Saturday, February 2, 2008

As my personal financial circumstances have gotten a bit better over the last few years, I've begun to get a glimpse, just a small peek, of the mindset of other merchants.

(WARNING: this is some kind of magnum opus.)

And I'm now realizing that it's always been a case of apples and oranges. No wonder I couldn't understand other merchants (beyond my usual communication difficulties.)

Just as I came to realize there is a huge difference between 'Small Business' and 'Mom and Pop' businesses, I've finally come to realize that not all M & P's are created equal.

There are M & P's and there are Bootstrap M & P's.

For most of my first 25 years in business, I was a 'Bootstrap' business. I started with no capital, a small loan, (paying off the owner at the same time as the loan), and no other assets. I didn't even have a credit card! Certainly, no savings. No possessions that were worth more than blue book.

But, Bend was a very different place back when I started. You could start a business back then with much fewer resources. Landlords were glad -- happy, I tell you! -- to have you; they didn't demand first and last month rent, a deposit, and Triple Net would have been a non-starter . Customers accepted the look of used fixtures and worn out carpets.

The industry I joined also had low barriers to entry. People would start shops with their own collections. In fact, most of them did.

But I quickly found that the only way to grow was to bootstrap myself up, taking every cent beyond sustenance wages and plowing it back into the store. Even then, I made very little headway. When you have to sell an item 5 times in order to make the profit off of one sale and still have the item in stock, it can take a very long time to get up to speed. I spent a year bringing in games, for instance, and was just approaching a credible inventory when BOOK AND GAME opened in the Mt. View mall with five times my level, and blew me out of the water.

So, it was hand to mouth for a long time. And yet...don't get me wrong.... it was exciting and challenging, as well. Being my own boss was like Nirvana to me. Linda and I were used to living on next to nothing, so nothing really changed.

Finally, though, after about 4 years I realized that bootstrapping my way to profitability was going to take, oh I don't know, friggen decades!

I went up to the C.O.C.C. business center and muttered, "Gosh, I think I could eventually get to XXX in sales."

And the adviser not only believed me, he said, "Why can't you do that now?"

In shock, I just sort of blurted, "No money,"

"Well, let's go get you some money," he said. (After looking at my figures, he told me I had a 'crude sophistication,' which has been my motto over since.)

To my utter amazement, he helped me go the bank and borrow enough to not only get to my original sales goal in a very short time, but then to double and triple it before the baseball house of cards bubble collapsed.

Of course, borrowing money just added to the bootstrap nature of my business. It made the store viable, but it also made it more risky and stressful. When things went badly, I suddenly had debt on top of everything else.

Anyway, over the last few years we've finally recovered from the various bubble collapses in my business: i.e. Pogs, Magic, Beanie Babies, Comics, Comics again, Cards, Cards again, Pokemon, YugiOh, and so on. I've gotten my inventory to an adequate level, and my cash flow is positive, I've got customers walking in, I've got years of experience, I FINALLY have emergency backup funds...

...and suddenly I'm beginning to realize that for adequately capitalized businesses and for people who actually possessed assets, this is how it has always been.

No wonder I couldn't understand them!

Turns out, having money in the bank makes things, oh, I don't know, 100 times easier?

Add in, on top of being adequate subsidized, that perhaps the owner has assets and income beyond the business, and, well, that's got to make things look entirely different.

It's a very different thing to not have earn your primary income from your business. Or to have assets to fall back on. The psychology is completely different.

I know for a fact that there are businesses -- some long term businesses, at that -- who don't rely on their storefront to survive.

Ironically, the fact that I have to make this work, or I'm on the street and working for Wal-Mart, has probably made me more stubborn and resilient and enduring. I've always said, for most business owners having options will eventually mean they'll take the other option.

So the present circumstances are kind of interesting. January sales frankly sucked. The weather has had an impact, of course, but I think there is also a general slowdown, and unfortunately one of those periodic downturns in the comic biz. But, we're doing way better than last year at this time in actual cash-flow and profits, despite being down in sales, so that's cool.

Anyway, looking around at other business with fresh eyes, I'm trying to understand what they might be thinking.

Let's say that 70% of the businesses in Bend (I'm talking mostly about stores that sell product, but not including chain stores, service-oriented, and/or restaurants) actually turn a profit. 20% break-even with the owners not caring. And 10% lose money. This is normal, and if anything an over-estimate on profitability. (If at the same time totally made up out of thin air...I'll admit to them being guesses that could be totally wrong. But this is my best stab at it....)

Now, that 70% figure may drop to 50% in the bad months.

Hey, I'll cop to it. I've always said; I make money 4 months out of the year, lose money 4 months out of the year, and break even four months out of the year.

So chances are that there are a few more businesses this year that are actually losing money.

But that's not the real problem. From my new point of view, the real problem is that some businesses are making less profit.

Here's the thing. If you've worked hard at establishing your business, and you've made steadily increasing profits over the last 3 years, then seeing a downturn is going to be disheartening.

I've always thought that just as many, if not more, businesses quit because of burn-out, stress, and discouragement, as quit from lack of profits. If you have options. If you have outside assets, putting up with the huge workload, the stress, the disappointment of not reaching your outsized goals, might be enough for you to lose motivation and interest.

You see it all the time. Hours get erratic, owner seems unenthused and starts to be missing from his business. Managers come and go. Inventory starts to go stale. In short -- the fun is gone. Even rich people don't enjoy going backward, or losing money.

I've always thought that if people knew how hard small business was, they'd never start. So it's probably a good thing that they don't know.

Here's what I think happens to most small M & P businesses.

They have an idea. They have an interest or enthusiasm or hobby. They think they see a niche, or they're convinced the other guys aren't doing it right, or that they can do better. Or they come from a bigger area and believe Bend is missing an opportunity.

Anyway, they open and expect customers to walk in the door. I can guarantee you, that for almost all new business owners, they have overestimated it.

Why? Because they, themselves, frequent busy stores at busy hours, and they don't see the slow stores and slow hours. They see a 'fictionalized' version of stores. So the reality starts to set in. What to do? Why, most new business owners think, advertise! Still not working. Have a big SALE! Still not working, add some service oriented aspect that doubles your workload!

See, the difference is that newcomers think people want to spend money. And of course they do. But there is at the same time a huge resistance to spending their money, at that moment, on that product, at your store.

So, I position my store to have as much material as possible. I ask full price, and in return I try to have a good selection, good service, and good presentation. But I know....I've experienced, that it is usually really, really hard to get people to give you their money.

After a few years, you start to get regulars. You start to create a Cheer's atmosphere, where everyone knows your name. You start to figure out which things people will open their wallets to.

What was a real moment of epiphany for me was when I read a little throw-away comment in one of my trade publications. 'There's this new product, and it's one of those rare products that you simply put on the counter and it sells!'

I perked up, and bought some of that product and Bend being Bend, nothing happened at first. Two months later, the product was flying out the door. It was a card game called Magic.

But what I most remember from this incident is that it pointed up the fact that most product DOESN'T sell that way. Most products have hurdles in the way -- mass market cheapness, or wrong size, color, shape. Indecisive customers (you know, they kinda want it....), and so on.

So my store is constructed with all those hurdles in mind. You end up with the 'expect the worse, hope for the best' philosophy. I'm both prepared for really bad days, and willing to cut my spending if I need to. But I also don't let the store get run down, I try not to let any personal discouragement enter my business practices.

It's got to be somewhat disillusioning to create a new store and not have that immediate reaction you expect. Where is the steady flow of customers you expected to emerge? Why don't they buy that cool thing you just brought in? How come they say they like your store so much, and then go buy from Wal-Mart?

So, if you open in a slowdown, you've got a double whammy.

But if you have money, you have options. Money gives you freedom -- to quit, to carry on, or to try something new.

That's the psychology I didn't understand, before.

This all begs the question of why anyone would listen to a man who's claim to fame is having survived for decades at minimum wage. Other than a churlish claim that surviving at minimum wage in Bend for 28 years is like surviving at a nice profit for 150 years somewhere else, I'll say this: you can learn as much or more from failures as from success. I've learned a lot of things NOT to do.

So take it for what it's worth.

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