How I Built an $80M Annual Revenue Business in Just 5 Years | Sandbox VR, Steven Zhao | EO

Sandbox VR survived near-death to build 47 locations

Sandbox VR is a bet that virtual reality works better as an out-of-home social product than as a consumer device. Its first game sold in the top 10% of the VR market and still could not support the company, so Zhao rebuilt it around retail locations where groups of friends play together. A two-month runway and a pandemic that closed every store forced cost discipline, which now funds a franchise model.

Takeaways

• The consumer VR market was too small. Sandbox's first game launched at the end of 2016 and was a top 10% best-seller, but the market could not sustain the company. Zhao judged the headset not immersive enough, so the team pivoted to location-based VR for groups of friends.
• Software cut the cost of full-body tracking. Rather than add cameras, the team wrote software that cut the number needed for full-body tracking, lowering the cost of each location. A shareable video of customers' most embarrassing and funny moments generated word of mouth.
• Product-market fit showed up before launch. During a test run Zhao's friends screamed and yelled so loudly that neighbours knocked on the door. That convinced him the experience worked as a social product before the first store opened.
• Investors doubted a small Hong Kong team. In the winter of VR the company had two months of runway and no investors came in. Gobi Alibaba eventually funded the Hong Kong build-out and a franchising restart. A game producer had asked how a Hong Kong team could beat Sony or Nintendo.
• A Silicon Valley store won over Andreessen Horowitz. Investors told Zhao the concept would work in Asia but not the United States, so he opened in San Mateo. Marc Andreessen, Ben Horowitz and their partners tried it and decided to back the company, and the Series A funded about nine US locations.
• COVID forced a reset that strengthened the business. All stores closed around March and April 2020. Sandbox cut about 80% of its team and went through Chapter 11 to deal with its leases, then used the shutdown to tune its technology and content for stronger margins when it reopened.
• Franchising funds the technology and content flywheel. Sandbox opens locations with landlords who pay for them and franchises others. More locations fund better technology and content, which creates demand for more locations. It had 47 locations at the time.

What comes next

• Better content is the first priority. Sandbox makes original titles and works with Netflix on the Squid Game experience, with Rebel Moon due later this year.
• The second is partnerships with strong IP holders, bringing their worlds into Sandbox locations rather than building every world in house.