Three Reasons Why Entertainment Businesses Fail

Three reasons why so many entertainment businesses fail

The location based entertainment industry business seems to have one of the highest turnover rates in any industry. Especially over the last decade, thanks to this little thing called covid-19, location based entertainment has always been a quick turnover business. But, we’ve heard enough about covid in the last 4 years so I’m going to exclude those reasons from this article.

You see it all the time, a group of friends gets together and announces that they’re going to open the cool new entertainment business in the city. They spend all this time developing the sickest logo, figuring out the way they can make their business look super cool, spend way too much time focusing on the little things that don’t really matter in the grand scheme of things, launch, are really successful for like 6-12 months, and then close their doors. 

I have seen this happen in so many different cities with so many different types, whether it’s arcades, axe throwing, escape rooms, laser tag, mini putt, rage rooms, board game cafes, or whatever it is. You may have noticed in that list that all of those options are things that are fairly low barriers to entry. You can build it for less than $50,000, hell some of them even less than $10,000. 

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Long story short, these businesses fail so often because they have a low barrier of entry that an individual or a small group of friends can collect the funds to start up. These people are not business experts, they don’t know how to run a business, they just see something that looks cool, watch a couple inspirational youtube videos, and are excited to put #entrepreneur in their Instagram bio. They’re not focused on what it’s going to take for long term success, managing staff, providing proper policies and procedures, and doing accounting, they just want to do something cool because their current job is boring.

Contrary to popular belief, these businesses are actually businesses. When I started my arcade I had so many people that would come in and be like “woah that must be the dream job, you just sit around playing video games all day”, which yeah I did get to play more video games than an average job. But much like a mattress business owner doesn’t just lay in bed all day, I as an arcade owner actually had a business to run. Don’t get me wrong, the first few months of the business I definitely stuck around after hours to play games and hang out, I mean I built this I might as well enjoy the fruits of my labour. But after a few years I was barely playing any video games even as a hobby, instead I spent the whole time focusing on my business, growing, managing staff, boring paperwork, and building.

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Now with that personal example I’m not trying to say that I’m better than anyone because I grinded and focused on my business. That’s just a realistic expectation of what’s required to run a business like this. It’s not just sitting around playing games all the time, like any other business, it actually requires work. 

I have done consulting for countless groups where its 4-6 friends that want to open the next cool entertainment thing in their city. But they all have jobs, they all have families, and they all just want to do this for fun thinking it’s going to make them so much extra income on the side. You know how hard it is to make a decision when there’s 4-6 individuals that everything has to run by? 4-6 people who have different thoughts, opinions, and visions of what their commitment will be and what the end result of the business will be. It’s nearly impossible.

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That’s the first big reason that so many of these businesses fail. It’s either an individual or a group of individuals who think because of the low barrier of entry that that means that it must be an easy business to run, they’re just going to sit around with their friends, have fun, and making a killing.

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The second big reason is just building for the wrong demographic. I worked with a client who was in a very small rural town. Approximately 20,000 population, primarily farmers and old people. About a 30 minute drive away was a big city with 400,000 people and multiple entertainment businesses of every genre. Now when you think of rural old farmers in a small population town, the first thing that they hate is change. Know what the second thing they hate is? Technology. Know what this client was opening? A Virtual Reality Arcade. 

I think that one speaks for itself. This was a complete mismatch of the demographic in the town to what the business was itself. But along the topic of the first point of easy barrier to entry, the owner thought he could just go spend a couple thousand dollars on cheap VR headsets and then suddenly they would have a business. Surprise, you just got yourself a full time job that doesn’t pay well because you can’t afford staff so you have to work non-stop.

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The third reason is more focused on bigger cities. I have seen so many entertainment businesses pop up in downtown Toronto or Vancouver or some other major city and all of the sudden they’re out of business a year later. The thing with location based entertainment businesses is you need a lot of space. You know what’s really expensive in the downtowns of major cities? A lot of space. When running a location based entertainment centre you have to find the sweet spot to how much money you can make per square foot and how much you’re going to be charged per square foot. There are very few business models that can succeed in these high cost environments. What I have found to be successful is to be outside of the core, but still in a decent area, with good public transit and parking.

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There’s so many more smaller reasons I could list, but those are the core 3. Inexperienced business owners that don’t want to run a business but just think it would be cool, easy, and has a low barrier of entry, opening the business without the customer demographic being there to support you, and biting off more than you can chew in rent costs.

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