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UKRAINE – STARTUP AND
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Two friends from Odesa opened 16 virtual reality clubs “Cube” over 2 years. Income from each club reaches up to $5,000 per month

Bogdan Nikitin and Sergey Mikh have been working in the IT business for many years. In Odesa, they have a company called Nikitin Team, which is engaged in the development of sites, design and software. However, in 2016, they got stoked about creating their own VR club. Today, CUBE is the largest network of VR clubs in the CIS, at least the founders are sure of this. It has 16 establishments in Ukraine, 4 of which are owned by them directly, and another 12 are opened through the franchise (several clubs in other countries are at the opening stage). During the hot season, each club brings up to 130,000 UAH of income per month.

How does CUBE work?

All clubs are made in the same style: a room with black walls, floor and ceiling, and flickering neon lighting. Firstly, it looks beautiful, and secondly, according to Mikh, black color greatly reduces the cost of repair and decoration of the room.

All photos: Olga Zakrevska

You can get to the club by appointment only, knowing the password word. The registration is made online, which is done to ensure that casual visitors do not prevent players from diving into virtual reality.

“When you are in the game, you are wearing a helmet and you don’t see and hear what is happening around you in the real world, you feel vulnerable. Therefore, we lock ourselves from the inside so that no one can just break in in the middle of a session,” Sergey says.

The customers are welcomed at the door by someone called Matveyitch – a young man with a deep voice, dressed in all black, with his eyes covered with dark glasses.

In the real world, such people are called administrators, however, in CUBE this is a unified character (all Matveyitches look and behave the same), which helps a person to transfer to virtual reality and achieve maximum immersion without the risk of breaking a nose against the wall.

The club premises are divided into two rooms, in which there are two playing areas. Each room has two helmets, and a space of approximately 3*3 meters or 9 square meters for maneuverability is reserved. There can be up to 4 people at the same time who can play in one team.

In most clubs, this is exactly the capacity, although there are clubs with 8 helmets. For larger teams of people there is even an opportunity to play from two different clubs, for example, you can be in a club on Arsenalna metro station, and your team-mates are on Podil part of the city (or even in another city), but you see, hear and interact with each other in the virtual world in real time.

In CUBE, this technology is also used for internal workshops. It is very convenient if a part of the team is in Kyiv, another part is in Odesa, Kharkiv and other cities, thus, everyone can see and discuss working moments in virtual reality at any time. CUBE team holds such meetings weekly, they meet up to 30 people (2 employees from the club), and each has its own recognizable avatar, and some employees who have never seen each other in real life know their colleagues only from these avatars.

A client session lasts for an hour. During this time, a person manages to immerse him-/herself as much as possible into the virtual world, to visit different locations, to try different games, but at the same time he/she does not have time to get away too much from the real world. The editor and photographer of AIN.UA tested the CUBE proposal on themselves: they visited the bottom of the ocean in TheBlu, played archers in ELVEN ASSASSIN, and flew over megacities in Richies Plank.

In total there is approximately a dozen of games that are bought on Steam in the CUBE’s assortment. Price ranges from $5 to $30 per game. One of the most popular games is Arizona Sunshine, where players need to escape from the zombies in the conditions of the Wild West. According to Sergey, this game is adored by fans of the “The Walking Dead” series.

This game has a story which lasts for more than 12 hours. Unfortunately, there only few games with missions for now.

There are more than one and a half thousand VR games, but we use only those for which we are not ashamed to take money from people, meaning high-quality games with good graphics, which let us feel ourselves in another world. Unfortunately, most games are primitive and boil down to the fact that you took something, picked it up, and moved it somewhere.

Clubs are open from 2 pm until 11 pm – 12 am. Depending on the city, the cost will be 200 UAH per hour per person. On weekends and after 7 pm the price rises to 250 UAH per hour. In non-million cities, the rates are slightly lower – 150 and 200 UAH, respectively.

The guys managed the pricing simply: “We looked at the price that the most expensive quest rooms set and made it a bit more expensive.”

CUBE history

It all started with the fact that a VR club was opened on the first floor of the business center where the Nikitin Team was located at that time. Sergey and Bogdan went there to play and were so impressed that they immediately ordered helmets to the office for their employees. And later they decided to try to make their own club.

Sergey Mikh

The first CUBE was opened in Odesa in 2016, about $13,000 was invested in it, 80% of which was used to pay for the equipment: computers and helmets. It became profitable in the very first season because cash offices reached 60,000 UAH a month, and the guys decided that this was a success.

“Back then we thought that it was cool, however, we thought that we won’t raise money on this business. Today, clubs bring up to 130,000 UAH per month during the hot season. Advertising costs have decreased significantly,” Bogdan says.

Bogdan Nikitin

Inspired by financial success, they began to think about opening a club in another city, and then to make it the net business, however, some problems started along the way. The winter was over, spring has come and people have begun to go out, and this meant that the low season has started for the clubs. Income of CUBE decreased more than tripled.

“The low season lasted for about five months and was so strong that we thought about closing. We were in a very depressed state, we did not understand what to do, there was no industry as such, there was no demand for these services, we created it ourselves.

The only thing that kept us afloat was amazing reviews of our guests – they charged us with the energy. And we decided to wait for a few more months, and see if there is any result,” Sergey says.

In the first months after the opening, Sergey did not use paid advertising to attract customers, there were enough “gray” Instagram methods (as of today, almost 17,000 people have followed CUBE on Instagram). “This is just must-liking, must-following, in fact, it’s spam. But in the spring of 2017, Instagram changed its algorithms and our activities began to lose performance dramatically, and the summer was ahead of us –not the most favorable time for our business,” Mikh says.

Before that, we also tried traditional methods: leaflets, business cards, advertisements in elevators, trams. “However, people do not understand what it is, it’s hard to explain in printed materials. Plus, the effectiveness of such advertising is impossible to track.”

In April 2017 the guys decided to try advertising in “VKontakte”. They invested some money in it, they created a public page, filled it with content, and launched a campaign. And as soon as they started it, a social network was blocked in Ukraine. “Our mood wasn’t the best anyway, and then this happened,” – recalls Bogdan.

At the same time, they began to engage in full-fledged targeted advertising on Facebook and gradually learned how to effectively find their clients through the social network. Today, CUBE has almost 4,500 followers on Facebook.

“Today we can track every guest visit, every reservation, and we know how much it will cost us. We know to whom we should show our ads and what people will never come visit us. Our target audience is mostly IT people who know what VR is, gamers, fans of quest rooms, young people of 20-30 years old, the ones who just get interested and when they see our ad, they think: “Wow, this is something new, I have to try it!”, says Mikh.

“For instance, we advertise a club in Kremenchug via Facebook and Instagram, this is an audience of 180,000 people. We have already shown our advertisements to them eight times, however, I cannot find even 10 IT people or quest room lovers among them, a sample is too small. Therefore, our task in non-million cities is to convince people, regardless of interests, that they should try virtual reality.”

It was exactly the strategy of advertising promotion developed over the years that Sergey and Bogdan consider the main success factor of their VR network. “Today, every dollar invested in advertising brings us $3. The advertising algorithm is the most valuable thing in this business today,” admits Sergey.

How to build a network if you have little money

After fighting the crisis, the guys started to implement ideas with the network. “We had an ambitious goal, we wanted our clubs to become a part of the era of virtual reality in Ukraine, to be the pioneers of the industry. So that in 10 years, when VR-clubs disappear, like Internet-clubs in their time, we are remembered as a story,” says Sergey.

To do this, you need to open clubs quickly in different places. The second and third were the clubs in Kyiv and in Dnipro. Further it becomes more difficult, because every club is worth money. By that time, the club’s customers began to wonder how they could open such institution. This prompted the partners to offer such people a franchise. Such an approach would allow developing a network under a single brand without attracting investments.

They started selling franchises in 2018. The partners mostly come themselves – Nikitin and Mikh have not advertised the sale of the franchise purposefully. However, the founders are not ready to sell a franchise upon every request: first, they try to make sure that they can load the future club.

“For example, 10 requests for a franchise came to Kyiv, however, we sold only two. We will see how they will have things going and whether we can open more clubs here again. Another example: the guys wanted to open a club in Odesa, but we did not see such an opportunity, so we offered them to move to Mykolaiiv and open a club there. A business is so automated that it can be run remotely,” says Bogdan.

Today, the CUBE network has 16 clubs which are attended by more than 3,000 people every month. Only four clubs among those are owned by Sergei and Bogdan: two in Kyiv, one in Odesa and one in Dnipro. In the nearest future they also plan to open their own club in Kharkiv. Another 12 CUBEs work on the franchise in Kyiv (2), Odesa (2), Mykolaiiv, Kherson, Zaporizhzhia, Sumy, Kremenchug, Lviv, Kharkiv (2), as well as in Dnipro, Vinnitsia, and Irpin.

“Now we are entering Russia – the premises are already being renovated in the city of Sochi, and Petersburg is the next, and we have plans to open one club in Kazakhstan. This is also a franchise,” says Bogdan.

Own club vs franchisee

The cost of the CUBE franchise is $3,000. In this case, the buyer will need to invest additional $13,000 in rent, repairs, purchase of equipment and salaries. Bogdan and Sergey charge royalties in the amount of 7% of the revenue (previously it was a fixed amount of $150). Thus, a club with a yield of 100,000 UAH per month brings the founders 7,000 UAH per month, not counting the down payment.

As a business, the franchise is not profitable for us and we do it more just for the sheer sport. We have made a very affordable price for a lump-sum payment and royalties. There are more investments in franchise development than franchisee clubs bring us. After about 15 franchise clubs, franchising will be profitable.

If we opened clubs ourselves, it would be more profitable, but then we would not be able to develop so quickly – the franchise format helps us to conquer the market faster,” explains Sergey.

Photo: Instagram CUBE

For the franchisee, the CUBE team closes all organizational issues, starting from the search for premises and ending with the selection of personnel. The guys also help with the supply of equipment. “We have a discount from a supplier company in the USA. In Ukraine, such helmets cost about $1,000, but at the expense of large shipments we deliver helmets to our franchisees at a price of $700,” says Sergey.

The payback of the club in the franchise, according to the calculations of entrepreneurs is 8-12 months depending on the city. However, according to Sergey, the clubs start bringing profit starting from the first month of opening.

“Our own clubs started to make money only a year after opening, because at that time we didn’t have experience in this area, understanding the market, we didn’t know how to sell these services on the Internet so that we could load the club.”

Today, the clubs have already fully paid off. Even in the low season, the business remains slightly above zero, in some cases the profit reaches $500 per month, and during a hot season the profit varies from $1,200 to $2,500 in megacities.

Uncompetitive environment

According to Bogdan, CUBE does not have competitors. Most VR clubs in the post-Soviet space are closing fast or not developing.

“Simple businessmen enter this business who think that renting a room, putting up four consoles is all they need, so they can sit and wait for clients. But in fact, to create such a load like ours, you need to do a lot,” says Sergey.

According to him, a VR club spends about 50,000 UAH per month, which includes are rent, payroll, utilities, taxes and advertising costs. “If you do not earn them, you already do not get profit. If you did not get as much as you invested over the year – this is the end. We have a seasonal income of 120,000 – 130,000 UAH, our competitors cashier maximum of 45,000 UAH,” he says. Such data from Sergey comes from the owners of the clubs from whom the partners bought the equipment after they were closed.

If you search for “virtual reality club” online, you will see: “Selling a successful business with a developed client base.” Like, they have no time to work on their business. However, we understand that if a business is successful, then there is no point selling it.

On the one hand, the lack of competition is relaxing, on the other hand, it motivates us to develop, Bogdan says, “Everyone who starts up, immediately looks at us. Some businessmen even do not hesitate to copy us, to the extent that they take our content, our photos. However, we try not to react to this, because if they try to copy us, it means that we are doing everything correctly.”

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