I once was a non-tech entrepreneur
I’ve been thinking a lot about writing about this. Probably has been enough time to try to put it on a coherent story. I’m not going to saying specific names, though.
So, around 7 years ago, I had the itch to start my own business. As you can see in this blog, I am a software developer, but at that time I had been working as a consultant, having some contact with the business and entrepreneurship world, so I somehow perceived that as a possibility.
As every other geek fellow, I had the dream of owning a comic book and related geek stuff shop. You now, the “Android’s Dungeon” kind of stuff, where you can buy comics, manga, boardgames, RPG games, action figures, etc… I was living in Toledo, Spain, which didn’t have any of these shops, so I though of that as an opportunity.
Also, some research on the Internet showed that there was a franchise expanding at that moment, which also encouraged me in the way that I could get some help (at a cost that seemed reasonable). They had a big online shop that had been working for some years and around 3 shops all over Spain, including one in the same location as the central warehouse. They were creating a network of shops to grow the business, and in a few months they was about 10 shops open. The idea was to operate as a central point of material for all the network, providing all the stuff to their network.
My idea wasn’t really about making a big business, but more like a self-employment / family business kind of thing. So, I give it a though, make some mental calculations, obtain a loan from the bank, and went for it! Brilliant! I must confess I was really excited.
So, after a couple of months of hard work, finding a suitable place and making all the preparations, we had the shop ready to open. The inauguration day looked great, and it seemed that we’ve got some initial customers, mainly from local groups and some advertising that we were doing. Of course, the franchise also made some mailing (as they have a significant numbers of online customers), but that was about it. In very few time, we started seeing lots of problems. Our main point of deception was the franchise.
They were consistently having problems with delays, specially with new material. We received some of the new comic books consistently with a minimum of two weeks late, sometimes much worse. Obviously, that was a huge problem, as our clients weren’t waiting. They’ll just bought elsewhere.
Also, the margins were sensibly lower than promised while the price of the products was expensive. That was a huge problem, as we now have to sell double to get to our calculated “minimum” level of sales, all while competing with higher prices that our competence. We weren’t even reaching our first sales estimation, so that was a huge problem. They were also charging a lot of money for somethings that should be cheaper. Plastic bags come to mind. They were offering plastic bags with a logo, etc. They were nice and convenient. But we realise that they were charging them at around 5 times the prize you could get them elsewhere.
They were also ignoring us. One of the highlights of being with the franchise was the knowledge transfer. The geek world is quite diverse, and you are bombarded with thousand of new products and possibilities. Having someone that can give you a hand with all of that can be very handy. Is this new product any good? What are the classic comics that you should always have? Which are the most popular boardgames this month? How should I prepare a tournament?. What is the proper mix of movies/comics action figures? While there were some people (mostly low-level workers) that were very helpful and knowledgeable, upper management was basically ignoring us. They were also not caring about our problems, and some time very obviously avoiding talking with us.
Soon, we learned that they were trying to sell the company to a big company, and they had grow their network to use us as leverage. (That could ring a bell on the Internet word). They had been working on the deal for a while, and in a couple of months they closed it. The shops were thinking that probably that will improve the conditions, as they’ll be able to fix the problems we where experiencing. After all, they were a big publishing company, with tons of experience in logistics and buying power.
We were wrong.
The buy out just exacerbated the problems. First of all, they were probably angry once they realised that the company was not exactly in good shape, and they have a lot of troubled and vocal shop owners demanding action. For what we could see from their actions, they were just interested on the online part, which has an recognised online brand, but not in the shop network, that was more a pain in the neck than anything else. There were also some nasty rumours about the old CEO and owner, who was fired after some months.
I tried to always be very sincere and cooperative, as I though that this was “our problem” and we could work it out. But again, all I found was stupid excuses and not confronting problems. At some point, I was looking to speak with our liaison, and getting as a response that “they were looking for an available meeting room”. After one month searching for a meeting room, I just gave up about talking face-to-face and send an email stating the following: From my point of view, the big company had two possibilities, they either are interested in the shops or not. If they are, they should support us and show some interest. If not, they should tell us and put everything easy so we can leave the franchise and do whatever we want.
Meanwhile, some of the shops started to close, and, even if the business was not being profitable yet, I took the determination of leaving the franchise and keep the shop open. So, I started the negotiations to do so. Not easy as they were avoiding me and not helpful in any way, but I manage to left the franchise. At that point, everyone else was either closed or out of the franchise. But at the end, from the 10 shops that were open at the peak, only about 4 survived after 6-7 months.
The first concern was to establish contacts with suppliers, as we previously had only one supplier. Some of them were very obvious, but dealing with some products was difficult. For example, at that time there were two (totally artificial) channels for comic books. The traditional comic books (TCB) and the trade paperbacks / graphic novels / etc (TPB), which are very popular in Spain. At that time (not sure if it still works that way), they were distributed in two different ways. You can order directly TPBs and outdated TCB from the publisher, but you have to talk with a local newspaper delivery business for the new TCB (probably due some exclusivity deal, signed years ago). Those local business will impose demanding conditions to work with them (as their core business is delivering daily newspaper, magazines, etc). Conditions that I just couldn’t assume. So I had to give up to have the brand new TCB, and ordering them when they get available from the publisher (around one month later). Most of the business (in Spain) is anyway on TPB, but I always felt that I wasn’t giving a good service to my clients.
Other than additional headaches with handling providers (which is a lot of work if you have a significant number), I was able to, at the same time, increase my margins and reduce the final price. I was totally obsessed with those two factors, as was what I perceived the worst weak points for survival.
I wanted to remain competitive in my prices. There are lots of products that are just a click away, and there was also some clients that went to shops in Madrid (which is close enough) to buy some stuff. I didn’t want to loose sells just for having the same products, but more expensive. I wanted to remain in line with market prices. But I also needed desperately to be more profitable. So I worked a lot on getting providers that were offering good prices.
I managed to gradually increase my margin to almost double of what I have before. It started from a very bad position, so the end point was not as good as it sounds, but the increase was spectacular. It was a lot of work, though. I remained very vigilant about those points.
Also, I was able to get a greater variety of products. The bulk of the products remained the same, but I was able to carry other interesting stuff. For example, I increased a lot the available “small merchandise”. Things like buttons, keyrings or stickers. Those are impulse purchases that compliment other products and the margin is quite good if bought in numbers.
Another headache was the change of name. Other than the (quite stressful) process of finding a good name and design a new logo that you’re comfortable with, I had to change labels and signs, create a web page, etc… Changing a “corporate image” (even at the low level I was operating) is more work that it seems.
The first months were really rough. Money was tight, and I was juggling with regular workload, new providers, leaving the franchise, etc… Meanwhile, the sales were mostly stable, growing very very slowly. After summer, we were reaching a significant milestone, a whole year in business.
Touching success with the tips of the fingers
We made a special event for the first anniversary and got an encouraging response. We made an anniversary sale, and it was our best selling day ever. That month was very close to our original planned “survival revenue”, so it seems that finally we were getting somewhere. The next two months were on similar track, so we were waiting to see how Christmas season will be, but the hopes were high.
Unfortunately, Christmas season was a step back. Unbelievably, it was worse than previous year. It was still better than the previous months, it was not a catastrophe, but it was weaker than expected.
Now, maybe I should note that this was December 2008, a few months after Lehman Brothers bankruptcy. While in Spain there was still not a general perception of a recession, I guess the first effects were perceived in things like non-essential products, like comics. Most of my clients where young and had unstable jobs, so there was a some loyal customers that started to get unemployed.
The things started to get worse for the next months, and in Easter 2009, exhausted and without money, I decided that was enough. I tried to sell as much as possible and closed in around two months.
The whole process left me still with a significant amount of debt. Fortunately, I was able to find a job shortly after closing the shop and being able to pay my debts, but the next years were still rough. I’ll hopefully be totally free of debt next year, and I plan to celebrate accordingly.
I got back to software development, and I went back with a passion. When I left software development I needed a change, as I was burned from my last job. After three years doing completely different things I came back to something that I feel I was good at, and started learning new cool tech stuff. It really work as an incentive to catch up and push my limits.
The big company struggled with the purchase, and finally closed the brand and online shop around the time I closed mine.
Well, those (almost) two years were a rough ride. Depending on my mood, I can remember then with a smile on my face or with a palm on it. It was obviously a intensive learning experience, int lots of areas. It was obviously quite far from my confront zone. Some things I learned, in no particular order:
- Starting a business is hard and exhausting. It’s not just all the hard work, is that you can’t disconnect from it. Your mind it’s totally absorbed, and for a while it’s all you can think about. Even worst, it’s all you can talk about. This will have an impact on your personal life, in my particular case, not a small one. Some perspective is important. I was lucky that my wife was very supportive, but they were tensions. Some relief is needed.
- I was quite naïve in my relationship with the franchise, and specially closing the deal. I should have been more careful and do my due diligence. The deal make sense, but the execution was awful. I should have requested proof or guaranties that what they were saying was true.
- A company is constantly targeted by other companies that will try to sell things. You should be very careful on what do you actually need and don’t. Not sure exactly why, but I guess due novelty I was used to be quite skeptic when a seller knocks my “personal door”, but not that much my “company door”. It took me a little to figure out that I should say “no” as a default.
- One of the most difficult things to figure out was what kind and how much advertising should I do. That’s not evident at all, specially if you don’t have enough money to buy a Super Bowl ad. Again, I was naïve at the beginning in hiring publicity that didn’t have much impact. As I said before, I was for a while basically saying “yes” to everyone that approached me with an offer to put an affordable ad somewhere. It didn’t work out.
- Being your own boss is not easy. It is great in the sense that you’re doing things your way, and you have a lot of freedom. It sucks in that most of the time you’re taking decisions about something you don’t know with very little information. You can’t blame anyone else.
- You’re going to make mistakes. And huge ones. I think that’s unavoidable. What I learned it that a business, even a starting one, is more resilient that it looks. Not a single mistake will kill it, but a combination of them will. You are your worst critic, so try to cut you some slack and keep moving.
- Keeping your costs as low as possible is capital. I talked before about how obsessed I was with margins. Getting to the point of profitability was my main objective, which I didn’t totally achieve. I know that’s not the only way of running a business during the first years, specially if you have enough money, but that wasn’t my case. I was able to dramatically increase the profitability, though.
- About other business, the “big company guys” were a great example of what you should not do. They ignored us and avoided talking about anything. It was quite disappointing. Hiding problems is not the best way of solving them. At least they should haven been honest and told us they weren’t interested in keeping a shop network.
- We started with some product lines that were simply not interesting enough. Not only in terms of margin, but in terms of customer perception. For example, to be a successful video game shop you need lots of games available. That’s a lot of money. You also need to position yourself as a “videogame shop”, or everyone will buy their stuff on places like GameStop, Game or even at the supermarket. On the other hand, to be a “boardgame shop” you only need a relatively small selection of cool boardgames. I decided not to carry Games Workshop products for the same reason. You need to have the full line, or people will go elsewhere. There was also a close local toy store that had been selling GW products for a while, and just trying to compete with that would have been expensive and pointless.
- About prices, not every product is equally sensitive to price. There are a few products that everyone know how their price tag. If you deviate cents, they’ll think you’re expensive. There are other products that no one cares, and selling those cheaper is pointless, as no one compares them. For example, we tend to know the price tag of beverages quite well (sodas, beer…), but the price of a prepared meal is a different thing.
- Working directly with customers is hard. It is also mostly a rewarding experience, but having to do it everyday is tough. In addition to the usual stuff and dealing with the occasional annoying customer, in these kind of shops people expect to also be able to talk about their particular interest, the relationship with customers is close. And, as I said before, the range of those interests is huge. So you have to educate yourself in parts of the geek culture that you’re not an expert. Most of the chats were actually quite enjoyable, I love to talk about geek stuff; but there’s always a customer that wants to talk about something you really don’t like and is capable of talking for hours. Those are really bad days.
- People will tell you lots of things, and customer feedback is always interesting, but you should keep an eye on behaviours. What your customers do, not what your customers say they do. The difference can be huge. Also you should keep an eye between the vocal clients and the big expenders. Your business is on the second ones, but it’s easy to be distracted by the first ones.
- As some of our clients were kids, it is interesting how different is interacting with them at a commercial level. Your customer is not really the kid most of the times, but the parent. I had some tables freely available to play (plus some boardgames), and I typically had a bunch of kids after school spending a couple of hours playing with their friends in the shop. When I announced that I was closing the shop, some parents came and told me how sorry they were, as I was basically providing free childcare. It was nice to know that they trusted me (and the environment at the shop) in taking care of their kids.
- About shoplifting, looking at the numbers I really didn’t have a problem (only two incidents that I remember in two years, other than that I didn’t discover anything else missing), but emotionally is a different issue. The first time I discover someone stole something was devastating. Again, for the kind of shop I knew personally most of my clients. I had to rationalise about what is cost-effective in terms of security.
- Magic: The Gathering is a huge business. It was around one third of the business, which is huge considering how fragmented everything was. It is also a very good example on how to do things in the game sector. It is renewing constantly, the competitive aspect is brilliantly encouraged by Wizards of the Coast and the game balance is impressive. When you work with them, you appreciate how solid it is.
- I am (or was, not sure if I still qualify, I am quite rusty) an official judge in a variety of games, including Magic: the Gathering, HeroClix and Yu-Gi-Oh! I ran tons of tournaments and learned a lot about Elo systems, swiss pairings and competitive tournaments. I also learned that the players of those games are quite different in their approach towards gaming. For example, MTG players tend to be extremely competitive, while HeroClix players tend to be more casual. Yu-Gi-Oh! players tend to be also interested in manga and anime, while MTG players tend to be focused only on MTG.
Probably the most important lesson was knowing that you are capable of way more that you think you are, in lots of areas. But also that everything is harder than it looks, so pay proper respect for people dealing with that stuff everyday. I learned a lot during those days. I closed the shop almost 5 years ago, some times it seems like ages, and some times like it was yesterday. It also broadened my perspective and show me lots of angles.
Oh, yes, and that we can pick ourselves up…
Awesome post, I liked so much the transparency. I think heroes are the ones who try to run their own business.
Too bad you had to close, I believe that failure is a great way to grow and improve, and if you try it again you are much more likely to do it well.
Thanks for sharing that great experience.
Cheers from Logroño ;).
Thanks! Glad you like it…
Well, I don’t think I was a hero, and certainly wasn’t feeling like one. Giving the result, I hardly can be considered as one. I was just trying to do carry my own project (which is hard enough) 😉
Terrific article, Jaime full of truth and a good reminder to those that believe entrepreneurship is a light walk…
Think of it as a experience that taught you a lot of lessons, You were very brave to do it and to stop it and go back, Good for you!!
Pingback: La semana en los blogs CCLXXXVII - Error 500
Pingback: La semana en los blogs CCLXXXVII
Pingback: La semana en los blogs CCLXXXVII | DR Soluciones Web
Pingback: These are the times of miracle and wonder | Wrong Side of Memphis
Pingback: jaimebuelta comments on “The Curse of the Black Lotus – How MtG Avoided Becoming Beanie Babies” – Exploding Ads
Great article Jaime. I still remember that time in Toledo.
In my case running my own business, the main problem was related with payments. I had some clients who paid at 180 – 360 days, while you had to pay taxes each 3 months (although you hadn’t received the payment).
As I said before, you have given a great point of view on self-employment and enterpreneurship.