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.

Demo Volunteer Management

They’re valuable assets. Use them well.

Volunteer-driven events are not an accident or a by-product of your store. If you have a game room, you should make leverage of that game room a high-priority duty. That these volunteers cost you no salary doesn’t mean you should be frivolous with their time and energy. Make the best of the experience for both of you and you’ll both be much happier with the results.

Demo Volunteer Rules & Guidelines

Do not promote your game at the expense of other games. If you champion Privateer, for example, don’t trash GW’s pricing policies to sell your manufacturer’s figures. It’s unprofessional, and it doesn’t help the store meet its goals. Our goal is to sell stuff, and transferring a customer from one product line to another doesn’t increase our sales. It could even be detrimental. Your company’s product might have a lower margin, or your customers might spend less annually than your rival’s customers.

Do not, under any circumstances, steer our customers elsewhere. We spend a great deal of money on rent in a high-visibility location and on advertising to attract these customers. Don’t advise them to go to another store. Do not tell them they can buy your company’s games cheaper online. If your company offers an exclusive deal only on the website or something that we can’t get, talk to us first before promoting it. We might be able to negotiate it with the company, or we might decide to end our support of that company’s products. In any case, honest and forthright communication is the best route.

On the other hand, feel free to recruit from customers in the store, as long as they aren’t actively engaged in another activity. Once you establish relationships with the customers, it might be appropriate to interrupt a game—briefly—to ask if they’d be interested in joining when they’re done. For the most part, avoid interfering with other ongoing games.

Don’t argue with customers. New players tend to accept whatever you say without question, but veteran players think they know everything. You can make a point using careful language. Point out that you might have information regarding a ruling that the customer doesn’t, because you’re on a mailing list or participate in a discussion forum or have had private e-mail communications with the company. If they don’t accept your argument, let them be right in casual play. In a tournament, they have to accept your ruling, even if they dispute it later.

We require you to dress appropriately. If the company provides you with a t-shirt, that’s the best thing to wear. If not, or if you choose to wear one of our demo team t-shirts, you may do that also. If neither option is available, dress neatly—no holes in the pants, face piercings, etc. Remember that you represent another company and must meet their expectations of your image.

Remember that your job here is to assist with sales. While you don’t have training or authority to ring up sales, we do expect you to know where the product is located in the store, be familiar with the product, and know what a player needs to get started playing.

These are the big points.

The Lesser Points

Be on time for your events. If you need setup time, arrive early enough to allow for it. If a particularly long-running event requires the store to open early that day, we might be able to arrange that.

Normally, you are responsible for any event reporting your company requires. If you need anything from us in this regard, just ask. We often send them an after-event report anyway.

If you receive news about any promotions the company is doing, ask us. We’ll almost certainly be interested in participating. Normally, we hear about special promotions through our communication network, but there’s always a chance we might miss something.

We ask that you schedule events at least a month in advance when possible. We’ll send out a notice to our customers then, and again a week before the event. If the company gives you any posters or any other POP materials, we’ll try to find a place for them. We want people to know about the event.
Have a sign-up sheet with you when you run your event. Ask for the names and e-mail addresses of participants. If they don’t want to give you any information, don’t press. Afterward, we’ll send out a notice that says something like “Thanks for your time and we hope you enjoyed the game.” Of course, we’ll also add their e-mails to our master list.

While you might represent the store in a limited capacity, you’re not an employee. We ask that you don’t give others the impression that you are.

Your Obligations to Them

Inform your staff. They have to be able to field questions about the event on the phone or in person. Keep information in a convenient and consistent place so that they know how to find out anything they need to know.

Notify customers. Your volunteers can post signs in the game room, or they can announce their event on your online forum, but only you can send out e-mails, mail postcards, or add the event to your calendar. Make at least two announcements—one 2-4 weeks in advance and another about a week before the event.

Give them their mail. Sometimes the manufacturers send materials to the volunteer. Other times they go to the store. If you receive materials, keep them in a safe place until the volunteer needs them. When they arrive, call or e-mail the volunteer; sometimes the package contains POP marketing materials that you can use in the store. Check the contents ahead of time, too, so that you don’t have to find out the day of the tournament that the kit for 12 only came with enough material for 6 players.

Make room. We had a stated priority for the game room. Store-supported events took first priority, regular weekly games had second priority, and all pickup games were on a first-come, first-serve basis. If you need to rearrange tables or anything for a large tournament, do it beforehand so that the volunteer and your players are ready to start on time.

Report to the company. Report success or failure of an event and offer a suggestion why. You might not have had enough notice, or all your interested players were in a tournament at another table. Let them know if the demo was too long, or if the tournament rules ended up in ties in every match.
Throw the best ones a bone. If a volunteer consistently goes above and beyond the call of duty, give him an extra. Their compensation varies, but it’s usually not enough to make the activity a financial win. A bonus here and there can encourage them to give your store higher priority or to continue the activity after they would otherwise quit. Keeping them happy can be cheap. Sometimes the thought really is what counts.

Lastly, say thanks. It matters.

6 Reasons Game Stores Fail

And How You’ll Avoid Them

You’ve heard the horror stories of small business failure. You know that about 110% of them fail in the first five minutes and the rest fail before lunch. In the discussion on negotiating rent, you read that landlords don’t expect you to last out the duration of the lease. When you ask for financing, you know the bank looks at how much of the loan they can recover when, not if, you fail.

Yet, you’re still reading. Either you’re completely narcissistic and don’t believe that you can possibly fail at anything, ever, or you have some confidence that enough planning will help you avoid the worst pitfalls and push the odds in your favor.

1. Undercapitalization

If you read How Much Do I Need? and accurately estimated your costs, you’ll overcome the largest hurdle right away. Learn this lesson: if you can’t get enough capital to do it right, do not start. Other people might have gotten lucky and achieved success despite this error, but it’s unwise to count on luck as part of a business plan.
If you do this one single step correctly, you’ve shifted the odds in your favor. It’s that important.

2. Improper Tax Management

Research accountants. Hire one. Talk to him or her. Follow the advice you receive. The biggest tax-related mistake that new store owners make is assuming that all of their purchases are tax deductible. One big one—the biggest—is not. Inventory is an asset, and a gain in inventory is considered profit. If you grow your inventory by $20,000 over the course of the year, you’ll owe income tax on that $20,000.

Likewise, consider your personal tax liability, also. Set up your payroll so that your income is only taxable once. Paying taxes twice on $36,000 a year can crush your cash flow worse than any overordering you did throughout the year.

If you do set up a corporate structure, learn the requirements for that structure and protect them. You might think you’re home free because you created an S-corp for your company, but if the government tells you that you lost that standing because of an oversight on your part, you could be stuck with one or more years of tax liability. Consult your accountant over any changes you wish to make to your ownership or financial structure.

3. Cash Flow Management

If you’re bad at this, you’ll run out of money. It’s “game over” at that point. Pay attention to your checking account. If you use a line of credit for your capital reserve, draw on it as necessary. If you need to refinance an outstanding note to stay solvent, do it and worry about the loss of profitability later. You’ll only have the luxury of being able to do that if you keep the doors open.

Having strong inventory management skills allows you to exercise great control over your cash. Create a buying budget or some method of knowing when you’re spending too much. You have to develop discipline in your inventory purchasing or you’ll empty your bank account quickly.

4. Insufficient or Ineffective Advertising

What’s your advertising budget? How do you set it? Where will you spend these advertising dollars? How will you track your success? What is the best advertising medium for reaching your customers? If you don’t know the answer to these questions, you’re probably not paying enough attention to the advertising part of your business model, and you’ll suffer because of it. You must continue to bring in new customers because you lose customers on a regular basis. Even if you do everything right, customers still move, die, get married to people who hate games, etc. If you’re not gaining customers at a rate higher than your attrition rate, you’ll fail.

Advertising to your existing customer base is cheap and easy, but it fails to bring in new customers. You’ll have a newsletter and bulletin board and all that, but how do you get new customers? Advertise on TV, run ads in the local paper, hire banner-wavers to hold signs by the street? You have to do something. Identify what works and do it even when sales are slow.

5. No Competitive Edge

Why do people shop at your store instead of one of the other purchasing options available to them? If you don’t know that before you open, don’t open. However you answer that question, use that answer as your benchmark in all of your business planning. You have to know how you’re better than an online store, how you’re better than a chain bookstore, and how you’re better than other local game stores. Compete on your strengths and minimize your losses to their strengths. Whether your strength is breadth of inventory, game space, atmosphere, or unique product offering, know what it is and leverage it.

6. Poor Growth Management

If sales outpace your financial projections, it’s a time for excitement but also a time for caution. Growth, especially rapid growth, can kill a business. If you fail to keep enough employees to deliver good service, you’ll lose customers. If you hire too many, you’ll spend more in labor than you can afford. If your inventory level is too low, you’ll miss out on sales due to frequent stock outs. If it’s too high, you’ll lose cash to inventory creep. If you mistake seasonal changes in sales for actual growth, you can make some damaging mistakes. If you move to a large place to accommodate more inventory or a larger game space, you might fail to meet your more expensive rent when sales return to their first-quarter sales levels.

The most noticeable and risky growth steps are opening multiple locations. Wherever you aren’t present, performance suffers. It’s likely that nobody else in your company will ever be as efficient as you are for various reasons. If profitability at your first store is 10%, the second store might only break even. Worse, it might lose money, risking destroying your entire company.

Bonus: Reason Businesses Don’t Fail

Fortunately, most people who start a business have some skill at doing their job. If you make it past the other obstacles, you aren’t likely to fail because you’re a bad game seller. Most people going into this industry know at least one game category well. That will probably be the leading category for you at your store. If you’re a card-flopper, you’ll probably sell a lot of cards. If you push lead, you’ll sell miniatures. Go with it.
Gamers have something of an advantage here. Knowing what elements to promote and which to ignore is a natural talent. Magic players know that an opponent’s life total is not important if you’ve established table control. Likewise, chasing margin is a fool’s game if you’re bouncing checks from a lack of sales. Board gamers, familiar with resource management, have some ability to judge the relative merits of an expensive but good location and a cheap but less-desirable location (hint: if the cash you save on the cheaper place can bring you more customers than the better place’s visibility can, go cheap).

Why We Buy

Why We Buy is not recommended reading. It’s required reading. It’s so central to anything regarding merchandising and product placement that anyone who sells things in a physical store needs to understand these concepts and learn to look at his store in the way that Underhill and his team do.

 

You’ll find the way you look at your store—or any store—changes after you read this. You’ll watch people enter, see where they go, watch what they pick up, notice how long they hold it, what they do with it, and most importantly: whether they buy it. It’ll make you want to change the layout of your store, give new thought to floor planning, merchandising, displaying, and all the fundamental skills of retailers.

 

Let me give an example from a store I just walked into yesterday. The fixtures are a jumble. Customers who walk into the store don’t walk along a channeled path toward the displays the owners want them to see. They scatter. Some go here, some go there. They’re not sure where to go. This randomness leads to unproductive areas of the store that get no traffic. Even I missed some areas, and I was making a dedicated disciplined effort to visit every display (I was actually trying to estimate their inventory level). Undeerproductive areas mean some product lines don’t sell like they should.

 

That store owner could have used some of Paco’s loving attention. I would share pictures, but I don’t want to pick on anyone in particular. The layout is the point, not the person.

 

In any case, simply observing the traffic flow would point this problem out—if you were aware of the problem in the first place. Why We Buy makes you aware of buyer habits that you might not have been aware of—the things like where they go, how they shop and, in general, why they buy. Understanding these principles can increase your sales more than anything else I can tell you. Go buy it.