Sunday, December 15, 2013

Risk is fun -- for the other guy.

One of the big comic retailers has bought a second store after more than 25 years of business.

Of course, everyone is encouraging.  People are funny that way.  Ever noticed how risk is always worthwhile -- as long as it is the other guy taking the risk?

Jump off that cliff?  Yeah!  Go for it?  You'll totally land in the water!

I want to write the guy a warning note, but I think that would probably be presumptuous and not appreciated.

I had four stores once, and as long as things were humming along, they worked.  The minute things started going wrong, I was like the Little Dutch Boy running around trying to plug all the holes.

But assuming that his business plan is solid, that he has the organizations skills to do it -- (which I did not) -- there are still dangers to watch out for.

1.)  Employees become even more important.  When you have one store and one of the employees quits, you can usually manage -- even if you have to plug yourself into the hole.  When you have two stores, then you have a problem if both stores have employee problems at the same time.  After all, there is only one of you.

Moving employees around is pretty disruptive.

2.) More things to keep track of.  Whatever quality control you've managed to create in one store will get stretched when it becomes two stores.  The danger isn't just that you won't manage to create the same quality in the second store, but that the second store will drag down the quality of the first store.

3.)  Inventory stretch.  The temptation is to believe that you can spread the risk, take unsold material and distribute them to each store.  But you can only really be in one store at a time, and it is natural to pay more attention to the store that you're in the most.

You cannot give second rate material to the second store.  You can't slough off the unsold material.

You'll have to take good material you know you can sell in the first store, and give it to the second store where it might not sell.  But to do anything less is to give the message that you don't care about the second store as much.

4.)  People will expect the second store to be as good at the first store -- which may be difficult to do because you've done the first store for years.  If not, they'll start drifting to the first store, which will make it even more difficult to make the second store work.

5.)  By the time you set up the second store and fully staff it, you usually are taking most of the profits to pay for the employees.  If you want a fully responsible manager, you need to pay them, and in my experience, that takes most of the profits.  Expenses just seem to eat up the extra revenue -- for one thing, it is much harder to be efficient.  Losing four or five percentage points in efficiency can really start to add up over time.

6.) Being stretched too thin.  Look, it took how much effort to make your first store work?  Well, it will take an equal amount if not more to make the second store work.  Why wouldn't it?   So -- you're looking at twice the effort -- maybe not quite that much, because I'm sure a certain amount of the first store is on autopilot, but still.

7.)  For some reason, you don't just work twice as hard with two stores, you work three times as hard  The problems compound, the extra number of employees multiples those problems, keeping track of everything is complicated -- it's very easy to drop the ball.

There are plenty more problems, but these are off the top of my head.  I found I could make as much money and do a better job with one store.  (Our second store, The Bookmark, is Linda's store -- she runs it.  So if you have a spouse who's willing, a second store can work, if you let them run it.)

I think it's the great American way, that if you're successful you expand.  It takes real willpower not to do that, to question the wisdom of it.

It's the Peter Principle for stores -- stores will expand to their level of incompetence.

No comments: