THE URBAN CASH COW
Chris Hanson
Smashwords Edition
Copyright 2012 Chris Hanson
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Smashwords Edition, License Notes
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I hope you enjoy the thrill of owning an internet sweepstakes cafe, as much as I enjoyed it. My early days of business in the industry were like a wild-west adventure. My business team and I didn’t have many people to follow early on, so we made up our own rules.
May you be the outlaw in a world of boring local business models.
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Table of Contents
Chapter 1: The Urban Cash Cow, a Definition
Chapter 2: Why Invest in Urban Areas?
Chapter 3: The Internet Café, a Brief History.
Chapter 6: Success Comes from Within: Design
Chapter 7: Structuring your Business(es)
Chapter 8: Hardware, Software, and the Name of the Game
Chapter 9: Hiring for Culture AND Competence
Chapter 10: Network Marketing and Cafe Ownership
Chapter 11: Phase One: Opening and the First Month
Chapter 12: Phase Two: Capitalizing on the Wait
Chapter 13: Phase Three: The Now Media
Chapter 14: Phase Four: Doubling Business Size and Getting into Heaven
Chapter 15: Phase Five: Key Concepts and Avoiding Arcade Syndrome
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Chapter 1: The Urban Cash Cow, a Definition
In recent decades, the term “Urban” has come to be synonymous with “Black.” Perhaps it is due to the marketing efforts of businesses trying to target black markets, of which upwards of 86.5% lived in metropolitan areas, according to the US censusi. As one would expect though, there are many others living within urban communities, and with an urbanism movement underhand, the trend will only continue. To others, and those in urban career fields such as politics, planning, and economic development, making the term “Urban” analogous to “Black” is simply foolish, inaccurate, and possibly offensive to the millions of people living within urban areas that do not identify with being Black.
In the context of this book, “Urban” does not mean “Black”, but rather represents anything pertaining to highly dense communities close to city centers, or in “first ring” suburbs, which often have high density development. It would therefore be a grievous mistake to equate the two, or to say that the business opportunities portrayed in this book are targeting black populations.
For example, for my undergraduate degree, I attended The Maxine Goodman Levin College of Urban Affairs at Cleveland State University. That does equate to Black or African American Studies. It refers to studies of urban environments and cities, and how to work effectively in them.
Side-Note: There is nothing wrong, and nothing being negatively portrayed in this book with blacks, African Americans, or any other race or ethnicity. The fact is that a culturally, racially, and ethnically diverse population leads to a lot of documented great things (Hint: explore writings on innovation, invention, immigrant communities, adventure, culture, and histories associated with diversity, to learn more.). Please do not equate my words with stating anything otherwise.
Cash Cows
The term “Cash Cow” can be likened to a farmer purchasing a dairy cow. One purchases a Dairy Cow, but continues to reap the benefits (i.e. the milk) of owning it over its lifetime. There is capital that is used one time to purchase it, and very little maintenance involved, so it becomes a fruitful gain for the owner. In investing, “a cash cow requires little investment capital and perennially provides positive cash flows.ii” The best example of a Cash Cow is Apple’s iPod. The sales of the iPod in the first quarter of 2007 made up 48% of Apple’s revenueiii.
Urban + Cash Cows =
Therefore, the term “Urban Cash Cow” is an investment in an urban (read: high density area or city) area that will continue to produce positive cash flows to the investor(s) for the lifetime of the investment. If the text in this guide is followed, the return on investment (ROI) over the lifetime of the investment should prove considerable.
Examples of Urban Cash Cows can be things like Subway restaurants, McDonald’s franchises, gyms, and even taxis. In the case of this guide, we will consider Internet Sweepstakes Cafes as a means of earning a high ROI. An Urban Cash Cow is a business. It does not necessarily have to be run by the investor, merely owned by him or her instead. However, the wise investor should consider that his or her involvement with the business, pertaining to the community and not necessarily daily operations, will considerably help the livelihood and longevity of the “cow.” Got Milk?
Sweepstakes Cafes
A Sweepstakes Café is generally considered a retail business, although the name makes it sound as though it would be a coffee shop or restaurant. The primary product that a Sweepstakes Café sells is that of internet time or phone cards. It may also make money offering other retail products such as clothing or convenience items, although this is rare. Consumable products such as coffee, soda, snacks, and other foods are generally given away to patrons in return for patronizing the establishment, however, this is not a given. The primary form of marketing, that which gives the café its moniker, is sweepstakes marketing. The market for this business is usually females age 55 and up. In fact, a common observation is that Sweepstakes Cafes look like the new Bingo halls of the twenty-first century.
Sweepstakes Marketing
Sweepstakes Marketing is a legal form of marketing used by businesses that utilize giveaways, including cash or other prizes, as an incentive for purchasing items from the participating business. Examples include the McDonald’s Monopoly Game, or any soda maker that places “winning” codes on the underside of caps. No purchase is ever necessary, and entries to the sweepstakes can always be obtained by entering a self-addressed stamped envelope (SASE) to the address listed in the official rules of the sweepstakes. Note: I do not own the rights to McDonalds, Parker Brothers, Hasbro, the Monopoly game, or anything else that can be misconstrued by my attempt to define Sweepstakes Marketing.
Recap
Urban: Pertains to highly dense communities close to city centers.
Cash Cow: An investment in which up front capital is involved, paid off quickly, and continues to yield returns or positive cash flow over the duration of the livelihood of the investment.
Urban Cash Cow: An investment made in an urban area that continues to produce substantial positive cash flow to the investor for a considerable amount of time. Involves an amount of investment up front, but is quickly recovered due to the usually high return on investment.
Sweepstakes Café: A retail establishment that utilizes sweepstakes as a form of marketing to induce patrons to buy its products.
Sweepstakes Marketing: A form of marketing that is a legal contest or game where anything of value is distributed by lot or chance.iv
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Chapter 2: Why Invest in Urban Areas?
Long ago, Henry Ford began his mass production of the automobile, helping with the rise of urban sprawl in industrialized countries. Aided by the automobile, citizens could easily leave the central city, escaping to the wide open spaces of the suburbs. Cities that were once high-density suddenly flattened out, annexing land that was historically used for small residential or agricultural purposes only (Wheeler, 2004, p. 1). Many people capitalized on this by purchasing cheap farm land, and developing it for all kinds of purposes.
Today, cities are experiencing a different phenomenon take place. There is an increased interest in New Urbanism and Smart Growth, which according to Wheeler (2004) are reactionary movements “to the placeless, unwalkable, landscape of suburban sprawl.” Urbanism calls for the return of traditional planning, of which its aspects are narrow streets, sidewalks, front porches, hidden garages, and a connective street design using the grid pattern instead of the recently favored cul-de-sac. Urbanism also emphasizes mixed-use-design and handsome, open public spaces. Smart Growth is an intention to limit sprawl by promoting compact, infill development. These movements started in the 1990s, and are now picking up steam, especially since they are both environmentally and economically sustainable (Wheeler, 2004, p. 15).
Citizens around the world are being drawn to urban environments, because it is economically, socially, and environmentally beneficial, thereby ending the plague that is urban sprawl. Investors and business owners should consider who is driving this wave of nouveau urbanism, factors causing an interest in city life, the time frame in which it will happen, and how to best prepare for the population shift. In particular, investors and business owners should learn how to best benefit from the upcoming surge.
The Silent Generation
According to Danielson (2011) the Silent Generation, (born 1922-1945) is defined by two of the most impactful events in American History: The Great Depression and World War II. Because of their childhood experiences and their roles in the war, they are seen to be hardworking, cautious, and financially conservative (p. 26). They believe in fairness, openness, due process, and expertise, and are most likely to stay in one area, and in one workplace for most of their adult lives. They like to follow instructions and to do what they are told. (Deeken, 2008, p. 212)
Because of their propensity to “stay the course,” The Silent Generation most likely will not be heading into urban areas if they are not already there. This means if they are located in suburban or rural areas, they will probably stay there most for the rest of their lives. Silents are not rule-breakers, -benders, or –changers. They are also most likely to be on a fixed income since most are retired by now (Danielson, 2011, p.26), and thus could not afford to move frequently, although they could arguably benefit the most from a move. However, there are often significant numbers of Silents within “first ring suburbs,” which are usually older suburbs closer to the city.
Baby Boomers
Those born between 1946 and 1964 are termed Baby Boomers. These folks grew up in nuclear families. They were “encouraged to be creative, and to rewrite rules.” Baby Boomers also see their work as defining who they are (Danielson, 2011, p. 26), having good work ethics and expect the same of others. When growing up, they were likely to leave home for new and exciting places. They are currently feeling a little lost, as media attention is shifting from them to the Millennials. They, like Millennials, see the world as in need of change, and “espouse civil disobedience.” (Deeken, 2008, p. 213)
In this second decade of the twenty first century, most Baby Boomers are in their 50s and 60s. Most likely, they are done parenting, and are thinking of downsizing. These empty-nesters recognize that there are financial and time benefits to doing so: it costs less to obtain and maintain a smaller property, and many do not want to hassle of dealing with large yards in the later years, a study shows. In fact, 25% of Baby Boomers indicate that they want no yard responsibilities. Despite having the highest homeownership rate (around 80%), Boomers are equally likely to rent or own when they downsize (Nelson, 2009, p. 37).
Besides a desire for smaller housing, this near-retirement group wants better access to amenities. Most of them want to be within a 15 minute walk of healthcare, public transit, grocery stores, and pharmacies. A national survey also found that those 43% of those 59 plus would like to be located in a city or a nearby suburb.
Gen-X
Generation X (born 1965-1980) is the product of the collapse of the nuclear family. They grew up when divorce was increasingly common, and when both parents were off at work. It is said that this is why they very much value family time and a balanced work life. (Danielson, 2011, p. 26) They are serious about life, and are self-reliant, wanting to know not only how to do things, but why (Deeken, 2008, p.214). In the work place, they are seen as having no loyalty, flip-flopping through different organizations for various reasons. (Ludwik, 2007, p. 24).
Because they value family time, and because they are just in that age group 31-45, Generation X is the most likely of all groups to have either a new family or mature family (with teenagers). This group really needs to have those big houses that have been built out in the suburbs, and they will need that house until the kids are gone. It will still be a few decades however, until that happens.
Although Generation X values recreation, they do not need to be near it all the time. In fact, because they are so mobile (Ludwik, 2007, p. 24), they are more likely to be out in the suburbs, commuting to cities for work and play (Alson, 2009). This is similar to the white suburbanite America that we’ve come to know since it was created for the Baby Boomers.
Millennials
Although Millennials, or Generation-Y (born 1981 onwards) still value a balanced work life, they have very high expectations of themselves including “early achievement, scheduled lives, and rewards and recognition for hard work.” (Danielson, 2011, p. 26) Millenials have come to know that they can never rely on anything or anyone, yet they embrace this uncertainty at the same time by “exuding an optimism and sense of confidence not often found in members of Generation X.” They are the most likely to be less concerned with the permanence of where they live and work. (Yerbury, 2010, p. 26) They are also flexible, mobile, collaborative, unconventional, and value diversity. (Puybaraud, McEwan, and Leussink, 2010, p. 7)
Millennials have a lot of different wants. They do not want to work at home, even though they are the most tech-savvy of all generations, preferring instead to work near urban centers to promote “collaboration, productivity, and creativity.” They also want to “see and feel the greenness in their workspace and mere compliance isn’t enough.” (Puybaraud, McEwan, and Leussink, 2010, p. 7)
The (Unintended) Return of Urbanism
The return of urbanism comes at a time when the earth perhaps needs it most. Nations are running out of resources, we have decimated our wild places, reduced biodiversity, and polluted every single type of habit on earth. The change from low density to high density will serve citizens well. But those that will change our built environments the quickest might not even realize what they are doing, or that it is indeed good. Whether Baby Boomers realize it or not, they…
are significant contributors to the growing ‘new urbanism’ movement in land-use planning. The movement is not so much ideological in wanting to change the form of towns and cities for some greater good, but rather is practical in wanting more and better ways to be connected to the things that matter. It means being able to walk to some key destinations and access public transit to get to others, for example. (Nelson, 2009, p. 39)
Baby Boomers also tend to drive less as they grow older. Although this is the case, this doesn’t mean they are not mobile. In fact, just the opposite applies, as being able to get around is a healthy part of what is called “actively aging.” (Webber, 2010, p.444) They prefer to walk and bike more than drive a car, and generally appreciate being near public transit. (Puybaraud, McEwan, and Leussink, 2010, p. 20) They need access to this public transit for activities including not only recreation, but for healthcare as well. It is important to note that Baby Boomers still want to be able to partake in both local and regional travel (Nelson, 2009, p. 40), so being close to railways and airports is valuable to them.
Empty Nester Syndrome can also play a role in the tendency for Boomers to become urbanites. Once the “nest” is emptied, there is obviously more time and energy for Boomers to spend on issues other than their children. Most report greater marital satisfaction, spontaneity, increased intimacy, greater happiness, more freedom, a better financial state, and less responsibility. This is often delayed until the age of 50 and 60, as “fledgling adults” need to come back to the nest for various reasons (Raup & Meyers, 1989, p. 182). Once they are gone for good though, these older adults are ready for freedom and activities.
Indeed, Baby Boomers will be the driving force behind the wave of urbanism for common sense reasons: it is cheap, it is quicker, it is healthier, and there are more activities for them to partake. Boomers will change the American landscape, just as they helped change it from rural to suburban, albeit mostly for financial and convenience reasons.
The Younger Urban Neighbor
Generation Y will be the next most influential group for the return of new urbanism, but for different reasons, and probably “for some greater good” i.e. being green. Although they are just starting out in the workplace (most are age 15-29), there are more of them than both the Silent Generation and Generation X. (Puybaraud, McEwan, and Leussink, 2010, p. 52)
Millennials value being closer to people for collaboration, for inspiration, and for all the amenities offered in urban areas. It is generally recognized in this group that the quality of life is better in cities, and they tend to cite this as one of the reasons for locating in cities. They also recognize that it is greener (more sustainable) to reuse rather than build new office spaces and homes, with 96% stating that they want the workplace to be environmentally aware (Puybaraud, McEwan, and Leussink, 2010, p. 7, 9, 46)
Perhaps fueling the belief that work is better in cities is the study that shows a negative correlation between the amount of urban sprawl and labor productivity (Fallah, 2011, p. 451). Also, due to economies of scale and agglomeration, there is a positive correlation between metropolitan area population and productivity. There exists a stronger correlation in high-skill cities, which in this study is defined more closely as highly-educated. In these urban centers, proximity spreads knowledge, which makes for a more suitable environment for Millennials. (Glaeser, Resseger, 2010, p. 221). This too is important for Gen-Yers; they value the amount of learning opportunities in the workplace over things like corporate values or meaningful work, which both Boomers and Gen Xers admire. (Puybaraud, McEwan, and Leussink, 2010, p. 48)
It almost seems as though Millennials just belong to these high skilled cities: the demand for high skill labor is highest there, and they are the most technologically savvy, most highly-educated and skilled work force in the world. The also account for the world’s largest population segment. In the United States alone, only they are positioned to replace the vast numbers of Boomers set to retire. There are 80 million Baby Boomers, 40 Million of Generation X, and 70 million of Generation Y (Puybaraud, McEwan, and Leussink, 2010, p. 50-53)
Although in the US and India, Generation Y still prefers to drive a car everywhere, it is a different story in the UK, where the generation wants the ability to walk everywhere. In China, public transit is valued over everything else. (Puybaraud, McEwan, and Leussink, 2010, p. 54). However, it may be important to note that not everywhere in the US is walkable or bike friendly (Wheeler, 2004, p. 1), nor do all countries permit cyclists to travel in safe conditions so these numbers may not be indicative of what this generation would do if it were possible. (Puybaraud, McEwan, and Leussink, 2010, p. 52)
Making Cents
Beyond moving to cities for implicit value reasons, relocating to these urban areas can make financial and even biological sense. Although gas prices seem volatile, there has been an overall increase in the cost of gas, even after adjusting for inflation and income. What the US pays now, is a little less than the cost of petroleum in the energy crises of parts of the 1970s and 1980s. Historically, this price has increased, and should continue to do so as supplies run out. Although product substitution and alternatives to both means of transportation and fuel will make this process less dramatic, the fact that there is a finite supply of the resource of oil means that we will gradually see a higher cost accompanying the higher scarcity. (Kaza, Knaap, Knaap, Lewis, 2011, p. 1599).
Signaling the end of the automobile era, the Brookings Institute released an announcement stating the peak automobile use has probably already occurred. Many states reported a dip in the total vehicle miles travelled, with just of few northern states like the Dakotas, Montana, and Wyoming reporting an increase. There are many reasons for this including a vehicle saturation limit, the peak number of women entering the workforce, increased mass transit participation, and a biological limit to the amount of time any individual can spend travelling per day. (Collins & Kellam, 2008)
To most, the benefits sound amazing: forced development closer to home, quicker access to amenities, reconnected neighborhoods, a lessened addiction to foreign energies, and a slew of health benefits. There is one worrisome downside though: less miles travelled means less tax revenue for the government. Although many would argue that citizens need to “starve the beast,” most of this revenue goes towards transportation maintenance and creation. If the government is not careful, they may misallocate funds and spend them unwisely, at the crux of needing them for projects such as mass transit, bicycle paths, and pedestrian lanes. It is recommended that the government slowly raise taxes on gasoline and cut current subsidies for vehicles like SUVs. (Collins & Kellam)
Mentioned earlier and also influential in ending urban sprawl is the biological limit to how long one can tolerate travelling per day. This limit is called “Marchetti’s Constant”, or Wall. It postulates that people do not like to travel for more than one hour out of their day. Using Berlin as an example, as well as many other cities, Cesare Marchetti noted growth patterns for the city compared with the mode of travel. He started in 1815 when walking was the way of getting around, along with some coaches, moved up through tramways to the car. At each point, the growth of the city moved out a little further, in proportion to the speed in which that travelled. He states that the center of the city can be determined by “the point that the largest number of people can reach within 30 minutes.” This is found to be the case in both European and US cities. He also shows that if people are prone to ride mass transit, if the transit can be sped up over 150mph, like the MAGLEV trains in Japan, even greater growth is possible, limited by physical and political borders (Marchetti, 1994, p. 77).
The youth of the nation simply are not as enamored with the automobile as much as their seniors, either. The percentage of number of miles driven by 18-34 year olds has dropped from 21% of all miles driven in 1995 to less than 14% in 2009, at the same time that their segment of the population grew (Neff, 2010). They also cite the reason of lower commute time for choosing housing as very important as well (Jaffe, 2010)
There are more biological reasons for moving to the city though. As people moved away from cities and spent more time in the car, they became socially isolated, fatter, and over less active. As people return to traditional urban landscapes and the travel modes that are permitted in those environments (transit, cycling, and walking), reap benefits beyond reducing the US’s oil dependency—we will be healthier. ”More physical activity, reduced air pollution, and reduced traffic related injuries and fatalities are all beneficial to the public’s health.” (Kaza, Knaap, Knaap, Lewis, 2011, p. 1598).
Implications
The implications of such a population shift are tremendous. Not only will the government have to do more with less money (from petroleum taxes), but everything about the city will have to change as well, to meet the upcoming demands of such a diverse group of people interested in coming into the city. Business opportunists should delight in this upcoming geographic shift in population, as they can cheaply purchase many urban properties, especially in the Northeastern US, and position themselves for a fortuitous gain.
The aging Baby Boomers cite that they want quick access to grocery stores, pharmacies, and transit. They will also need easily accessible housing for their later years, especially if they develop disabilities requiring handicap accommodations (Webber, 2010). They want to be able to walk to most places, noting that there are many health benefits to walking that could allow them to live longer. This is where there lies one of the greatest opportunities. These people will also want forms of entertainment! After starting a sweepstakes café, one can move on to other forms of (very profitable) business.
Millennials will want close proximity to their workplaces, open and green public spaces, and lots of environmentally-friendly housing and services. Since the amount of cyclists in this population segment is increasing, business owners will want to make everything more bike and pedestrian friendly. Cities will probably encourage this as well by raising the rates of parking meters and parking taxes, possibly privatizing roads and bridges, and accommodating as best they can to a pedestrian friendly environment.
Different values of each generation are encouraging a return to the city. In examining these values, business and civic leaders and investors can better prepare themselves for what will surely be a new wave of urbanism. They need to ensure that their businesses are prepared to meet the demands of different generations returning to urban areas, and will further need to cater to differences associated with income and age.
The return of urbanism is apparent, and it is starting now. The movement of urbanism will be felt greatly because of the Baby Boomers’ imminent retirement, which started around 2009 and ends around 2030. Businesses should begin to prepare for the upcoming shift, because the built environment of America of 2030-2050 will be a lot different from the America of 2010.
Sweepstakes Cafes in particular will be an excellent fit for the opportunity created by the impending shift in residence of Baby Boomers. Because both the Boomers and The Silent Generation are the segments of the population that currently frequent sweepstakes cafes, the transference from suburban life to urban life bodes well for anyone interested in opening an internet café.
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Chapter 3: The Internet Café: a Brief History
In the Beginning....
The origin of the increasingly popular Internet Cafe can be traced to the San Francisco area, when SFnet Coffeehouse Network opened around 1991. A man named Wayne Gregori created coin operated computers that allows user carry on conversations over networks while sipping on espresso. “SFNet was an attempt to use simple communications technology to bring together two very different social milieus” or environments, explains Gregori.v
In 1994, internet genius Ivan Pope developed the first computer cafe with full internet access for a weekend event at the Institute of Contemporary Arts. Later that year, entrepreneurs across the globe began to open similar concepts, the most notable of which were The Binary Cafe in Toronto, CompuCafe in Finland, and Cyberia in London.vi
By 1997, people around the world began to flock to variations of internet cafes that allowed people to play computer games versus each other via LAN (local area network) connections. As Tae-Gyu Kim of the Korea Times reportsvii, this is still the case in Korea, where the gamers see the amusement centers as not only a place to be competitive, but also as a social scene. This is when internet gaming centers grew in popularity. No longer was it a viable option to offer only internet access and basic computing software. To ensure that more people would come in, especially younger people, games were added to many of the internet cafes.
Decline of the ‘Net Cafe: WiFi and Home Access
In the early 2000’s things were looking great for internet cafe owners. Not everyone had the internet, let alone a personal computer, so internet cafes became cash cows. “At the height of the dotcom boom the internet cafes future looked assured,” says Sean Hargrove from The Guardianviii, “and it seemed that every high street would have one.”
It didn’t take long however, before internet became cheap and readily available, even wirelessly. In 2004 Hargrove said, “Nearly 50% of homes have net access and so people don't use internet cafes as much as they did, a trend is set to continue now that broadband connections on mobile phones have just started.”
That trend continued, and as the decade rolled on, most traditional internet cafes closed their doors. It seemed everyone had the internet available; if not on their phones, then on their laptops or desktop PCs at home. Dean Bubley, Founder of Disruptive Analysis, noted that, "internet cafes have got a stark choice. To survive they will have to evolve. If not, they'll close."ix
The Evolution of Attraction
To attract patrons to establishments that sold the same product that people have at home, cafe owners needed to get creative. In addition to gaming, the most popular approach of drawing in a crowd was the marketing strategy of sweepstakes. It only made sense then to combine both strategies for reaching the largest market.
Sweepstakes marketing is employed by the likes of McDonald’s, Pepsi, AT&T and many other multi-national companies. It works by awarding a gift, prizes or money to anyone that enters the sweepstakes. Legitimate sweepstakes must include the following clauses (among others): that no purchase is necessary to play, that the sweepstakes must have a beginning and end date, that the player meets eligibility requirements (usually just residency within the U.S.) as well as the odds of winning.
Many of the larger internet gaming cafe companies already offered a version of sweepstakes in the late 1990s and early 2000s, when large “LAN parties” were hosted. They were so large and popular that, they drew sponsors from companies like Best Buy, Intel, and nVidia.x
Beginning in the early to mid 2000s, the internet sweepstakes cafes that most are now familiar with began to populate several U.S. states. In addition to “vanilla” internet service, this new kind of cafe offered computers with pre-installed software that allowed users to play slots, keno, poker, and more.