The Business: Laser-tag system franchiser
Primary cause of death: Neglected franchisees' needs
Secondary causes of death: Expanded too quickly and spent lavishly; failed to implement new technology fast enough
Inside laser-tag amusement centers, players stalk one another through dimly lighted mazes. Like extras in a science-fiction thriller, they wear futuristic vests and wield laser guns. The object: to "kill" opponents by firing a harmless beam of light into sensors emblazoned on the enemy's faux armor. Much like the game itself, the laser-tag industry has become a fierce shoot-out among the more than 30 distributors that dominate a worldwide market estimated at $350 million.
A notable casualty is Q-Entertainment Inc., founded six years ago by a flamboyant Irishman, Tom Butler, 38. Butler acquired the Asian and North American rights to manufacture and distribute the laser-tag system of Dublin-based LeisureCorp, which he had helped start as the game emerged in the mid-1980s.
Butler set up the company's headquarters in Dallas and began marketing 10,000- to 14,000-square-foot laser-tag centers. Many he sold to franchisees for roughly $500,000 each, plus a monthly royalty fee averaging from 2% to 5% of gross sales, according to the company's annual report.
At the peak, in 1996, Butler's empire claimed to encompass more than 300 franchises on five continents. He developed his brand aggressively. While a Q-Entertainment hot-air balloon flew overhead, he strutted around trade shows with a bevy of 25 or so "Q-Babes"--models dressed in shocking-orange Lycra bodysuits.
The antics worked. Butler's revenues rocketed to $48 million in 1996, boosted by laser tag's rising popularity across the United States. The number of centers in the country soared from 8 in 1992 to 489 today, according to S. Erik Guthrie, executive director of the International Laser Tag Association Inc. Investors rewarded Butler. In trading on Nasdaq during 1996, Q-Entertainment stock jumped in price from an opening-day close of 5 in February to a high of 7 three months later.
But while Butler wooed Wall Street artfully, he neglected his core customer: the Q-Entertainment franchisees. By 1996 they were up in arms because the service from headquarters was "lousy and expensive," says Zac Adams, a former franchisee manager for the Southeast. Q-Entertainment failed to deliver adequate technical support and marketing materials and lagged behind its competitors in implementing updated laser-gun technology, former company insiders say.
As competition heated up, Butler struggled to maintain market share. In 1997 he opened only 8 American centers, down sharply from 25 the year before. "Word was out on them, and few seemed to want to buy in," recalls Guthrie.
But Butler, who could not be reached for comment, was not easily deflated. He gambled big on Q-City, a vast "family entertainment center" that he opened in Mesquite, Tex., in March 1997. It boasted a laser-tag center, video games, and a bowling alley. But because of its location in a working-class town that prohibits the sale of beer and liquor, it lacked the alcoholic-beverage license that is frequently the linchpin of such a venture. Q-City fizzled quickly.
Four days after Christmas last year, Q-Entertainment entered Chapter 7 bankruptcy, heaving its last. Like a laser-tag victim, however, the business (if not the company) may rise again. An investors group that includes some former Q-Entertainment employees is negotiating to buy the company's remnants and may resurrect the business under the name New Q Inc.