He used to work an office job five days a week for a decent salary. But somehow, he came up with the idea of opening a children’s playground so that his wife could stay home to run it while still bringing in some income.
That decision marked the beginning of a tragedy. They drained their savings and eventually had to go into debt as every bit of cash they had was poured into the business. Rent alone cost VND25 million per month as the space needed to be large enough to house a ball pit, a bounce house and other equipment. The lease was signed for five years but by the end of the first year, they were already suffering heavy losses with no breakeven point in sight.
Parents paid VND60,000 (US$2.3) per ticket and then sat outside while their children played. Even on Friday evenings, the place was eerily quiet. On average, across both weekdays and weekends, it sold only about five tickets a day and brought in just VND300,000. That was nowhere near enough to cover rent, let alone electricity, water, wages or maintenance.
My brother-in-law, ever the optimist, believed that customers would eventually come as “children always need a place to stay.” He converted part of the space to add a few pool tables and a food stall selling fried chicken and milk tea, both aimed at parents. However, anything they added only resulted in more losses.
No complicated analysis was needed to see the problem. The business model was doomed to fail from the very start. A children’s playground is not like a cafe or restaurant, where you can upsell items and turn over customers quickly.
Demand is also influenced by numerous factors, including parents’ spending habits, weather, school holidays and whether the surrounding neighborhood has many children or alternative options like free parks, large shopping malls. Parents can also simply let children stay home and play games on a device.
Meanwhile, the cost is staggering, from electricity and labor to maintenance and depreciation. The initial investment cost several hundred million dong.
The space has to be large for children to run around but that translates to costly rents. A location that is easy to find and close to residential areas costs even more. To sum it up, the business cost much more to start and run than the couple had planned, yet they tried to hold out for as long as they could instead of shutting down early.
This problem is quite common among those who ventured into business. Very few people are willing to decisively cut their losses. They often hesitate because they “have already invested too much to give up.” But the longer they hold on, the deeper their losses become as their declining business rarely turns around.
By the time they finally shut down, they not only lose several months of rent but their entire investment, or even more. If a business is losing money too badly, try not to fall for the sunk cost fallacy and delay the inevitable.
*This opinion was submitted by a reader. Readers’ views are personal and do not necessarily match VnExpress’ viewpoints.
