Monday, September 29, 2014

Reflecting on Haven Distributors

Some folks in the comics business may remember the name Haven. From February 2008 to November 2011, I made a go at creating an alternative outlet for retailers to order independent comics. And for a little while there, I really thought we were going to make it. Being honest, though, how the company even survived that long remains a mystery. I just refused to say die.

Every now and then someone asks me about it. Some entrepreneurial soul wants to get in the business and comes across my name. They find me on LinkedIn or Facebook and ask if they can talk to me about the experience.

I have not replied to any of them, which I'm sure they take the wrong way. But it's just that it is hard for me to talk about that chapter in my life without sounding a little bitter. Because, well, I am. I have no great wisdom to impart. The business failed.

But since people keep asking...

It's been long enough that I think I can finally talk about this with a clear head. First off, I need to say that I'm not going to get into the idea of whether print is dead, or how much digital sales may or may not be eroding the already frighteningly low percentages I'm about to lay out. I am talking strictly print comics numbers here, which still sell last I heard. ;)

My sincere advice to anyone thinking of trying to start a comics distribution company: Don't.

Now this is the point where the know it alls and the haters pile on. Don't listen to him. What does he know? I did preface this by admitting I'm jaded. But I wouldn't be doing anyone any favors by sugar coating it.

Which is why I add: Don't UNLESS...

1. You have enough liquid capital available up front to maintain a healthy stock level AND cover overhead AND personally live off of for at least a year (if not longer) until the business starts breaking even.

And more importantly...

2. Comics distribution is just part of your business model, not the whole plan.

The first point sounds like common sense. Business 101, right? Well...I know there are people out reading and nodding without really grasping what that entails. During those three and a half years, and most of the year after I walked away, I was poor. I mean dirt fucking half a step above poverty poor.

You sincerely have to ask yourself how much are you willing to lose, and how long are you willing to live below your means to make it work. Don't answer that too quickly. Because the smart thing to do is to not add to your stress by forcing yourself to live off of TV dinners and charity from family members just to get by. Have a business plan and a sound investment strategy.

I entered into this not knowing enough about how to run a business. Which I never would have done, if I didn't have what I thought was a reliable partner who I thought was going to properly fund the operation while I ran the day to day. More on him later. For now, suffice to say, the business did not fail because it's impossible. It was maddening, depressing, and exhausting with far too few moments of feeling accomplished, but I was making it happen. Until the rug got pulled out from under me.

But first I want to talk about the market you think you want to get into. If you get into this business, the three biggest sources of your angst will be the math, the customer base, and the monopoly your competition.

The Math

So okay... Maybe there is some magical business formula that can overcome the completely fubar'd state that the comics market has put itself in and make a profit on the resale of non-Diamond-exclusive independent comics. But if there is, I have no idea what it could be.

It boils down to simple math. You buy comics at 60% off cover price, which you resell to stores at -AT MOST-- 40%. Anything less and they won't order. Most of our stock was 45% off. Some of our highest sellers we had to sell at 50% to compete with the Big D.

So you're talking about a 10-15% markup. That gives you zero wiggle room. On margins that scary skinny, all hope rests on volume. There is no room for error in there. None.

Now consider that independent comics, meaning the combined revenue from publishers below the top 4 of the chart, makes up roughly 18-20% of what comic shops actually buy. That might sound like a decent enough chunk of the pie. Now remove all of the Diamond exclusive publishers, and you're talking maybe 10%. Maybe. So you are seeking to serve a tiny sliver of the industry on a tiny sliver of a margin.

So here's a hard dose of reality.

Remember at that markup, everything is based on volume. Even for Diamond. So given the logistics of wholesale shipping, even large companies have to pay for warehouse space, equipment, and the eight or nine guys that touch a comic from the beginning to the end of the process. So they have to set minimum expectations. They have to know they will sell at least X hundred copies of any given issue. If they look at the art, the story, and the lack of marketing power inherent in small press, and figure that they won't even make their minimum... it makes no sense for them to handle that book.

Keep in mind that if you don't hit a certain minimum yourself, you've lost money on the deal. I know you really want to help the little guy. I did, too. But do the math. You've only got two guys to pay, sure, but you still have to justify the amount of work they do to make that money. If you had the entire comic market at your beck and call, then maybe selling a handful of copies might work out. But you don't. You have a fraction of them. How much shelf space can you afford to set aside for publishers that will only sell 1 copy per quarter? Maybe 2?

Even putting them on consignment becomes iffy. But consignment is great, right? You don't have to pay up front for stock. Heh. Tell me how you feel about that after juggling dozens of suppliers, tracking all those tiny incoming shipments, and sending out consignment checks for $5 each. In the end, it makes no sense for either of you.

I did diversify a little bit by also carrying role playing games. Those did okay with us. But guess who also owns the largest single distributor with exclusive deals with the top publishers in that market as well. The markups are better, but the obstacles I get into below are all firmly in place. Such as...

The Customer Base

Now, also keep in mind that Haven started by acquiring the assets of Cold Cut Comics. We thought we would hit the ground running, based on that name recognition. When we opened, we did so with the foolishly naive expectation that former Cold Cut customers would come flocking as soon as they heard of us.

In our first month, we received exactly 1 order.


For $77.30.

What I would learn is that the direct market was in this bizarre state of apathy. I'd say that getting enough of them to make common sense business choices was like pulling teeth, but dentists have it easy by comparison.

It was baffling. These comic shops were getting reamed for an extra 3% on ordering back issues. They were paying out the nose for shipping. Unless they were among the upper crust of like 10 top money makers in the country, their customer service was for shit. They had next to no selection of independent publishers, which they claimed to support and were paying 40% to get. With my shipping rates and discounts, I was beating Diamond's offer on paper on every front. My service should have been selling itself. But I had to bust my ass like you cannot imagine to get customers. No one wanted to budge.

Okay, to be fair, some were just slow to trust me. Once I convinced them I was for real, they gave me a shot. I met many fantastic people who thought outside the direct market box and truly supported indies. I made a number of great friends who I truly miss. I suspect they miss me, too.

To get the rest, I kept making calls, joined the CBIA, networked with ComicsPro, wore my feet flat on convention floors, and slowly but surely built up a base of customers who ordered steadily enough to alleviate my panic attacks and night terrors.

Comics is a tiny industry with a -- let's say unique blend of personalities. You have to know how to read people and genuinely like working with them, no matter how challenging it may feel sometimes, or you are dead. They all know each other. Even before the interwebs made it easy for them to stay in touch, they have been tight. So I tell you with confidence that the business rode entirely on the personal relationships that I built with my suppliers and with my customers.

But there just weren't enough of them. The vast majority of the market never so much as bothered to log onto our website.

I'd get a whole lot of attaboys and encouragement, but tragically few followed through. No matter how much I reminded them about us, tweaked our offers, made ordering easier, prettied up our website, polished our fancy newsletter... I heard nothing but crickets from 3/4 of the market.

One asshat went so far as to respond to one of my ads by calling that supplier directly. He went out of his way to pay more to ship books across the country than to order from me in the Midwest. It's hard not to take stuff like that personally. When we first met, he sung my praises up and down like he was going to be my biggest supporter. Never placed a single order.

He was actually representative of the subsect of the industry who loudly insisted that comics were not too expensive, Diamond is fantastic! Sales are as healthy as ever! He would blame video games and publishers for market woes, but never admit to even the slightest culpability of retailers. And never blame Diamond. They were beyond reproach. The fact that I couldn't get customers was 100% my fault.

Now.... I had a database file full of happy customers who would disagree with the assertion that I was doing anything wrong. But I blame myself plenty. I made some dumb ass decisions. We all do. That doesn't change the reality of the market, though, which the majority of retailers acknowledge. But some of these guys were so deep in denial it's frightening. I often said that too many store owners have no idea how many customers they DON'T have, because they've been driven away from the market over the course of the last couple decades. I am among them.

But they simply do. Not. Care. The shrinking number of hardcore fanboys still willing to partake in what has become a rich man's niche hobby does not compute. They were still covering their nut. To hell with the rest of ya.

But I digress.

There were some retailers that had impossible demands. They seemed to think that because we did not spring fully grown, Athena-like into the market, we did not matter, so there was no point in wasting time on us.

One guy spelled out the only ordering system that he would accept. Granted, he did propose a very slick and simple method working with Excel... that was not at all simple for a web developer to actually code. No one else had what he wanted. And yet he did not hesitate to order from them. He only came to me when I had a clearance sale on what was supposed to be select titles, but bullied me into giving him Simpsons for half off, too. I caved in the naive hope that he'd become a more regular customer. Like I said... I made my share of boneheaded mistakes along the way.

And then there were the ones who just... I don't know. They struck me as very shrewd business people. They ran great stores with a healthy indie section. They were not of the same mindset as those guys above. They got along with me great when we met, or at least pretended to.

But they never once looked at what we had to offer. They continued to pay more for mediocre to sometimes outright shitty service, and ignored any indies that weren't in the ever shrinking green pages. I can't explain it.

They recognized the problem with The Way It's Always Been Done, but kept the machine going anyway.

Bottom line, remember above when I said you were busting your hump to earn a tiny sliver of publishers revenue? You are also servicing a tiny sliver of the retailer base, too. So that 10% is more like 5%.

Still up for it? What?  What elephant in the room?

Diamond Exclusives

Within our first few weeks of opening, one of Cold Cut's top 3 suppliers, meaning one of Haven's  projected top sellers, went Diamond exclusive. Talk about a bad omen.

I could go on for pages upon pages on how the market came to be in the state that it's in. Depending on my mood, I would blame either the so-called Big 2, retailers, fanboys, or Diamond itself. But in truth its been a gigantic circle jerk for decades. The is no single culprit. And admittedly, there are stores that continue to do very well even in this climate (with indies, too), proving all is not lost.

My fallback phrase from 2008-2011 was "It is what it is." The slice of the comics revenue pie is thin enough when we're talking about anyone other than DC and Marvel. But it kept gettiing thinner and thinner as that giant conglomerate in Maryland would tantalize more and more publishers with empty promises if they just went exclusive. Haven had no prayer. "We" were a three-man operation. And I don't count my business partner in that. He did nothing. It was me, a warehouse guy, and one guy writing up our newsletter and laying out the catalog. That's it.

On one hand, I could not blame the publishers for going exclusive. I get it. I've been in their shoes, too.

When they are also operating on tiny sliver of a margin and finally got strong enough to see a whopping 1.5% of the market to show for it, I can understand how hard it is to say no to any kind of savings and advertising boost they can get.

But that said... every single one of them ultimately regretted signing that deal. Every. Single. One. I even had a meeting with one of their big guns who said as much. They all hate their situation, yet they all lived in literal fear of losing that contract.

This practice has created a monopoly. There. I said it. The SCOTUS stupidly lumped monthly comics sales with the entire book market to make it seem like it's just a tiny segment of a larger market. But that is not reality. You won't be selling to bookstores. The only reason for Diamond to have exclusive contracts with publishers is to stifle competition in the only market that buys monthly comics.

But it is what it is. Unless those larger to mid-size publishers nipping at the big 2's heels collectively give Diamond the finger, it won't change.

So it goes.

But that's still not why the business went under.

In the beginning, when we were seeing single digit orders for the first several months, our primary money maker was order fulfillment. We only had 1 client, but we were getting paid purely for the service of stocking, picking and packing their direct orders from their stock. It was pure profit, with expenses being overhead that I would have had to spend anyway for the wholesale side. So really, operating the web store for that one mid-size publisher is what kept the lights on.

My ultimate goal was to open an online retail outlet, possibly even brick and mortar. When it became obvious that 15% margins for so few stores would never pay the bills, my focus went to developing our own retail storefront.

That would have ruffled many feathers, I know. They would have claimed that my extra 10% on the margin was somehow unfair. But honestly... no. It's not. It's what big box stores do, and they all have their own kinds of expenses to deal with. I would have had to work just as hard to drive traffic for sales as anyone else. And the ones who would have bitched were not ordering from us anyway, and never would, so I didn't care. The smart ones had no objection to a free market competitor

And.. psst... let me let you in on a dirty little "secret". Diamond sells direct, too.

So why didn't we get there?

Remember I mentioned I had a partner? Yeah.... well. I called him partner because that was the pretense when we started. It was more accurate to describe the relationship as indentured servitude.

I won't bore you with the details of the drama. Suffice to say, his philosophy of how to properly fund a business operation is idiotic. To say he had me on a shoestring budget would be understating matters. If I spelled out how he forced me to operate, you wouldn't believe me. I realized we were doomed pretty quickly. His idiotic business practices were compounded with major personality differences that I thought I could deal with, but couldn't. As a result, too much of my time was spent trying to find ways to get out.

I came close to escaping four times.

One blew up in my face, and it was completely my fault. I handled a situation very badly and sent an unfortunately worded email to the guy who I'd been working with for months to come up with a plan to buy Scrooge out. In my defense all I can say is that I was beyond strung out. The amount of money I was forced to live on was criminal. Still, I take full responsibility for not being able to keep my shit together.

Though in retrospect, I kinda think I dodged a bullet with them. I cannot confidently say I'd have been any better off.

The second and the third both fell apart because the third party who was interested in bailing me out lost their own funding. The economy was not fun at the time.

With one of those options, we were going to supplement the wholesale business with print on demand. That was the opportunity I was most excited about. But when the expansion money they had planned disappeared, I was back to square one. No one's fault. Just life.

The fourth... sigh.  The fourth could very well have been the turning point. I had worked out a deal with another company to move to a much more affordable Midwest location and integrate with their retail model. Scrooge would not have had to add another dime of investment capital. It would have delivered everything we were striving for and kept us in business. We'd have had an extra revenue stream which would have grown the wholesale distribution side to everyone's benefit.

But when I pitched it to Scrooge, he interpreted the offer as "They are just trying to get our inventory for free". To which I finally just said fuck it. I had run out of time.

Haven had been working out of space that he'd set aside in the warehouse of his "real" business. But that business was moving. So he was about to either move the operation clear to the south side of Chicago (which would have destroyed me with the commute unless I moved down there) or he would have been willing to rent a place (that the business flat out could not afford). I had no choice but to throw in the towel.

He seriously chose closing the doors and eating a massive business loss over trusting me to keep things going free of his control so that I could buy him out.

We had a clearance sale. After that, I offered to follow up with the retailers who still owed us money knowing they would pay based on the trust I'd personally built with them, but only if I made a personal plea. Otherwise why would they? But he refused to give me the list of accounts, and blamed me when they didn't reply to his rudely worded collection letters. So of course he ended up screwing our suppliers (and me personally) with the excuse that no one paid.

And, to be candid, even if they had paid up I doubt he would have settled with those suppliers anyway.

As it turns out, our top supplier was just about to announce they were going Diamond exclusive. That would have been a kick in the nuts. But with the new infrastructure and retail options that I would have had, I think I could have pulled through.

We'll never know.