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Proof of concept

I have been saying it several times in this blog, most notably here, but also here and here.

Money quote:

The opportunities for thinking about the commercial use of mall space are wide open right now with frightened mall owners willing to take lower rents . . . or pay someone to generate traffic. The current model: retail stores, food, a dash of video gaming, and maybe a whopping dollop of cinema — is failing.

To my mind, the key to success is a.) provide experience rather than merchandise, b.) do it at low cost, low investment, and with low risk of ending up with a pile of unsold merchandise, and c.) negotiate a low rent — maybe even talk the mall owner into paying you to be there because you have a traffic attracting business idea.

So I’ve been saying but people haven’t been doing. Until I walked into the mall today and there before my eyes . . . proof of concept. And a shoestring venture at that.

Kiosks are one of the big gambles in mall retailing. The rent may be low, but entrepreneurs typically fill the retail opportunity with low-end doo-dads cluttering a cart staffed by an indifferent teenager (or an in-your-face irritant). I’ve watched these things sell nothing for an hour or more before I ran out of steam and moved on.

Not any more. Kiosk spaces are filling up more and more with service providers. First came the massage chairs, now the teeth whiteners are popping up (and, imagine this, seem to have no customers). Today, some strapping entrepreneur had set up a miniature car racing track in a spot that used to host a hair accessory kiosk. For five bucks a pop, mall patrons could race a car around the track for about three minutes.

You know exactly the car racing track I’m describing. The electric cars follow parallel slots while they zoom around the track; you probably had one as a kid (though probably a lot more basic than this one). The entire setup at the mall could fit on a largish dining room table.

Now think about this from the standpoint of business strategy (I interviewed the entrepreneurs but agreed not to reveal specifics about their business).

In terms of investment, they already owned the track and cars but had to invest in a cash register. The mall rental was ultra-low (while they’ve held on to stores and anchors fairly well, the kiosks have been disappearing in this mall).

(The mall is owned by General Properties, on the verge of bankruptcy, which I discuss here.)

In terms of return, they were busy the entire time I and my toddler watched the cars race. In fifteen minutes, they made about $30 in revenue. Sure, that’s not gigantic for those of you dreaming of $100 million companies, but it’s gangbusters compared to the typical mall kiosk. Since they are not selling merchandise, the only expense is the mall rental. So it’s not like they’re selling a $12.50 object for $25 and then deducting for the mall rental and wages. Suffice it to say, that after about fifteen minutes to half an hour, everyone who is pays them money is handing over pure profit.

They are blowing away every other mall kiosk in the place.

And, more importantly, they were doing what they love to do. It’s the simplest possible shoestring business — take what you love doing and already do for free, something you’ve already invested in (economists call this a sunk cost), find a way to monetize it, lower your costs, and structure it so that it is a pure profit business in a short time.

Combine that with the desperation of mall owners and the general failure of the merchandise-food-movies-video games mall model (in other words, sell experience rather than merchandise or food) and you’ve got a winning shoestring venture!

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