Wednesday, February 21, 2018

THE STATE OF DFG AS A BUSINESS



Let’s start this by having a rather upfront look at the miniatures industry, the customer base and expectations.


My rather unique perspective:
I have the benefit of looking at this not only from my personal company (A crumb gathering niche within a niche) but also for watching WGF, who I think most would agree had a solid seat at the mid-tier table, with a rather large product offering spanning quite a few interests.

I have worked, not only the creative side designing miniatures, but in my previous life as a buyer/planner, which gives me some ability to understand product reorder points and the financial aspect of just in time ordering, supply chain logistics and the implementation of contracts. Add to this, experience with the manufacturing aspect, working closely with WGF and even producing my own resin releases… I understand soft and hard tool molds, direction of pull and release draft angles. Well at least enough to be dangerous: P The only reason I went over this is to illustrate although I am a fresh new business man, and likely NOT a very good one, I do possess a wide skill base that assists me every day.


The Industry:
The industry, is a niche industry, with most companies either finding their niche within a niche market or attempting to gather the crumbs off the table form some of the larger players in the industry. Volume wise, its not a great industry for those not sitting in the top positions within their niche.

It has been said, you are only as good as your last release and only as memorable as your next tease. I find this to be a true if not slightly jaded view. The ‘new shinny’ is what drives this market from a sales standpoint. You need to remain in the publics eye as there is always a new ‘something’ from some other company that will be released just around the corner. 

This is where plastic is king and curse all at the same time. Plastic is a fantastic medium for the end user, light durable, infinitely modifiable and highly desirable. There is no doubt that for a miniature line a plastic release adds desirability and a certain legitimacy that those dealing in lesser materials, metal and resin have a hard time competing with….

But why Mark, why would that be a curse when plastic is King, you ask.

(THE LONG ANSWER)
Most would say the upfront costs, which is the correct answer but only part of the answer, the other part is time to market with plastic. Companies that are in plastic need to be looking about 18 months in advance to have any form of steady release schedule. (Remember the new shiny is what matters) Once again, I know that sounds jaded, but it is not… Your supply chain can back you up and help you drive sales if you have a proven history of delivery.

You need to have the capitol to pay upfront for 6 or so releases to be worked on at any one time. Let’s say they are frugal with their kits and two molds for each kit will be required. That would be 12 Molds in the works, 50% down for a total of $60,000 investment tied up for a minimum of 6-12 moths -AND- They need to have available enough capitol to finalize payment on two of those kits, their production run, box/packaging and shipping to their distribution center. So, let’s say you plan an average release to have enough stock to get you through a quarter. 3000 is a fairly good number for the first quarter release from a smaller manufacturer without a huge marketing budget to drive sales. i.e. me or WGF. That would be about $55,000 to get two releases to your dock, paying off four molds and the production run for two kits @ 3000ea volume.

Total outlay of capitol required, around $115,000 with another $55,000 needed in another month or two for the next two releases… and this cycle goes on and on as long as you keep the plastic flowing.

Looking at plastic production from a single project or set of molds is only half the answer… Heaven forbid you have a slow release in there that never grabs like it should. If you are not sitting on $100,000 of ‘problem solving extra cash’, you then do not have the capitol for the next releases and the entire production aspect gets thrown out of whack. Your customers are upset, your supply chain is upset, and the money spent on marketing to tease the next release is pretty much cash in a dumpster fire.
The moral to this story, if you are looking to run a plastic kit line and want to continue doing so, plan 18 months in advance, have 6 kits ready to go to the mold maker from your end at any one time and be sitting on about $250.000 in a cash reserve that is not required for other aspects of your business or its overhead. 

A smarter move would be choosing a format that is kinder on the mold count and margin returned for each kit. KD and Mallifaux are a couple of examples, (Hero models) a single figure sells for nearly as much as a boxed set and requires 1/10 the mold space. Unfortunately, this is not the format that DFG embarked on and I am not sure it is one I would have chosen even knowing what I know now, primarily because the character model scheme is just not that appealing to me…. Let’s just say I would need to give it some thought.
So, I think we have established that ‘properly’ running a plastic miniatures business is expensive….

So you had a flop:
Let’s talk about the inevitable soft release. So, you had a flop… bound to happen and you have a release coming shortly behind to help punch back up those numbers. You need to get it out of your head that that slow release will ever pay for its self. The first quarter is the make or break for that kit, flub up the release or have shipping issues and miss the restock or short your initial release, you WILL NOT be getting those sales back, they are gone, your customers and supply chain have moved on to the next release. Sure, they will continue to sell in some small manner, but you missed the boat and the return on investment will likely never come. You can chalk the $15-20K loss up to a learning experience and move on…. Assuming you still have the capitol to do so.

After the first quarter, the product sales will decrease each end every quarter until you hit the products base line. Historicals burn the slowest and lowest but they are steady. Sci-fi is one of the better formats for that initial bump. Fantasy? Not sure…. I do not have any insider information on that. If you have a strong line with distinctive style such as KD, I think you would be fine but that is an uneducated guess on my part.

So, we all are on the same page? Miniatures are expensive, risky, and from an artists stand point a hell of a lot of fun, from a businessman’s standpoint, perhaps not the best investment without an eye for the long game and certainly not without a rather large bank account doing nothing but gathering interest.

The customer base:
What a nefarious gathering. Truly, a hive of scum and villainy.
Creative, imaginative, supportive, geeks, nerds, artist, and general loons….. I could not be prouder of all of you!

Seriously though a great community and one that I am proud to be a part of. I think that they key to my success has always been the relationship with my customer base. I can honestly say I miss being a part of that as much or more than I enjoy the creative sculpting aspects.

As was stated in the beginning of this long rambling thread, the shiny new thing drives the business, that is not to say that quality and the feeling of a fair exchange price vs return is not important, because it is. We all need to feel like we received value from our purchase. If any one aspect fails, quality, value, time to market. You as a manufacturer will feel the effects, not just in that sale but in future transactions.

The supply chain is a customer as well. If you are part of the supply chain, you had better be firing up your customer base. The supply chain directly reacts to demand, they my or may not like your product but if it sells, they will bump the next order and if it is flat, they will pull back. For you the customer/end user its about scratching that creative itch with something cool. For the retailers and wholesalers (who are likely geeks like the rest of us) its still about stock movement and fast returns on investment.

Remember your first few months of any release will make or break that release. This all comes back to time to market… Loose that race and you have lost sales, it is an extremely important aspect that every manufacture frets about and that many of us never think about as we wander store shelves or click through retailer’s websites.

Expectations:
IT’S A TRAP! (Admiral Akbar, Battle of Endor) 

Also a fun drinking game for this post.

Wipe the sleep from your eyes, this next part is important and although my ramblings may have put you into a stupor, this is meat and potatoes time!






If you have been on this side of the table for any length of time, you will know the manufactures rarely meet deadlines.
This is not just a ‘China thing’.
Every vendor I have worked with on the manufacturing end comes in late.
PERIOD, NO EXCEPTIONS.

So how do you manage expectations? How can you guesstimate when something will arrive once the order has been placed? Honest answer, you can’t the delay will range from reasonable, two weeks to mind numbing 1+ years. Best advice is not to even tease a release until it is in your warehouse… let it simmer for a couple of weeks and then release.

The problem for me is that I truly enjoy bringing all of you in on the creative process. I am likely shooting myself in the foot by doing so, but some of the feedback ends in changes or insights that effect the final product. This (for me) is a difficult decision. Do I open the doors and show all while destroying the OOOOOH NEW SHINY! Or prey that the ends justify the means. I still do not have an answer for this problem, I just know that I prefer active participation.

I am not sure how the supply chain felt about that, but I imagine they would prefer an unveiling and big initial hype just before release.

Quality:
Based on your past purchases, we know WGF delivered quality, late, but quality. This in its own way is a trap. I have no doubt that Wai Kee (WGF) knows the value of quality and what that means for retention. He is a brilliant engineer and can be a perfectionist when his attention is fully on a project. Should my next release not rise to the same level, there will be comparisons and expectations will be met or not. I will never knowingly produce crap but not every manufacturer is able to meet that standard to the same level.

Price:
I have always priced with an eye to value for money spent. I tried to keep the kits slightly below some of the ‘big boys’ so that my customers could view them as a quality alternative that may be slightly more reasonable. This is also a trap. Slaving your price structure to a larger more capable manufacturer means that you may be running at a loss if all things do not go as planned. The pull back from distribution and rising costs to ship outside the US have made it impossible to look at new releases with the same pricing structure, certainly not while staying within distribution.

Kit contents:
When we started this path together, WGF was manufacturing, shipping in full container load to their warehouse and pushing those product up the supply chain that had been in existence for some time. The discount they received by shipping full container loads is substantial, the cost to manufacture, insignificant by comparisons to what a customer needs to pay. Having these large multi sprue kits was not a real concern aside from their volume in the container. When I took over distribution, it became very clear that the kit contents (sheer size) and number of shots per kit would indeed be an issue and A TRAP!  How do you pull back from that or cut a new course once expectations have been set?

Means of production:
As I stated very early in all this, plastic is king, but now that you see the monetary requirements, the delays in time to market, the lost revenue associated with these delays…. Where do you go with all of that? How as a manufacture can you justify any move towards plastic? And if the expectation is that all my releases are to be plastic, well….. IT”S A TRAP!


I will lay out a single example here to help clarify the financial issues with plastic kits. You ready for this? Where ell’s will a manufacturer open his books with a real-world example of pricing? (queue cheesy used car salesman commercial music)

One of my best-selling kits, the 20-man Stormtrooper set.
20-man stormtrooper set, cost to manufacture $5.00, not bad, not great but folks in China got to eat too.
Cost to deliver $3.00 (shipping and initial warehousing, would be substantially less if I could fill containers, but the sales volume does not allow for that)
Total cost of kit delivered $8.00
Retail $44.00

Buy at $8.00 sell at $44.00?! Where do I sign up, right? Hang on folks, it’s a bumpy ride.

What does it take to run a miniature line and keep the doors open? It’s simple really, you need to have a 4-5 X mark-up from the manufacturing costs MINIMUM (kit delivered to warehouse) returning to you on most sales. It may seem crazy high to require 4-5X the cost but when you break it down it becomes clear. Now granted this is simplistic but a good estimate. If you can get it 6X cost delivered is much better, as it allows for some breathing room that may be desperately needed.

1X For cost to re order the kit you just sold
1-1.5X For the associated overhead (Warehousing, utilities Labor) Assuming that you turn the product over every 2-3 months, if it goes longer, it will eat further into the profit margin.
1X Tax…. No way around the tax man.
1X Back into business to fund that next sweet release.
.5-1X Personal profit, a man must eat after all….

$8.00 X 5 =$40.00 all is good! Well, sort of… If I sell direct only, at full MSRP, then I have met my margin. If I sell into distribution, I net $16.00-$17.60 per kit, which works ONLY if your turnover is very fast and you are able to restock with a container load of product.

I tend(ed) to sell 60/40 split 40% direct (at less than retail many times) and 60% into distribution with a 6 to 12-month turnover (sell through last shipment) depending on the SKU.

What does all this mean? It means that there is simply no way to sell into distribution without jacking the kit price so high that it would cripple sales. Retail for a 20-man set would need to be $80-$85 retail for this kit to make sense from a business perspective. If all of you are confident that and $85 retail is reasonable, and you would snatch them up…. Please say so, but I think I know the answer to that question already.

So, Wholesale is clearly not an option based on the financial realities, but wholesale is consistent. They move product every month like clockwork down to the retailers, they pay the operating expenses by being reliable in a way that my customers cannot be, through no fault of their own. Wholesalers are pushing out to multiple retailers and pushing to a much larger and willing base.

All of the expectations listed above have been on my mind from the first day I took over, reflecting, trying various things, contemplating every month on the direction of the company and how or IF it should move forward. Seriously, I LOVE this stuff, but every month I examine if there is a future or not.

All doom and gloom, right? May as well just call it a day? 

Nope, not yet. There are several paths forward, but they are untested, and the results may or may not net the desired result. I have started the process by removing myself from distribution and reopening a dialog with my customers. I will lay out a few options as I see them and see if any of you have input that might assist in steering the boat. Not to worry, this is not ‘on you’ DFG will move forward in perhaps some rather unconventional ways that may break some of the ‘expectations’ but I am more than happy to plot the course and see where it leads.


NEXT UP WHERE TO GO
I will be going over what I have planned so far and possible ways to deal with production and releases.

A LITTLE CATCHING UP MAY BE IN ORDER



I decided that it might be helpful to go over some of what goes on in the background as it may help shed a light on the next post of ‘THE STATE OF DFG AS A BUSINESS AND WHERE TO GO’, as well as provide some insight on where the hell has Mark been and why I have made some of the decisions I will talk about in the next post, or two or three…..

Some have asked if DFG is still in business, yes we are, and what you see available on the store is in stock and ready to ship. We did pull out of the supply chain late last year, which I will go over in this post and the next couple of posts. 

Some have said, that I should have kept my customers in the loop and posted about the good and the bad.
Yes, he's right... Hopefully the next few posts will help shed some light on that aspect.


What has happened since WGF closed its retail side. The last 2 years have been packed with educational opportunities.
 

Old news with some insight:

WGF shutters it sales end, I take over distribution, while this is in progress there were some talks with a company about taking over the line, this did not come to fruition. We simply ran out of time as the product needed to be in a new home before WGF closed out its US warehouse. There is some time spent setting up the infrastructure, warehouse, etc. Setting up Website interfaces for wholesale ordering, which was pretty much a waste of time as most wholesalers/Retailers would much prefer to send an order in, in whatever format their system kicks out.


Once the dust settled a bit. I started tracking sales closely, place a restock order for some products that are running very low and wait for the restock…and wait…. Eventually they arrive with a couple of new releases that I know will not have much of an effect on the bottom line or excitement. The molds had already been cut and it was a good test for a rather lackluster release to see what that looked like. This was an important test for me, I knew it was going to be a soft release and I knew that I had to plan for such releases to happen now and then. Its not that I wanted them to fail, I just knew they would not be big hits, as did the supply chain. This would give me a base line and let me know what was at risk form an investment standpoint if a release just did not take, I will just say, its not pretty and leave it at that….


Exploring possibilities:
Sufficed to say, there have been a LOT of false starts, exploring possibilities that eventually come to a decision not to peruse the opportunity This is often not anyone’s fault, just two parties feeling out the opportunities and seeing if there is a way to make something happen. In the end it comes down to a dollars and cents business decision. Most of the time one party or both is simply not in the position at that moment to monopolize on the opportunity. Some explorations are covered by NDA and even those that are not, I will not be going into details about who and what, etc.

Between the time I took over distribution and now, I have explored with various entities many possible business opportunities, some of these took days, some, months. It just depended on where the conversation took us and what possibilities were on the table.
I am quick to ‘pick up the phone’ and chat with anyone about possibilities I am also quick to get down to remuneration, although this aspect often takes some time to work out details. End of the day, everyone involved needs to be compensated in one way or another.

Then we come to 2017:
I finalize a few files for production (StuG tank, Shadokesh and Ferals) and start exploring other manufacturing avenues… (more on why later) Finding a proper manufacture takes a great deal of time a load of back and forth and some minor testing to at least make sure each possibility is viable from a cost and quality standpoint.

That damn bottom line:
I had one last the opportunity to explore a partnership possibility with a very nice, energetic and competent individual, that honestly would have been a breath of fresh air. 
Still being in distribution, I had reservations about the profit margins and the ability to provide a fair return to the partner. Entering into that kind of arrangement needs to be good for everyone involved and I could not see a way to guarantee that individual a fair return on investment, so I thought it best not to proceed with that avenue.

I already knew that things had stalled a long time ago but looking at this from strictly a bottom line perspective after exploring the partnership possibility, the margin concerns, now brought into full view, cemented the path forward. I decided late in the year to remove my products form distribution, as I could not see a way to release new products at reasonable price to my customers and still satisfy the supply chain discounts. This was a rather painful decision as it meant leaving behind long standing relationships to try and forge a path forward.

When it comes to many of my retail customers, I have known many of these individuals for quite a while, corresponding with them and sending out marketing packets for releases, teasing products and sending out samples for review, etc. Some of the direct retailer contacts were the best experiences I have had…. They have all been very good to me and if I had the ability to do so and not drop into the red, I would still be selling to them. Having said that, I would not be talking so openly right now either, I understand promises, expectations and statements need to be tethered as you are in a business relationship that is mutually beneficial and that setting them up for failure you are setting yourself up as well.

Add the normal life things, a home remodel performed on the cheap by yours truly and other such things and the year slipped on by before I had a chance to say hello to it.

Well, hello there.....





Those of you that have been around from the pre-Kickstarter days remember a time where I was very open in my communications, where my interactions were FAR more timely and personal.

Involving other companies in that flow complicated things on my end quite a bit. I had a few very heated conversations over various issues concerning what could or should be said. For right or wrong, this changed my way of interfacing with all of you, and IMO, not for the better. But such is the reality of having partners… You need to keep that relationship working and healthy, and there are times you will not agree, and times where you cannot discuss what you would like to with your customers. No this is not turning into a ‘tell all story’ I am simply saying that I miss the days where I felt as if I were part of the community and that I could just let information flow and get feedback from all of you on a kit or a direction or a specific item.

I think it fair to say that WGF and I are not doing much business together, the agreement we had ended when I took distribution over, this changed the responsibility’s and payment scheme. We worked out a verbal understanding of how much I would send them for each sale after expenses and we have had very little contact since the transfer, it did not end badly, just faded into me sending commission payments and not much ell’s. I will simply leave it at this; I am and will forever be grateful for the opportunity Wai Kee and WGF provided me, having the opportunity to have 30 plastic kits produced was an amazing, frightening and monumental experience. 

Having changed the nature of that relationship allowed me a little more latitude, but still being in the supply chain, I know that, and public statements may have repercussions for my retail and distribution partners… I cannot tease a kit or ask for feedback if I am not planning of following closely with a release. It would not be irresponsible of me to set them up for questions or expectations when they did not have the answers.

I removed myself from distribution at the end of last year and spend the last couple of months mulling over the next steps. (I will go into that more in the next posts)
All the concerns listed above have pushed me further away than I would have liked and help establish a very poor habit of being tight lipped. Hopefully with this message I can start to break the habit I have developed and get closer to the more open flow of ideas and feedback that I and I am sure, you miss.

I will simply say, all excuses or reasoning aside, I am sorry for not being as transparent as I would like or as communicative as you deserve.

I will be posting much more to my blog as I used to and frequenting old haunts like DAKKA for a more open exchange.


To close this message, I will simply say again, that I apologize for not being here, talking with all of you and hope that if you are still interested, that you comment or follow along as I attempt to return to some facsimile of what I was when I started this creative journey.