I read with interest November's RePlay Magazine, where industry pundits gave us their spin on the state of the industry, post AMOA. "We've turned the corner!" proclaims one columnist. "The industry is still shaking out," says another. And a manufacturer adds, "I've never seen it so bad." I would give you my opinion, but I'm not even sure I understand the question. The trends of this industry are hard to get a handle on.
This industry has repeatedly rewarded those operating companies that master the basics. They seem to succeed when others don't. The successful big companies are those that think like a small company. The successful companies realize there are no magic numbers, just more or less zeros. In my years of operating, there is a three-year period that sticks out in my mind as the benchmark...When all the stars were aligned just right.
From 1978 until 1981, one company set standards that influence me to this day. Nay-sayers will notice right away that this is also the period that the industry went through a growth spurt that has never been duplicated since. Correct. But basics are basics, and they had it figured out. There are staples that identify successful companies that we don't see enough of today. My hats off to those that have continually succeeded through these turbulent two decades.
1. Cash and Carry: These guys owed no one a dime. The equipment purchases were paid in 10 days, taking full discounts, paying cash every time.
2. Service, Service, Service: the company secretary took every service call and logged the event, and time it was received. If the serviceman got over one hour behind, everyone knew that they were headed to the vehicles to get the calls taken care of. It didn't matter what you were working on. Result: 90% of the service calls were responded to within 90 minutes with a person in front of the machine, seven days per week. It was not a rare occurrence for the serviceman to be the owner of the company. More afternoons than not, the company had two to four service people responding solely to machine service calls.
3. Machine Income Analysis: There were no computers. Every evening, the owner personally took every collection ticket home and entered machine by machine gross earnings into a three-ring notebook that had one page for every location. The machines were listed on the left column with weekly gross earnings going across the page to the right. These notebooks were generally spread out all over the kitchen table. The rotation work orders were never far away. It was a 400-game route in those days. They knew well what every one of the games earned.
Their technique was efficient. If a machine earned less than $200 in a week, it was scheduled to be moved immediately. That's right - $200 per week. If it did not earn that much, it was rotated or sold. The average purchase price of a video game had not hit $2,000 during those years. The owner wrote every work order himself.
4. Inventory turn: Here's my favorite. When Pac Man came out, they bought one for every location. When Ms. Pac Man came out, they sold every Pac Man and replaced it with Ms. Pac Man. The Eight Ball pinballs were all replaced with Eight Ball Deluxes, and those were later replaced with Eight Ball Deluxe Special Editions. Machines rarely got old on his route.
The used machine outlet was generally smaller operators throughout their operating region. Every machine on the route was for sale at any given time while it was on the route earning money. If a customer wanted a Battlezone, and they had one, they pulled it off the route (replacing it with a new game), refurbished it, and shipped it to the customer.
The refurbishing became a work of art. Technicians spent four to eight hours getting a machine ready to go out the door. Then (and this is absolutely true) they would pack the machine in the exact box that it had originally arrived in. Every new machine that came in was carefully uncrated so the box would remain in good condition. The box was then stored upstairs until that machine was sold. It happened more than once that a a customer called and said, "You made an error. You sent me a new machine." No, but calls like those were the company's objective. The guarantee for every purchase is 100% money back guarantee. No questions. I don't recall that they ever received one back.
5. Obsessive Set-up and Cleanliness: when you collected a location, before you left it was understood that every machine had better be sparkling clean. This was especially true of pinball machines. Every $100 of play, the procedures were to clean all rubbers with rubbing alcohol and replace those that had lost their "bounce." Wax the playfield. This was before the protective laminate became standard on all pinballs manufactured. The company would experiment with different waxes to get the optimal shine and ball speed. Every routeman carried with him an inclinometer to be sure that the pinball playfield was the perfect 5% to 6% incline for optimal ball speed. The number of free plays were divided into the total number of plays to calculate the replay percentage. This was written on the collection ticket and the owner looked at every ticket, everyday. If adjustments needed to be made, score was the last thing that was touched. Routemen worked the playfield moving posts and other transparent adjustments.
So, you ask, what happened to this company after 1982? As the economy changed, the machines increased in cost, the revenues decreased to what can only be called today's normal levels. For a period of time our industry was actually a favored one by lenders. You can only say "no" to more money so many times. The company took on some debt for expansion purposes for the first time, which cut into the margins. Then they bought some bad games. Really bad games. That further cuts into the margins. Those bad games had to be sold, but they were sold at a significant loss, rather than the huge gains that were made during the boom period.
The dreaded free-standing game rooms were too tempting for them to pass up. The company lost a few dollars there. The profits went from upwards of 20% per year to the 5% level, plus or minus a couple of points. I think they lost money a couple of years too.
The bright side is that the company expanded in size both in machine count and in regional coverage into some excellent accounts. The company provided a nice living for the owner and his family for many years. The reality of this business is that so much of the equity is in the equipment, that to really realize the motherload, the business must be sold. They sold their family-owned business recently with no regrets.
For your business, maybe it's time to revisit what you did so well when
you started. When were your gravy years? Are you still adhering to the principles
that allowed you to realize your early successes? Perhaps a trip down memory
lane might do all of us some good. After all, it's not magic out there.
It's just taking care of business.