Last year I wrote prophesying a fourth year in business that would bring us to a new location and permanent home. As you may observe, that event has not yet come to pass. Not for any lack of willingness, I can tell you.
It would be easy enough to ink up a lease somewhere and just go -- our landlord has been extremely accommodating and has put renewal and in-plaza suite swaps on the table, for example -- but thus far none of the key factors have come together like we need. If DSG is going to go big, it needs a permanent home.
Thus far, of the three primary criteria, the best locations we've examined are pick-two: Affordable rent, good plaza/building, favorable location. The great spaces that are affordable are tough for customers to get to. The great spaces that are easy to get to are too expensive. And the affordable spaces that are easy to get to are not in the greatest plazas/buildings. We are still under lease for another year, and I will continue to chase that triple crown until the clock runs out.
And then? I'm curious about that myself. The lease will go month-to-month; that part is not a mystery, but at that stage I will have tremendous leverage to make a business move. Let us hope I select a good one. Let us hope, more to the point, that I find our new location long before that.
Disposing of that issue for the time being, then, how is it that we are still here after 48 months paying commercial rent and payroll, and have managed not to go under despite a turbulent market, logistics challenges, and buyout after buyout reducing our partnership count from 11 people on opening day down to only three today? Survival is not a given: we just about cleared our orbit in the past year, with three nearby stores shutting down and a fourth sold off to a distant investor. Feels pretty good to be standing here intact right now.
Inc. Magazine fell into the high-failure-percentage trap with their clickbait headline, but in this article made an excellent point about how businesses fail: "Profit is theory; cash is fact."
This is something I knew from previous business experience, and if anything I think Inc. has understated how hazardous cash flow management is for a growing enterprise. For example, there have been months when our books reflected profits upward of $20,000, and yet we were down to a payroll worth of cash reserves in the bank, sometimes less! That's because a Profit & Loss (P&L) statement is not a balance sheet, but many businesses treat it like one. A P&L is a tool for assessing the operating performance of a business. A balance sheet answers, "What do we have?" A P&L answers, "How are we doing?"
That $20k+ net month led to great later months, because most of that gain on the books was inventory accumulation. In other words, to "profit" that much and not run out of cash, it meant we probably bought some valuable Magic: the Gathering collections that month and paid a good price for them, and had not yet churned through the cards. Our operational cash came from regular day-to-day sales and was just enough to hold par. Over time, those valuable cards sold through and produced ongoing revenue.
There have been other months in which we gained cash but showed a loss on paper. In all likelihood those were months of deep inventory depletion. Possibly we were liquidating a large product line that wasn't meeting turn-rate metrics. We got some money but the value of the business decreased due to the negative delta on that holding. In a real-life sense, that value was already gone if the product line was performing that badly, but the changed increment is realized on the ledger at the monthly COGS calculation. A P&L does not reflect capital expenditures, sales tax, or like such, so it was clearly an operational loss. Yet we had cash to operate because we monetized those assets in the manner we thought most advantageous at the time. As long as you have the money, you can open those doors and anything is possible.
Every small business has to learn to manage cash, and much of the mental adjustment from the work-for-someone-else world to the work-for-yourself world is to recognize that if you are trending behind your upcoming bills, you don't get to take any time off. You have to go to work. Perform, fundraise, capitalize, monetize. You have to put your foot on the gas.
Gary Ray, owner of Black Diamond Games in Concord, California, speaks in terms of the number of operational days left until the business runs out of money. When he built up months worth of cushion, he finally felt like he could take a breather. Any time I take time off, I want to be as far ahead of the bills schedule as possible. In fact, one of the biggest reliefs in the fourth year has been how less often I have had to worry about this. There were a few pinches since last summer, but it was nothing like the chronic cash shortages of years one through three, especially year two. Year two was difficult. This summer I managed two brief vacations. For that matter, last week I threw out my back and was largely ineffective for about five days, so I durdled along in the office, catching up on finances and computer maintenance, and my crew picked up the operational football and just ran with it. Seeing that organizational culture emerge has been extremely encouraging.
Looking into year five, I already know I have to answer the location question. That's a given. But I think what I want most is to become less and less essential to the day-to-day public work of the business. My crew are already the stars of the show -- they know the regulars better than I do and they let their personalities do the heavy lifting in terms of cultivating our player and collector community. Virtually my entire contribution is backstage, the way I prefer it, except that I handle the marketing. But I'm still working in the business, not on it. And that is holding DSG back from what it ought to become.
I may spend the next 12 months learning how to get out of my own way. First-world problems, without a doubt. Let's see what happens!
No comments:
Post a Comment