Starting a business can be difficult. Starting an esports center business is even more difficult. In one of the episodes of our Esports & LAN Center Show, our CEO, Zack Johnson, and I discussed the top 10 common misconceptions when opening an esports gaming center.
Everything discussed is now more relevant than ever with the recent COVID pandemic that made businesses where people gather in an enclosed space, such as a LAN center, a little more complicated.
#1: Taking Your Business Plan to Get a Bank Loan
Most entrepreneurs think of this when they get started with a business idea. However, this does not ring true when opening a LAN center. While esports itself is a multi-billion dollar industry, the esports venue business is a niche market.
You'll be hard-pressed to convince a bank to give you a loan for a startup business, let alone something that doesn't have a proven business model. Zack Johnson goes out of his way to explain that you have a better chance of getting a loan for opening a Subway.
Another thing to consider is that there are requirements that revolve around your personal net worth and ability to pay the loan from the bank. If you will be unable to pay the loan with your own net worth in case the business fails, then you are better off getting a business partner to share the cost (and risk) of opening the center.
#2: Don't Build a Plan Around Your Funding Ability
Many people make the mistake of going into a business thinking that they can use whatever money they have as a starting capital and treating it as if it's an investment. The truth of the matter is, you as an entrepreneur, should plan the business first and not restrict the plan based on the amount of money that you currently have.
Johnson gave a great example when he mentioned info that he got from the internet that opening a Subway franchise could range from $116,000 to $263,000. The reason for the disparity in the pricing of the franchise comes from the idea that rental and cost of the materials may differ depending on the location.
Another example that Johnson gave was about opening a trampoline park franchise. The proven model to be successful is to have a capital of $2.5 million in order to fund the business properly (e.g. get the necessary supply of trampolines, facility renovation, etc.). Funding the business with $210,000 and thinking that having only three trampolines can grow the business, instead of doing the tried and tested business model with $2.5 million, is only bound to fail.
#3: "But I have a great location..."
Don't get us wrong, location is a factor for an esports venue business to be successful. However, you should consider thinking twice about getting a great deal for a location. Because chances are, you will get what you pay for; in real estate, pricing can be a good indication if the business will do good.
Johnson gave an anecdote about his old business partners that had food businesses in three locations. According to his partners, one of the locations was performing poorly. And guess what, the branch that was doing poorly was in a location where they got a great deal in rent. The other locations that they were paying more on rent were doing financially better.
Another story that Johnson shared was when he opened an esports gaming space in Bloomington, IN to focus on college students in the area. He thought that opening in a location near a university would reel in regulars among the students and in writing, it does not sound like a bad idea. While the center was able to get students to play during special nights, they never come as regular customers in the shop.
#4 "My passion is gaming..."
We agree that having a passion is a good thing to have when doing something especially if it's your career or source of income. However, passion alone does not always equate to business success and this is supported by our personal experiences with running esports centers.
An entrepreneur will have to do a lot of research and learn how to run a business properly. At the end of the day, people running an esports center will have to consider a lot of things like making the rent, setting aside a portion of income for future equipment upgrades, maintenance, and so much more.
Sure, having passion is a great motivator to do something day after day, but you'll also need a reality check that having skills to run a business is a much more important factor.
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#5: Starting Small With Future Plan to Grow
This is something that we hear all the time, "I will start with 20 systems, and then I'll add more as my business grows." It's a popular idea that most people have when thinking of opening an esports center but it's also very wrong.
The only time this can work is if you are adding esports to your existing business. This is especially true with family entertainment centers where esports is just a part of the many offerings of that business.
Starting with only 20 systems in a stand-alone esports center business and expecting it to grow is never a good idea and it almost always fails.
#6: I Can Get a Huge Internet Pipe for Super Cheap
Getting 500,000GB of internet for $99 a month is dirt cheap right? Wrong. Similar to getting a "great" deal on a location, getting a "great" deal on an internet connection, and using it for a business that relies on a good internet connection is a recipe for disaster.
ISP was among Zack Johnson's first businesses and he knows that kind of "deal" means that you'll have access to a connection with other people on the same network that also bought into the $99 deal. Also, to make the deal happen, the ISP will provide devices that are not enterprise-level and may affect connection stability.
It's important to get symmetrical up and down speed that can only happen on a proper enterprise-level internet connection. One of the hallmarks of an esports center is to provide something that can't be experienced when playing at home and having a sub-par internet is going to give the wrong impression to customers.
#7: Testing Success With Consoles
Related to Misconception Number 5 of starting with 20 or fewer PCs. Putting a couple of XBoxes in your center to test the proverbial waters whether there's a demand for consoles is not going to work. As an esports center, you have to cater to people gaming on several platforms.
The idea of having a few consoles in a place where PC is at the forefront can affect the perception of people that are non-PC gamers. It's also worth noting that an esports center is a place for social gaming, you will get groups of people that are looking to play on consoles.
So if you are going to do consoles make sure to have a minimum amount or don't have consoles at all.
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#8: We Can Do All The Work
This is another unrealistic expectation of would-be entrepreneurs thinking that they are saving money and get started by doing all the work and think of hiring people down the line when the business is doing well. Sure the first few weeks aren't going to be bad and you can split the work with your business partner, after all, you're doing something that you both like right?
Think again, nobody wants to work 80 hours a week and not get paid for it. Sure it's your business and you'll be able to pay yourselves, but for how long? Aside from that, you'll be missing out on family events or dates.
As we have mentioned earlier, you need to have a good business plan and funding in order to hire employees and get your esports gaming business running smoothly.
#9: Marketing Isn't Needed to Succeed
Some terrible ideas from some would-be esports venue owners are that businesses can flourish by word of mouth and creating a sound marketing campaign is no longer needed. News flash, Coca-Cola spent $4.24 billion on their global advertising in 2019 just to be on the top of the marketing food chain!
Think about it, that's a company that practically lasted over 100 years and kept on doing marketing just to stay relevant. The good news for you is that there are a lot of free online resources that you can use to market your esports gaming business. You can use social media to post gaming events so that customers will keep coming to your center.
You may think that esports gaming venue is a niche type of business and having very little competition would mean paydirt, but it is a fallacy. As a matter of fact, there are people, up to this day, that still walk in eBash's door and ask what exactly that we do. Just imagine that for esports venue that failed to advertise their business properly.
#10: The Focus Will Be on Food and Beverage
Another misconception is that focusing on food and beverage will carry the store's sales, as it were. We keep hearing from people that their business will make more money on food or drinks and it will complement their esports offering.
Although there are a handful of centers that have dedicated restaurants (or bakeries) with their esports center, you will need to find people that can effectively run that side of your business. But if your focus is to run an esports venue, then your focus should be on the gaming experience.
Unless you have an existing business related to the food and beverage industry, then adding an esports offering might not be a bad idea. However, if you are just starting out, you'll have to set your priorities otherwise customers that come to your center looking for a great time in gaming might find themselves disappointed.
If you made it past the 10 common misconceptions list then I believe that you are bent on doing the best for your esports gaming business. However, you'll have to research and learn everything you can about this niche in order to create sound business decisions.
Esports as a whole is evolving and games are churning content to keep players and spectators happy. It is your job to keep up with the demand of what's popular in your venue to keep the business afloat. However, if you need assistance to get started with your esports venue or want to improve the way you run your business, feel free to send us an email at firstname.lastname@example.org.