Don’t Quit Your Day Job…

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The Toy and Game Industry is certainly different.  It's what I've called a "passion industry" – meaning that more often than not people get into it because they have a real passion for the product, or the intrinsic value of play.  Not because they have a track record of building successful businesses.

Unfortunately, we see many people who have not been able to translate their passion into a viable Simon-cowell business model.  I often feel like the "Simon Cowell" of the game business – the guy who basically says "your idea isn't going to fly, and you shouldn't quit your day job."  It's no fun being the wet blanket, and yet – as the saying goes – somebody has to do it.

If you manage a successful business in the industry, then what I'm about to say will be old hat.  By successful, I mean a business that returns a 15-20% EBITDA number, and has a street value of somewhere around 1x sales at the very least.  But for those just starting out, or struggling to figure out why this gig is so damn hard, here are two things you MUST know:

1) The cost of developing a toy or game, including the first production run, will be somewhere between $50 – $100k.  I've seen both streamlined 1-person operations and bloated development teams, and $50 – $100k is the number.  Period.  This includes tooling, molds, safety testing, play testing, graphics, transportation, warehousing, and actual product cost.  These are SUNKEN costs.  We recently tried to help a client acquire a game property, and the inventor balked because the offer didn't include the $45k he had already spent. He lost the opportunity.  Sorry to break it to you, but noone really cares what you've invested.  That has no impact on the value of your business.  So if you don't have $100k to put at risk, think twice. 

2) The best businesses in the industry turn out about a 20% margin after all is said and done.  Which means that if you sell 10,000 games at a $10 wholesale, you'll take home $20k.  Sure, it can be higher if you are acting as the A/R person, the shipping person, the sales person, and the janitor.  But even then, the number is under $40k.  Great for a hobby, but not if you're supporting a family that likes to eat.

Why do I share this?  Because all too often people come to us AFTER they've made a huge investment of time and energy.  And now they are looking to us for a solution, as opposed to a strategy.  My advice?  Call us first.  Please.  And don't quit your day job…

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