How To Make Money In Trendy Businesses-And Survive When The Trend Ends
Nate Martin’s timing was perfect. “Escape rooms” were having an international moment -- starting with one business in Kyoto, Japan, in 2007, and then rapidly expanding across Asia and Europe. They’re like an interactive puzzle: People pay to be locked inside a room and work together to complete a series of tasks in order to “escape.” In August 2013, just as the concept was expanding in the U.S., Martin invested $7,000 to build one called Puzzle Break in Seattle, and he made his money back by the end of the year. He then franchised in Long Island and struck a deal with Royal Caribbean to install escape rooms on cruise ships -- grossing $660,000 in 2015, and putting him on track to more than double his revenue in 2016.
Despite his success, he cautions entrepreneurs against following his lead. “There are now more than a thousand escape rooms, each competing with exponentially larger budgets,” he says. “The barrier to entry is rising so fast, no one could get away with what we did.”
Hear that? Martin is saying he bought into a trend -- just like those who opened drive-in movie theaters, oxygen bars and Jazzercise studios. And trends tend to follow a particular trajectory: up up up, and then down. In 2012, the Latin-inspired aerobic dance Zumba appeared on the American College of Sports Medicine’s list of Top 20 Fitness Trends; two years later, it was off the list. A thousand cupcake bakeries opened a few years ago, and then a thousand ovens clicked off. This is how it goes.
And yet these novelty businesses are understandably tempting: They can be highly profitable. They’re designed to meet demand, hooking in new customers with very little marketing. And when run well, they can last for many years -- surviving long after they stop being cool. That all leaves entrepreneurs asking some very important questions, like: When’s the right time to jump into a trend? And how, once in it, can I survive?
The answers involve the same big subjects that every business has to consider: timing, location and, perhaps most critically of all, how well a business owner can read and react to their customers’ changing needs.
“The waning is coming,” warns Richard Laermer, author of several books about business and trendspotting. “There were so many video store owners who did not see the streaming light, and many laser-tag shops hoping upon hope for a resurgence.” But smart entrepreneurs aren’t afraid to be told they’re stale, says Laermer, nor are they afraid to change as a result. “It’s a good thing to know -- and could save you a fortune.”
For those who chase what’s hot, here’s how to roll with it.
There’s a common wisdom in trends: If you’re late, you’re out -- and it’s easy to be late. “Once the mainstream media talks about it, it has likely reached its peak, or nearly,” says Tim Delaney, a professor of sociology at the State University of New York, Oswego. But according to the 17 entrepreneurs interviewed for this story, trendy businesses are a little more complex than that. That’s because every market operates on its own timing. So even if something is blowing up on social media, and everyone in New York is sick of hearing about it, there are still places where a business can be right on time.
That’s what Ralph Walters and Jaime Rauch bet on. They played an escape room in Denver -- technically, ahem, it was a zombie apocalypse room -- and wanted to build one of their own. So they began plotting to open one called Big Sky Breakout in Missoula, Mont., pop. 70,000. The city permitting office was confused. “They thought we were nuts,” recalls Rauch. “They said, ‘You want to lock people in a room? And ask them to pay you for it?’” But that was heartening: It meant nobody else had tried to open a business like it. Big Sky Breakout opened in April, and the duo expect to be profitable by May next year -- despite two competitors recently joining the market.
There’s no guarantee for how long it takes for a trend to go from big markets to small ones, but anecdotally, at least, small-city entrepreneurs have plenty of lead time. Food trucks make a great case study: The latest boom traces its roots back to Los Angeles in about 2008. By 2010 food trucks were a regular part of life in major coastal cities -- but that year, industry research found that only 26 percent of Americans had eaten from one. Everyone else was likely curious, which is why new food trucks are still rolling into smaller cities for the first time today.
But even a saturated market can be full of opportunity, if an entrepreneur is clever enough. That’s because when many trendy businesses serve customers in roughly the same way, they leave themselves wide open to disruption.
Sean McGrail and Dan Hermann are perfect examples of trend disruptors. In 2012, the alcohol-fueled painting-party market already boasted several large franchises, including Painting With a Twist and Pinot’s Palette. But the guys saw a way to tweak the concept: Their competitors all paid for costly studio spaces, so they launched Paint Nite, which instead hosts classes at local bars. “Our business model was asset-light and cash-flow-positive,” says Hermann. The pair’s initial investment was $7,000. Paint Nite began in Somerville, Mass., was profitable within three months, and has gone international; annual revenues reached -- brace yourself -- $55 million in 2015.
“Entrepreneurship is about betting on yourself and your business,” says Hermann. “You have to believe you are seeing a truth that no one else sees. I thought critically about our concept and why the world today was right for it. I never saw it as a fad, but rather as an opportunity.”
Successful trend entrepreneurs say there are a few rules every similar business should follow -- familiar ones to anyone in almost any industry. To wit: Know your market, keep a lean staff, sign short leases, network like crazy and always be ready to pivot.
“Anything with a two-year ROI or less makes financial sense,” says Shawn Verbrugghe. The way he sees it, a business doesn’t need to last forever to be successful -- which is why he gets into many at once. He runs three spots in Asheville, N.C.: an escape room (of course), an adult summer camp (a newly booming trendlet) and something called the Amazing Pubcycle, which is a pedal-powered, BYO-booze trolley. A fourth business, a restaurant in which people eat in the pitch-black, is in the works.
This is Verbrugghe’s vision of diversification: When one trend dies down, he already has his hands in newly raging ones. It’s working for him, but it isn’t the only way to stay alive. Other trend-based entrepreneurs prefer staying within their niche -- thinking about how to serve the same kind of customer with new ideas.
What does that look like? Well, let’s go back to escape rooms: “The mania might not be long-lived,” says Martin, who opened that business in Seattle. “That said, there’s infinite room for growth in the ‘doing-cool-stuff-with-your-brain’ industry, which I expect to thrive for the next several thousand years.”
The Provo, Utah-based CircusTrix asks a similar question of itself: What fun, physical experience will people want next?
The company operates trampoline parks across the country, including Gravady Extreme Air Sports, a trampoline megapark located 20 minutes north of the Las Vegas Strip. That city launched the trampoline park trend in 2004, and the International Association of Trampoline Parks (a real thing!) says there are currently more than 345 parks in the U.S. CircusTrix founder and CEO Case Lawrence knows that young things in glow necklaces may soon get bored. That’s why he’s approaching his 11 new leases for 2017 as an experiment. “With every new park, we have a clean slate,” he says. “We can try out a supertram from Cirque du Soleil, a free-running parkour stunt lab or a rock-climbing element. Trampolines are just the start.”
Drive along U.S. Route 62 into Grove City, Ohio, and you’ll come across something from another time: paintball. And not just a little paintball, either: This is LVL UP Sports, which provides a full 36.5 acres of space for armed warriors to shoot each other with exploding goop -- just like they used to a decade ago, when paintball peaked at 5.5 million participants.
But here’s the thing: Paintball turns out to still be popular. LVL UP did $11,000 in sales on opening day this summer and expects to pull $400,000 in sales in 2017, with margins over 40 percent. Its owner, Dave Pando, is confident he’ll hit the million-dollar mark by 2019.
So let’s go back to timing. Yes, trends are all about timing, and yes, timing depends on location. But there’s a third twist in there: Even though a trend’s time may seem to have passed, that doesn’t mean it’s actually over. Many companies have a moment as the hot new thing, and then settle into the less-glamorous but perfectly satisfying business of serving a dedicated customer base. There are still bowling alleys, kitschy miniature-golf courses and roller-skating rinks doing well -- and new ones continue to join the fray.
In fact, there are still even murder mystery dinners -- a concept that peaked in the ’80s. Scott and Kelly O’Brien decided to revitalize the genre by founding The Dinner Detective in 2004, but relied on their background in scripted TV drama to do it better. “No period noir settings, play money, obvious actors, hokey scripts, stilted dialogue, bad food or poor service,” says Scott. It took off: Now The Dinner Detective has franchises in 30 markets and a projected revenue of $6 million to $7 million for 2016.
But of course, even in the business of long-surviving trends, it can’t hurt to be flexible. LVL UP, you might notice, doesn’t have the word paintball in its name. Pando’s long-term plan is to introduce go-karts, batting cages and CrossFit games to his operation. “By not committing to being a paintball-only facility,” says Pando, “we can expand into new trends as they pop up.”
And they will pop up.