The Main Business Mistakes That Lead to Closure Within the First 12 Months

13 January, 2026

Why Most New Businesses Fail So Quickly

Many people dream of starting their own business, but keeping it afloat is far more difficult. Statistics are unforgiving: up to 90% of new companies shut down within their first year.

So why do businesses fail so fast? In most cases, the reasons lie in a set of common mistakes made at the very beginning.

In this article, we’ll review the key mistakes using the example of the VR entertainment business—specifically virtual reality clubs—and explain how to avoid them.

Mistake #1. Financial Unpreparedness

Underestimating Startup and Operating Costs

In the VR industry, the most critical mistake is launching without sufficient financial reserves.

Opening a VR club requires significant investment:

renting a spacious location
purchasing VR equipment (headsets, high-performance PCs, tracking systems)
renovating areas for gameplay
staff salaries
marketing and advertising

Early Losses Are Inevitable

The first months are almost always unprofitable. Revenue at launch rarely covers operating expenses.

Industry analysts note that many small venues shut down around months 4–5, precisely when initial investments are exhausted.

The Illusion of Fast Payback

Many first-time founders expect quick returns. For example, 54% of surveyed café owners believed they would recover their investment within six months, while the real average break-even period is 14–18 months.

VR entertainment shows similar dynamics. For instance, our franchise estimates the average payback period for VR arenas at around 18 months (ranging from 14 to 22 months depending on region and season).

Why a Financial Buffer Is Non-Negotiable

Without a safety cushion and a realistic understanding of ongoing costs (rent, equipment, taxes, advertising), entrepreneurs face cash flow gaps long before a stable customer base is built.

How Franchising Reduces Financial Risk

Franchise models often require lower upfront costs and, more importantly, make expenses more predictable. Entrepreneurs avoid months of trial and error: product packaging, staff training, operating procedures, and marketing systems are already in place.

That said, even with a franchise, a financial buffer remains essential. Franchise fees, royalties, seasonal downturns, and the ramp-up phase still apply.

Mistake #2. Lack of Market and Customer Demand Analysis

Opening a Club “For Yourself”

Another common mistake is launching a VR club without validating real demand. Many founders rely on personal enthusiasm for VR rather than data.

The result? Low foot traffic, weak revenue, and confusion about why the business “isn’t working.”

Ignoring Competition

Failing to analyze competitors is just as dangerous. Entering a market with existing VR parks or entertainment venues—without a clear differentiation strategy—often leads to becoming “just another VR club.”

Why Competitive Research Matters

Experts recommend visiting competitors as a customer:

analyze pricing
review service quality
study formats and offerings

This insight helps identify gaps and opportunities.

A Real-World Example: IMAX VR

IMAX invested heavily in VR centers abroad, expecting massive consumer demand. Reality proved otherwise. By early 2019, the company shut down all its VR locations and exited the VR arcade market entirely.

How to Validate Demand Before Launch

To survive the first year, founders must:

define their target audience
estimate local market size
analyze direct and indirect competitors

Key hypotheses should be tested early—through surveys, pre-orders, or pilot launches.

Mistake #3. Unrealistic Expectations

Social Media vs. Reality

Success stories on social media create the illusion that VR clubs become profitable in months. In reality, early stages focus on:

refining the product
stabilizing technology
training staff
attracting first customers

The Danger of Over-Optimistic Planning

Expectations like “profitable in 3 months, fully paid back in 6” rarely hold true. Seasonal declines and operational complexity slow growth.

How Unrealistic Goals Hurt the Business

When reality doesn’t match expectations, founders may:

cut critical expenses
constantly change strategy
search for “quick fixes”

This leads to stress, burnout, and loss of focus.

A More Sustainable Mindset

It’s far healthier to plan conservatively and assume profitability will take longer. In entertainment, payback is measured in years—not months—and VR clubs are no exception.

Mistake #4. Management Chaos

Trying to Do Everything Alone

Many VR clubs fail because founders attempt to be:

CEO
marketer
technician
administrator

Without systems or delegation, chaos quickly follows.

Lack of Structure at Launch

Common early-stage issues include:

unclear roles
untrained staff
unstructured processes
poor task tracking

Mistakes pile up: missed client inquiries, equipment failures, and unresolved operational issues.

Experience Matters

Research shows that 43% of businesses that closed within their first year were run by entrepreneurs with no prior industry experience.

How to Avoid Operational Collapse

From day one, founders should:

track finances and bookings
delegate operational tasks
monitor KPIs (attendance, revenue, reviews)

If expertise is lacking, hiring an experienced manager or learning from a mentor is a smart investment.

Mistake #5. Lack of Effective Marketing

“A Good Product Will Sell Itself” — A Costly Myth

Even the best VR club remains invisible without active promotion.

Many entrepreneurs rely on:

a single social media page
one-time advertising campaigns
word of mouth alone

In a competitive leisure market, this isn’t enough.

Why Consistent Customer Acquisition Is Critical

Early customers may include friends or enthusiasts, but sustainable growth requires a steady inflow of new visitors.

Marketing Channels That Actually Work

Effective VR club promotion typically includes:

targeted online advertising
influencer and school partnerships
participation in local events
SEO and website optimization
loyalty programs

Cutting marketing budgets often leads to empty halls and “dusty headsets.”

Mistake #6. Inability to Adapt

The Entertainment Market Is Constantly Changing

New competitors, shifting customer preferences, new hardware, and external factors (economics, regulations) all impact VR businesses.

When Sticking to the Original Plan Becomes a Problem

Entrepreneurs who refuse to adjust strategy risk losing to more flexible competitors.

A nearby club with aggressive pricing or rising rent can quickly destroy an original financial model.

Flexibility as a Survival Skill

Successful VR clubs continuously:

analyze attendance and revenue
collect guest feedback
adjust pricing and formats

A Practical Example

Many VR clubs initially focus on individual gamers but face low weekday utilization. Those that pivot to group events—children’s birthdays and corporate team-building—often achieve stable revenue.

One Portal VR arena in Kaliningrad reached break-even in 16 months, driven primarily by weekend children’s parties and corporate bookings.

Mistake #7. Lack of Differentiation in a Crowded Market

“Just Another VR Club”

Without a unique value proposition, a new VR club blends into the background and competes only on price—a losing strategy.

Why Differentiation Is Essential

Before launch, founders must clearly answer:

What makes our club different?
Why should customers choose us?

Lessons from Global Leaders

Zero Latency built its success on large-scale free-roam VR arenas that can’t be replicated at home.
Sandbox VR attracts visitors with exclusive content created with Hollywood studios, including branded franchises like Squid Game and Rebel Moon.

Building Your Own “Hook”

Uniqueness can come from:

proprietary games
exceptional service
next-generation VR quests
café integrations
mobile or event-based VR formats

Without differentiation, attracting enough customers to survive becomes extremely difficult.

Conclusion

Most Mistakes Are Preventable

The good news is that most of these mistakes can be anticipated and avoided. With proper preparation and realistic expectations, entrepreneurs dramatically increase their chances of surviving the critical first year.

Why Franchising Can Be a Safer Start

One way to reduce risk is choosing a proven franchise model.

An experienced franchise provides:

tested business systems
operational guidelines
marketing tools
ongoing support

Example: Portal VR Franchise Support

Portal VR franchisees receive:

a personal curator for location selection and hiring
a ready-made website and marketing infrastructure
24/7 technical support for equipment issues

As a result, the likelihood of not only surviving the first 12 months—but continuing to grow successfully—becomes significantly higher.