Demos for Dollars, Part II

Demos aren’t your only option for game room activities.

Leagues

Leagues are a finite periodic event with a competitive element. You require players to play matched opponents or choose their opponent within a certain time frame. Rank players each week depending on the results of these games.

The danger with a league is the risk of losing players who don’t do well. As the ranking ladder stratifies, the people with no chance of winning tend to drop out or play less. Keep this principle in mind when drafting your league rules.

How do you win with leagues?


  • Escalate game play. An escalation league encourages sales automatically for miniatures. Start off requiring a certain point value and increase the point value each week. A low entry point allows new players to get in on more equal footing.

  • Charge a weekly fee. A $2 maintenance fee each week for a summer league is easier for players to accept than a $24 fee up front. It also places a value on the games. Players might blow off a free event but show up for one that has some meaning to them (and, by extension, to the other players in the league).

  • Support weekly events with sales or promotions. League rules might grant an in-game bonus to the winning players. Artillery might gain a bonus to its accuracy, for example, for players who gain control a specific in-game territory. Support this with an in-store sale on tanks and artillery pieces for the game. Ideally, draft out these rules and plan your promotions together in advance of running the league.

  • Set up your points system so as not to exclude losing players. If a player sees 5 weeks into an 8-week league that there’s no way he can win, he loses interest. Balancing bonuses for winners without penalizing losers out of the league is a difficult task, but the extra player attendance makes it worth pursuing.

Tournaments

Tournaments encourage competitive play. When people lose to a deck or army type, they often incorporate a new element into their game. They might buy a tank for more firepower, or they might rebuild their deck with dual lands.

What makes your tournaments rock?


  • Unique prizes. Store credit as a prize is universally accepted, but it’s bland. A life-sized space marine, on the other hand, draws players from several states over.

  • However, don’t front-load the prizes. Coming in second and going home empty-handed is disappointing. If you want repeat customers, spread your prize pool among the top 4 or 8 or more.

  • Use a judge everyone trusts. Magic has a ranking system for its judges, but game knowledge is only part of the equation. If the players respect the judge, they’ll be satisfied with a ruling even if turns out later to have been wrong.

  • Charge the right entry fee. A high fee discourages participation. Most of the time, you’re better off with more players. More bodies means more opportunities to sell games.

These three items—demos, tournaments, and leagues—form the bulk of your organized play activities. They see the greatest attendance and prove to be the most effective at encouraging player participation. The rest of these events round out the toolbox. Use them to break up regular routines and fill needs as they appear among your player base.

Painting Clinics

Have an expert help players learn to paint. Have some materials on hand for players to use. You might use an event like this in coordination with a league or a tournament to make sure everyone’s figure gets painted in time for game play.

Character Creation

Teach people how to make characters for a given RPG. Have character sheets on hand. If the game has supporting software for character generation, pull that up on a laptop or a LAN station. People comfortable with character generation are more likely to participate in an ongoing game.

GM Clinics

GMs spend more money than players. Making more GMs out of your players increases sales. Your veteran GMs are usually eager to share their wisdom with new or prospective GMs. Create opportunities to get these two groups together and grow your RPG base.

Deck-building Clinic

What happens after a player plays a demo? He buys a starter or two, mashes some cards together and begins playing with your existing player base. The new guy plays against their deadly tournament decks and extensive experience. It can be a brutal transition. This workshop focuses on building a competitive deck for new players. Use it after you’ve had an influx of new players.

You Kill It, You Keep It

This is a demo with a twist. Alderac did this to support Clan War, its miniatures version of Legend of the Five Rings. While the game eventually went away, the demo format was very motivating. Create a scenario in which players are encouraged to fight several figures and let them take the ones they kill. Limit their time or their number of kills to control your cost. If you’re using painted metal figures, hand out unpainted versions.

Game Days

They’re like conventions but smaller in scale. Offer small prizes for events and encourage maximum participation on this day. It encourages people to try new games or participate in tournaments.

Use these events in coordination with other activities to build sales. One weekend might feature a Pathfinder character creation clinic. During the clinic you run a sale on introductory Pathfinder products. You also promote the weekly games that are looking for new players. Mention that you’re planning a GM Clinic next month and ask what day works best for those attending. Match up painting clinics with your leagues so that the new players can get their miniatures painted before showing up to play.

Demos for Dollars, Part I

The gamble with having a game room is that the increase in gamer activity it generates will encourage more sales than if you filled that space with more merchandise or if you had chosen a smaller space and filled all of it with inventory. You’re hoping that it’ll “supercharge” the more conventional part of your retail store.

The good news behind this strategy is that a room full of tables and chairs is much cheaper than a room full of merchandise. The bad news is that the upper end of the value is usually less than that of the merchandise. However, the difference in cost might make it more profitable. Most often, it breaks down to a personal preference. Some people think a game room is an absolute necessity, while others think it’s a social nightmare and more headache than it’s worth. This discussion isn’t about whether a game room is a good idea but about how to use it if you have it.

Math Break

You could spend $30,000 on inventory, fixtures, and signage. You might expect that merchandise to earn $50,000 to $100,000 in additional sales, depending on what you stock. Or you could spend $1,500 and hope that the space increases the sales of inventory you already own by some amount each year. Assuming a cost of $19 per square foot plus a convenient figure of 1,000 square feet, your game space needs to increase your retail space sales by about $40,000 per year to cover the $19,000 in cash flow. If your store is otherwise doing $200,000 a year in sales, you need to increase your sales by 20% to see that much gain. Is that a reasonable expectation?

Like so often, it depends.

I’ve mentioned in general terms about how game room events encourage sales. I strongly support managing the activities of your game room rather than just allowing open play willy-nilly. Knowing how to leverage events maximizes your gain and gives you the best chance of reaching the figures you need to pay the bills.

Demos

A customer plays a game. If he has a good time, he’s more likely to buy it. It’s one of the core principles behind gaming retail.

Demo games require a heavy labor investment. If that investment doesn’t pay off, demos can be a huge resource sink. A sign on your wall doesn’t take up a lot of time per customer. You spend 15 minutes making it, and it increases the chance of a game to sell slightly. Demo games have a higher cost, and a higher conversion rate. How high is higher? Because of the heavy investment, you need to maximize your chance of a sale or sell something that’s so expensive that even a low conversion rate is worth your while. Let’s take a quick math break.

Math Break

If you spend 6 hours painting up minis for a Warhammer 40k demo table, open up a couple of terrain pieces, and set up a demo table, you might be out about $100 or so in materials. We’ll use minimum wage for the labor. That rounds your initial cost up to about $150. If you do a 10-minute demo 3 times per day, you spend another $560-ish in labor over six months.

After that six months, you’ve invested $710 in 40k demos between your initial and ongoing costs. With a gross profit margin of 45%, you need to sell about $1,578 to break even on cash flow (we’re only counting immediate sales for right now). You should be able to sell a new 40k customer about $125 worth of stuff. He gets a starter box, glue, the basic paint set and spray primer, knife or sprue cutter, an army book, etc. At that rate, you’d need to convert at least 13 customers to break even. Out of 540 demos, that’s a conversion rate of about 2.4%.

Three percent might not sound very high, but compared to the rate of return of mass mailings or TV commercials, it’s very high. Is it possible?

Sure. GW’s entire retail business model depends on math similar to this.

How do you to min-max this demo to give yourself the best chance of success?

  • Make demos short. Use quick-start rules for RPGs. Play only a few turns of a card game or a miniatures game. Try to make board and card games less than 10 minutes. Five minutes is better.
  • Set up a pretty table. No Coke cans for towers. Use a real tower.
  • Have stuff in stock. You can’t sell Settlers if you have no Settlers.
  • Participation prizes. Let players keep the minis for an RPG (you used commons, right?). Give out singles for CCGs.
  • Support games that support you. If you can get a demo copy from a manufacturer, that tips the scales in favor of that game.
  • Support games with a high buy-in. 40k is an excellent example because the average player spends so much money. If you invest the same amount of time and effort into a $40 board game with no expansions, you’d need over 3 times the success rate of your demo to break even.
  • The same applies to RPGs. D&D players are easily worth 10 times as much as Amber players. Even if your chance of success with Amber is twice as high as D&D because you think it’s a “better” game, you lose by supporting the smaller game because your efforts don’t generate enough return. (I know Amber’s OOP right now, so just replace “Amber” with whatever one-shot title you like. The math’s the same.)
  • Let the wookiee win. Carefully stage game play so that you don’t obviously throw the game. Customers who win like a game more and are more likely to buy it.
  • Use volunteers. Having manufacturer-compensated volunteers run demos saves you a cost. Use them when you can.
  • Close the sale. Once the customer is fired up about the game, put stuff in his hand. You need this, this, and this. Cash or credit?

Demos work best for minis and simple card or board games.

Grace Period Whirlwind

Race to the Starting Line

 
Ah, the mindset of a gamer. When a bank approves a loan, they typically request that you reapply if you take more than 30 days to enact the loan. To me, that means a 30-day grace period in which you can do stuff without having to pay back interest.

If you’re starting a store and bank financing is part of the plan, here’s a partial checklist of things that you can do in that window between bank approval and the time you sign on that loan.
 
Negotiate Your Lease
Do all of your talking, crossing out, and faxing now. Plan to sign that lease the day you get your money or the day immediately after.

Pick a Bank
Call around for bank rates. Look for branches near the store and the best rates.

Get Business License
Most communities require one. Check on yours. You don’t need to be very specific when you get it, so if the details of your plan see some last-minute changes, don’t sweat it.

Fill out Distributor Applications
Have them ready to fax after you sign your lease.
 
Plan Store Layout
Based on the floorplan of your selected negotiation, plan where you’ll put the different game categories, your counter, game room (if any) and storage.

Bid on Auctions
Make sure they don’t expire until you have money, but if online auctions are part of your fixture or equipment-finding plan, get a head start.
 
Plan Ads
Prepare your pre-opening flyers or whatnot now. When opening time comes around, you’ll be even busier than you are now. Make a rough draft of the layout you want, the message you want and the price point you want to promote. If you have graphic design skills and can lay out the whole thing, go for it. Otherwise, you’ll at least have something you can present to the ad company.
 
Plan Website
Likewise, decide what pages you need and what type of design you’d like. If you have the skills, get the whole thing ready to launch. If not, write your copy (the “About Us” page material, for example) and be ready for a professional to take over.

Online Social Networking
Blog.Tweet. Facebook. Whatever. Let everybody know that you’ve made progress. Set a soft opening date. Start a countdown to build excitement.

Create Accounts
Create separate accounts for PayPal, eBay and other stuff that you’ll use for store purposes.

Draft Paperwork
Get a job application together. Set up your financial software. Write up a cash-out procedure if somebody besides you will have their hands in the cash. Assemble any of the paperwork that’s on your list of things to assemble.
 
Keep Working
If you have a job, keep it until the last minute. Work in these other tasks around that job. The extra few thousand you bring in before the store gets open will be useful. If you don’t, you still have time to get something temporary. You might be four months from opening.
 
Buy Things
You can buy things on credit once your credit card cycle has ended. That means that you’ll receive your financing before your first payment is due. Pay yourself back for anything you bought.

Go out on a Date
Normally, I don’t harp on the “human element” of business ownership. I figure that you already know you’re in for long hours, Ramen noodles, and credit rejection because you’re self-employed. However, there’s less pressure right now. This is bonus time. Build in a break for yourself and when the time comes, take it. It might be the last chance you get for a while.

Seven Ways to Save Money at Startup

Another Bullet List of Savings

I’m not counting lease negotiation in this article. A commercial lease is a huge effort with plenty of strategies for reducing costs. It’s too easy a target. Consider these bonus tips.
 
1. Inventory deals. Distributors often give additional discounts for your initial order because it’s so large compared to your regular weekly orders. If a distributor normally offers a 46% discount and offers an extra 2% on your first order of $15,000, you save $300.
 
2. Most states allow online registration of an incorporation. You don’t need to use an attorney. The difference can exceed $1,000.
 
3. Bank your capital reserve. If you received your capital reserve financing as part of a term loan, you might be leery about paying interest on what could be $80,000 or more. Don’t let it sit in a checking account. Put it in an interest-bearing account until you have to draw on it. Sure, you’ll earn less interest than you’re paying, but might save yourself $500 in interest that first year.
 
4. Shop for a checking account. If you received a bank loan, they expect you to make them your primary banking institution. If not, you’re free to shop around for the best rates. Ask about monthly fees, per-item costs, and other charges. The difference between your best choice and second-best choice might be $10/month, for a savings of $360/year.
 
5. Buy office supplies and equipment incrementally. Places like Office Depot and Staples frequently send their customers incentives in the form of gift cards or discount cards. Spend $50 and get $10 off, for example. Once you make a purchase, you’ll start to receive these offers. A 15% off discount could save $75 on your 3-in-1, but if you bought your supplies at once, you wouldn’t have gotten that discount.
 
6. Free displays. At various times, game manufacturers offer displays for their products, usually tied to certain minimum orders. In some cases, the displays are cheap cardboard pieces good for no more than a couple of weeks. In others they are beautiful racks that will serve you far longer than the products they’re designed to hold. Ask your distributor about current offers when you place your initial order. Potential savings: $600 or more.
 
7. Free signs. When you price your exterior sign, you could be spending a bucket of money. It’s entirely feasible for you to ask for an incentive. Let your potential sign-makers know that you’re also looking for a package deal that includes interior signage, real estate signs, a-frame signs, or whatever it is you plan to use for your store. You should easily be able to get free stuff worth 10% of your exterior sign order, for up to $400 in value.

There’s another $2,300. Enjoy it.

10 Ways to Save Money

Cutting costs is less about brainstorming and more about consistency and awareness. Frugality is a mindset. It should such an integral part of your business operation that it doesn’t need separate discussion, much like “hard work” and “paying attention.”

On the other hand, maybe I’ve come across some tricks you haven’t considered before, and it’s worth knowing where to look for cost-saving opportunities. If you increase sales by $1, you increase profit by $.45 at most. If you reduce costs by $1, then you increase profit by $1. It’s always worthwhile.

1. Consider seasonal hours. If you’re in or near a business district, you might have strong daytime sales from customers who stop by during lunch or while conducting other business in the area. If you’re in a mostly residential area, you might not be very busy during the daytime. If so, you might want to consider changing your hours for at least part of the year. Opening an hour later on weekdays could save $300 a season, depending on your labor cost.

2. Price shop utilities. Periodically call around to price shop your commercial insurance, credit card rates, and other variable utilities. Insurance, especially, is highly variable. Even different agents representing the same companies can offer a different price on the same policy because they earn different commissions. Make it a point to check the competition regularly—every year or two—and make sure you still have the best rate. Knocking two-tenths of a percent off your credit card rate might put $350/year in your pocket.

3. Use shared web hosting. If you have a friend hosting your store’s website for $30 a month, you could save a bundle by switching to somebody like ipage.com. Most stores don’t need extensive website maintenance, which is the primary advantage of the virtual private server. You post events to your calendar, announce new products, and host an off-site forum. Easy, peasy. Save another $350 here.

4. Trade for services. If you need common maintenance around the store and don’t have the skills to handle it yourself, don’t call a professional just yet. Ask around your customer base and see if you have a customer who’s willing to take payment in trade. Assuming only four service calls per year at minimum charges of $100/call, you’ll save $160.

5. Tighten up on cash. Cash control can be a killer. Set standards for your employees. Let them know what your standards are and what steps you’ll take to enforce them. If we assume that your stern warnings cause them to pay attention to cash and don’t even count the effects of charging employees for cash loss, recovering a lost dollar every day you’re open saves about $360/year.

6. Compare inventory costs. Some distributors charge a discount vs. retail. Some charge a flat rate. Your POS should be able to track the different cost of items from each supplier, helping you keep track of who charges what. If you use a POS report to help create your restock orders, you should be able to sort your orders by cheapest supplier. Reducing your inventory costs by half a percent saves $625 a year.

7. Stock up on sodas. If you carry snacks and drinks, you might find yourself restocking often. Soft drink prices vary according to manufacturer promotions and seasonal sales cycles. Check your sales records so that you know how many you sell in a week and buy more when prices are low. Don’t think it’s too weird to buy four months’ supply at a time if it can save you money. If you save .10/drink and sell 8 cases of drinks/week, that’s $1,000 in your pocket at the end of the year.

8. Cut out unnecessary memberships. Fifteen dollars a year won’t kill you, but how many times a year do you tell yourself that? Cut out GAMA unless you plan to go to the GTS, cut out website premium memberships, and slash other incremental costs and you might save $200 a year.

9. Window washing. You don’t really pay somebody to wash your store windows, do you? If you have hourly employees, I’m 100% certain that you have down time during the day. You’re already paying those employees. Have them wash the windows as part of their duties. Likewise, any services like office cleaning or whatnot are indulgences that might be more appropriate to other economic climates. Taking back the $10 a week you give window guy gives you $520 a year.

10. Reduce your personal salary. Are there any bills that you normally pay out of pocket that the company could justifiably pay? What about some of your fuel costs? If you go to the bank, the warehouse club, or run other chores for the store, consider reducing your salary and paying yourself mileage instead. Reducing your payroll cost means reducing your payroll taxes. If you pare back your check by $50/week, your annual tax savings might be around $340.

There you go: $4,205, every single year. Call it my gift to you.

Alternate Business Models

The majority of the articles in this series apply most specifically to a certain set of assumptions about your game store model. Most of them are so fundamental that you never even consider another option. The articles assume that you’ll rent a commercial space. They assume that you’ll sell new inventory. They assume that the majority of your revenues will come from the sale of products. These things are common, but they’re not technically required.

Variant business models have advantages and liabilities over the standard way of doing things. In most cases, the liabilities outweigh the advantages. Otherwise, they would be the primary way of doing things. However, if you can find a way to overcome the obstacles, you might stumble onto a new retail niche that could provide a substantial income at reduced cost or risk to you.

In the case of several of these primary models, you might be best off integrating elements of them into your standard business plan, relying on them for additional revenues rather than sole or primary revenue streams.

Membership Club

Outline: Charge cost or just above cost for your merchandise but require customers to buy a membership if they wish to shop there at all.
Advantages: For one, you have access to revenues (membership fees) without much direct cost. Secondly, by requiring a complete application from your prospective members, you gain full contact information, allowing you excellent marketing potential within your customer base.
Disadvantages: Finding a magic meeting point between discount and membership fees is often impossible. For example, if you give a 40% discount, you’re giving the average CCG player maybe a $160 annual discount, but if you think that they’ll pay $150 or even $100 for an annual membership, you’ll be disappointed. You’ll also deter casual shoppers who just want a single $20 item.

Although the maintenance cost of a single account is low (identification cards, labor costs, etc), there is a cost, and it adds up with enough accounts. You’re also creating a sense of entitlement among your customer base. They paid for the right to be there. They feel that you can’t ask them to leave because of their behavior. Legally, they might even have a point.

Beating the Odds: Some form of a membership club is a good idea, but trying to be the “Sam’s Club” of gaming is probably not going to happen. Membership clubs deserve an entire article on their own, but for now concentrate on small discounts and other benefits instead of large-discount incentives.

All Consignment

Outline: Technology allows you to track not only who owns what merchandise but separate consignment fees, the amount you owe them, and everything you need to handle a full load of consignment inventory.

Advantages: Reducing your largest single startup cost to zero would be a huge cash flow advantage.

Disadvantages: Not having new inventory means that you miss out on some good and easy sales opportunities. You will also probably have a very difficult time getting enough merchandise in your store to achieve that “critical mass” necessary to kick-start sales.
Beating the Odds: “Cheat” on the all-consignment option by carrying select new merchandise. At the very least, you might purchase collectibles like CCGs and open them for singles.

Mall Kiosk

Outline: Sell a small selection of goods out of a mall kiosk.
Advantages: Huge traffic count is the main advantage to mall locations, and it’s a big one. A young demographic and a high discretionary spending amount make for a good combination in potential customers. The cost of a used kiosk is small compared to the potential build-out costs and fixtures costs of a full-size game store. The risk is also less: you’re not committed to a huge lease that could bury you financially if the business fails.
Disadvantages: The typical game store mix doesn’t sell very well in a mall environment. Family games, puzzles, and other games sell better. Unfortunately, the kiosk doesn’t give you much display space, limiting your available inventory to a couple of thousand dollars.
Beating the Odds: In the right place, you might do comparatively well with CCGs. However, a high sales-to-investment figure doesn’t necessarily mean that your sales will pay inventory costs, rent, and a salary. Depending on your rent, you might need to exceed $100,000 in sales from a single game category just to be able to pay for your time.

Conventions Only

Outline: Your store is only open on weekends, and your location is a convention table.
Advantages: No risk. Light inventory costs. You pay rent only the weekends you work. Keep your day job.
Disadvantages: Again, low sales potential is the big killer. Even if there were a convention every weekend within driving range, your potential revenue from small conventions is low. A small con might draw 300 people or less. It’s difficult to do $2,500 in sales from 300 people. You have to store your inventory when you’re not at a convention. You have to transport it back and forth. You have to pay for hotel rooms. The convention season is just that—a season. You’ll have several weeks where you have to choose which cons to attend because there are multiple choices. More often, you won’t be able to find any conventions nearby. The big cons, where you can earn big money, are very expensive in terms of fees and inventory.
Beating the Odds: With a mix of frequent small local cons and a few select medium-sized regional cons, it’s possible to exceed $50,000 per year in sales. If you can keep your inventory costs to 60% or less, pay your small-con fees in product, and minimize hotel fees, you might attain a gross profit of $12,000 or so. That can be a fair bonus on top of your day job.

Game Club Environment

Outline: Game space rent is your primary revenue-generator instead of game sales. Most of your store includes game space, which you rent out per hour or by the time slot.
Note: I see this one constantly. The people proposing it usually have a very clear idea of what they want and a very vague idea of the numbers involved.
Advantages: The goal is to minimize inventory costs. If you carry minimal or no inventory, you can reduce startup costs by $15,000 or $20,000. Reduce your time spent on inventory management and you can afford to devote more time to event management. With less emphasis on inventory, you can devote less attention to loss prevention. Your clerks can handle more sales per hour if they’re not helping customers with product selection.
Disadvantages: Aside from inventory, you have almost all of the costs and problems associated with operating the standard business model, except that you miss out on a large quantity of sales. Unless you charge very high rental rates, you need nearly full-time use of your game space. Unfortunately, game activity is concentrated during a small block of the day. Barring raising your rates, you have a distinctly finite cap on your income.
Beating the Odds: A variation of this theme is to concentrate on high-turn, low footprint competitive games like Magic. Your revenue comes from tournament fees and singles sales. Games Workshop’s games offer a potential for similar operation, but the required inventory costs more in terms of space and money.

Managing Success: A Cautionary Tale

Recently, I’ve been in a position to watch a curious thing.

A business owner, who we’ll call Brian, owns five stores. He started well. He managed his first store for several years, building sales, reducing turnover and otherwise improving things across the board. He paid down some of his acquisition debt, purchased some land at a great price, and moved into a freestanding building on his new land. Everything is great.

All of this was even more spectacular because this store was in an inner-city location with lots of problems. Robberies, shootings, internal theft, insurance claims for stupid reasons—you name it.

Brian’s early company growth was well-managed. Not too fast and not so slow as to lose momentum. He bought a second store and developed it. Then a third. Two years later, a fourth. Finally, a fifth.

But between stores four and five, Brian made some changes to his company structure. He appointed a supervisor—a questionable move for a 4-store company, but it could work with continued growth. Brian began holding two weekly meetings. One meeting was for managers and the other was for the assistants. Brian looked around for an office so he could move his company operations out of his home. He was planning on more growth.

Brian, who watched his contribution margin ruthlessly when he owned and operated a single store, grew careless with his cash as his company grew. He took managers on training activities out of town. He bought managers lunch after the meetings. He instituted new bonus programs.

The Fifth Store

The deal was sweet. The price was reasonable for an underperforming store, given its sales history and location. Best of all, the owner would hold the note, removing any obstacles concerning credit and lengthy loan applications. He wasn’t sure why it was underperforming, but he was certain that his positive attitude would overcome any problems. The 50% drop in sales over the past 2-3 years didn’t trouble Brian at all.

About $40,000 in cash went out right away in upgrades. He spent heavily in advertising on this new store. That store received roughly triple the local advertising of his other stores. Mailouts, flyers, promotions with other businesses, aggressive price points. He gave it the works.

A hundred thousand dollars later, sales had barely budged, and the company was hemorrhaging cash badly.

After about a year, he changed managers. That initially helped sales by a couple of percent, and some key costs came down (and then rose as the new manager’s initial zeal waned), but the store was still losing money.

The combination of frivolous spending and a cash-negative acquisition was about to cost him his entire business, a business that cost him over $1 million and 10 years to build.

On top of that hurdle, the company entered a seasonal sales slump and the overall economy went from weak to weaker. The four stores that had been carrying the fifth stopped producing cash. During some weeks, only one store produced more money than it spent. Brian looked to refinance some long-term debt, only to find that banks were reducing his credit limit, as they were to many other people.

Because there was no cash, there was no possibility of improvement. Accounts fell behind, which meant that costs went up as the company sought alternate providers and paid fines and late fees. Advertising stopped, which saved cash but meant that the next week’s sales would be flat or down, too. Manager bonuses stopped, which reduced morale and incentive to perform. Increased demands on the managers for less pay resulted in cheating on paperwork. All of these factors made it harder to get out of the hole.

In an attempt to recover, Brian depleted his entire retirement fund. He borrowed money from family. Attempting to stave off current cash-flow problems created years of long-term difficulty.

Begun this death spiral had.

How Do You Avoid It?

It is far easier to avoid this kind of problem than it is to recover from it.

Cash Reserve

Maintain a cash reserve. Don’t spend the cash reserve except for legitimate emergencies or to cover known and predictable sales cycles.

Choose a method of setting up a cash reserve. Set a dollar amount or (better yet) a multiple of months’ worth of expenses. If your store sees a seasonal variation, you might want to change your cash reserve requirements periodically throughout the year. You might need more money to build inventory for Christmas, for example.

Advertising Budget

Set an advertising budget and stick to it. Spend a careful, measured amount according to the business’s needs. This spending also might vary in amount and direction according to seasonal sales, so don’t feel like you’re locked into a set amount. You might spend $600 during the summer and $400 during the slower months. You might maintain radio all year but change your print ad frequency according to the new release cycle. Don’t use advertising as a discretionary expense based on cash flow. Treat it like a bill and “pay” it every month.

Pay a Fair Salary

The 1st edition DMG had a great line of truth in it: “High pay is not a sign of strong leadership” Or something like that (I’m sure some zealot will provide me with the precise wording). Pay according to the job done and don’t overpay when things go well. If you ever have to reduce pay, even when you’re overpaying compared to your competitors, your crew will resent it.

Spend Your Success Wisely

Spend your first bit of excess cash on assets, preferably assets you can leverage if your cash gets low again. Additional inventory can be good. Paying down debt early is awesome, especially your acquisition debt. Once that comes off the P&L, profitability and cash flow go up.

Reinvest Wisely

One of the things I like to do when considering how I want to reinvest capital is to compare the effectiveness of my spending with other options. If I have $1,000 to spend, I compare the value of whatever I’m considering versus existing options. What if I spent that $1,000 on labor and materials to run an additional miniatures game league? What if I spent it on booth fees and travel for 2 more conventions? What’s the best use of that money? Do I really need a third-party mystery customer program?

If you spend money on frou-frou expenses, make sure it’s extra money first. Don’t spend necessary operating capital on indulgences.

Brian’s Fate

Since I wrote this article, I’ve updated it a couple of times. Read here and here.

The Change In Your Couch

Unconventional Financing

Building Assets

Building assets is your best method of financial positioning. Even if you abort your plans late in the planning stages, you can use most of these assets for other purposes.

Home Equity

Despite the current housing market, many people have considerable equity in their homes. In fact, home equity loans and lines of credit are a primary financing source for many first-time business owners. If you’re just beginning your planning, you might consider making modest upgrades to your home to increase its value.

Retirement Funds

You might be able to borrow against a 401 (k) plan, even choosing the interest rate of your loan to yourself. In any case, having a retirement plan improves your net worth, which helps when you apply for a conventional loan. If you’re still in the planning stages, adding to your retirement plan now can pay off later.

I’m mostly including a mention of retirement funds for completeness. Due to the risk involved, I like the idea of borrowing from a retirement fund even less than I like leveraging home equity. It shouldn’t be a primary source of your financing. Its primary use should be in establishing a healthy picture for your banker, so that you can invest his money instead.

Stocks & Bonds

You might not have an investment portfolio, but if your current job offers stocks, it’s time to evaluate what you have or start buying in while you’re still planning your store. Depending on how you plan to finance your store, you might want to keep the stocks or liquidate your holdings. If you do cash out, watch your timing and try to wait as long as possible; if you decide not to enter the game retail industry after all, you probably can’t buy back into those stocks.

Trade Magazines

Virtually every industry has its own trade magazines, and these trades pay good money for articles. If you can explain something in simple terms, stick to a topic, and follow a publisher’s guidelines, you might be able to crank out an article or two. With some trades paying up to $2 a word, a single article might net $500 to $6,000. You don’t have to be a professional writer, either. The most important skill is knowledge of your topic.

Coin Collecting

I used to deliver pizzas. At the end of the night, instead of turning in my coins with my other money, I threw them in a jar. Every Christmas season, my wife and I rolled that change to pay for the holidays. The last year we did that, we cashed in $1087. When I left there to buy my game store, the joke around the pizza place became that “Lloyd bought War Dogs with rolled-up coins.” While you probably can’t cover all your expenses, a couple of years’ worth of change could help you reach your break-even months sooner than expected.

Multiple Bank Accounts

It’s easy to rack up multiple bank accounts. You have your main account for your family. Then you have the old one you used when you were single. You might have a cash reserve in an investment account. There’s that account with the expensive bank that you only opened to collect the $25 signup bonus. You have some money in PayPal. Corral all of these stray dollars into one place and you might be surprised at how much it is.

Yard Sale

Turn a bunch of junk into cash. A successful yard sale might net up to $1,000, depending on how much you have to sell. Just as nice, it might clear up space in your garage where you can stockpile fixtures until you’re ready to move into your storefront.

Your Test-Market

In an earlier article, I recommended testing your local market by running a convention space, hitting trade shows, or helping an existing retailer. I’ve even seen game retailers run flea market tables. This method works best with second-hand merchandise that you can buy cheaply and sell quickly, often starting with a personal collection. Start with just $200 or so in inventory and build up from there, reinvesting your sales into more merchandise. If you’re lucky, you might start with $2,000 to $5,000 in second-hand goods that you won’t have to buy when you open your store.

Demo Materials

If you took my advice to become a demo volunteer, you might have a collection of materials to start with. If you really ran with it and become a volunteer for multiple companies, you could have more materials than some stores use. Between promo material and any unopened compensation they sent you in the form of product, you could have a few hundred dollars in assets.

Start a Fixture Collection

Retailers often end up becoming fixture junkies. You can’t help but look around any given store, not just to see what they have, but how they display it. You’ll ask yourself “Can I use something like that?” surprisingly often. Start your neurosis early by acquiring cheap and free fixtures while you’re still in the planning stage, months before you sign a lease. Picking up a usable piece each month might save hundreds or thousands off of your startup costs by the time you open.

You can find cheap fixtures in auctions and going-out-of-business sales around town. You might make an offer to a landlord who’s stuck with the property of a vanished tenant. You can find free fixtures occasionally when stores of any size—convenience to big-box—remodel. If you’re in the right place at the right time, or put yourself in the right place at the right time, you can snag very expensive fixtures that would otherwise be thrown out.

Manufacturer Charity

The manufacturers whose products you’ll sell have a vested interest in seeing you succeed. The attitude of manufacturers toward retailers runs the gamut from heavy favor to outright disdain, but asking for promotional materials and products can yield some much-needed inventory. As always, don’t ask for things you don’t need and don’t get greedy. Asking for a bonus on top of an order is better than just asking for a freebie outright, for example.

Buy Debt

While many people avoid debt, the right use of your company’s credit and your personal credit is a tool for you to use. Carpenters don’t refuse to use nails out of some crazy sense of elitism or personal acumen. Neither should you be afraid to indebt your company if it’s the best thing for your company’s overall health.

Assume the Seller’s Debt

If you plan to start by buying an existing business, then you can reduce your purchase price by acquiring debt at the same time. Suppose, for example, that a store owner wants $25,000 for his store. When you ask about his current debts, he tells you that he owes his distributors $4,000 in current and late bills. Tell him you’d be willing to take over that debt if he’ll reduce his asking price by $4,000. If he has any intention at all of paying that bill, there’s little reason to reject your offer. You can then negotiate repayment terms with the distributors to whom he owes money. Offering to repay $200 on top of each weekly order defers that final payment by 5 months.

Continue that exercise with each of the seller’s individual outstanding debts (rent, utilities, other service providers, etc.) and you might save yourself $15,000 in upfront cash. You’ll pay off most or all of it eventually, but you’ll reduce the startup funds needed by a substantial amount.

Credit Cards

No sane person would tell you to put all of your startup expenses on a credit card, but it can make sense to finance your capital reserve on personal credit of one kind or another. Notice the careful and deliberate use of the word “can.” That doesn’t mean it always makes sense. Some factors in favor of this plan include a) a low burn amount needed, b) low interest rates on the credit cards , c) a strong incentive plan with your credit card company, or d) high local commercial loans rates.

Bring on Investors

Someone investing a few thousand dollars can put you over a benchmark and turn on the light green for you to continue forward. These investments need not be large. An investment of $500 up front could be worth far more than its face value in its reduction of your primary loan repayment, depending on how you word your investor agreements (hint: defer any repayment for six months to a year after opening). Such low-dollar investments are much easier to get from friends and family than a $20,000 lump sum.

The Change In Your Couch

Unconventional Financing

Building Assets

Building assets is your best method of financial positioning. Even if you abort your plans late in the planning stages, you can use most of these assets for other purposes.

Home Equity

Despite the current housing market, many people have considerable equity in their homes. In fact, home equity loans and lines of credit are a primary financing source for many first-time business owners. If you’re just beginning your planning, you might consider making modest upgrades to your home to increase its value.

Retirement Funds

You might be able to borrow against a 401 (k) plan, even choosing the interest rate of your loan to yourself. In any case, having a retirement plan improves your net worth, which helps when you apply for a conventional loan. If you’re still in the planning stages, adding to your retirement plan now can pay off later. I’m mostly including a mention of retirement funds for completeness. Due to the risk involved, I like the idea of borrowing from a retirement fund even less than I like leveraging home equity. It shouldn’t be a primary source of your financing. Its primary use should be in establishing a healthy picture for your banker, so that you can invest his money instead.

Stocks & Bonds

You might not have an investment portfolio, but if your current job offers stocks, it’s time to evaluate what you have or start buying in while you’re still planning your store. Depending on how you plan to finance your store, you might want to keep the stocks or liquidate your holdings. If you do cash out, watch your timing and try to wait as long as possible; if you decide not to enter the game retail industry after all, you probably can’t buy back into those stocks.

Trade Magazines

Virtually every industry has its own trade magazines, and these trades pay good money for articles. If you can explain something in simple terms, stick to a topic, and follow a publisher’s guidelines, you might be able to crank out an article or two. With some trades paying up to $2 a word, a single article might net $500 to $6,000. You don’t have to be a professional writer, either. The most important skill is knowledge of your topic.

Coin Collecting

I used to deliver pizzas. At the end of the night, instead of turning in my coins with my other money, I threw them in a jar. Every Christmas season, my wife and I rolled that change to pay for the holidays. The last year we did that, we cashed in $1087. When I left there to buy my game store, the joke around the pizza place became that “Lloyd bought War Dogs with rolled-up coins.” While you probably can’t cover all your expenses, a couple of years’ worth of change could help you reach your break-even months sooner than expected.

Multiple Bank Accounts

It’s easy to rack up multiple bank accounts. You have your main account for your family. Then you have the old one you used when you were single. You might have a cash reserve in an investment account. There’s that account with the expensive bank that you only opened to collect the $25 signup bonus. You have some money in PayPal. Corral all of these stray dollars into one place and you might be surprised at how much it is.

Yard Sale

Turn a bunch of junk into cash. A successful yard sale might net up to $1,000, depending on how much you have to sell. Just as nice, it might clear up space in your garage where you can stockpile fixtures until you’re ready to move into your storefront.

Your Test-Market

In an earlier article, I recommended testing your local market by running a convention space, hitting trade shows, or helping an existing retailer. I’ve even seen game retailers run flea market tables. This method works best with second-hand merchandise that you can buy cheaply and sell quickly, often starting with a personal collection. Start with just $200 or so in inventory and build up from there, reinvesting your sales into more merchandise. If you’re lucky, you might start with $2,000 to $5,000 in second-hand goods that you won’t have to buy when you open your store.

Demo Materials

If you took my advice to become a demo volunteer, you might have a collection of materials to start with. If you really ran with it and become a volunteer for multiple companies, you could have more materials than some stores use. Between promo material and any unopened compensation they sent you in the form of product, you could have a few hundred dollars in assets.

Start a Fixture Collection

Retailers often end up becoming fixture junkies. You can’t help but look around any given store, not just to see what they have, but how they display it. You’ll ask yourself “Can I use something like that?” surprisingly often. Start your neurosis early by acquiring cheap and free fixtures while you’re still in the planning stage, months before you sign a lease. Picking up a usable piece each month might save hundreds or thousands off of your startup costs by the time you open. You can find cheap fixtures in auctions and going-out-of-business sales around town. You might make an offer to a landlord who’s stuck with the property of a vanished tenant. You can find free fixtures occasionally when stores of any size—convenience to big-box—remodel. If you’re in the right place at the right time, or put yourself in the right place at the right time, you can snag very expensive fixtures that would otherwise be thrown out.

Manufacturer Charity

The manufacturers whose products you’ll sell have a vested interest in seeing you succeed. The attitude of manufacturers toward retailers runs the gamut from heavy favor to outright disdain, but asking for promotional materials and products can yield some much-needed inventory. As always, don’t ask for things you don’t need and don’t get greedy. Asking for a bonus on top of an order is better than just asking for a freebie outright, for example.

Buy Debt

While many people avoid debt, the right use of your company’s credit and your personal credit is a tool for you to use. Carpenters don’t refuse to use nails out of some crazy sense of elitism or personal acumen. Neither should you be afraid to indebt your company if it’s the best thing for your company’s overall health.

Assume the Seller’s Debt

If you plan to start by buying an existing business (xx article reference), then you can reduce your purchase price by acquiring debt at the same time. Suppose, for example, that a store owner wants $25,000 for his store. When you ask about his current debts, he tells you that he owes his distributors $4,000 in current and late bills. Tell him you’d be willing to take over that debt if he’ll reduce his asking price by $4,000. If he has any intention at all of paying that bill, there’s little reason to reject your offer. You can then negotiate repayment terms with the distributors to whom he owes money. Offering to repay $200 on top of each weekly order defers that final payment by 5 months. Continue that exercise with each of the seller’s individual outstanding debts (rent, utilities, other service providers, etc.) and you might save yourself $15,000 in upfront cash. You’ll pay off most or all of it eventually, but you’ll reduce the startup funds needed by a substantial amount.

Credit Cards

No sane person would tell you to put all of your startup expenses on a credit card, but it can make sense to finance your capital reserve on personal credit of one kind or another. Notice the careful and deliberate use of the word “can.” That doesn’t mean it always makes sense. Some factors in favor of this plan include a) a low burn amount needed, b) low interest rates on the credit cards , c) a strong incentive plan with your credit card company, or d) high local commercial loans rates.

Bring on Investors

Someone investing a few thousand dollars can put you over a benchmark and turn on the light green for you to continue forward. These investments need not be large. An investment of $500 up front could be worth far more than its face value in its reduction of your primary loan repayment, depending on how you word your investor agreements (hint: defer any repayment for six months to a year after opening). Such low-dollar investments are much easier to get from friends and family than a $20,000 lump sum.

Branding

It Is Your Business

Importance of Branding

In my library I have a copy of the Consumer Reports magazine in which Consumers’ Union did a taste comparison of soft drink brands. They compared the national flavors like Coke and Pepsi with less popular drinks like RC and national “generics.” The results were illuminating.

The taste difference between the national brands was practically insignificant, which wasn’t surprising. The reception to the lesser brands, however, interested me. The judges rated the best of the regional brands only slightly less good than the national brands. The difference in quality certainly doesn’t justify the enormous difference in sales volume. What’s the difference?

Branding.

Coke’s annual advertising budget is measured in the hundreds of millions of dollars. Virtually everybody in the world recognizes Coke. Thirty years after the ad campaign was retired, I’d still like to buy the world a Coke and keep them company. RC doesn’t have polar bears. Seven Up never had crazy legs.

These powerful brand images allow a product that’s virtually indistinguishable from its lesser competition to dominate the marketplace.

Fundamental Concepts of Branding

To know how to use it to your advantage, you should understand a few concepts about branding in general.

Branding is Comprehensive

Branding is a coordinated effort. It involves your logo, slogan, graphic design, product mix, return policies, hiring practices, pricing policies, advertising media and messages, and other choices you make about your business. Whenever you make a business decision, ask yourself “Does this support or harm the image I’m trying to project?”

Branding is Organic

Your brand will continue to grow and change over time. When you begin, you might focus on service and quick special orders. You’ll become known as the little store with great service. Maybe you’ll grow to a larger location and start to feature selection as a key part of your branding. You might lose the “little” part of the image during the transition.

Brand Happens

Public perception is your brand. Your brand is not purely subject to your control; it also depends on your local customer mix and their tastes. If you want to promote board games and they want to play CCGs, then you’ll have to cater to that demand or lose sales.

You Could Be Wrong

You might not accurately know how customers perceive of your store. Talk to them. Ask them to name six words that they associate with your store. Ask them why they shop there instead of other places.

Don’t stop with your customers. Talk to neighboring businesses. Talk to your competition. Talk to former customers (your POS should be able to give you a list of lapsed customers). Find out what the public thinks about your store. Knowing the truth about your image can help you fine-tune your branding efforts.

Branding Techniques

You can control your brand most readily by managing certain aspects of your business. These aspects are the things that are most visible to your customers. Consider these choices before you start if possible. If your store is already open, then you might need to adapt your branding strategy to existing traits. Either technique can work.

Name

Your choice of trade name is vitally important. Alderac Entertainment Group tells of the phone calls they receive because of their name; people in California apparently equate “entertainment” with “escort service”, which leads to some awkward conversations. Slightly less humorous is the thought of people who don’t have anything to do with them over the misunderstanding. How much are they losing in potential sales because of the unfortunate and unforeseen public association? That type of association is more important to you than it is to a game manufacturer, but it’s a solid lesson of the importance of conveying the right message.

One of my favorite store names is “Rainy Day Games”. It immediately conveys the image of a family gathered around a dining room table. Often, we have to deal with the public association of “games” with electronic games of one kind or another, but Rainy Day Games manages to dismiss that image right away. It also creates a wholesome family image right off the bat—it’s a powerful branding element. I so wish I’d thought of it first.

Note that this concept applies to your trade name. Your corporate name is immaterial for most purposes.

Logo

Your logo is a thumbprint graphic of your company. It should be immediately associated with who you are and what you do. Common visual elements associated with games include chess pawns, dice and checkerboards. If the rest of your branding machine is strong, your logo can be virtually anything.

Uniform

Choosing uniforms is more than just putting your logo on a t-shirt (or at least it should be). Choose a type of shirt. Do you require t-shirts, polos, or button-ups? What color shirts? How about pants or skirts? Got a shoe requirement?

How about the rest of the employee image? If an employee turns out to have a swastika tattoo that he hid during an interview, does your image policy specifically disallow it? Do you even have an image policy? You should, and it should support your overall brand.

Colors & Patterns

A quick paint job can go a long way toward creating an image. Bright colors attract children, for example, so if you want to target children with your marketing, you should use primary colors. Elsewhere, choose one color or two contrasting colors to associate with your store. Your graphic images, your paint colors in the store, your uniforms, and other branding elements should incorporate these colors whenever possible. Nearly everyone recognizes a Pizza Hut by its red roof, for example, and a Subway by the yellow marlite.

Store Departments

It is a proven fact that a branded product name sells better than a generic product name. A “Happy Meal” sells better than does a “Kid’s Meal” carrying the same products. “Secret recipe chicken” sells more chicken than plain old “fried chicken”—even if they’re the exact same food cooked in the exact same way.

As a retailer, your ability to brand your products is limited. Your Monster Manual looks like everybody else’s Monster Manual. However, you do have options. One of these options is to brand your store departments. Toys ‘R Us calls their learning and developmental section the “Imaginarium.” You could similarly brand your RPG section, your hobby section—even your game space. This column has mentioned department signage and painting before. A simple border around a department could be enough to visually offset it from the neighboring sections. Don’t be afraid to paint your pegboard or even slat if it makes a better visual impact.

Website

The design and content of your website presents its own version of your store’s image. If you have a message board, the discussion and level of moderation make a statement about your store. Do you squash arguments right away, or do you step in only if you’re in danger of losing a customer?

Product Mix

What you carry helps define who you are. If you’ve decided that you’re going to be the “we carry everything” store, then you need a monster dice bin, an enormous RPG section, and a lot of space for your minis. In fact, “big” sections might be your theme. You might have a Huge RPG section, a Giant Miniatures selection, and a Ginormous card game space. You should look for a suite with a high drop ceiling, keep the walls white, and use a lot of light. You might have your cash-wrap on a raised platform to give your employees the illusion of greater height (which, incidentally, might help the crew monitor potential shoplifters, too).

If you’ve chosen to make your store kid-friendly, you also have to make your store mom-friendly. That means either remove the adult-rated products or make sure they’re not available to the younglings. You’ll have to make sure that a noteworthy portion of your store is of interest to the age group you wish to attract. Your anime-themed CCGs should be more prominent than your Vampire: the Eternal Struggle, for example.

Whether it’s print, TV or radio, consider not just the specific message you want to deliver but general impressions you want to create. Before worrying about a price, should you even mention a price point? Do you misspell or misuse words? Is the ad too busy? Does your language use exclude or attract children? Do you want it to?

You have a million things to think about already, but branding is critical. You should pay attention to it all the time. If you’ve already become used to thinking about your store from different perspectives, as this column has mentioned before, it should be easy for you to back all the way out and look at your branding.