Is Children's Edutainment/Entertainment the Business for Me? Frequently Asked Questions

We receive many inquiries from prospective children's edutainment/entertainment center (CEdC) developers. Before diving in with your time and money, it is important to understand what it takes to develop and operate a CEdC and to make sure it's a good match for your skills, abilities and lifestyle. We'd rather talk people out of getting started down the road of development than have them later learn it isn't a good match for them or have them run into a roadblock that prevents their dream from becoming a reality. And most of all, if you do develop a CEdC, it is important not to have any handicaps to making it a long-term success.

So here's a quick synopsis of the good and the bad news. First the good news:

CEdCs can be a very satisfying and rewarding business in that you are bringing fun and enrichment to children.
The annual returns can be anywhere from 15% to 25% of total development cost if the project is well located, designed and managed. With some borrowing, returns on invested capital will be leveraged and be even higher.
There's not a lot of direct competition in most markets.
The barriers to entry are high, reducing the risk of new competition.

Now for the not so good news, most of which is the flip side of the above good news:

Lack of competition does not assure success.
You work when everyone else plays. It's not a 9 to 5 weekday business. It's a 70- to 90-hour a week business.
Today's CEdCs cost a minimum of $2.5 million, and in most cases $3 to $5 million (even more if the real estate cost is included. Also see later information on play cafés).
It is extremely difficult to raise money, and you can't finance a project 100%. Banks, if they are interested (few are), are usually willing to finance only about 70% of the value of the real estate if you own the land and building. Banks are usually not interested in financing equipment and soft costs (unless you have additional collateral or a rich uncle who will guarantee the loan). There are some possible SBA programs, but you will not be able to borrow the entire project cost, probably no more than about 80% (leveraging the project with that much debt is very risky, as there is little if any leeway for error. A mix of 50% capital and 50% debt is much more prudent funding formula).
A large part of the funding will need to be raised from investors, and there is no marketplace to find them. There are no venture capitalists for start-up CEdCs. It takes a lot of networking and work to find investors. You will psychologically need to be able to handle a lot of “nos” and rejection.
It takes money to find money. For both the banks and investors, you will need a credible and detailed business plan that includes a market feasibility study, detailed cost estimate and pro forma financial projections, most likely prepared by an industry expert. You will need a contract or option on a site. For investors, you will probably need an offering memorandum that complies with state and federal securities laws and regulations. Be prepared to spend anywhere from $40,000 to $100,000, depending on the size and type of project, to get all this done and be in a position to start begging for the money.
You will need to have your own capital to invest in the project. Investors will want to see you have an investment in the project, probably 10% to 20% of all invested capital.
It's a complex and sophisticated business that requires a high degree of management expertise. This is not a business for novices. Investors and banks will be just as interested in your management ability as in the project's economics. If you can't demonstrate management experience and ability, find a partner who will bring that to the table before going after financing.
Quality food and beverage is very important to success. Again, this is not an area for novices. If you don't have experience in the restaurant industry, find a partner who does.

Of all the barriers, raising money is what usually stops most projects dead in their tracks. It's a great business, but don't jump in unless you have some capital of your own, feel confident you can raise the financing (meaning you already have some solid avenues you know you will be able to pursue) and are psychologically prepared for the struggle to find the financing.

Before getting started, you should consider attending the 3-day Foundations Entertainment University (www.foundationsuniversity.com), held every February, April and July, which will give you an overview of all aspects of developing and managing a CEdC business.

Frequently Asked Questions

Q. What is the smallest center I can open?

A. Based upon our years of experience helping clients design, develop and operate CEdCs, we believe the smallest feasible size for a destination center is about 16,000± SF (1,500± SM). In a rented facility, this will cost around $2.2± million to develop. If you are buying land and building, the cost will be $5.0 million or more depending on the extent of outdoor activities. (see later information on smaller play cafés)

Q. Why can't I start smaller and then add if I am successful?

A. Success with children requires a wide variety of play options. Each activity can only be made so small before it won't work. Then there needs to be seating for all the parents, restrooms, birthday party rooms, kitchen and storage space, offices, the check-in area and circulation - it all adds up. If you decrease the variety, then the formula doesn't work, so starting small means you will never get a chance to expand. Discovery Zone went bankrupt twice and is now out of business. One the root causes of their demise was lack of variety. Soft-contained-play by itself doesn't' work. DZs were like a restaurant with only one or two things on the menu. It quickly becomes boring and loses any repeat appeal.

Q. Is an outdoor play area important to have?

A. We believe it is. Outdoor play areas broaden the variety and overcome the seasonality of just being an indoor facility. Children prefer landscaped, naturalized, outdoor areas over indoor areas no matter what the weather. In good weather, adults (especially moms) prefer the outdoors. In the good weather, think how popular outdoor restaurant seating areas are. Often people will wait for a table outdoors even when indoor seating is immediately available. Even in northern climates or the far south, the outdoor areas receive heavy use at least four months of the year. The other advantage of outdoor areas is that it evens out your sales and allows you to retain more permanent year-round employees. Once you find and train good employees, you want to be able to keep them. There is a direct relationship between staff retention and guest satisfaction.

Q. Is there a different type of center that is smaller and less expensive?

A. We have recently developed a new type CEdC that is much smaller in size that we are calling an At-Home Moms' Play Café (also called just Play Café) We have been able to reduce the size by keeping the center closed to the general public on weekends, using it then only for reserved birthday parties. During the week, the center targets at-home moms with their preschool children. When you put in everything you need to offer moms a great experience with a great menu of café food in a pleasant seating area, a good variety of quality play areas for their children and several birthday party/multi-purpose rooms, the center works out to be around 6,000 square feet (550 SM) to 10,000 square feet (900 SM). We have designed the model to balance the play capacity with the number of birthday parties that can take place simultaneously on weekends. We estimate the total development cost will run around $1.2 or more in a leased space for the smaller size (cost vary greatly based upon local construction costs and the extent of build-out required for the space)

The At-Home Moms' Play Café won't work in all markets. It is highly dependent on a strong market of stay-at-home moms, who are found in the highest concentrations in upper-middle and higher income white-collar communities. To have a large enough market usually requires the facility to be located in a well-developed suburban area of a larger size city.

Q. Can I develop a center that will attract children up to age 12?

A. No and Yes. There is a significant development change in children around age 9. Their interests change dramatically and what interested them a year or so early is now perceived as sissy. Therefore, if you want to attract children older than 8, the center needs to have a separate area designed for just 9-12's. This of course increases size and cost. Rather than trying to have a broader appeal, focusing on a narrow market niche, such as infants to 8-year olds or infants to 5-year-olds for play cafés has proven to be a more successful strategy.

Q. I am planning to open a new facility. When should I consider retaining your firm?

A. The earlier the better. The biggest, and often irreversible or fatal mistakes are made the earliest in the development process. Critical success factors include site selection, the mix of attractions, layout and design, parking and realistic pro forma projections and development budgets. Many aspects of CEdCs are totally counterintuitive, meaning the correct approach is often just the opposite of what intuition tells you. Our extensive experience and knowledge can help you make the best decisions to assure your success.

Q. Isn't a market feasibility study just going to give me a tool to get financing?

A. With some consulting firms-yes. However, the White Hutchinson Leisure & Learning Group prides itself in telling our clients the way it is. We tell our clients not what they want to hear-but rather what they often do not want to hear. If a project is not feasible or could have serious long-term competitive problems, or other mistakes are being made, we will tell you so. We would just as well tell you not to proceed as to proceed. Our philosophy is to help our clients make the best possible business decisions from their perspective. Sometimes that means not proceeding with a particular project at a particular site or with a CEdC at all.

Q. What do your services cost?

A. That is complex question to answer, as all projects are different and clients' needs vary. Market feasibility studies normally cost 1/2% to 1% of total project cost. Full market and economic feasibility, which includes preliminary plans, typically runs about 1% to 3% of total cost and higher for more complex or unusual projects. Comprehensive production/design and consulting services, including storyline and mascot development, themed architecture and interior design, management start-up assistance, training, etc., is usually in the range of 9% to 15% of total development cost. Other more limited services vary widely depending on the project and client's needs.

Q. I am not sure how to proceed with my project or what I need. How can you help me?

A. Most of our clients retain us for an initial one-day consultation/charrette to review and discuss their plans, inspect sites, conduct a preliminary market analysis, discuss all aspects of development and the industry and generally help them get focused on a plan of action. Based upon that trip, we can then give you a definitive proposal for any additional services you need.

Q. What does that initial one-day consultation/charrette with Randy White cost?

A. $3,000* plus travel expenses. Randy White, CEO of our firm, usually flies in the night before and leaves as late the next day as possible to assure a more than eight hours consultation. He usually wears our clients out before he leaves. We travel frugally as if it was coming out of our own pockets (otherwise we are not representing your best interests).

*International projects normally require longer initial visits and travel times, so fees will vary.

Q. Do you charge just to discuss my project over the phone?

A. No. Call us at +1.816.931-1040, ext 100 (or via e-mail). Randy White, our CEO, will be glad to discuss your project and answer any of your questions. On a number of occasions he has explained to prospective clients why their projects were not feasible. We trade on our integrity and reputation, not on trying to generate work for ourselves.

Q. Can an independent operator compete with the chains?

A. Absolutely. Independents can knock the socks off the chains if they pursue a market/guest driven program of excellence in design and operations. In fact, the majority of family, children's and recreation centers are owned by sole entrepreneurs.

Q. Is your company affiliated with any suppliers?

A. Absolutely not. We have no ownership, nor will we accept any commissions, rebates or other compensation from suppliers. We have no conflict of interest in our advice to you. We often recommend particular equipment or suppliers, but only because we believe they are the best choice.

Q. How long will it take to open my new center?

A. Assuming a good property is available for renovation, realistically about 12 to 18 months when lease negotiations and financing are factored in. For projects to be developed from the ground up, 20 to 24 months from the start of feasibility studies to opening.

Q. Can White Hutchinson help me with more than just design?

A. Yes. Unlike most leisure/entertainment companies that specialize in only one discipline of development, such as architecture, feasibility studies, interior design, or training, the White Hutchinson Leisure & Learning Group takes a comprehensive, multi-disciplinary approach to our work. In the entertainment industry, we are referred to as "producers." As such, we oversee a production team that includes all the disciplines of feasibility, design, development, marketing and management of a center. Our production team includes the pure design disciplines such as architects, interior designers, landscape architects and civil engineers. Unlike design firms, it also includes market feasibility experts, financial experts, trainers and business experts plus many other disciplines that the typical development process ignores, but are really essential to developing a successful project, such as acoustical design, wayfinding, child development and education, storyline and theme development, menu and food service design, horticultural design and safety experts, to list a few. Our comprehensive approach not only deals with the physical facility and its design, but more importantly with the entire guest experience. Rather than think of the development process as just the design of a physical facility, we approach a facility's development as the design of an entire business.

White Hutchinson Leisure & Learning Group
Kansas City, Missouri, USA
+1.816.931-1040
e-mail
www.whitehutchinson.com