Kindle looms....

What's a small business to do when it's beset from all sides by major changes?

I'm not talking about the economic downturn. I'm talking about paradigm shifts in how product is created, delivered and priced.

My own answer is -- this isn't new. This has always happened.

My own solution is, diversify, diversify, diversity.

NOOKS AND CRANNIES.

Find the nooks and crannies that aren't being filled. Not just one nook or one cranny, but all the nooks and crannies you can find. In every major product there is an opportunity to make a little money.

GO FOR THE 20%, NOT THE 80%.

Unfortunately, the opposite is also true. In every major product there are few opportunities to make major money. If there is major money to be made, you can be sure that the mass market and the online discounters have found a way to do it.

So you look to go over, under, or around these obstacles.

GO FOR THE 80%, NOT THE 20%. (I'll explain the contradiction, down at the the bottom...)

The biggest example of change right now, is Kindle. And I think we've already seem something similar happen.

For example -- if you are a music store, you may find that you can sell vinyl albums. But you can't ONLY sell vinyl albums. (I'm sure there are some, but I haven't heard of any music shops that sell only vinyl, at least not in small towns....)

Someday in the future, when Kindle has the killer apps of audio books, and faux book-feel, books will be like vinyl albums. Not something you can base a business on, but a nice little niche.

ON THE RETAIL SIDELINES.

As a pop-culture store, I've learned that I can profit from a trend halfway up the curve, and then again when it's more than halfway down the curve. The upper half of the curve will be immediately seized upon by the mass market, or if they are too slow, the online retail.

SOME EXAMPLES OF NOOKS.

SPORTS CARDS:

The sport card companies realized too late and too little, that the card shops were disappearing, and so they offered us product that was 'slightly' better, to compensate for the much higher prices. It's worked for me as a niche, but I can't imagine it could work as a full business.

TOYS:

The toy companies are coming up with 'singles' that I can buy, so that I don't have to gamble on cases. I've figured out pricing methods that allow me not to lose money. And there is the whole 'Designer Toy' movement. None of these make me much money, but they all add to the total.

CARDBOARD STANDUPS:

Standups -- are like the perfect niche product for me. No one really does them, because they take up so much room, because they are perceived as high priced, because the shipping costs are horrendous. So I try to find ways to get around all those problems. Not a big money maker, but a good illustration.

COMICS ARE ONE THING, GRAPHIC NOVELS ANOTHER:

Comics are already a 'vinyl records' type business. Complicated and idiosyncratic enough to keep out the mass market. But at the same time, graphic novels can be done by the mass market and especially online, and it is only a matter of time before someone figures out how to do it right. At which point, instead of being the base of my sales (comics and graphic novels are about 50%), they will become yet another niche product.

GAMES:

Boardgames have long been dominated by the mass market. Monopoly, Scrabble, Life, Risk, and so on are so cheap at these stores, that there is no point in me even carrying them. But they haven't quite noticed the Euro games like Settlers of Catan, Ticket to Ride, and Carcassonne. Allowing me to make a small niche profit. But, these games are quickly approaching the halfway mark up the curve, and it's only a matter of time.

NERDS, NERDS, INFESTED WITH NERDS:

Role-playing games have always been a little too weird for the mass market, and a little too fickle. Magic never was able to penetrate the mass market, despite it's size, because it required too much specialized knowledge and never got quite big enough to be a 'loss-leader.'

MY NEW FAVORITE -- NEW BOOKS.

My experience with new books has taught me a different lesson. For years, I stayed away from any product that had a major mass market presence, especially a 'discount' presence.

But after carrying used books for a number of years, I realized that certain authors and certain titles were being constantly asked for, but rarely came in used. I noticed the books which were my favorites and which I recommended were always gone.

What would happen, I wondered, if I carried just those books new?

This gave me a wedge into the new book market, which I've continued to widen and explore.

And so on. Nooks and crannies throughout my store. Either entire product lines that because of difficulties or because they don't make big money, that the chainstores ignore, or aspects of major products that do make big money but are neglected. There are many more, but I won't try to detail them all.

None of these products by themselves would be enough to keep my store alive, but a little sliver of each amounts to a whole.

A MIND-EXPERIMENT:


I wish I knew how to draw diagrams on this blog, but I think I can illustrate this if you can just imagine two pyramids side by side.

PYRAMID #1.

On the narrow peak of the first pyramid, think: Potential comic customers.
At the wide base of the pyramid, think: Product. A large amount of product.

The narrower the aperture of customers, the wider range of product you have to carry in order to capture a sale.

PYRAMID #2.

Now go to the second pyramid.

At the base of this pyramid, think: Potential new book customers.
On the narrow peak of the second pyramid, think: Product. Fewer but choice selections will fit the bill.

In other words, the wider the customer base, the narrower the focus of product can be.

(By the way, as an interesting sidenote; fads always start off as the second kind of pyramid. Lots of customers, and relatively few lines of product. The problem comes when that pyramid flips, the customers become fewer and the product lines become wider. Or even more dangerously, the pyramid base shrinks into a stick and disappears altogether. You have to recognize this when that's happening, or else. Poof! Poof! go your customers! Poof! goes the fad! Poof! goes your business....)

These narrow apertures are my entry into the market. My wedge, if you will, into finding a nook or cranny that I can gainfully use.

It sounds easy but it's anything but.

The first pyramid (few customers, large inventory) has been my model for most of my career. But think what it requires. In every little narrow peak, whether it be comics, or games, or cards, or toys or whatever, I have to carry a large inventory without having large sales to pay for it.

You do it systematically, slowly, within cash-flow, looking for every opportunity to increase your selection. (I never let a Sale pass without trying to take advantage of it.)

The second pyramid (many potential customers, relatively narrow inventory) is more or less new to me. I think it's only possible BECAUSE I have the first pyramid scheme in place and can sell to those customers, as well as being in a high traffic location, as well as being in business for 30 years. I doubt very many bookstores could do well being quite as selective as I am.

There are some side benefits to this kind of strategy. No other store is likely to duplicate exactly the same nooks and crannies as I am. I can constantly adjust up and down the amount of support I give, in money, time and space, to each line of product, based on outside conditions like competition or availability.

Much of this runs counter to business advise from experts -- especially carrying the large inventory that turns over relatively slowly -- but I've proven to my own satisfaction that it works for me.