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Entrepreneur's $500,000 dream

Back in the early 1990s, the emergence of Discovery Zone and Leaps 'n' Bounds (McDonald's version of the pay-for-play center) spurred the emergence of hundreds, probably thousands of entrepreneurs who hoped to franchise a Discovery Zone or develop their own knock-off. A large part of the excitement was due to the belief that the total development cost would only be $500,000. It seems like low start-up cost brings entrepreneurs out of the woodwork. Some of those entrepreneurs succeeded in developing centers. None of the Discovery Zones or Leaps 'n' Bounds (purchased by Discovery Zone) survived. Discovery Zone was liquidated in 1999 under Chapter X bankruptcy (its second bankruptcy proceeding). Maybe 1% of the knock-offs survived long term.

What those entrepreneurs failed to realize was that affordability to open a center does not equate to business success. Yes, when the cost is in the $500,000 range, it makes it possible for many people to secure the financing to open. Unfortunately, the zeal to open their own businesses tends to blind entrepreneurs to the realities of what really works business-wise. Or to put it another way, the ability to open a business does not mean the business will stay open long term.

Well, here we are about 10 years later, and the $500,000 entrepreneurs seem to be coming out of the woodwork again. This time all the excitement has been brought on by two concepts:

• Dedicated birthday party centers, mainly Pump It Up, and
• What we call moms' café & play centers targeting at-home moms with preschoolers (stay-at-home is no longer a politically correct term, as many at-home moms have home businesses, work part time or job share).

No different than in the early 1990s, the entrepreneurs are chasing after unproven concepts (the party facilities) or are trying to develop centers on a shoestring budget ($500,000 may seem like a lot of money, but today it doesn't buy all that much, and based on inflation, it buys only about ¾'s as much as in the early 1990s.)

We haven't examined Pump It Up or the other birthday party center concepts in any depth, so we won't express any opinion on their long-term viability. However, our philosophy is that any new concept needs a minimum of at least a three-year proven track record to be considered viable.

When it comes to the moms' café & play concept, different versions have been around for quite a few years. In reality, the moms' café & play center is really a smaller version of the children's edutainment centers we have been developing for years that have successfully attracted at-home moms during the weekdays. The difference is that with its smaller size, the moms' café & play can't accommodate peak weekend crowds, so it is open only for birthday parties on weekends and holidays.

Where we believe many of the new entrepreneurs are getting themselves into trouble is by trying to produce a moms' café & play center for around $500,000. For that price, you just can't produce the quality facility that today's consumers, and especially at-home moms, expect. Putting some play equipment on the floor in a warehouse finished space with some inexpensive furniture just doesn't cut it today. The bar has been raised very high with today's mothers, with all the top quality restaurants, including the quick-casual options such as Panera Bread and retailers, hotels, even airports. Even fast food restaurants are upgrading their interiors and finishes to retain and attract customers. Our experience is that to develop the quality facility that will attract at-home moms, and especially the white-collar family moms who have the most disposable income, costs somewhere between $150 and $200 per square foot turn-key (total investment required to open the doors) in a rented space. No, you're not going to open a 10,000-square-foot facility and succeed at a cost of $50 per square foot, or $500,000 total.

Unfortunately, history does tend to repeat itself as many entrepreneurs fail to learn from mistakes of the past. Hopefully, not as many entrepreneurs will get burned this go-round, as compared to the large number who lost it all in the early 1990s.

Additional reading:

• Finding the investment sweet spot
  

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