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Monday, February 1, 2016

January Ends With $1,700 in Sales, and the Game of Risk Has Much to Teach Us About Business Strategy

So January wound up being a much better month than Steph and I expected, with $200 in sales yesterday bringing our total to just under $1,700. What was even more encouraging though is that the sales have come primarily from material that was listed this month, which is continuing to uphold the turnover rate that I had forecast in my original projections.

I figured that it is time to go back and look at my original projections and compare where the business was forecasted to be at the end of the seven month mark versus how it has actually performed in this time:

Under my original limited sales growth projections scenario, my sales after seven months were forecast to be $26,777. Actual sales to date have been $17,078, or 63.7%. At first blush, this might seem discouraging, but it is actually not bad when I consider that my original projections were based on  my best guess on how a number of factors would play out, such as how much traffic increase I would get from social media. I had predicted a 2% monthly increase, which is now clearly not realistic, but maybe that will change after my post volume reaches a critical mass. I honestly don't know what the payback period is supposed to be with social media and unfortunately I don't think I can place much stock in the commentary about this online because my subject matter is so specialized and is not popular culture that will have lots and lots of views. What is good about our results so far is that the sales have been highly profitable and over 200 new customer relationships have been established. The amount of inventory listed has exceeded the projections, so sales should gather momentum, which brings be to my next topic.

Have you ever played Risk? You know that world domination game with the armies and cards?

Image result for risk board game

Now this is a game that has so much to teach us about life and building a business. 

A mathematician friend of mine who comments regularly on my blog used to play this game with me and my friends back in university and he always used to win. He would seem to be losing for most of the game as he would just get his minimum 3 armies, attack one country if he was feeling bold, and then  win and redistribute his armies. He didn't attack unless he had a massive number of armies, i.e over 3:1 in his favour. He did this while everyone else was taking over whole continents and holding all the countries between 2-3 other players. Then, about 20 turns into the game, he would turn in his cards for 100 armies, because that is what they would be worth by then, and then he would go on the attack. He would have a set of cards to trade in every turn and the game would over within 2-3 turns. 

What can we learn from this and apply to business?

Well, while all the other players were focused on the instant gratification that comes from making conquests and getting lots of armies while boasting about how many countries they have, Dale was quietly building his strength. He knew that in order to successfully win an attack that you need 3:1 on average. So in order for the other players to successfully attack him, they would have to deploy a massive amount of armies on the country next to his. The other players couldn't do this because they were spread too thin with all the countries they held. Dale knew that the important thing was getting cards he could trade in later. He let the other players trade their cards in early and bid up the value of the card sets for when it was time for him to cash in his cards. He also knew that the other players wouldn't bother attacking him because he wasn't much of a threat, with only a few countries on the board. He let the other players weaken each other and then moved in with a clearly defined strategy late in the game. 

So it is in business. I see so many sellers of stamps that have no clear focus in their business strategy. They will buy and sell whatever they can make a bit of profit on, especially if it is quick and doesn't involve a lot of work. As a result they are very busy and seemingly very successful. But what I notice in watching them is that their online presence is fleeting - it is only as good as their last auction. There is no "brand" per se. I liken them to the other players in the risk game. 

It seems to me that the best long term strategy for building a business is to choose a niche and focus exclusively on it. It may not pay enough to live on initially, but over time if you stick to it, and become a known expert, people will begin to trust you and flock to you. The best part of this strategy is that it will be very difficult for your competitors to compete directly with you. I have noticed this happening with my offerings of the 1954-1962 Wilding Issue. I listed over 1,500 items in this issue and then wrote an extensive number of blog posts about this issue. There is no other online source of detailed information on this issue for collectors to consult. I started working on that issue in November, and since I completed listings for it in December, I have sold approximately 300 of the 1,500 items, or 20% of my inventory. That is excellent for a modern issue that most dealers would tell you has little market demand.  

What I have done is build a stock of Canada that is good, but by no means complete or as strong as I would like it to ultimately be. But I have recognized that in order to gain credibility on e-bay, it is important to achieve relative dominance in whatever category I am listing. So rather than just listing random stamps from many issues, I will gather up all the material from one issue and spend a month working on it so that when I am done, I have more material listed from that issue than any other seller. This will help me on the Google search rankings, since ranking is all about the volume of relevant content, and the more material I have for sale, the more "content" I have. 

Like Dale in the risk game, I do not expect most of the existing stamp dealers to pay too much attention to me as they won't see me as much of a threat, since I don't have the customer base that they have, and in a sense, I am not even competing with them directly, since my product, in the form of my descriptions and customer service is different from theirs. But I predict that there will come a point soon after I have built up a presence in each of the major Canadian stamp issues, where it will be easier for me to gain new customers than it is now. Once this point is reached, I don't think the existing dealers will pose much of a competitive threat, whereas it would be very difficult if not impossible for me to try and compete with these dealers directly based on price or breadth of selection, if I started with that approach. 

Of course, I could be wrong about all this, but so far it seems to me that the only way this strategy can fail is if I cannot get the sales volume up to a level that can sustain Steph and I by the time my sources of financing run out. By my calculations we have at least a year to a year and a half before we reach this point, assuming no further sales at all. Of course sales will not be zero, so we will likely have even more time than that to get the business to the point where it is self-sustaining. 


  1. You give me too much credit. One thing though is there is a fine balance between being too specialized and being too spread out. In the risk example if anyone just attacked when I was weak that would have been the end of it.

    1. Yes, but they never did because it wasn't worth it from their point of view. Was that not part of the strategy?