How We Started A $12M/Year Escape Room That Brings In 400,000+ Players Annually
Hello! Who are you and what business did you start?
I am Akos Gabossy, CEO and co-founder of the PANIQ ROOM Franchise, a global network of escape rooms with an annual player count of 300,000 and a systemwide revenue of $10 million.
Escape rooms are a type of adventure game that requires participants to solve puzzles and complete challenges within a specified time limit. The immersive and themed puzzles are designed to engage problem-solving skills and creativity, making it a fun and challenging experience for individuals or groups of all ages.
Our company was established in 2014 and PANIQ Room is one of the oldest and most reputable brands in the industry.
What's your backstory and how did you come up with the idea?
During my high school years, I spent a year in Burbank, California as a foreign exchange student from Hungary. It was during a trip to Chuck E Cheese's that I was inspired to start my own business.
After completing my university studies in Budapest, I was involved in several successful business ventures, including a playhouse, real estate developments, food and beverage projects, and an adventure park.
As I was always looking for ways to entertain people, I was intrigued by the growing popularity of escape rooms in my hometown, Budapest.
In 2014, I and my partners decided to bring the concept to the United States and opened our first location near Universal Studios in Hollywood. Since day one, I recognized escape rooms as a powerful and innovative form of entertainment.
In Hungary, the rooms were often cheap-looking and lacked immersion, but I believed that by creating interactive rooms that resemble movie sets, and by making the players feel like they are part of a thrilling adventure, the activity would be widely loved.
Take us through the process of building the first version of your product.
Construction of our first venue in Hollywood took around three months and initially had a budget of $40,000. However, the final cost ended up being $100,000.
The first two escape room themes were the Insane Asylum and the Bunker. Although escape rooms had already been tried and tested in our hometown of Budapest, it was difficult to generate ticket sales in LA as people were unsure why they should pay to be locked up in an asylum.
Additionally, determining the appropriate level of difficulty for the puzzles and challenges proved to be a complicated task, as our initial puzzles were not as technologically advanced as they are today. We ended up launching a campaign on Groupon and quickly became fully booked.
I recall celebrating the Sziget Festival in Budapest with my brother when the campaign was launched and seeing hundreds of coupons sold every hour. Due to limited capacity, we had to shut down the campaign after a week.
The company aims to reach 30 locations, generating over $15 million in systemwide revenue and attracting more than 400,000 players by 2024.
Describe the process of launching the business.
The founders of PanIQ had a vision of creating an international brand from the outset that could one day be sold. This goal shaped many of their decisions, including investing significant funds into IP protection, website development, and brand marketing. The long-term strategy was to establish a leading brand in the location-based entertainment industry.
PanIQ Room opened several standalone stores in the US before becoming an official franchise brand in 2017. It took five years for the brand to find the right expansion strategy, which now involves a hybrid model of corporate store openings and franchising.
The first two stores were opened using the founder team's savings, as being foreign entrepreneurs made it difficult to secure proper bank financing. Initially, the stores were opened through joint ventures, but later on, the company raised over $7 million in capital from a European VC firm called Hiventures.
In the early days, it was a challenge to identify the right individuals to manage our stores and collaborate on new projects. This is typical in the franchise business model, as a strong back-office team is necessary to support operational stores and facilitate the opening of new stores. As a result, we continue to seek out flexible individuals capable of handling multiple responsibilities.
Since launch, what has worked to attract and retain customers?
Since the inception of PanIQ, our primary marketing channels have been Google Ads, Groupon, and social media platforms. The challenge has always been to attract customers for the first time, but once they have a good experience, it's easier to bring them back to try our other rooms.
The significance of review platforms has diminished in recent years, but being in the top three most reviewed companies on Google in a particular area is still crucial. We also heavily focus on optimizing our SEO, as organic traffic from Google is the most cost-effective way to acquire new customers.
In terms of investments, creating high-quality experiences and incorporating creative and immersive themes into our game plots is a top priority for us. PanIQ aims to be a mainstream escape room company and our primary target audience is players with limited escape room experience. Targeting die-hard escape room fans requires a different approach and is challenging to sustain as a business.
At the end of the day, the use of Groupon brought us a fresh influx of customers from various cities, and also generated an initial buzz, predominantly in the form of reviews and increased website traffic. The key to our popularity was the vital role played by social media and word of mouth, our newest stores feature a lot of “selfie spots” in the lobby which are very Instagram friendly and worth a post on social media.
How are you doing today and what does the future look like?
PanIQ Room currently has 20 locations in operation, with 8 more sets to open in 2023. With the successful launch of these new stores and selling some new franchise licenses, the company aims to reach 30 locations, generating over $15 million in systemwide revenue and attracting more than 400,000 players annually.
The ultimate goal of PanIQ is to become the largest escape room brand globally. With the expansion of locations, it becomes easier to attract professional franchisees willing to open multiple stores.
The company has also invested in Indestroom, the world’s largest escape room supplier. This investment allows PanIQ to have in-house production capabilities, which is a major advantage as innovation and creating unique puzzles are crucial to the brand’s success.
Our company can produce our escape rooms in-house, and we also hold a significant market share since many independent escape rooms purchase puzzles from our production facility.
We have found that the quickest route to expansion is through acquisitions, and we have recently acquired and rebranded several stores. This strategy allows us to save a considerable amount of time while minimizing the risks associated with opening new stores from scratch. Acquiring existing leases provides us with a clear understanding of the numbers from the previous operator.
Through starting the business, have you learned anything particularly helpful or advantageous?
During the pandemic, I had to contemplate the future of my company and my career. I was aware that our business model was vulnerable due to its physical aspect and that the intensive expansion hurts our liquidity position and has a significant impact in a problematic situation. With most of our stores shut down for almost a year, surviving the pandemic with zero revenue was a huge challenge.
The current economic climate is also not favorable for PanIQ, as the Hungarian forint has weakened by 30% compared to the dollar, and inflation is affecting businesses with ongoing construction projects. We could raise our ticket prices in most cities, but it doesn’t help the projects, which are not open yet, but the construction phase costs 20-30% more.
PanIQ is not a typical franchisor brand, as we are deeply involved in the pre-opening phase of each project. Negotiating with landlords, and handling the permitting and construction process is a difficult and time-consuming responsibility that requires a lot of patience.
Unfortunately, we have had to educate our franchisees on entrepreneurship multiple times, and some have taken on too much risk, putting pressure on us. If I could go back, I would not have taken this route or charged a significantly higher fee for our services.
What platform/tools do you use for your business?
PanIQ is an innovative company that leverages the latest marketing platforms and productivity tools to run operations smoothly.
While the company headquarters is based in Budapest, most of our stores are located in the United States, requiring efficient management and supervision of existing stores and new construction projects.
Utilizing cloud technology, we store our data on Google’s servers, which greatly simplifies our day-to-day operations. Recently, we have begun using AI tools, including Chat Gpt, to assist us with a range of tasks.
These tools have proven extremely valuable in updating our blog site, crafting marketing materials, and creating storylines for our upcoming escape rooms.
What have been the most influential books, podcasts, or other resources?
With a Master’s degree in Economics, I have acquired a broad range of knowledge through extensive reading of hundreds of books. Despite my love for unorthodox forms of learning such as educational podcasts, youtube shorts, and TikTok evangelists, I recognize the importance of traditional scientific education.
Conversely, nowadays I lack the tolerance to read complete books. Instead, I prefer to access online resources that offer condensed information and provide me with valuable ideas and facts. To me, knowledge is like an iceberg, where the Z generation tends to only focus on what's visible above the water, whereas a university education provides a strong foundation beneath it.
Regrettably, I have never had a mentor to assist me effectively in my personal and business development. As a result, I had to navigate through most of the challenges alone, relying solely on my judgment and honesty with myself.
While browsing success stories on the internet, my main objective is to determine the influence of luck and exaggeration on the accomplishments of the person in question. It is crucial to view the world objectively and understand where you started from and where are you headed.
Advice for other entrepreneurs who want to get started or are just starting out?
Contrary to what social media and celebrity entrepreneurs claim, the 21st century does not favor entrepreneurial pursuits. Competition is fierce in every industry, intellectual property is difficult to protect, and having capital has become more important than knowing running a business.
Being a startupper and being an entrepreneur are often confused. A startupper typically has a great idea but uses someone else's money to bring it to fruition. Entrepreneur, on the other hand, takes the risk of investing their own money, time, and effort to make their idea a reality.
Starting a global business in a third-world country is also a significant challenge, as I experienced starting with a monthly salary of less than $300 ten years ago. It took patience, persistence, and hard work to earn the respect of major landlords, investors, and international entertainment companies.
Planning is a crucial aspect of every entrepreneurial journey, and luck still plays a major role in its success. Most people who have made their first million don't like to talk about it, either because they don’t understand the steps retrospective or feel ashamed of having had luck.
Where can we go to learn more?
Hey! 👋 I'm Pat Walls, the founder of Starter Story.
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