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.
My initial title for this post was ‘market failures’ but I realised that that wasn’t entirely accurate, even if it is a better sounding title. What I wanted to talk about was the increasing fragmentation of the market and the complicating of the supply chain that we are seeing.
Exclusive Distribution & Monopolies
Exclusive distribution agreements aren’t new, I’ve written about them previously. Right now, the vast majority of our products (a good 70% of game sales I’d say) are under exclusive distribution agreements. Our biggest problem with exclusive agreements is the fact that it can be often difficult to locate who has the exclusive agreement in a country and just as importantly, be able to purchase the product in sufficient quantity to make it worthwhile. A few great examples?
Qwirkle is the only game that sells for us from their distributor in Canada.
Celestia and Haru Ichiban are carried by Le Valet who at least have some other ‘good’ games, albeit at a higher markup
As many of you know, shipping in Canada is expensive. Most places cost us at least $30-40 to ship a parcel at any ‘size’, sometimes much more. Excluding any minimum’s that a publisher might have (and some sell by case quantities only!), that means to keep shipping cost at only 5% of an order, we’d need to put a $600 order with the publisher. However, many of these publishers have maybe 5 to 6 items (sometimes even less!) which would sell in our business. When this happens, we often end up deciding to either / or /and :
restock very, very slowly
not carry the product / product line
increase the price of the product to save on our margin
Geographic boundary restrictions (essentially stopping us from purchasing from the USA) is another extremely frustrating restriction. It used to be that we could purchase almost our entire catalog from the US. Over the years, it’s now slipped to about 30% of the gaming catalog. This can often lead to some extremely frustrating instances such as:
Monikers which signed an exclusive agreement with On the Right Track. Who don’t carry the expansion but we can’t purchase the expansion as the publisher can’t sell it to us due to geographic restrictions.
Forbidden Island whose US MSRP is $19. The lowest Canadian price we can get from a wholesaler? CAD$18.
This one amuses me and frustrates me. For a while, CV was only purchasable from Pierre Belvedere as they had an exclsusive agreement for it in Canada. Their main business? Selling calendars from what I recall and various kitchen ware items. They were a distributor, but there was literally nothing else that was worth buying from them.
We recently had a request from Raincoast Books to buy Osprey Games from them. At least, in this case, they are in Vancouver so we’d save on shipping; but really? Again, see above about hitting minimums and shipping costs for why we generally try to stay away from this. When a game ends up with a non-gaming distributor, it often becomes dead to us because there’s no way to hit a minimum threshold.
Direct from Publisher
I don’t categorise direct from publisher sales as onerous just by existing, mostly because in many cases, these publishers might not have a choice. Unable to get into ‘normal’ distribution, they’ve decided to sell direct to retailers who are interested. What I do find frustrating are publishers who don’t understand the normal discount thresholds for sales. A recent trend has been for publishers to offer discounts of 25-30% off MSRP and charge for shipping. At those levels, not surprisingly, most retailers would not bother carrying these products. If a game is selling at $30, then a 30% discount indicates a gross profit of $9. Add in shipping cost, our gateway processing fees and the time taken to handle the order and we barely make anything on such an order. No surprise that in those cases, we often decide to not carry those products at all.
The current discount rates seem to vary between 45-50% with some particularly aggressive groups as low as 40%. Not surprisingly, most retailers don’t even both with those at 40% so if you are offering discount rates at 30%, expect that we won’t be purchasing from you at all unless you hold an extremely, extremely in-demand game (see Cards Against Humanity).
Direct to Consumer Sales
Firstly, let’s be clear – a publisher has the right to decide who to sell to or not. If a publisher decides to go direct to consumer (via Amazon and their own sites) or Kickstarter only, that’s their choice. It’s not our area to decide their business model. In fact, when you have a product that is in such demand, it makes sense to keep more of the profit for yourselves.
However, there are numerous publishers who don’t just sell direct to consumers exclusively, they also sell it at a discount from their own MSRP. Tasty Minstrel Games is an example of a publisher whose games we have had to cut back on significantly due to regular periods of them running regular sales on their own products. Kickstarter’s that roll previous games into the current promotion fall into the same annoyance area if they provide a discount on those games. If they don’t, it’s not a huge problem normally.
Big Box Store Exclusives
I doubt I have to expand on this much. The major issue about such exclusives is the perception that it creates that we aren’t ‘real’ stores because we don’t carry X. When the question becomes ‘Why don’t you have X’, and our answer is ‘because they won’t sell it to us’, it rarely ends up being a good conversation.
Over the years, we’ve grown the number of distributors we’ve had to work with from a small 4 distributors to now, over 12+ major distributors who we order from once a quarter. That’s not including the occasionally publishers who we order a single game from. This business has grown in complexity significantly it seems and I sometimes wonder how someone who is new to the business keeps up. At least we’ve had a few years worth of experience to help us.
We are coming up on our end of the lease fast and while we’ve made the decision that we will be moving to a new location as our rents have now increased to a point that we no longer think it’s worthwhile to stay, the question we are still working our way through is whether to go full retail or stay as an online store.
Continuing to run a warehouse makes a lot of sense in many ways. There are some major pros including:
well optimised polices and procedures
ability to take on more and larger Kickstarter projects
potentially branching into other non-related product lines in ways that don’t create confusion among our customers (e.g. selling sporting equipment on a new website)
lower cost (we can get warehouse spaces for cheaper than what we are paying right now, so we’d actually drop our cost!)
The Cons though are somewhat more nebulous
new location likely to be less central significantly
growth has to come from new categories as our gaming category has slowed
potentially being locked out further by publishers
Going with the retail store, things get a bit more interesting for the future, with some of the pro’s including:
new revenue streams from snacks & drinks & events
ability to access and run events / games likes Magic the Gathering and miniature games
increase in sales to casual drop-in’s and potential increase in sales from impulse buying of our geek products
significantly more options for PR and social media outreach
However, there are some major cons:
significantly higher lease cost (we’re looking at least another $4,000 a month at a minimum, more likely $5-7k).
new staff and staffing hours would be required. Approximately $3k more in terms of staffing cost per month
loss of revenue from Kickstarter projects. We probably could handle the smaller projects still, but the larger projects would be difficult (i.e. we couldn’t quote on projects over a few hundred games just due to lack of storage areas for them)
new capital requirements for shelving, gondolas, POS systems, etc. At least another 5 – 10k depending on how nice we want to go.
potentially sub-par location. We need a minimum of 2,500 sq ft and are probably looking at 3,000 up to 5,000 sq ft. There just aren’t that many locations of that size in Vancouver, especially in retail and for the prices we can afford which would raise the total rent even higher
too close locations are another major issue as there are so many game stores right now, finding a location that isn’t too close to an existing store is another problem.
There’s also a rather concerning trend in real estate pricing. In general, commercial pricing seems to run 2 – 3 years behind retail pricing, so if there is a drop in sales in retail pricing, we might expect a price drop in a few years which means that any lease we sign right now might be on the high price.
We are running a flash sale on our clearance / used games right now, attempting to discard some extra stock that we really don’t need clogging up our warehouse space. Once more, it’s gotten me thinking about ‘value’ and how we all perceive it differently. As a store, we discount our games regularly. Generally between 20-30% off the normal retail price, sometimes a bit more. So, most games are already sold as a discount and that’s a ‘good’ or ‘fair’ value for most of our customers. However, not all games will be sold at that price. Eventually, games that aren’t sold at our ‘normal’ price end up in our clearance section. Those get discount further by another 20%, bringing most items close to our cost of bringing them in. Quite often, we see more of those games sold when they end up on clearance.
However, there’s always games that aren’t sold even at that discount. We come to our flash sales then or our other regular sales. Games during those period start going down by another 40-50%, meaning that we are selling at below cost often when that happens (at least in the Clearance section). Yet, we have games that have been discounted to 20-25% of their MSRP (or half of their cost!) and we still haven’t sold them.
At each stage, a customer could potentially buy a game. If he bought a game at full price, and then the game drops in price, is that fair? Did he get a good value?
I don’t know.
The problem / answer of course is that it’s up to the individual. A transaction / purchase isn’t just made up of the price but everything that happens around the transaction – from customer service (or lack of it) to shipping to the general appearance of the store. Everyone values things differently which what makes life so interesting. I A box can be dinged and I’m perfectly fine with it because the game contents / gameplay is what I value. Yet, for others that’s a major issue. A transaction at the counter that takes 30 minutes to purchase a single gamebox can be very frustrating. Or maybe it’s not because you spent the 30 minutes chatting with the bored clerk about the latest Star Wars movie.
It’s a reason why some people proclaim the death of B&M stores and others point out that those stores are the linchpin of gaming. Each store and the items they sell provide different value where price is just one portion of the equation. It’s true that you ‘remove’ a certain number of people who would never purchase a game at full price, but at the same time, there’s others whom price is of little or low value. At the end of the day, the value of an item is what people choose to assign it, but it’s ‘value’ changes from person to person and for the same person, by time and circumstance. As retailers, all we can do is try to meet those values when it makes sense for us.
This is a more random post than normal, just a few business misconceptions I’ve come across recently.
Revenue = Profit / Make it up in volume!
This is probably one of my favourite one’s. When a customer sees that they have paid you $200, they figure you just ‘made’ $200. The add-on idea to that is that the more you sell then, the better off you are. That’s not entirely true of course, as revenue does not equal profit. Profit is what you have after you take away all your expenses including the cost of the goods you just sold, your payroll, rent, taxes, etc.
So, yes, I’m not going to sell this product to you at (or below!) my cost of acquisition (COGs). I am not making a profit from this, I’m just making a loss and making my revenue numbers look pretty.
Taxes are Profit
I really don’t know how many people believe this, but I’ve come across this one more than once. Customers are somehow angry / upset that we charge tax (especially at conventions), somehow believing we are making money from the taxes. Taxes are actually a cost. If I take your payment in credit card, I’m actually being charged a % of the taxes in credit card fees but the government want their full amount. So I end up ponying up a little extra. Never mind the added cost of doing the paperwork and making the payments. Taxes aren’t a profit center for us, they are a cost.
Why won’t X store sell Y item to me at a discount / more of a discount
There are a few reasons, here’s some:
Opportunity Cost. Most stores only have limited amounts of products and have anywhere between 2 days to 2 weeks (or more!) before they can restock, especially depending on the product. If they sell a product to you for $10 and can’t restock it for 2 weeks, they might easily have sold same said product a day later to someone else for their full $40. Why risk it on a good moving product? (If it’s a slow moving product, theoretically it should be on the clearance shelf already).
Differing pricing structures. Stores get different pricing structures depending on how much they buy. So for one store, an $80 MSRP game might actually cost them $44, not $40 like another store might get.
All Businesses are the Same
This is another assumption where customers feel that each business should be ‘equal’ and be exactly the same as another business. We get this from customers who wonder why we don’t get games as fast as some of our East Coast competitors (games arriving in the East first before they get all the way to the West!) or why we don’t have policies like Amazon or why, as an online business, we aren’t open the hours of a retail store.
Posts on the business side have been particularly quiet lately. There’s a lot of things going-on behind the scenes of Starlit Citadel, but most of it would be dead boring to those not involved in it. For example, the last few months have been a huge struggle getting our database from the site-merge between SC and Fortress Geek sorted out. Hours and hours of combing through data, checking over products and finally, the final site-merge which has still left numerous bugs in the other site.
None of that is of interest to people outside, beyond the occasional bugs that crop-up on the site because of the work we’re doing.
On top of that, our Kickstarter Logistics program has seen significantly more traffic (read, I’m giving a lot more people more quotes). Not a huge amount of additional business and what there is, is months down the road. However, it is important to get done and I’ve yet to train anyone else to take over the answering of those e-mails, so I’m stuck dealing with it.
All of which mean posts on the business side have been of the lowest priority. Hopefully in the next few months I’ll have a little more free time to get back to posting.
It’s an interesting thing to have a massive project (okay, massive for a tiny little business like ours) like the video reviews end. After over 110+ board game reviews and over 145 videos in total, we’re finally calling it a day. Assuming each video review took about 20 hours of work (what we calculated was the average) of production time, that’s around 2,300 hours or nearly 96 days (383 working days at 8 hours each!). That’s more than a year’s worth of work that has been put into the reviews by the Starlit Citadel team and it doesn’t even count the time need to play the games or the time cost of replying to subscribers and handling the various requests for reviews. Put another way, there’s at least half again as much work that went into those reviews than that estimate.
On that note, I wanted to publicly thank Joanna & Kaja once more. As many of you know, Joanna directed and edited the videos in the last couple of seasons while Kaja was the one who scripted all the videos. The lion share of the hours you see above are shared by them both and it was their consistent professionalism and dedication that kept the videos at such a high quality level.
What I wanted to highlight as well would be the support staff who were part of the video reviews. Rob Hunt was our initial videographer and editor in the first 2 seasons. Carla Miller was both assistant videographer during this period and when Rob left, the main videographer. Ashley Young came into play in Season 2 when she started doing the ladies makeup.
While somewhat sad to see the reviews end, I understand the need to move-on. It’s always been a huge time commitment for the ladies and while I briefly (very, very briefly) considered seeing if we could continue the reviews, the fact of the matter stands that the current format & success of the reviews have everything to do with both Kaja & Joanna’s dedication.
I occasionally write these posts about the year before, talking about how the year went or not. I sort of didn’t do a massive review for 2014 last year, more discussing what would happen in 2015 instead. This year, I’ll try to get back to doing my usual year in review post.
Probably the biggest thing that affected us this year was the increase in the exchange rate. We’ve gone from around CAD$1.15 to CAD$1.40 in a year with the resulting explosion in prices. For a long-time we held our calculation on the pricing at $1.35 but we’ve had to alter that recently, with the expected resulting price increases over the next month. Worst, it means to carry the same volume of product (i.e. same number of items); our inventory numbers have just increased by 22%. In the last 2 years, that means we’ve seen an increase of 30% in our inventory cost which as you can guess with a store like ours is a significant bump in inventory.
Out of Stocks and 3rd party sourcing
Another thing that didn’t help was the lack of product for a number of hot games. As usual, Dead of Winter was out of stock for large periods of the year. Same with a number of hot products like Codenames, Pandemic: Legacy and more. In an attempt to keep stock in-place, we started sourcing from 3rd party websites and managed to keep some of these items in-stock, even if at a much higher price than we’d prefer.
MAP Policies & Acquisitions
Mayfair made a bit of a splash with us late last year with their sudden attempt to implement their MSP policy. Interestingly enough, they just lost their Catan license, which makes them somewhat less relevant as a business for us. Certainly, if we exclude Catan the only games that actually sell regularly for us is Caverna and Patchwork.
Of course, last year was also the year of the acquisition with Plaid Hat joining F2Z (who own Z-Man already) and just at the start of the year, the lost of Catan’s license to Asmodee North America. I won’t reiterate my discussion about the ANA announcement either, though that obviously was an interesting addition.
Perhaps one of the newest additions for our convention coverage was the addition of the Calgary Comic & Entertainment Expo last year. We’d have to call it a success and we’ll be back this year for sure. In addition, we added Yukomicon to our list of conventions we do with Starlit Citadel last year and we probably will be looking at expanding our convention coverage across more countries next year.
Fortress Geek & Product Range
One thing that readers of this blog might realise is that we’ve been expanding our second business, Fortress Geek; aggressively. It’s actually growing quite well, but for a variety of reasons (mostly backend and long-term); we’ve decided to integrate both sites. That’s been.. a mess… but it’s mostly been taken care of, just not in-time for Christmas which was sad. Still, we’re hoping that the introduction to the site will see a wider spread of sales for Starlit Citadel, diversifying us further.
In the meantime, we’ll continue to push Fortress Geek as a separate site. There are a few business reasons for that, but it’s also a matter of selection. I expect we’ll be stocking some stuff in FG that just would never make it / sell well in Starlit Citadel.
2015 was a good year for many reasons. We’ve worked out some backend issues, implemented a series of procedures that have significantly expanded our ability to grow and streamlined processes while continuing to grow our business. On the other hand, there’s been significant challenges in terms of our stock and stock management and it’s probably the biggest area that I need to work on. Our old methods of dealing with stock just no longer work, at least at the level that we need it to with the worsening exchange rate.
We’ve recently been asked about what we thought about Minimum Advertised Policies in general. I was working on a reply and then the comment was deleted. Since I had a reply, I thought I’d just post it here.
Let me start with a very important point which is – any publisher has the right to choose the price / Minimum Advertised Price Policy they want. It’s their products and so long as it’s legal (and I believe policies like these are legal in most jurisdiction), they have the right to make their decision on this. These thoughts are more to do with the general affect about these policies in general, not the right of a publisher to make such a decision. In addition, note that I’m talking from the viewpoint of a retailer in the games industry which deals with physical products that generally have a high cost of shipping and a minimum physical component that must be shipped.
It’s a given fact that with the introduction of board games and the addition of a slew of Internet retailers, the prices of games have dropped. This is a good thing for the consumer since they are able to purchase the game at a cheaper price than before. MAP policies generally are set higher than the cut-throat prices we see on the Internet, so these policies generally dictate an increase in prices for customers.
On the other hand, a MAP policy could also encourage less ‘shopping around’ by customers. If you know that a product (e.g. Lego / Louis Vutton handbags) are always going to be much the same price whichever retailer you go to, then you can start making decisions on purchasing using other factors than price – convenience and service being major examples.
On a retailer level, which is where we are, the MAP policy depends on the type of policy and the MAP price. For example, the Lion Rampant Fantasy Flight MAP policy is actually relatively reasonable. It floors at about 70% of MSRP as they have considered what the MSRP should be, so it gives both online retailers and B&M stores a good variance while upping the margin overall. It also allows a retailer (online or B&M) to run sales if they need to with a decent degree of latitude about the price without needing to get specific authorisation.
On the other hand, the recently released Mayfair Games MAP sets it at 90% of MSRP. That creates a huge burden on retailers if they want to run any sale as 90% is too high a level for any useful discount level. In addition, it certainly makes it more difficult for online stores to compete as we have to deal with the cost of shipping to the customers. Not impossible of course, just more difficult.
Additionally, what MAP policies do is reduce the desire by retailers to fully or deeply stock a publisher’s products. This is more noticeable on an online store level rather than a physical game store level since most online stores have the ability to carry more board games than physical stores (see the issue about shelf space). For example, it makes it much less likely we’d want to take risks of new games that we might (or might not) be allowed to discount further to remove from inventory if it does not sell. Even if we wanted to bring a game in, we’d likely reduce our initial & subsequent stocking position on those games.
Why wouldn’t we be allowed to discount a game? Well, not every successful game will do well in all stores. A game might do generally well, but still be a bad game for a specific store. Without the ability to sell that game off, the store must then ‘eat’ the cost of the game, accepting the loss. When you realise that a successful game in this business is 4 games sold a year, being forced to ‘keep’ one bad game that doesn’t sell is a major reduction in profit.
Of course, the other side of the argument is that having an MAP policy ensures that we get a better margin on the product, so there’s more likelihood that a retailer will actually stock these games. In the short-term, when
On an industry level, it’s worth noting that enforcement is an unequal matter. Mass market retailers regularly break MAP policies and see very little in terms of enforcement / penalties because of their size. I would be interested to know if they even have to sign the same policies as we do. On the other hand, B&M retailers can break MAP policies and run little risk of being caught due to the fact that there is no way to ascertain if they are breaking the policy other than local ‘snitches’.
The often quoted reason for having MAP Policies is to protect B&M stores by providing higher margins for products. This is great,
Lastly, it’s worth noting that MAP policies inadvertently
Over the last few months, we’ve been trying to work on our various social media profiles. Part of that includes reading what works best in each area and, further, what kind of content works on each area and trying to move beyond the basic posts that we have set-up. However, the fact is that outside of this blog, we really haven’t had much luck with developing a strong social media presence.
A lot of that has to do with the fact that I’m an introvert by nature, and as the main marketer, it makes building a social media presence really difficult. After all, technically, you’re supposed to interact with people online, talk to them and generally develop a brand image that is authentic.
At the same time, the other issue is the variety of social media platforms out there that it can be hard to decide what to focus on. Twitter is great for chatting with people and quick discussions, but it is known to convert horribly. Facebook is a decent angle, but the problem is generating good content for Facebook eludes me. We tried doing a giveaway and while it generated a lot of interest, but iffy on the returns and Pinterest doesn’t seem to host a large number of our customers. I might be wrong of course, but we certainly haven’t seen much interest in Pinterest for our products.
On the other hand, tapping and dealing with social media is likely to be our major source of return; so it’s something we need to figure out. Now, if only we could…