Experts' corner

Shaun Kauffman

1st Edition Investments: The Grass Is Always Greener...Part 2

This week we discuss the issues you can face in starting your business outside of customer interactions. Distributors, cash flow, competitors, oh my!

10/10/2016 by Shaun Kauffman

Hey guys and gals, this week 1st Edition Investments is back with the second part to the "Grass Is Always Greener…" article. Last week we discussed some of the trials and tribulations you can face with different types of customers, and some of the ways you can deal with those issues. Whether it is a customer who doesn’t know their address, one who always thinks they are right, or a customer that puts you in Catch-22, there is always an answer or a situation that financially will put you ahead. This week I want to shift and look at some of the issues that you’ll run into starting your card business that will occur outside of the customer/salesperson interaction. While one article would never be enough to encompass all the issues you’ll face, hopefully we can check out some of the larger issues you’ll have that will help you learn how to adapt and adjust to counter any obstacle in your path. Today we will discuss…

Cash Flow Issues
Distributor Woes
Your Competitors
Public Perception

I do want to clarify that last week I had stated we’d discuss the woes with selling on 3rd Party Platforms, however after further review I believe that would be better saved for its own article as it is incredibly important that we look at each platform individually and address the problems one might face on a case-by-case basis. Problems are a dime a dozen in this business.

I honestly can’t remember the last day where I woke up and everything went smooth without any bumps in the road. While some days you’ll have very minor issues such as a missing package or an angry customer, other days you’ll have colossal mountain sized issues that will make or break your future. Don’t get me wrong, I’m not trying to scare you, but instead trying to better prepare you for a successful future. Having a general plan for any of these major issues will better prepare you for not only tackling those situations, but also help you come out on the other side successfully and financially secure. Let’s first take a look at one of the biggest issues your small startup may have, cash flow issues.

Cash Doesn’t Grow on Trees

When you first start your business one of the biggest things you’ll need, of course, is money. Whether you do a brick-and-mortar store or an online only store (or a combination of both), you’ll need money for inventory, licensing fees, employees (if you aren’t going to do it alone), advertising and promotional materials, a website, packing supplies, etc. This doesn’t even include the money to pay yourself, which you most likely won’t even have the opportunity to do in your first few months, or even years. The hardest part about the hobby industry in general is that the margins are razor thin. In the digital age where everyone is selling on the same platforms and to the same customers, everyone is competing for the same pool of cash. What this means is that online your margins will be incredibly small, 5-7% on average. Your customers at your B&M store in your town might provide you with higher margins, but it will also provide more overhead costs that will really eat into your profits. Whether you choose online or B&M, you’re going to have many costs associated with both starting up that will require a fund to work off. For a B&M you’re going to need at least $30,000 to start minimum, and even that might be too low. For an online business to be successful and have inventory that keeps customers coming back to your store, I’d recommend having at least $10,000 in inventory. When I started I didn’t have that much, however I had to spend a lot more time and heartache grinding the same dollars over and over for pennies to gain capital. I probably could have just worked somewhere and earned money to use to start faster than what I got by grinding it.

Once your get your store going however, you’re going to run into circumstances such as when products don’t sell like you thought they would, or when you have great opportunities that present themselves on buying items or collections with large margins. Maybe you have unexpected costs that occur or other similar issues. All of these things can eat into your cash flow that you’ll have to be prepared to work around. Even if it is an item you can make a killing on, you haven’t made that money until you sell it. What if it doesn’t sell right away? What if it gets damaged or stolen? You’re going to have to have a cushion of money to buy that item and still be safe to pay all of your standard overhead costs with no fears. The situations that can present cash flow problems are limitless, however there are many things you can do to help curb these situations. The first is to get a small business loan when you begin. Nothing will make your life easier than having seed money to begin. While you should count every penny you spend and every penny you sell, you don’t want to constantly have the weight bearing down on you on how you’re going to pay your next bill, your employee’s paycheck, or buying inventory the store needs. While you will pay interest on your loan, it will give you the peace of mind to focus on the business growth aspect instead of trying to force sales, squeeze extra money out of customers, or cut corners to save a buck. Nothing can be more costly to a business than taking actions when they are desperate for money. If you start trying to pinch pennies where they don’t exist you’re already bleeding and setting yourself up for failure.

The other major way you can curb cash flow issues is to begin by investing only in products that turn quickly. Take a look back at a previous article where we discuss risk investment and product analysis and use those tools to review your products and stick to quick-flip and short-term investments. This will allow you to cycle your money quickly and get more money in the door early. You can’t afford when you’re beginning to have all of these old products that will sit on your shelf and collect dust. You need liquidity. Liquidity is 100% key. Resist the urge to let the collector in you dictate the livelihood of your business. When you review these products make sure to keep an open line of communication with your distributors or you could run into a multitude of issues there as well.

Distributors are your best friend, but they are every other store’s best friend too.

When you first begin you’ll need to gather inventory from many locations, players, other stores, and most importantly, distributors. The best piece of advice I can give you from the get go is to get setup with multiple distributors. This doesn’t mean you can’t have one as your “main” one that you go to for all of your important orders, but sometimes you’ll run into the issue that highly anticipated products fall under “allocation”. Allocation is when a distributor will get a certain amount of product from Pokémon (or another company) and have to divide it between all of their customers based on…

The amount each company ordered
How long each company has been with the distributor
How much money you spend with them each year
Your current pricing on the product

The distributor will get to determine how much of important products you get. Back when Mythical Collection boxes were heavily allocated distributors would give varying allotments to different companies. I’ve heard horror stories where some companies get snubbed and only get a few of an item, while other companies get hundreds of the same item. Rest assured distributors aren’t there to play favorites or decide if your business sinks or swims, but it does help to create a positive working relationship with your distributor. They can heavily dictate how much advantage you can take on major releases and so you want to sit down with your point of contact and clearly communicate your objectives, the types of items you like, how much you look to spend on average weekly, monthly, and yearly, while also communicating how important some products are to you. Try to make their lives easier and they will surely return the favor.

One of the other major issues you’ll find with distributors is that they deal with a lot of clients. I mean A LOT. There will be instances when the volume they are dealing with will result in things falling through the cracks, late shipments, invoice errors, etc. The key to resolving all of these is to openly communicate with your representative. Make sure you make timelines clear on when you need products, if you have pricing that has been adjusted beyond the standard because you were smart and negotiated, then make sure to do a follow up with them when you request shipment so they invoice you correctly. While you might be thinking it isn’t your job to make sure that they do what they need to do, it sure can make your life easier to make sure everyone is on the same page. Plus keeping calm with them and being reasonable will help you in the future as well with the product allocations. Remember they have many clients to deal with the same as you, don’t be that angry customer we all known and loathe. So while you’re trying to win favor from the distributors, so are your competitors, let’s take a look at some of the issues your competitors can provide.

Competitors: Friends or Foes?

Oh boy I could write you guys a whole book on your competitors, the psychology and mind games that go behind business interactions with them, and the issues negative competitors can create. Let me clarify from the get go though, not all competitors have to be enemies. I have many positive working relationships with different store owners and employees because it is mutually beneficial to do so. If you create enemies with other stores you start a “turf war” if you will. What this does is draw a line in the sand where you create an ecosystem that “it is them or us”. This will result in both of you losing customers, money, time, and you’ll get a whole lot of headaches out of it. Competitors can make your life a living Hell if you allow them to. They can undercut you into oblivion if they have more resources, they can spew lies and hate towards your store, they can shut you out of good opportunities for vending and advertisements, and ultimately blockade your store’s growth.

How can you combat this? The best way is by not putting yourself in the situation to begin with. I can say I legitimately do not have any stores I am enemies with because I don’t engage in the petty politics. Do I agree with everything my competitors do? Absolutely not. Many have business practices I despise, while others have practices I admire. The key is to keep it to yourself. Always watch your competitors and emulate their positive successes, while avoiding the negative. Create working relationships by talking with your competitors. You’re all in the same industry to make a living and have fun doing it. That doesn’t mean you can’t swap information, strategies, etc. Sometimes you might have an item in excess that won’t move in your local area that moves great in a competitor’s area. Maybe they would want to barter inventory at an even ratio to make it mutually beneficial for both. I’m not saying go to your competitors and say “So how did you make your business so successful?” (although I can assure you people still do it, ugh). What I am saying is that keeping an open dialogue can help both parties involved. One thing I’d absolutely avoid doing is going to a competitor and calling out something you disagree with. You have absolutely nothing to gain except an enemy by doing so. Each store is going to do what they deem to be the best route to making their business successful. By contradicting it or trying to shove your own doctrine in their face you risk creating one of those enemies that you don’t need starting. Once you start out you’ll notice your competitors a lot more, similar to the psychology that when you buy a car you notice the same model a lot more that other people are driving.

You shouldn’t care what others think, except when you should.

The final topic I want to briefly discuss is public perception. The main issues you’re going to face with keeping a positive persona to customers and the Pokémon community is negative customers and your own actions. The second one is easy to avoid, conduct your business in an honest and ethical manner and you’ll be in the clear. Don’t scale packs, upcharge for shipping, call your customers liars or cheats, etc. Mainly just do ethical business. The customers on the other hand is a different beast. You’re going to have customers who no matter what you do they won’t be happy. You can waive fees, give free items, replace cards, speed up shipping, and they still won’t be satisfied. Sometimes you have to be willing to set your pride aside and accept that they just won’t be satisfied. There is no point in pouring your money into a customer that isn’t going to pour it back into you. I have no problem working with a customer on resolutions, improvements, etc. as long as they are willing to meet me halfway, or sometimes just 1% of the way. Negative customer feedback is going to speak volumes louder than positive feedback, so make sure you try to work with customers to keep negativity to a minimum. Ask customers what issue they are having. If it was something that is your fault apologize for it. If it is something out of your control, apologize for it anyways. Show compassion to your customers. Always put yourself in their shoes. Sometimes they have will unreasonable requests you can’t deliver on. Explain to them that you understand, but why you can’t deliver on their expectations. Don’t just leave it at that however, offer an alternative. If you can keep an open dialogue and show your customer that you’re invested in their happiness, then you’re far more likely to avoiding any negative repercussions even when there is an issue with an order. This is also one of those instances that if you have a positive relationship with your competitors that you can consult with them on how to handle a customer or a certain issue and they probably could assist you. You’re all in the same boat after all.

While public perception is huge, there is one thing I want to note. Do not let customers run all over you. There are reasonable lengths to go for a customer, however those customers who are just not going to be happy are not worth expending resources beyond what is reasonable. Sometimes you’ll have people who want to try and push their luck, see how much they can get from you, or threaten legal action against you. Don’t be scared to call their bluff. 99% of the time a customer just feels like they aren’t being heard. They aren’t going to go get a lawyer for a $5 card or a $150 bulk shipment (the lawyer would cost more). If you’re in the right stand behind your business don’t just cave out of fear. If they do go ahead with legal action then hire a lawyer and proceed accordingly. While it could be an expensive venture, sometimes setting the precedent that you value your customers, but that you’re not going to be taken advantage of will save you more money in the long term than it will cost you in the short term (boy aren’t we sure glad we have seed money now to work with, phew). I’ve had to deal with customers legally and I can tell you that I’m thankful I did (I sure have far less people that try to scam me online that’s for sure). Don’t threaten the legal card against customers to try and swing conversations or negotiations in your favor though, all that will do is bite you in the backend. Legal involvement should always be a last resort, but it shouldn’t be an option you’re scared of using if you are at wits end on how to resolve an issue and the issue can justify the cost (lawyers are expensive, sometimes losing the battle is better for the long term success of your business than pursuing it further). Hopefully you’ll never be placed in a situation that this occurs, but it doesn’t hurt to have a plan for if a customer places you into this situation. Feel free to consult a lawyer and they can give you guidance on what you should do.

Note: I, and 60cards, are not constituting any legal advice and are not telling you to sue or get sued by customers as a form of resolution. You should always consult your own legal counsel for issues and professional advice.

While we have only scratched the surface with the issues you can potentially face on the logistics side of things, a lot of the tactics for resolutions on issues are the same. Always have confidence in yourself to come up with the right solution, but if you’re truly stumped never be afraid to ask others their opinions (while leaving the other party confidential in your inquiry). Rest assured there will be bumps and headaches on your way to building your card empire, but if you take them in stride you’ll have no issues settling them and moving forward. I’ll catch you guys in two weeks for the Evolutions Financial Set Review (you don't want to miss this one), but until then...happy selling!

[+3] okko

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