon entry. At the risk of sounding like a broken record, this should be your policy anyway. Crew should be greeted at entry, approached a second time to offer to help, and thanked as they leave.

Wizards requires a high-quality online sales platform. Using any of the standard sites like tcgplayer or Amazon meets this metric. They don’t have standards regarding how much merchandise you need on these sites, so don’t worry if you only have a few hundred dollars’ worth listed; they want to make sure the presentation is professional.

Play Experience

Professionalism and consistency are the keywords for running a great event. Run events on time, every time. If people show up late and you’ve already started, they’ll be on time next week. That one player you wait for is inconveniencing ten or 20 or 50 others. It’s not worth it. Start on time, even if you only have 3 players.

The checklist asks you to have pre-registration available. A perfect medium already exists for that—the Magic Companion app. You don’t have to do any work. Just have the link available in store and on social media. Having pre-registration helps your operations tremendously; it lets you staff appropriately, and it alleviates the mad rush at event start time.

Amenities

Wizards wants you to have food and drink available. I don’t believe they require you to sell it, but you should anyway in nearly all circumstances. Again, they’re asking you to make decisions that benefit the business.

One requirement you might not have considered is having a tablet or desktop available for customer use. It allows customers to sign up for an account or whatever else they might need for the event. It can double as your sales kiosk.

Having a screen or TV for event management is a top-tier idea. During events you can displaying pairings and standings.  When you’re not running events, it can rotate among different demos, promotions, and other customer messages.

Good Ideas Are Good Ideas

I told you the requirements are things you want to do anyway. If you’re still planning out your store, integrate this checklist into your plans and you’ll have the hardest part of the job done when you turn the keys and start letting people in.

Domino’s Pizza and FLGS

I’ve told the story before of how Domino’s prepared me for my own business. Let me provide a little more detail.

Background

When I joined the company in 1987, Domino’s Pizza was opening a thousand stores a year. The company was growing insanely. I saw a survey that pointed out that their mascot, the Noid, was the second-most recognized figure in pop culture—right below Santa Clause, and above Jesus Christ. They were exploding. With this growth came a giant push from the company to train managers for all those stores. We didn’t have assistant managers or shift managers. We had MITs (managers-in-training). If you didn’t promote, they pushed you out of the training program.

Each manager-in-training was equipped with a workbook, a heavy work schedule to train through immersion (and earn pay), a regimen of in-person training courses, and regular job performance reviews—all with the goal of taking an employee from filling out a job application to learning how to run a $500,000/year business within six months.

I learned more in those few months in a corporate environment than I did in almost two decades of working for franchisees. Managers I met years later couldn’t tell me what was in the dough, much less do the advanced math. Not that they were necessarily bad managers—they just weren’t trained business owners.

For example, Domino’s divided their fiscal year into 13 4-week periods. This gave us several advantages—one of which was that when we compared sales to last year (which we did daily, weekly, and periodically), we were comparing the same day of the week for a more accurate comparison. Our paperwork each period included

Week 1—a profit projection for the period

Week 2—a “mid-month”, which was short for “mid-month profit projection”

Week 4—a profit and loss statement, using actual figures for rent and utilities sent us by corporate

This was before stores had computers, so we learned how to calculate these things by hand. I could turn over a sheet of paper, figure my contribution margin, and scratch out a break-even analysis (and therefore a profit calculation) by hand. Thirty-nine times a year—more if your trainer insisted you do the work more than once, which mine did.

Part of the motivation behind this intense training was the idea that each of these corporate managers might one day buy their own store or stores. They weren’t just training potential managers; they were training future franchisees. It was an intense training program designed to create business owners (and, incidentally, the managers were incentivized with profit-based bonuses so that the most successful could buy or open their own store).

John and Mike

While I worked for a couple of different managers during that period, I had two primary trainers. The first, John, trained at least 6 people up to their own store. He had a reputation throughout the market for being a strong trainer. People wanted his MITs in their stores. He later went to Subway, where he owned and operated one store and was partial owner of a second. He ran a highly profitable store, made even more impressive by the fact that he always had rookies running the place, and he paid them well. While working for John, I was the highest-paid trainee in the area (wages were standardized, but I got the hours I wanted). Other managers discovered that they could pay me the mandatory overtime required when working for a store other than your own, and their labor costs would still be lower than normal because of how tight I ran a shift. In addition to Domino’s-specific stuff that isn’t the point of this discussion, John taught me the fundamentals of employee management, the benefits of ongoing training, and how to best use my time during a shift or a week.

The second trainer, Mike, had the reputation of running outstanding numbers. He turned a giant profit for the company while ensuring that he earned as much as the system allowed. For example, he discovered an exploit in the system where he and another manager could get paid an additional day by working at each other’s stores one day a week, which gave him and his friend a 20% increase in income for the same number of hours worked.

Later, when he was promoted to area supervisor, Mike’s tasked profit goal for his first period was $14,000. He was disappointed with himself when he “only” reported $56,000 profit, because his personal goal was to quintuple his assigned goal. Under Mike, I learned how to scrutinize costs, maximize the value of labor, and leverage assets for maximum benefit. I really learned how to appreciate the profit benefit of add-on sales.

Interestingly, neither one of these managers was a great salesperson. Neither ran the highest-volume store in the market—but they were always 1st and 2nd in profits (or first and first when John moved to an adjacent market). When John, Mike, and I ran stores simultaneously, our market led the region in profitability, and our region led the company. None of us ran the highest-volume stores in our markets.

The System

The company system taught me the value of standardized training. When I started FLGS, I didn’t need an operations manual. My partner and I did everything ourselves. We didn’t hire anyone for about 6 months. But I had a table of contents and an outline before we even opened. We had the kernels of our content almost immediately—daily checklists for opening and closing tasks. Then I added things like uniform standards as we added employees.

Now it’s a 56-page document available in print for quick reference at the counter or PDF for latest reference and searching ability. It includes intense detail regarding every operation that happens in the store, from opening the front door on entry to sales, receiving, online sales, pricing policies, and closing up at night. If we ever encountered anything not in there, we added it.

The corporate background also prepared me for operating multiple stores. While my 3 stores were in different markets and had some specific differences because they were bought (as opposed to opened from scratch), my plan for the next year was to homogenize methods 100% so that crew and management were wholly interchangeable. That’s a big help with covering shifts, promoting managers as needed, and improving the customer experience overall.

Differences

Obviously, we don’t make pizzas at FLGS. There are other differences. For one, I don’t have to worry about delivery (I thought about it as an option, but I did not pursue it for reasons I don’t need to go into right now). But less obviously, the number of SKUs I restock on a regular basis is enormously different. Domino’s had 10 toppings when I started, two sizes of dough patties, one sauce, two sizes of boxes…the entire list fit on a single page and could be counted in 15 minutes.

Another obvious is that I had to do all this work myself instead of having it done for me. On the other hand, having read the procedures and training manuals at Domino’s gave me a broad template that I could repurpose for my own use.

Clearly, a fully-stocked game store with a broad inventory base needs hours of counting. With practice and refinement of methods, I could count my major general restocks in less than 2 hours, but that still leaves lists of less efficiency for several more hours of counting.

Staffing is much simpler in a game store. In almost all cases, I have one person on duty to cover the counter. For high-traffic times, we double up. Shift transfers take a few minutes. In case of a call-out (which was very rare for the first 20 years, very common in the last 2 years), the salaried manager arranges coverage or works the shift himself. If nobody else does it, I do it.

Customers can steal from a game store. In a delivery-based restaurant, there’s almost no theft. Theft on a delivery was a big deal because it was almost always armed robbery. Theft in the store was all done by employees, and the systems in place made that easy to do but difficult to do undetected. I implemented systems to prevent or detect theft.

Recap

The methods and systems I learned from the management training program at Domino’s absolutely gave me the background I needed to own my own business. Where the skills didn’t transfer, they gave me a comparison that I could adapt to my needs. The opportunity is lost with the changes in Domino’s over the past several decades, but undoubtedly other situations similar to that are out there now. Maybe you’re in one and haven’t assessed it from this point of view.

A New Experiment

From before we launched our brick-and-mortar operations in 2013, the plan for Friendly Local Game Store has been the dual development of multiple retail stores supported by our own game and game accessory design. As the retail operations grew in scale and scope, there never seemed to be enough time to devote to the second half of that plan.

Part of this goal came from personal desire, while part of it came about from observations in the industry. Many good gaming products don’t succeed financially because they don’t get game store presence. Having guaranteed presence gives our games an edge. Having energetic store support gives them a big edge. Organized play, premier positioning, social media presence, and the ability to stock the products effortless all promise to give those games a boost.

The store wins by having exclusive or hard-to-find product for its customers. It gives that store a competitive edge against stores that don’t carry that product. If you’re the only store in town with a certain product, that’s where people go for that product. Designing your own games is a win for both sides.

In November, Friendly Local Game Store merged with Coliseum of Comics. Coliseum of Comics took over retail operations for the Friendly Local Game Store locations in Jacksonville and Orlando, plus Gamesville Tabletop in Gainesville. I became head of a new division we are creating for game design. If the cost of seeing this goal come to be is a name change, that’s a cost I’m willing to pay. Having more stores means the games will be more successful, and growing from 3 stores to 12+ stores in one fell swoop gives that division a big step forward.

The sales and cash flow projection for this operation shows that at the end of two years, the bank account should exceed $90,000, assets on hand exceeds $100,000 (representing games to be sold in the future), and our digital catalog will be growing. We have some promising product lines planned that should make for some interesting analysis afterward.  

Because of the cost associated with collectible card games, we are very unlikely to produce a CCG. Otherwise, we have a variety of board & card games, miniatures, miniatures games, role-playing games, and gaming accessories slated for the next couple of years, including licensing some games already on the market but unavailable in North America. All these products fill a need for the stores. Sometimes it’s just margin. Sometimes it’s exclusivity. Sometimes it’s new customer acquisition. We’ll focus on product lines that produce the most return for the least investment in time and cash.

EDDM Marketing

EDDM Marketing

The EDDM (Every Door Direct Mail) program is an offer from the post office that allows you to send low-cost marketing pieces to a very specific part of the map. I want to talk about why you should use such a thing and how you could use it.

The What

EDDM is a new-ish program that allows you to send direct mail for a very low cost. It’s easy to use for them because there’s less sorting. They hand the package off to the carrier and he takes one to each address on his route.

  • You don’t need to know addresses. You choose specific postal routes, most of which are around 400 addresses.
  • You don’t have to deal with a huge minimum; you can do as few as 200 per mailing, or as much as 5,000 per day.
  • You can choose commercial, residential, or both.

The cost: 14.5 cents per piece. With first class postage at $.45 and bulk rates no lower than $.20 per piece, you can see what a deal this is.

The post office site that describes it all in full detail is here.

The Why

Game retailers like to think of their stores as magnet stores that draw people from halfway across the state. They brag about how Bob stops by faithfully every time he’s in town, even though he lives 3 hours away. They point out Dave, who drives an hour once a week to play Warhammer 40k. They haven’t collected the data that shows that most of their customers live within about 5 miles of their store.

Sure, gamers are loyal. But this kind of thinking is an easy trap to fall into. You look at the most visible customers and ignore the 90% of them who, combined, pay your bills.

This area—the map circle from which you get more than half your customers—is called your primary draw. That’s the richest area for you to target with any traditional media (or online media, if you can target that precisely). For most of us, it’s about five miles. For those in more rural areas, it might be larger. For highly-populated metropolitan areas, it could be less. Knowing what this area is can be vital to your advertising, but most store owners don’t spend the time and effort to calculate it.

The How

  1. Sign up. Go to that USPS url above and sign up for an account.
  2. Choose your message. What do you want to promote? A new store opening? Adding Games Workshop? Magic tournaments?
  3. Design your ad. That’s a huge topic and gets a couple of paragraphs in a bit.
  4. Order your printing. Printing prices vary, but I’ve seen as low as $475 for 10,000 full-color UV coated pieces, including design work. Check out Mainstream Marketing.
  5. Choose your target. Start anywhere within your primary draw. Target routes that are “downstream” from you first. That is, customers who pass by you on the way home from work (you are on the right side of the road for that, right?).
  6. Take your materials to the post office. Take your pieces, your instructions, your customer ID number that they gave you when you signed up, and cash or a debit card. They don’t take credit cards.

Ad design is everything. I am not a designer. I’m like the anti-designer, apparently. My ad design attempts generate laughter from my designer friends. Therefore, I will not attempt to advise you on ad design except in the most basic of suggestions that even I can’t get wrong.

Include a call to action. A call to action encourages some type of response from the customer. What do you want them to do? Go to your website? Visit the store? Call? In most cases, you want them to go to the store. Use unambiguous language like “Come by the store.”

Include a deadline. That’s the real reason coupons have expiration dates. Make it soon enough so that the customer won’t forget about it, but give enough time for them to plan. Two weeks is fine. A month is probably too long.

Because EDDM is not very common, your local postmaster might not be familiar with it. Plan on taking extra time at the post office the first time. One of the documents that you print when you do the paperwork has complete instructions for the post office employees.

The Math

Here.
is a spreadsheet I created showing some yummy, delicious math.

The first column is the rate of return. I’ve included figures from 1/100 to 10/100, which would be ridiculously high. Given the factors that favor ads of this type (direct mail, large, colorful pieces, mailed near the store, etc.), you can expect to use figures of 2-3/100. This assumes that your ad doesn’t suck. If your ad design is weak, just don’t bother with the math, because your ad will suck money out of your pocket and you will die poor and miserable.

The second column is the number of pieces. I used 10,000 for each case because that’s the buying unit that gets you the best price. Do not send out all 10,000 at once! What happens if you do get 100 customers coming into the store looking for something that you normally stock 5 deep? You anger your potential customers and have done more harm than good. Meter your mailouts according to your ability to handle the expected return, both in terms of inventory on hand and people at the counter.

The third column is the cost. Because I kept the number of pieces the same in each situation, the cost is the same. If you want to experiment with the figures on a smaller scale, say with 5,000 pieces (and an attendant higher per-unit cost), go ahead.

Next is the average sale. This figure is important. They all are, really, but I need to stress this one because it relies on one of your key abilities to translate bodies into sales in the store. If you have poor salespeople working your counter, this figure will be low. If you have great salespeople working your counter, this figure will be higher. Thus, it’s a key variable in this particular table.

Let’s say that you’re advertising that you’re now carrying Games Workshop, and you want to support this merchandising decision by offering a $30 box for $25. If you upsell nothing with your purchases and just sell the offer on the ad, your average ticket should be exactly $25.

If you sell a couple of paints and brushes with the purchase and boost the discounted sale with some full-priced sales, your average ticket might be $40. It really should be much higher, but I’m using very conservative sales figures for the purpose of this discussion. The last part of the table shows a $50 average ticket for comparison.

The last columns are easy. They multiply out the total earnings from the sales your ad achieved, the gross profit after deducting the cost of goods, and then subtract the cost of the ad campaign for a net effectiveness for the campaign. You’ll notice that I used a 43% gross margin for the CoGS instead of the more common figures of 47% to 50% you can get from distribution. I’m assuming that you offered a discounted rate of up to 20% to encourage a response.

Of course, a full ad campaign would also include your social networking, in-store marketing, possibly manufacturer support, etc. This discussion is just measuring the effectiveness of the EDDM.

As you can see, only in the worst-case scenarios are you losing money on the campaign. In reality, many of these customers will be new customers, and their lifetime expenses will be much higher than the figures generated here (over $2,000 for Magic customers, $1,500 for Games Workshop customers, $2,500 for D&D players, etc.).

After-Action Report: RapierCon

Introducing FLGS

I’ve learned a lot about game retail since I bought my store. I’ve considered re-entering that arena several times under different circumstances, and I’ve recently come up with a situation that allows me the best of all worlds. I can keep doing what I’m doing and still be a retailer. I’ve started a company called FLGS. If you’re not already familiar with the acronym, it stands for Friendly Local Game Store.

The company includes two partners—me and a friend I’ve known since ’97 or ’98. Phase I of the plan calls for the two of us to work conventions only until we bulk up to a certain amount of inventory on hand. Working only at conventions gives us a few critical advantages. It allows us to work around other obligations. There’s no rent. We don’t need to commit to a $100,000 commercial lease. We have no employees to pay. I’ll share more details about the exact figures later, but let’s just say it’s way cheaper than most of the plans I get paid to write.

The Convention

RapierCon has a decent history—8 years or so. It’s a small con, with between 200 and 300 attendees. The convention sees fairly low turnover. It’s the same faces every year for the most part. The core attendees are members of a miniatures-based game club that sponsors the con. They play Games Workshop games, but historicals are their forte. Old white guys are the norm.

As it turns out, that’s my old customer base. I knew I’d run into a lot of faces I knew. I could even place most of the names. I was not wrong.

I figured it would be small enough and casual enough to make a great shake-down cruise.

The Good

Knowing a lot of the attendees by name (and army in many cases) helped. Many people came over just to say hello. They might not have made a special trip to the table otherwise.

For the opening cash, I opened up my wallet and broke into a change jar. Between the two I had $150, which I figured would be plenty. Most transactions would be electronic, through Square. Of the cash, some would be exact change, some would be with small bills that would provide change for future transactions, and some would be large bills that needed change. A trip to the bank turned it into the denominations I wanted. Now that’s fixed and that money stays with the cash box for re-use. Easy peasy.

The Bad

We set up late at the convention. That was my fault. I made an assumption about what time the event was due to start based on previous events, and I was wrong. So we missed out on a few hours of sales. As it turns out, the convention hall was nearly empty during that time. We probably didn’t miss out on much sales. After all, those people were still around later, and there were no other vendors with our product mix.

We weren’t able to hang our signs. We didn’t have double-sided tape. We had some duct tape, but it was apparently very old. The adhesive simply didn’t hold. The sign fell down several times, and then we gave up. In retrospect, we should have been able to secure them to the front of the tables, but I just thought about that.

We didn’t get as much merchandise as I wanted and so didn’t get the fixtures I wanted to display them the way I had planned. More inventory would have generated more sales. Better display would have generated more sales.

I’d hoped to add some surplus D&D Miniatures from my own collection, but I didn’t find time to sort them before the convention. I have a LOT of minis. I had a decent collection already, and then I bought out the personal collection from the guy who bought my old game store. I think he claimed it was over 2,000 figures. I have many figs set aside now. They fill a medium-sized box. I’m guessing I have 500 or more figs in there for sale. I’ll keep culling my collection for another week or so.

The Lessons

The con kit needs double-sided tape for hanging the sign. And scissors.

My neighbors with the awesome dice game are graphic designers by trade. They had beautiful banner signs that they purchased for cheap. They were full-color and cheaper than our one-color vinyl crap. I’m going to learn where they had those made and improve our image.

We had planned to have extra people available if sales required it. It went smoothly. We did not need them.

We need a price gun and tags. Or dots and a pen.

I intend to run a game next time, if possible. I’ll let players keep the D&D miniatures that I provide for their characters and coupons for free dice with a t-shirt purchase.

Our t-shirt prices were variable based on size. We’re going to average them out (in our favor, of course) and charge a flat fee. I don’t like the idea of charging big people more for their clothes. There’s no point in making them feel self-conscious about their size like that.

The convention host said he preferred cash for the table fees. Not “required” cash. Next time, I plan to offer a mix of product for prizes and some cash. That could save anywhere from $15 to $75.

The Numbers

Our sales goal was an ambitious $1,000. I say ambitious because the convention was going to have 300 people or fewer. Anything more than $1/head is a good convention, and setting a goal of over $3/head would be high for many people. Personally, I was unhappy with anything less than $1,000 after several years at my store before, but this situation was going to face several disadvantages versus that one. For one, we had much less inventory to choose from.

We spent more than I would have liked on books, but it was on short notice and the main point was to bulk up to a “critical mass” of inventory. We spent $600 on the books and $185 on 3 booster boxes of Magic. We had some dice on hand and purchased some dice bags for $200 (it was a bulk buy). The main edge we had was a consignment deal to sell t-shirts from a humorous t-shirt vendor with an established local presence.

We also bought some goods, as we had planned. We bought some Games Workshop and Magic at the convention. Some of the bulk books we picked up had some collector value. We pulled those aside before the con to sell later on eBay.

Fixed Expenses
Fictitious Name Registration: $75
Incorporation: $75
Sign: $45
RPG titles: $600
Dice/bags: $400
Magic boosters: $185
Purchases at the event: $55
Cash box: $0
Opening cash: $150
Total: $1585

Event-specific Expenses
Table fees: $130
CoGS: $465
Travel: $0
Food: $0
Parking: $0
Total: $595

Income
Convention sales $800
eBay sales afterward: $425

Total Income: $1225
Total Expenses this con: $595
Positive cash flow this con: $630

So after one event, we’ve recouped nearly half of our total investment and still have plenty of merchandise to sell. In fact, we’ll have more than we started with, because the entire plan revolves around reinvesting our gains into inventory after paying for our fixed costs. That $630 is going to buy more games. We’ll also have those D&D minis I mentioned.

Our next event is coming up in a month. The convention has a completely different flavor. There will be girls there. There will be young people there. Many of them will be cosplayers. There won’t be a bunch of old grognards. However, there will be more people—around 900 attendees, based on recent trends. We’re counting on less sales per person because of the different flavor. Fortunately, it’s also local, so we won’t have any travel expenses.

Our sales goal is $2,000 for this one. I don’t plan to do a report after each event, but I’ll be glad to let you know how it goes in the forum if anybody’s interested.

Vertical Integration

Don’t stop at one tier of the industry.

It’s important to have vision for how you want your company to develop beyond the opening stages. One goal for later stage growth is vertical integration.

Vertical integration means adding elements from other tiers to your operations. For retailers, that means distribution and game production. Each of these steps involves creating a new business model—and you know how hard that can be. It’s not something to be taken lightly.

Several companies have splashed this concept. Eden Studios, Reaper Miniatures, and Guild of Blades operate retail stores. Many manufacturers operate online stores selling products other than their own. I’ve written very viable plans for others manufacturers who wish to expand into retail.

At least two major distributors have operated chains of retail stores. Games Workshop actively engages in all three tiers. They’re certainly a strong model for any expansion along these lines.

Vertical integration is the secret of the indescribably wealthy. Carnegie, Rockefeller, and others became explosively wealthy by controlling every step of their industries, from pulling raw goods out of the ground to putting them in the customer’s hands. Modern large retailers do this in the form of generic products. Publix, Sam’s Club, and Toys R Us all have extensive production capabilities.

Retail

You’re already doing this part, right?

If you’re a manufacturer or distributor and want to consider adding retail stores to your company, okay. Let’s talk.

Obviously, you gain increased profit by collecting the retail share as well. In fact, if you’re managing all three tiers, you’ll collect everything but the production cost. For $40 retail book that cost you $8 to make, you’ll collect $32. Retailers see the largest share of a product’s sales dollar, so you can see more sales per item sold.

Manufacturer to Retail

Adding physical stores to a manufacturer allows opportunities to promote your products to new customers—something most small publishers need. Small publishers tend to market their products to existing gamers. The storefront allows you a chance to make new gamers out of people who walk in out of curiosity.

Having this second tier provides manufacturers with some even cash flow. You know that cash flow is an awful thing. You pay for all of the development and production costs associated with a product weeks or even months before you start collecting for sales. Having a retail store smooths your cash flow. Games sell every day. Money comes in every day. Cash flow is less awful.

Distributor to Retail

If you’re a distributor wanting to get into retail, you have the advantage of having secure supply lines and a ready inventory already in stock, reducing the amount of capital you need to raise to open the store. That might cut 2/3 of the opening cost for you (or at least defer most of it, since you’ll have to restock those goods to continue selling them). Some distributors have found themselves getting into retail by taking over stores that found themselves deeply in debt. If you have stores in that situation and are thinking about going into retail, forgiving debt in exchange for a transfer of ownership could be an easy in.

Distribution

Buying from publishers at the distribution discount and selling at retail offers a significant improvement in profit margin per item. However, the amount you’d have to buy to get those terms is much higher than you’ll ever see in a single store. Therefore, if you want to buy on those terms, you’ll have to find other customers to whom you can tell.

Retail rent and warehouse rent are very different in cost. You aren’t likely to be able to run even a small warehouse out of your store. You’ll need to find another location, get manufacturer accounts, get retailer accounts, and staff your new operation.

I’d do this part last if I were pursuing all three tiers. By its nature, you can’t dabble. Distribution takes the largest up-front investment. Also, you’ll upset your current distributors once you become their competitor. It might not be worthwhile even if you were to grow very large.

Estimates for the cost of starting a distribution center vary with who you ask. I’ll risk making a declarative statement by estimating the startup cost at $250,000 with a capital reserve of $40,000 to $60,000, exclusive of owner salary. That assumes a pretty cherry-picked selection; you could easily spend ten times that much trying to provide a broader SKU offering.

Production

You don’t have to produce and expensive board game or a collectible card game. You could produce role-playing game adventures, or non-collectible card games, either of which is far less expensive. You could also produce a dizzying array of accessories like generic map packs, cardboard cutouts for use as miniatures, dice, painting stations, t-shirts, or other thematically-related items.

You won’t support a manufacturing division out of the sales potential for a single store, except on a very small scale. Production can be an excellent addition if you have sales channels outside of your store, like an aggressive convention schedule or a big online presence.

Production can be relatively inexpensive. As I mentioned in Link The 1k Company Revisited, you can start a gaming company for cheap. Better yet, you can remove some duplication if you already have a storefront. Putting out some accessories can cost as little as a couple of hundred dollars. Creating a board game based on the Avengers movie might cost up to a million dollars with licensing fees. Here’s a tip: because you’re already faced with a limited customer base, look for something with repeat sales potential.

If you’re a distributor, you have a couple of other options for getting involved with game production. If a game does well for you, but not for other distributors, maybe it wasn’t a failing of the game, but on their promotion. You might make the publisher an offer for rights to the game (exclusive or otherwise). A publisher who goes out of business might be interested in recovering a part of his loss by selling off rights along with remaining inventory. If the game is worthwhile, you might even be able to hire the publisher full-time, to continue developing the lines that interested you and roll out new products for your newly vertically-integrated company.

A New Buying Offer

Buy out your competition with their money.

In December I attended a trade show in another industry. The atmosphere was very positive overall. One speaker mentioned one account who had been with him for 10 years—at the rate of $22 million a year. Another one had bought out 60 competitors. While that person was interesting, I was far more interested in the person I met at a round table discussion. I will call him…Buck. Buck had bought out 7 competitors in the past five years or so. Five of them work for him now. Best of all, he had done it without spending a dime. I want to share how Buck structured his purchases.

The Offer

It’s simple. Offer a percentage of the sales their store generates for a period of time. If your offer is 15% for 3 years, and their store does $200,000 a year, they get $30,000 a year. At the end of 3 years, they’ll have $90,000.

Your Benefits

Your benefit is obvious: you’re not out any cash. You don’t have to worry about your credit rating, applying for a loan, or how you’ll handle the repayments.

You can buy a business of any size this way. If you’re doing $115,000 per year with your Magic-and-Pathfinder shop, you can buy out a full-service retailer down the road who’s doing $400,000 a year. If it’s cash-positive, you can take on anything.

This cash-forward situation allows you to grow at an unlimited pace. As long as you can close the deals, you can buy the stores.

If the business you buy out decreases in productivity, your cost decreases likewise. This reduces your risk if the business slows or tanks. If you had a conventional bank note to pay back and sales dropped by 50%, you’d be in trouble. In this scenario, you reduce your expenses at the same time as you reduce your income.

You still have the benefits of growth by more traditional means: you enjoy the efficiency and purchasing power of increased volume. Because each store naturally has a different sales mix, you can diversify your sales to reduce the risk of manufacturer failure. Most importantly, you should be able to afford a greater personal salary.

Their Benefits

The seller has a passive income that he can rely on. Because your offer doesn’t pinch your cash flow, you’re very likely to be able to make the payments.

The seller can choose to take the income and rest from working. He can go to school for a year or two while you pay his bills. Or, he can continue to work elsewhere and push himself up into a higher tax rate.

The seller can see a greater total sale price with this offer than with a conventional buyout. Also, he stands to benefit if sales increase. If you’re growing through acquisitions, it’s likely that you’re doing something right. You should see sales increases. If you extend an offer of employment, the seller can work to increase sales, thereby directly increasing his personal earnings. I’ve seen somebody ask for $95,000 for the sale of his business and end up earning over $120,000.

Flexibility

Between adjusting the rate and the term of the buyout you can make an offer that works for both of you. Variations include

  • offering an additional percentage if the seller works for you managing his former store
  • offering a nominal percentage of ownership in your company as an incentive along with the sale
  • offering an advance—an up-front payment taken from the expected percentage payment

If the seller insists on getting money up front as a condition of the sale, offer a advance against future payments. If the payments are structured at 10% of gross sales, and gross sales for the first months are expected to be $12,000 each, then you have about $3,600 to play with. Offer $3,000 down, to be deducted at $1,000 a month from the first 3 months. You pay the seller $200/month for those three months, then resume paying him about about $1,200/month—the exact figure dependent on those sales, of course.

You can remove some of the seller’s perceived need for up-front payments by negotiating to take on his debts. If he owes $5,000 to distributors, offer to buy that debt. Pay what you can to the distributors and catch them up as you can. You might be able to pay them an extra amount per statement or per month.

Example

Let’s say that you have a store with decent sales and want to buy a smallish store, expand it into the suite next door and add in-store gaming. Small Game Store is doing $100,000 in annual sales. You’re doing $350,000 at your current store.

Everything goes well and the seller agrees to 12% of his gross sales for 3 years, transfers all of his debt to you, and agrees to manage the store for you (thus being directly responsible for his own future income from the sale). You spend cash on the build out, merchandise, and marketing. Don’t spend it on your purchase.

Bob, your new store manager, gets a salary while working for you, and he also earns 12% of what improves to $200,000 in short order with your improvements. After accounting for the growth period, Bob might earn $62,000 for a store you might have paid $10,000 for if you’d paid cash. You also gain a motivated manager to run your store for you. He earns money when you succeed. Your company’s sales volume increases more than it would if you had looted the store and left the empty shell behind.

The 1k Company Revisited

And Updated for Technology

Precedent

Way back in the Neolithic Age of 1998, Sandy Antunes wrote one of the iconic article on this site, The 1k Company. Technology has aged the article, though, and it’s time to revisit it. I asked Sandy about it, and he said I’m welcome to contribute what I can.

Just for disclosure, I will note that I have not necessarily done all of these things.

Sandy spent some space discussing motivation. I don’t care about all that. It all still applies equally. Technology hasn’t changed that.

Step One: Get Capital

Marshal your resources. You can use cash on hand, or you can take out a small loan. You can also use a new type of funding: crowdfunding. Sites like offer a medium for you to promote your product to fans and solicit funding. Sandy addressed Kickstarter recently, but here’s a summary.

Create an account and then create a project. Your project is your game. Make a video telling everyone how awesome it is. Offer incentives for donations. For a $20 donation, a donor might get a copy of your game. For $30, they get a dead-tree version and the PDF.

Tip: Prestige incentives work well with the role-playing game crowd. If you have name recognition, a signed copy is a fine incentive. Including the donor as a character in a game appeals to many people, too. It’s worth an hour or two to browse the site and see how others have set up their incentives.

Set a goal for your financing. If you reach your goal, you get the money, minus a small fee. If you fail to reach your goal, the money is returned to the donors. If you exceed your goal, you get all of the money, so it’s a good idea to set your goal low.

Ostensibly, Kickstarter is for creators, not commercial ventures. You can use it to fund a book but not your administration costs.

Indiegogo.com is a crowdsourcing site for commercial ventures. You can use the money for anything, and you can arrange to collect all the donations, regardless of your goal.

Step 2: Look Like A Business

This element has not changed in principle, but one detail is better. The cost of a DBA is about the same, at least locally. Buying pizza in exchange for a logo is certainly still viable. Creating and distributing a cheap flyer—same there, too.

The bennie is that you can get 250 free business cards from vistaprint.com. That knocks $15 off your costs right there (you still have to pay to get them shipped).

Having recently joined the GPA, I’m not certain it’s a no-brainer to join. The main value used to be in its mailing list, but there are lots of places online to communicate now. Publisher membership is now $85, much higher than the $20 Sandy quoted years ago. You can find other ways to network at less cost. The secret “weasel” list, for one. Less mysteriously, you could join the GAMA-sponsored Game Industry Network on Delphi forums at no charge.

I will add these items: create a website, a Facebook page, a Google+ account, and a Twitter account. Securing the domain name for your site costs $10 or less these days. The website costs about $12 per month for a free template and one e-mail address from Godaddy.com or several other hosts (fatcow.com, bluehost.com, ipage.com, etc). The other items are free. Once you have enough traffic, you can get a free message board from Simple Machines Forum or phpBB for your site. You want all of these Internet features because people access company information in different ways. If you tweet something, for example, only about 30% of your Facebook uses will see it.

You can also sync your social media so that you can make one announcement that will reach all of your followers, regardless of how they keep in touch.

Looking Like a Business $156

  1. Logo $20
  2. Business cards $5
  3. DBA Filing $75
  4. Flyers $10
  5. Internet presence $46 (registration and promoting the game 3 months before its release)

Step Three: Create Your Game

The assumption is that you already have a manuscript. If not, do that first.

We’re assuming a lot of sweat equity and friends’ contributions during this stage. Sandy’s plan calls for donations for skilled trades which can be costly. If you don’t have any friends, it’ll cost a lot more. I will note that there are two free applications out there to help in your writing and design. One is OpenOffice, which is similar to Microsoft’s Word, Excel, Power Point, and something else. As mentioned, it’s free, its files are much smaller than Word docs, and it can export directly to a PDF, which can be very helpful.

The other is Scribus, a layout application. If you write your manuscript in OpenOffice, you can export it into Scribus for your layout. Or you could write the whole work in Scribus.

Print-on-demand shops are more numerous now than when Sandy mentioned them. Here’s a partial list

  • Lulu.com
  • Guild of Blades Retail
  • Createspace.com
  • Lightningsource.com
  • Publishers Graphics (pubgraphics.com)

Some require a one-time setup fee. You always pay for shipping, unless you live close enough to go pick up your books yourself. Let’s go with Sandy’s assumption of 25 books that you might take to a convention.

You do not have to register your copyright. The main advantage of registration is that, in case of infringement, you can sue for punitive damages in addition to actual damages. Since the byword here is “cheap”, not “smart”, let’s skip it and save on the cash.

Finally, note that printing is entirely optional. If you simply want to sell one at a time online as customers order them, you don’t have to print any books at all. Or you could sell PDFs through your online vendors, as well as a variety of formats for different electronic readers: epub, Kindle, html, BBeB, etc. Obviously, these have no printing costs at all.

Printing $115

  1. Writing (DIY)
  2. Editing (DIY)
  3. Layout (DIY)
  4. Printing $100
  5. Shipping $15

Step Four: Setting Up Your Sales

Sign up as a publisher with OneBookShelf. The cost is a one-time $40. You’ll be able to sell print and PDF books through DriveThruRPG, RPGNow, and other sites. Although OBS sees the lion’s share of online sales, you can create accounts with other sources, too. Here’s a convenient list:

  • Rpgnow.com
  • Paizo.com
  • e23 (e23.sjgames.com)
  • Lightningsource.com
  • Indie Press Revolution
  • Lulu.com

Your online vendors handle sales through the Internet. You need only worry about direct sales at conventions, local game stores, and whatnot. For handling those sales, you visit Squareup.com. Sign up for a free account, and they’ll send you a cool device (free) that you can use for swiping credit cards via your smartphone. The device plugs right into your audio jack. Swipe the card and the money goes from their account to yours. You can e-mail the customer a receipt when you run the transaction.

Other companies offer similar methods, including Intuit.

Getting Wired $60

  1. Internet access
  2. Website $10
  3. Domain Registration $10
  4. Online vendor agreement $40
  5. Credit card processing method FREE

Step Five: Marketing

For Internet marketing, you’ll use your free social media. Post daily to Facebook and Google plus. Tweet at least as often. Don’t underestimate its value because it’s free.

Convention presence can be a big boost, especially if you go to one of the big conventions, like GenCon, Origins, or DragonCon. You might meet retailers or distributors who want to carry your game, volunteers who want to promote it, and freelance artists and writers who want to work for you. Go as a guest, not a vendor. Vendor booths at the big cons can be $1,000 or more. Run games to get free or reduced entry. You might also go as a volunteer for another game publisher, but that might not leave enough time to promote your own game.

Although the print market for reviews has dwindled down to almost nothing, there are a couple of magazines still on shelves. Knights of the Dinner Table is one. You can send most reviewers a PDF version of your game for no cost. A good review gives you publicity. A bad review gives you publicity and might not harm sales.

Working the Street: $200

Sandy’s assumptions are still valid.

Conclusion

Innovations—nearly all of them online—have made starting a role-playing game company cheaper than ever. The 1k Company is now a $531 company—and $115 of that is the optional print run for local sales. Through social media you’re better equipped to reach your customers than ever before. The procedure remains largely unchanged, but you have better tools now.

If you’ve already saved up $1,000 after reading Sandy’s previous article, I recommend spending your surplus on promotion. Attend more conventions, or try a banner ad here on rpg.net. You might hand some of it back to those who gave you free art or editing. Or, enjoy your savings and start developing your next title.

Stocking vs. Supporting

You can’t support everything. Which games do you support?

The decision to support a game versus merely stocking a game has a huge impact on that game’s sales. It’s very possible for a well-supported game to earn 5, 10, or 20 times the sales of a stocked game.

A stocked game is one that you put on the shelf. You restock it when it sells. That’s it. For me, a game like that was Amber Diceless Roleplaying. Nobody ever played Amber in the store. I shelved it with the fantasy RPGs. It never got a mention in a newsletter or front-of-store display time. I sold a few, mostly because of its novelty value. I had people come in from a long way away because my store was the only store for hours in any direction that carried it.

You support a game when you run demo games, host tournaments, and otherwise do things to bring attention to it. That includes display space and positioning, but it might also include posting signage, offering specials, giving away promo items, and other things designed to encourage game-related activity.

Which do you choose?

Supporting a game costs about the same regardless of the specific game. It varies more by game category than by title within that category. If you open a booster box to create a singles binder, it costs about the same for different CCGs, varying mostly in the number of boosters in the booster box. It costs pretty much the same to run a demo game of Twilight Imperium as it does to run a session of Axis & Allies. You can run a demo game of Conspiracy X for about the same amount of time and effort as running a Pathfinder scenario.

Fun

The least factor I consider is how much you enjoy a game. The game store owner’s personal choice is a large factor in low-volume stores, but it decreases as store sales increase past the owner’s personal sphere of influence. It can be huge. On the other hand, people can tell when you’re playing a game you hate. Don’t do that. Find somebody who likes it, and let him go crazy with it.

Manufacturer Support

One difference you look for lies in manufacturer support. If a manufacturer has demo teams to help run your events, that’s a point in favor of a game. If the manufacturer offers danglers, posters, candy bars, bags of Hulk miniatures, cardboard cutouts, or t-shirts (all actual promo materials I used), then that company’s games are good candidates. Advertising that directs customers to your store is a perfectly legitimate form of manufacturer support.

Customer Demand

Another major factor is customer demand. If you have two RPGs side-by-side, and one outsells the other, look at the better-selling game for your support time and expense. You want to push that game to reach its critical mass—the point where it becomes a drawing point for customers rather than an add-on sale for your regulars. Games take a life of their own after a certain point. Gamers work harder to recruit their friends. The game’s players spend more money. Getting one game to that point is better than getting two games halfway there.

Don’t guess when you measure customer demand. Check your sales records.

Product Line Size

The last decision-maker in determining which game to support is the value of the product’s “tail.” A product’s tail is the follow-up products that customers can buy after they get into the core game. A core RPG with a half-dozen supplements might have a maximum buy-in of some $150. A game with 3 core rulebooks and 20 supplements can support regular sales of $150 and a few customers will spend $500. Some RPGs encourage miniatures use. That means that gamers of that game tend to spend more in your store than the gamers who play an RPG that doesn’t encourage miniatures use.

The exception is a new game that’s rising in popularity. A game that starts off hot is even better than a game with a long existing tail. You will sell those customers games as they release, but you don’t have to spend big money filling up your store with slower-moving backstock.

The size of the product line is a huge factor. If you spend $20 to create a customer with game support, then it’s far better to gain $50 in initial sales than $25. Likewise, $100 in downstream sales is better than $50 in total sales.

Specific Titles

So which games and manufacturers have those qualities? It depends on your store. Regional variations aside, you should almost certainly support Magic: the Gathering, Pathfinder, D&D, and Warhammer 40k. Warhammer Fantasy Battles, Pokemon, and Warmachine are high on the list, too.

The Balancing Act

If you fully support all of those, that’s 7 games already. And then you see the problem that small manufacturers face. You only have so much time with which to promote games. I already broke down a store owner’s weekly schedule somewhere, so I’m not repeating it here, but it comes down to this: you might have 20-30 hours each week you can spend supporting the products in your store. If you have employees, you can add a fraction of their time to the total. If you’re already spending 24 of those weekly hours in support of the “mandatory” 7 games, you only have a little left with which to support all of the other hundreds of products in your store. Some 400+ manufacturers all want that time. If you divide it equally, each manufacturer gets less than 54 seconds a week.

It gets tougher for the little guys. An extra hour supporting the big games usually pays off better than giving an hour to the smaller product lines. It is more cost-effective for you to spend 20 hours on 40k alone than 20 hours on 20 different smaller lines.

If a manufacturer wants you to spend that time (and those finite dollars, which I haven’t discussed here) on his products, then his products need to offer you more return than the competition. When it comes down to it, you have to spend your optional support in supporting games and manufacturers that support you.

In summary, prioritize your promotional time and money by length of the product’s tail, consumer demand, and manufacturer aid. Build up your sales volume with your easy sales, like Magic. Then look for rising stars with your discretionary time.

The Shoestring Model Revisited

A Second Look at a Bad Idea

In The Shoestring Game Store Model , I discussed a business model based on minimal costs and minimal inventory.

I also advocated—firmly—avoiding this business model.

I have not changed my mind that the shoestring model is a good thing. You can technically get started, but ramping up is difficult because you lack the infrastructure to build on. Most often, people who start like this continue at a break-even as long as they can afford their hobby of being a game store owner. When their significant other says they have to get a real job, they close.

However, like many things, there are circumstances in which you can improve the odds. Improve the odds enough, and you have a sustainable business model. Let’s consider some circumstances that could make this bad idea into a better idea.

Recap on Why It’s Bad

A quick reminder on a few of the more important negative points.

  • Sales levels. With very low sales levels, a bad week could destroy you. You have no margin of error
  • Risk. Hey, we’re talking about operating with no alarm system, minimal or no insurance, and not even a drop safe.
  • Exhaustion. There’s a limit to how long you can work every shift every day. The shoestring model doesn’t leave a lot of dollars for employees.
  • Inventory levels. It’s not feasible to expect $250,000 in sales from an inventory level of $5,000. However you plan to grow, increasing the amount of stuff you have to sell is a necessity.
  • Specialization. If you have very little capital invested in your merchandise, you probably focus on only a very few product lines. If those lines falter, you’re crushed. Security comes from a broader product offering.

Now back to ways to make it less bad.

Itty Bitty Living Space

Low rent was the spark behind the previous article on the shoestring model, so I’m not going to expand much on it.

A tiny storefront simplifies your cost structure and operations. You need fewer fixtures. You can only fit so much inventory in it, which reduces your cost on that front. You can control shoplifting better when you can hit all your shoppers with a stick without leaving your counter. If you don’t have a game space, you avoid the problems that come with that space (you also forgo the benefits that come with that space, and you’ll take that into consideration with your planning).

Who Needs Money?

The first swing in your favor is an outside income. If you don’t have to pay yourself a salary, you remove a very large expense from your spreadsheet. Maybe your other half earns enough to sustain you both. Maybe you work nights. The reason doesn’t matter as much as the math. If you’re paying attention, you know that labor dollars are your most expensive dollars. For each buck you spend on payroll, you pay taxes, payroll fees, and (in most cases), worker’s compensation, etc., to the tune of $1.13 to $1.25 in total spending. Large companies, which provide more benefits and face greater exposure to liability, spend even more on labor.

Taking no pay isn’t something I normally recommend. As I’ve said before, I valid business pays its manager, whether that manager’s an owner-operator or an employee. However, the concept isn’t entirely alien. Working with no or reduced income so that you can reinvest capital back into the business is called sweat equity. It would be the same if you worked another job and then spent that money on the game store (except that, because of the taxes, working the other job would be less efficient).

If you reinvest a $30,000 annual salary into your businesses, and you started with a budget of $10,000 (the amount I estimated you could launch a shoestring on in the previous column), then after that first year, you’ve spent a total of $40,000 on fixtures, inventory, equipment, and other needs. You’re in the right ballpark.

Money Comes Later

It’s hard for start-ups to get financing (or insurance, or anything, really). You cannot get an unsecured loan, and the business won’t have enough assets to get a secured loan. Banks know that businesses who survive for a year or two are beating the curve and are more likely to be able to repay a loan. If your plan involves financing in phases, and Phase III involves a bank loan in two years, you need to both survive two years and be prepared for the loan when you reach that point.

If this is the case, you’d better have a very solid expectation of a loan. As in, you know the bank’s requirements, and making sure you hit all their benchmarks is a top priority in your plan. If your plan relies on outside financing, and you can’t get the outside financing, your business could be threatened. Set very clear, specific goals. For example, you might want to get $30,000 from a bank loan, secured by the $30,000 worth of inventory you plan to accumulate by then.

Planned Growth

Let’s assume that you set your store up so that it breaks even after about $2,500/month and you start seeing positive cash flow soon after opening. Where do you spend this cash?

Spread the money around as you grow. The majority of it should bulk up your inventory, but spend some on marketing & advertising, improving fixtures, developing your brand, etc. At first, spend evenly on administrative needs (insurance, business license if you didn’t start with one, etc.) and inventory. After you’ve taken care of that, you might spend an 80/10/10 mix, with 80% going toward inventory, 10% going toward letting people know about the new product lines as you add them, and about 10% toward fixtures for the new inventory. For an additional $2,000 on inventory, for example, you might need a new bookshelf. Or a new set of pegboard shelves and hooks.

You might spend this mix until your inventory reaches about $15,000, then spend a smaller percentage on merchandise and more on the other factors: technology, brand management, advertising, and maybe hiring a part-timer to give you a break for one or two shifts a week.

Conclusions

As you can see, it’s possible to start with a shoestring model. Your end goal of the shoestring model is to get out of it and into a sustainable plan. If you attempt it, you must have a detailed and realistic plan for that. It’s also extremely important that you have a low-cost method of pre-opening marketing and advertising. Real life and online networking can pay off well in excess of their cost.