Grow or Perish

Grow or dieOne of the aspects about any business is that to a certain extent, you are always forced to grow.  Standing still (in terms of revenue at the very least) is death.  Every year, your costs go up (unless you are lucky / down-sizing for some reason).  A real world example – our product shipping cost has grown by a good 4% in the last 2  years due to the fact that we have to buy from Canadian distributors rather than US distributors.   As mentioned, our portion of real estate taxes doubled in 3 years.  And that’s just the tip of the iceberg.   Every year, costs go up.

As a business, you need to grow your revenues at least enough to cover the increase in costs.   That means you need to see a 2% increase at the very least (based off CPI)/ Most of the time of course you want to grow even more than that.  Unfortunately, for most of us, growth like this requires more than a wish and hope, it also requires spending more for advertising and often, working on new plans and streams.

For us, over the last few years it’s been about growing new product lines outside of board games.  Increased competition by gaming stores (both physical and online) means that the pie is being fought over ever more, and exclusives level the playing field in terms of stock availability in many ways.  Even with the gaming market growing, it seems that the increase in game stores is on-par and we no longer see the aggressive growth numbers we were used to seeing from our gaming categories.

It’s one reason why we’ve invested so heavily into other items like Pop! figures, geeky clothing and the like.   Don’t let that statement fool you though, gaming is by far our biggest category (so big that on our backend we split products up so that we can better track the types of revenue) and even low % growth is still significant.  Still, knowing that we have to grow is always on our mind and it’s been something I’ve been pondering more and more recently.

As I’ve mentioned, our lease is coming to an end next year and while we have an extension option, there’s been some significant consideration to opening a physical B&M store.  We have had more than a few customers want to browse our inventory and when we ran our Open Houses, we had significant interest.  Having a full B&M store opens up the option of doing events as well and snake & drink sales.  Presumably, many of our impulse purchase items would also see an increase in revenue, potentially significant enough to recover the difference in cost.

The biggest hurdle is capital. Having invested a significant amount of capital into inventory for our various other categories, we don’t have a lot of left.  That means opening the store would be on a shoe-string budget for things like tables, new bookcases, etc. There’s also a chance that sales don’t grow like we expect or at the rate that we expect, burdening us with significant fixed expenses and not enough revenue generated.  It’s why I’d love to be able to go into it with a significant capital cushion, which probably means looking at some form of external financing.

Of course, we could just continue doing what we are doing, taking on some additional side projects like the Kickstarter fulfillment; but we risk very slow growth in that case.  hat though might not be a bad idea – pay down debt, earn a little bit more money and continue onwards. Unfortunately, it’s also boring…

 

 

On Fortress Geek

I know we mentioned we aren’t going to be cross-promoting the new website, and we won’t be.  However, I figured the readers of this blog probably wanted a bit more detailed explanation than what they saw in the newsletter about why and how Fortress Geek came about.

Why Not Grow Starlit Citadel?

I’m sure that’s a thought in some people’s heads.  The time and energy we devote to the new site could potentially be pointed at Starlit Citadel after all.    Except… not really.  Over the years, we’ve tried a lot of different advertising methods and a lot of different venues.  The ROI on most of those venues / advertising methods have not been great, and we’ve slowly trimmed them out.  Sure, we could potentially do more Video Reviews – but they are such a high-level marketing tool that their returns are often months, if not years ahead.  Other marketing tactics that have been contemplated all require years of long-term investment to see a return (working with schools & teachers, setting up demo programs in communities, etc) and are a lot of work to even get started.

Furthermore, Starlit Citadel is growing.  It’s just that the rate of growth has slowed down (you can’t grow at 100% forever after all – compound effects come in after a while. Not to say we did 100% btw).  That’s not surprising – at a certain point, we will reach saturation in the gaming business and growth rates will be eked out at the margins (3 – 5%).  That’s fine, but not very exciting.  At a guess, we’re probably 3 – 4 years out before we see that, but I have to start planning for that now.

A New Business

One of the lessons I learnt while owning my own business is to make sure you are actually interested in the business you are promoting.  There’s a certain level that professionalism and drive will get you, but to make a business really successful, you need to be passionate about it.

When I first started looking for a new business idea, I wanted a business that I could actually get behind and push.  One that I had no problem seeing myself promoting for the next 3 / 4 years before it became profitable.  At the same time, I started noticing the various cool stuff we brought into Starlit Citadel never sold – necklaces, chainmail dice bags, the posters, etc.  I figured it was because it was close, but no cigar for our current crop of customers.

Being a dyed-in-the-wool geek, I figure why not expand into more Geek related businesses? After all, there seemed to be a gap in the Canadian marketplace and we already had the logistics infrastructure in-place.  Thus… Fortress Geek.  We first started building the site in September 2012 but had to put everything on-hold when Christmas came.  In addition, we needed more space – both for Starlit and for the new stock in FG.

Same- Same?

So, what makes FG different? I have a few ideas and we are working hard on making some of them come through.  Right now, the site is pretty similar to every other geek site out there – there’s nothing special to it.  No USP.  It’s one of my major concerns, and one we believe we know how to tackle.  However, to get there it’s going to take a few more months and require us learning a few new skills.  Hopefully, some of those skills will show up in Starlit too, but we shall see.

The Office Move

So, I haven’t really posted much about why we are moving.  And it’s obvious because most people who come in ask – why did we move?

The simple answer? We had outgrown the old location and needed a larger spcae.  This is easily seen by the number of days it took to set-up.  Our last move 2 1/3 years ago took us 2 days with 3 helpers on day 1 and myself on day 2.  This office move took 4 days, with up to 9 helpers on day 1 and varying numbers for the next 3 days (minimum 5 of us!).  So, the amount of work needed to move product out of the old location, move it into the new location, set-up new shelves, build new shelves, etc was significantly higher.

We had built out the old space so tightly that there really was no wasted space left – we figured we could (maybe) squeeze in another 2 shelves before we hit full capacity.  If we wanted to grow, we had to move.

Grow or Stay?

From an outside perspective, the easy answer is grow.  After all, a bigger space means more stock, more product, more sales.  More money right?

Not always.  In fact, during the growth stage it means less money.  How much less depends on how aggressive your growth targets are (and how long your lease is!).  The additional space cost, the set-up cost, the downtime, all of it are expenses.  It’s nice to grow, but with growth comes additional expenses.   Your fixed expenses balloon and you  now have to make more money to cover them before you can get back to your previous levels of profitability.

There’s also another advantage of staying – you force yourself to get more streamlined and efficient.  If you only have so much space, you learn to get creative about storage.  You watch your inventory like a hawk and move dead product out faster because you need the space for product that still sells.  With more space, with higher growth, you can let things like that slide.

For us though (okay, me); the decision to stay still or grow is relatively easy.  I have long-term goals and those don’t work for where we are; so grow it is.

The Move

I’m not going to post much about the move beyond to say that it was murderous and I made a major mistake by underestimating exactly how much work was involved.  We had grown in our old space so well that when we actually made the move, I had not realised exactly how much we had grown – and the logarithmic increase in work setting up the space meant.

All That Space

So now what? If you look at the photos you might see a huge expanse of free space in the back of the warehouse and even in the office.

Obviously, Starlit is going to continue growing.  We have plans to expand our miniature and miniature accessories further.  I am considering going ‘deeper’ on popular games so that we do not stock-out as often.  There’s this entire CCG craze that we are missing (and might continue to miss on purpose).

We also have plans to grow in another direction… but that announcement is going to have to wait 🙂

 

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.

2008 in review

Well, that’s 2008 nearly over and done with.  And we must say, it’s been one crazy year.  This is the first, full calendar year that we have been in operation, with the company first incorporated in April 2007 and the site launching in August 2008.  Yes, it does take that long to get a site launched.

So some of the major things that have changed and things we have learnt:

1)      Logistics

First, we moved to a new storage location to give ourselves more space.  Unfortunately, due to personal issues on Alison’s side, she could no longer reliably ship orders on a regular basis, so we went from shipping every day to 2 to 3 times a week.  That was obviously unacceptable.
We ended up changing to a logistics center in Delta, BC where we proceeded to ship every single day.  It’s been a big help, especially over Christmas.  Unfortunately, the cost of doing business with them has been incredibly high.  Each order shipped generally costs us about CAD$5.  That doesn’t include mistakes and receiving costs, which have finally resulted in us deciding to move out from them.

So as of next year, we will be bringing shipping in-house again, but this time the location is downtown.  This will provide us even greater flexibility and allow us to be open longer for customers to pick up orders during weeknights and possibly even weekends.  We will definitely be shipping everyday, it’s just a matter of sorting things out now.

2)      Conventions

We went to two conventions this year and we are likely going to do 4 next year.  Well, we might as well increase geometrically.  Both Anime Evolution and V-Con were a ton of fun, with the chance to meet some new and old gamers.

Next year, the plan is to be at the previous two, the Stargate Convention in town and the Tumpeter Games Society’s Gaming Convention Salute. Of course, that depends on whether we can get sufficient information from both.

3)      Stock

Long time customers might notice the ballooning of our stock – from an initial 230 SKUs to over 800 different SKUs now.  That has helped generate more business in many ways, but has brought about a serious problem in space and cash flow.  Towards the end of the year, we were really having problems with cash flow as Christmas sales had started much later than we had expected.  Something that we learnt for 2009.

In addition, pre-orders have become the bane of our existence.  There’s still an internal debate on whether to take pre-orders or not.  While there are ways to show a game is in-stock, and it does do so on the site (not as well on the current site admittedly), we have noticed that some customers do not notice these warnings.  And thus have expectations for when an order might be received.

4)      Accounting

Yup, first full year of financial accounts was done.  That was a mess, but with the accounts up to date (mostly), we should be able to get this done much easier for next year.  And it certainly provided some interesting insights after completing the accounts.  Including how tight our margins actually are.

5)      Marketing

The things we could write about this is miles long.  Overall, the slower methods of e-mail marketing and social marketing combined with Search Engine Optimisation have played out better than paid marketing.  It’s not say it doesn’t have a place and we are still testing various areas within this, but overall, I would have to say that paid marketing just doesn’t work too well for such a niche product.  Perhaps if we were in the US where the market was larger, but with such a focused marketing, it’s hard to get sufficient returns even using Geo-targeting approaches.

As usual, Google continues to be an exception to this.  Even then though, the Adwords program is barely making money – and losses in some months.  It takes constant pruning and changes to make sure we do not run a loss due to marketing.

Of course the question of lifetime customer value does play in this, but that’s a more difficult aspect to quantify – especially since we are still so young.   On pure gut feel, I would say that anything that breaks even on direct calculation is probably worthwhile to continue.

6)      Website and IT issues

Yup, we had those too.  Changing over to Magento from OSCommerce was a long, long process with the importation of all 800 plus products and thousand plus customer information.  And that’s not to include editing, etc.  We still have issues – specifically with some previously fixed problems (e-mail notifications and pre-order information to be exact), but we are overall very happy with the software.  In the long term, with the new wishlist system and product comparison options, all our customers will also be much happier.

In November, after the switch over and with the increase in visits from customers, our servers finally begin to have problems.  More than doubling our total number of visits and a new software that is much more server intensive made it slow and fail at times.  So we upgraded our servers as well (another cost!) but one that we believe should hold for a while.  Or 6 months.   Depending on how we grow.   We can’t really complain after all.

7)      Customer Service

Perhaps the area that has been our biggest failing point for this year, especially in comparison to last year.  Both our growth and personal factors have constantly thrown our response times and ability to properly deal with customers into areas that neither of us have been happy with.    We definitely would like to thank our customers who have stayed with us and apologise to everyone who have not been 100% happy with our service!

A lot of this should smooth out for next year.  With logistics brought in-house, the chain of responsibility gets much shorter and so we will be able to answer customers faster and get problem orders dealt with easier.

Overall, this year has been one of personal and business growth.  It’s been tumultuous for both of us but we are better and stronger and we are hoping to continue growing to serve our customers.

Once again, thank you to all of you.

Tao and Alison