Business Plans – Write one or not?

It’s strange. I know a lot of people (including us!) pour hours into writing a business plan.  When we first launched, I know I devoted a ton of time writing one.  In the years since then, I’ve worked with a few other businesses and launched others and in all these cases, the work being done being an Internet / Digital business, we didn’t bother with a business plan.  A lot of the time, those businesses failed, a few times, it went well.

Looking at our options and what we did, I wonder if it makes sense to write one.  I know, best practice wise that you should.  However, after a while,  you realise that you end up asking those questions yourself anyway.  Of course, it might vary a bit depending on how much money you are really talking about – most of our other businesses that we ‘launched’ we were talking $5-10,000 in expenses.  Launching a business like Starlit Citadel cost significantly more.

However, if you know the business (or just business in general), sometimes the time taken to write a formal business plan could be spent doing more important things – like research into your location or your competitors or ways to save money on the business.   To me, a business plan is a way of asking the important questions in a structured way, but if those questions are being answered, perhaps it doesn’t matter if it isn’t written in Times New Roman, 12 font, double-spaced with proper titles.  Maybe it’s just better to make sure the questions are answered and you are moving ahead.

Certainly, I’ve seen a number of businesses die in the business plan phase, not because of the lack of capital or time but because businesses moved too slow and another business came in and did it.  Sometimes, it might just be better to fly with the seat of your pants.

Just don’t spend more than you can afford to lose.

The Summer Free Shipping Promotion

Free Shipping Promo of $100 cancelled As many of you know, the Summer Free Shipping Promotion has ended. As with any promotion or marketing tactic, one of our main goals is to evaluate the promotion to understand whether it actually hit it’s goal – that is, drove more sales and traffic. Normally, all we’d have to do is compare the previous period (i.e. same months last year) to this period and; adjusting for regular sales increase, figure out the difference in both revenue and number of sales. Unfortunately, as many of you know, we had a huge problem in the middle of the month – the Canada Post strike/lockout threat. This created a huge amount of uncertainty and we even had to turn off the promotion at some point as we switched to shipping via UPS.

How much difference did the threat of a Canada Post strike make in our sales? Well, we saw a 31% drop in total shipments and about 35% in total in June where the strike affected us most. That’s a huge drop, especially when you realise that the next month (August) we saw a full 40% increase. Now, you could say that the 40% increase was from the free shipping but there’s also an argument to be made that the increase is in part due to orders that were ‘held-off’ during the strike period.

On top of all this of course is the calculation needed to figure out the difference in profitability. It’s not enough to know how much more we made (if anything); it’s also important to know how much more we paid in shipping. There’s 2 main ways to do this of course – a line by line review (matching each free shipping order to it’s associated cost in our invoices) or we could go with averages. In this case, we work out the average cost of shipping each order and compare it against our previous year to work out the increase / change and compare it to our average revenue generated from shipping. This lets us know the difference that each order ‘cost’ us to ship, which then lets us work out the increased cost of shipping. Unfortunately, again; not that easy since we also have a bunch of Kickstarter shipments in our invoices. Which means we have to individually take it all out to actually work out our actual cost of shipping.

Overall, here’s what we figured out:

  • The lower free shipping threshold probably generated an increase in orders
  • This increase mainly came from existing customers, not new customers
  • Surprisingly, the average sale value saw only a small change (6.82%)
  • Profit margins per order dropped by about 16.98%

However, because of the strike our total number of orders actually dropped in comparison to last year (about 16%)  during the period in question.  It’s hard to draw any real conclusions because of the strike, though there is enough data to suggest that if the strike hadn’t happened we would have seen an overall increase in number of orders.  The question which we can’t answer is whether that increase would make up for the drop in our profit margins (we need about a 34% increase overall to breakeven on the loss in profits) since the two months we just don’t have enough data / time to make it clear.  My guess is that it probably a wash if a slight decrease in our overall profit, which is why we’ve moved back to the $175 free shipping option for now.

Commercial Leasing – Some Tips

So , as many of you know we’re in the process of moving to a new location.   This isn’t the first commercial lease we’ve ever signed, but I certainly would not call myself an expert.  Still, here’s a few things that I’ve picked up on in my time.

Let’s start with the basic common sense advice:

1) Read and understand it all

Any legal document that you sign should be read, in detail.  This includes the ‘Offer to Lease’ (the document you sign and send to the landlord as your offer) and the actual Lease.  If there is a portion of either document you do not understand, ask your lawyer.

2) Hire a lawyer

Do not skimp on this.  Get a good realty lawyer and use them.  The lawyer will be the only individual in this entire process who is entirely on your side.  Their experience and ability to read the obtuse language of the lease could easily save you a lot of money.

Alright, now let’s talk about tips during the process itself

3) The Search

  • Craigslist is a start – you’ll often end up working direct with landlords in Craigslist which can offer you more flexibility and better pricing.  Commercial realtor websites are the next step, with CLS another option (not as good for leasing, but still okay).  Loopnet can occasionally be okay.

When contacting a location, if you are working with a commercial realtor; you need to (in BC at least) contact your realtor to contact their realtor.  Otherwise, your realtor will not get involved which means you end up with their realtor working for you and the landlord.  Which brings us to…

4) Understand Motivations & Interests

Remember how I said the lawyer is the only individual with interest that coincide with yours? Going into the negotiations, you need to understand the motivations and interests of each party in this deal.  In a typical commercial deal, you have:

  • Yourself – looking for a great space at cheap rent with low to no obligations
  • Your Lawyer – paid by you directly at a per hour diem, obligated by law and his professional association to do the best job possible.  His goal is to provide good advice to get paid and potentially referrals in the future and/or additional business from you.
  • The Realtors – to find you a commercial space as quickly as possible and to have you sign off on the deal.  Realtors only get paid when the deal is done, and they get paid on a % basis.  As such, their motivation pushes them to close the deal at a higher price rather the lowest price possible.
  • The Landlord – to rent his location(s) out at the highest possible revenue.  In particular, you want to watch for the number of additional spaces available in the building and if it’s empty currently or not.

Understanding what the goals of each party will help guide your negotiations better.  While not every individual will likely be rational and/or push for their best interest, it is always worth knowing what potential motivations they have.

5) The Offer to Lease

  • Generally first drafted by the realtor
  • Your first official ‘offer’ for negotiating lower rates.
  • Things you can ask for include:
    • Lower price per square feet
    • Shifting from NNN (i.e. you are liable for all cost associated with setting up the building barring certain exceptions as per the lease; thus your rates can vary) to Gross Rent (i.e. you pay a fixed amount for the total rent and the landlord covers any overages)
    • Free rent period (also known as a fixturing period)
    • Tennant Improvements (aka building out the location for you)
    • NNN fees (Common Area fees) can be fixed and/or set to go up at a fixed rate
    • Exclusivity Clauses (maybe,  more for retail really)
    • Delay in construction terms (i.e. if the location is not ready as per the lease, what you may be able to get)
    • Term of the Lease and Renewal period
    • Sub-lease clauses (if you can sub-lease or not)
  • Things to watch out for at this stage:
    • Whether it’s NNN or Gross
    • Your subject clause includes the requirement for proper licensing (in case the government gets problematic) and that it is subject to an agreement on the lease.
      • be certain it says subject to an agreement on the lease, and not that the offer to lease items are included in the lease.  As leases can be over 30 pages long and your offer to lease is likely only 2 to 3 pages; you could be accepting a slew of unknown conditions
    • The landlord’s clauses for rejection
    • Percentage rent clauses – basically a clause that takes a % of your gross sales as part of your rent.  This is more likely to appear with large coronations in shopping malls and the like rather than single roadside agreements
    • Actual size of the space.  Do NOT trust the landlord to get it right, take your own measurements of the area; but don’t forget to factor in the Common Area (ask them how much they are adding to your lease ‘size’).  You can expect some variation between your numbers and theirs since you’re likely not doing it very well; but it should be in the ballpark.
    • If you are on NNN, make sure to see the last few years NNN fees to look for increases / etc.

Once the initial negotiations on the price per sq ft, etc have been completed; you’ll be at the actual lease stage.  This is when the lawyer should come in (unless you’ve brought him in to read your Offer to Lease, which is fine too!).

6) The Lease

Things that I’ve seen in commercial leases include:

  • Kickout Clauses – what, if any, options do they have to remove you from the premises?
  • Insurance Amounts – how much are they asking for? $2 million? $5 million? It can make a big difference in your final insurance rate
  • Arbitration – make sure any arbitration should be shared costs
  • Operating Cost / CAM fees – check for the Management Fee %, what your % is of the building cost is and how it is calculated and set out in the agreement. Also, make sure you exclude things like plumbing and roof repairs from the Operating Costs.
  • Overholding – or what happens if the lease expires and you need to stay in the place anyway
  • Accelerated Rent clauses
  • Sale of building clauses – does your lease survive the sale of the building? If not, are you sure you want this?
  • And remember, whatever you sign is whatever is finally agreed upon – NOT whatever verbal assurances you might receive

Last Thoughts

Overall, the most important thing is to educate yourself, make sure to read your lease agreements in detail and get professional help.  Don’t do this alone – the few thousand dollars you pay the lawyer is nothing compared to say, getting kicked out of your leased location early and having to move your business again.

Delegating Tasks, Not Responsibility

It’s strange, I’m sure I’ve written this post before but I can’t find it. Apologies if this is a repetition on something I’ve written before, it certainly seems a repetition in my head.

One of the first things I learnt when I started managing tasks (sometime in school, I can’t recall when); was that there is a difference between delegating a task and the delegation of responsibility.

Delegating Tasks

Grow big enough, or heck, deal with outside contractors and sooner or later you’ll end up delegating tasks and projects.  You have to if you want to grow a business.   There are only so many hours available in a day, and only so many projects that you can manage before you burn out or let something fall through the cracks.

Delegation is an interesting topic in of itself – you have to weigh both the existing skills of the individual involved (and potential skills you want to grow) as well as the task itself.  Some tasks require a degree of involvement and access to knowledge that is not viable to delegate to another (e.g. managing the accountant or lawyer); while others require such a ramp-up in skills (e.g. developing the marketing plan) that it often seems to be foolish to delegate but can, in the long-term, be worthwhile.

In all cases, when you delegate the task, you hopefully delegate the authority to complete the task.  That includes both the authority to commandeer resources as well as the knowledge / access to information the task needs to be completed.

Not Responsibility

This is where many of us stumble.  As business owners, we generally understand instinctively that everything that happens in the business is our responsibility.  As such, it’s really, really hard in many ways to delegate anything especially anything of substance.  Need someone to take out the trash? Sure, we can delegate that.  Need someone to negotiate the garbage collection contract? Uhh…

What sometimes happens then is that when we do get around to delegating, we do so completely – walking away from the entire task because otherwise, we micromanage.  Unfortunately, delegating the task often does not mean the final delegation of responsibility.  As the owners, it’s still our responsibility at the end of the day; even if we had no direct connection to the task.  If the garbage isn’t taken out and the place stinks, customers will blame us – not the staff member involved.

Tips & Tricks

So what do you do? I don’t know what you do, but here’s a few things I use:

  • SMART criteria for tasks / projects
  • Metrics – for on-going tasks & projects (e.g. number of orders shipped, number of games sold, etc)
  • Regular & scheduled check-in’s – These can range from meetings to regular reports
  • Unannounced / informal check-in’s
  • Parallel projects – doing the work yourself as well as delegating the job.  This is especially useful when you’re conducting a time sensitive project which you’d also like to use a teaching project.

In sickness and in health

Actually, let’s just call it in health.  As might know, in Canada (British Columbia in particular); there’s no legal requirement to provide your employees sick days.  Many companies do as a matter of course, though they often limit the sick days to a set number – 5 being the most common that I’ve come across.  Otherwise, if you fall ill you either suck it up and go into the office or take a vacation day and heal.

At Starlit Citadel, our salaried employees have an unlimited number of sick days.   Sounds generous doesn’t it?  It’s actually not – it’s purely a matter of hope and practicality.

Hope

The hope is that by allowing employees to take the time off that they need to recover; they do not become plague monkeys and take out the entire office.  I say hope since as last week showed, it doesn’t always play out that way and we can still all fall ill.

Practicality

There are numerous studies out there that show that providing employees sick days (unlimited in particular); you improve office morale and actually increase productivity.  It’s better to have an employee working at 100% all the time with a few days off rather than 60 – 70% for 2 to 3 weeks because they are struggling with the flu.

In addition, never forget to discount the plague monkey effect.  An employee who is sick who comes in can easily pass on that bug to others in the office, increasing the number of sick days / lack of productivity all across the board.  Again, taking last week as an example – we had to shut the entire office down on Thursday as we were all sick.  That’s a huge loss in productivity and most of us are still under the weather too.

Abuse

One of the greatest concerns when you offer an open-ended policy like this one to employees is the concern of abuse.  It’s a valid concern, but one that can be somewhat misleading.  My view is simple – if you aren’t hiring people who are passionate / dedicated about their work, then you run a danger of abuse. So don’t hire them.

I know, it’s easier said than done.  For us we have the advantage of being in a fun industry; so finding passionate individuals is less difficult than say, a fast food chain.

Of course, there’s also the opposite side of the equation.  If they are too dedicated, like Troy, sometimes they’ll still come in when they shouldn’t and then all your good policies get put to waste.  That then is a failure on the management’s part for not enforcing the spirit of the policy.

Negotiating : Understanding Incentives

This is a ‘best practice’ article in many ways, but delves into something I’ve discussed before – negotiating.  One of the most important aspcets of negotiating is understanding the motivations & incentives of the parties involved.  As an example, let’s talk about leasing & the commercial real estate market.  There are basically 3 parties (sometimes 4); involved in negotiating a lease.

The Landlords

The landlord’s motivation is simple – he’s there to rent his space for the most amount possible.  Now, depending on the landlord; he might value this amount in the short-term (i.e. the most money he can get per month) or long-term (taking into account ‘down-time’ when the space is empty and the most over the terms of the lease).  He might also value his time and peace-of-mind (i.e. long term tenants who are quiet) quite highly.

So, time, money & peace-of-mind are his 3 major motivations.

The Lessee

The Lessee wants a good space, he wants a location that he can likely grow into (if they’re thinking of growth) and the least onerous terms possible including the lowest rent.   Depending on the lessee; they might also value peace-of-mind and certainly want to mitigate potential risk factors as much as possible.

His incentive is his bottom-line and any risk mitigation possible

The Realtor’s

The realtor works for the landlord generally, posting his listing in an attempt to find a lessee for the landlord.  His motivation is the sale.  There’s also a secondary motivation – a desire for continuing business from the landlord and to a much lesser extent, the lessee.  How much they value each of the above is dependent on the realtor obviously; but here’s where incentives come into play in a large part.

The realtor is paid by the landlord as a percentage (%) of the final lease.  As such, he is incentivised is to get the highest possible lease rate for the landlord; especially when you consider that the landlord likely has multiple locations to lease.

At the Table

At the table, as a lessee you need to realise that while the Realtor might sound like he’s working for you; his greatest incentive is to get the highest lease amount possible.  Close behind that is keeping the landlord happy (not necessarily the same thing).  He is not greatly incentivised to make you happy . Understanding these motivations allow you to approach the negotiation in the right frame of mind, allowing you to get a better deal.

This is true in any negotiation of course, especially when there are multiple parties involved and there often are.  It’s also why creating the proper incentives for salespeople is important.

Best Practices: Keep Learning (11)

The world is changing, new technology and new business processes, new competitors and new legislation make it a constant process of learning for us all.  Unfortunately, as the business owner, it often falls on to you to keep up to date.  When everything is your responsibility, it’s difficult to focus on the things that really matter.

Here’s my short-list of areas I attempt to keep up to date on all the time:

Competitors

Rather obvious, but I check-out Starlit Citadel’s competitors on a regular basis.  What are they doing that I’m not? What do they stock that I don’t? Am I missing a trick there?

It’s worth looking at indirect competitors here too – Amazon & Chapters are mainly indirect competition to me.  Yes, they stock board games, but that’s not their focus.  Yet.  On the other hand, they have a lot more marketing muscle than I do, so watching what they do can often great best practices to emulate.

Marketing

Both a personal interest and a competitive need, I keep up to date on the latest technologies and trends.  I add technology here because things like Smartphones and iPads have started to change the way our site is being used.  It’s high on our list of things to do – getting a mobile version of Starlit up.

Legislation / Bureaucracy

Not something I want to keep up to date on, but changes in EI / CPP / taxes all impact our business, never mind licensing and other factors.  Thankfully, changes are rare here and the government is pretty good on sending out information pamphlets when things do change.

Products

With all this learning, reading and research, sometimes it’s easy to forget that you need to actually learn about the products you sell.  It’s a common complaint on my side – I rarely play the games I like more than a few times because I am always looking to play new games to increase my product knowledge.

Business Books

On top of these areas, I try to pick up a business book a month and read through them.  Well, I average one a month.  These books can be on anything from warehouse management to purchasing to accounting to a beginners book on corporations.  The goal is to add or refresh that knowledge base.

Best Practices : Jack-of-All-Trades (10)

You know the saying, Jack-of-All-Trades, master of none? Well, as a business owner especially at the onset for a small enterprise like this, you’re much better off being a Jack-of-All-Trades.  There are a ton of basic skills / knowledge areas that it’s worthwhile getting a familiarity with; if not mastery.  Here’s a list of a few:

Carpentry / Plumbing / Painting / etc. DIY

If you’re running a retail store, I bet it’s even more important, but understanding the basics of all the above could save you hundreds if not thousands of dollars.  Here’s just a few things we’ve had to deal with already : unstopping a sink, dealing with leaking tap and our own shelves.

Bookkeeping / Accounting

Understanding the basics of these and how it relates to your business will save you a ton of trouble in the future.  In fact, learning to do basic bookkeeping is quite useful – no one else will understand your business as well as you do, and that is often the difference between inputting the right information into your accounts.  Whether you outsource this or not, make sure to have someone professional at least set-up your accounts in the beginning and walk you through it if you don’t understand the various capital / inventory / expense / revenue lines in your P&L and Balance Sheet.

Btw – I don’t suggest doing your taxes yourself.  At least in Canada, the corporate tax filing system is quite thick and complex.

Marketing

Yeah, marketing is important.  Simply defined, marketing is anything you do to get & keep a customer. It’s an art and science and unless you specialize in it, you won’t be as good.  Still, understanding the basics of marketing in your area is important – if nothing more than to ensure you aren’t taken for a ride when you do hire someone. So, pick up an introductory textbook to understand at least the basic strategies and if you’re in retail, ‘Why We Buy’ is a must-read.  So’s Guerilla Marketing, though realise it’s written for a US audience.

Legal

I don’t expect you to know the intricacies of the law, but understanding the differences in business types (private vs public companies, limited or self-owned businesses and partnerships) as well as the various intricacies of owning a corporation like shareholder agreements, articles of incorporation, the various shares in your company will hold you in good stead.  In addition, it also means you’ll be able to file the routine paperwork necessary.

Purchasing / Logistics

Purchasing is the mainstay of any retail business.  Get this one wrong and you’ll destroy your own business.  Get it right and you have a chance of surviving.  Here’s a few things you might need to learn : What are turn rates? How many copies of a game should you get? What are the delivery times between distributors and costs? What is an acceptable stock-out rate for your business? And how do you pack a box properly – the sizing requirements, the amount of fill and packing tape among others.

Human Resources

Human resources covers both the soft skills of managing employees and the hard skills of the legal requirements.  There are a ton of legal work in hiring, some of them in BC include WorkSafe BC, EI, CPP, Taxes, payment remittance and the T4 forms.  It can also include looking into things like company wide benefits and hiring.

Sales & Customer Service

Do I even have to explain why? Sales does require practice, so if you can do it on someone else’s dime, that’s always good.   Learning the basic skills in querying customers, upsell’s & conflict management goes a long way in keeping your bottom line healthy.  My general go-to when selling in-person is to ask what the customer what they are looking for, then check off questions on theme, game group size, complexity and length of time.  Any previous games they have played and enjoyed are another great resource for narrowing down choices.

Information Technology

These days, a minimum business requirement is a website.  You can of course get someone to design & code and update your website for you, and if you don’t have the basic skills here it might make sense.  Still, knowing at least how to update your site for current news like events, new games & important announcements will make the site much more effective.

However, basic IT skills also includes things like setting up your Internet connection, wireless router & payment center.  Being able to trouble-shoot the basic problems with your internet access & printer will save you a ton of trouble.

Conclusion

Those are all the main skills I can think off right now, I’m sure others will chime-in.  While money fixes a lot of problems, if you’re a small business, money is always tight.  I’ll discuss cashflow & the P&L sheet later on to help you understand why.

Best Practices : Schedule Me Time (9)

Running your own business is a lot of work.  If you own a brick & mortar store, it’s probably worst than online – at least I can work remotely and wake up 30 minutes later if I need to.  It’s easy to end up working  70, 80 hours a week.  Sometimes, it’s necessary – but whatever the case, make sure to schedule time for yourself.  There’s a lot of reasons for this including:

Burn-Out

If you are working all the time, sooner or later you’ll burn out.  You won’t care anymore about the work you are doing, which will mean you make mistakes, annoy customers and generally begin to hate what you do. At that point, why bother owning your own business?

Health

Your health is very, very important.  When you first start out, you’ll likely be a 1 man operation with little to no back-up.  If you are sick, the entire operation shuts down.  So eat properly, sleep well and exercise regularly. It’s also worthwhile noting that unless you have an employed spouse, you’re down to just the basics of MSP.

Creativity & Innovation

Sometimes, the biggest problems seem to solve themselves when you step aside.  Our unconscious mind is much, much more powerful than you’d expect.  Quite often, when you step aside from work, the best ideas of how to handle the business will pop-up.

Maintaining Relationships

Look, none of us are islands.  Whether it’s significant others, family or friends, if you disappear into the blackhole of work, you’ll lose contact and erode those relationship bonds.  These relationships are extremely important, and if you don’t take time to care for them, it will break down.  Practically as well, it’s a lot easier to ask favours from someone you saw recently rather than someone you saw a year ago.

This is particularly important for your spouse.  Making sure you spend time with them makes certain that your most powerful supporter is on your side.  Especially in my case, where I use my wife as my bouncing board for everything in the business; they can get really tired about the umpteenth problem you’ve had that week.

Best Practices : Penny Pinching & Being Penny Wise, Pound Foolish(8)

Money and cost cutting is a strange beast.  You can be too loose with your spending and too tight as well, and learning where the right level is just a matter of experience.

Penny Wise

It’s very important to cut costs in business.  It’s better to cut your cost by $1 rather than increase your revenue by $2 in most cases as a game store.   There’s also a lot of areas to cut – rent, insurance, salaries, your gateway fees, etc. to name a few.  Checking your costs every month and every year (depending on when your contracts come up for renewal) is very important.

Depending on your personality and background, this can be  really easy or really hard.   Either way, the discipline required here is key to running a business.

Penny Wise, Pound Foolish

The other danger is one that I fall into all the time. I’m naturally quite careful with my money, and it was enhanced by our  lack of capital in the first few years.  As such, I had a tendency to not spend any funds at all – which caused a lot of trouble.  As an example, I refused to pay Canada Post to come by to pick-up our orders and instead dropped the orders off myself at the Post Office.  It saved me a whopping $15 a week – and meant I wasted an hour or so every day doing that.

Return on Investment

So how to avoid that trap? Here’s a new term for you – Return on Investment.   How much revenue will this activity / spending generate for me? Or, conversely, how much will it save me?

If your advertising is expected to generate $1000 in new sales, it’s worth it if it only costs you $200.  If it only generates $500, then it might not be worth advertising.  Same with a new retail location.

Or conversely, saving an hour a day at $10 an hour is worth $50 a week.  A definite improvement over not spending $15.

In general, I use an ROI of 3 as a cut-off point.  That’ll vary depending on your business, your costs and  your comfort level, but I find it a good  rule of thumb.