Where Do Entrepreneurs Find Their Money?

In my experience talking to aspiring entrepreneurs on a daily basis, access to start-up capital is one of (if not the) overarching factor preventing them from pursuing their entrepreneurial aspirations.

I recently came across a video thanks to Brad Feld that was created by the Kauffman Foundation and is titled “Where Do Entrepreneurs Get their Money.”  I’ve embedded it below and it provides a great overview of your financing options as an entrepreneur.  The key points are:

1.    More than half of young companies get all their funding from founder savings and cash flow derived from the business.

2.    Credit cards are the second largest source of capital for startups after founder savings. 

3.    Friends and family are the third largest source of capital.

4.    Banks are the fourth largest source of capital.  The difficulty with banks is that they want to lend against secured assets, which most young companies don’t have.

5.    Venture capital is available to high growth companies, but interestingly, less than 20% of the fastest growing companies in the U.S. received venture funding thanks to #’s 1-4.

6.    In the last few years, new sources of capital have arisen such as Angel investors (Tech Coast Angels, AngelList) and peer-to-peer crowdsourced fundraising (Kickstarter, Lending Club, etc).

Here's the video.  Until next time, have a happy holiday season and cheers to a great 2012!

The Future of U.S. Golf Course Design

The Wall Street Journal recently published an article titled: “When Building a Course Makes Sense.”  Right now the answer is, well, pretty much never.  There has been a net loss of 300+ golf courses since 2006 and the author could find only a half dozen courses scheduled to open in the next two years (compared to the ~300/year that opened during the 90’s).

While the drop off is more significant than I would’ve imagined, the trend makes sense.  Courses are often built as attachments to real estate communities or resorts, or by municipalities to serve the community.  We’re all familiar with the recent struggles of these industries / budgets.  Additionally, the number of golfers in the U.S. fell 13% from 30 to 26 million in the five short years between 2005-2010.

According to the article, most of the courses currently under construction are “destination courses” that are looking to cut costs by being built in remote areas on sand-based land while utilizing more of their natural environment in the design.

The article cites Bandon Dunes and Sand Hills as great examples of this philosophy being a good one.  I’d include Whistling Straits as well.  All three were created in this style and are widely considered the best courses built in the U.S. since 1960.

Whistling Straits, where Dustin Johnson famously
couldn't tell what was and was not a bunker

A friend in the golf industry recently gave me a book called "Planet Golf USA” and in it, the author laments the lack of quality golf courses that have been built in the U.S. since the Great Depression.  And he’s right.  If you look at Golf Digest’s ranking of “America’s 100 Greatest Golf Courses” you’ll find that 9 of the top 10 were built before1933 … along with 18 of the top 25.  I find these statistics fascinating considering the remarkable advancements in technology and equipment since then.

It’s reported that Sand Hills (#9 in the aforementioned rankings) was built for $1.5 million in 1994 compared to some resort courses with fake waterfalls, etc. that exceeded $20 million.  I know which one I’d rather play.

Sand Hills - only Top 10 U.S. course built after 1933 and
considered one of the most naturally-built courses ever

Interestingly, my favorite public course in Los Angeles – Rustic Canyon – was one of the few non-ranked courses featured in Planet Golf USA.  It is rugged, pure and a great test of golf.  The designer moved only a scant 17,000 cubic yards of soil during the construction process, bringing the project in on time and under budget.  As a result, they charge $60 greens fees in a region where the only other public option (besides municipalities that take 6 hours to play) are mediocre, fancied-up daily fee courses needing to charge $100+ to stay afloat.  And that is the problem the market is currently correcting.

Rustic Canyon's Front 9 hugs the natural landscape

The recalibration occurring in the golf industry unfortunately affects many good people.  But if there is one bright spot, I hope it’s that the necessity to build more cost-effective courses brings the game back to its roots of being played on minimalist courses designed from the natural environment.  This applies to both destination courses we can dream about like Bandon Dunes and local courses we can play regularly as weekend warriors like Rustic Canyon.

If this trend continues, who knows… perhaps one day we’ll look back on this time as a second golden age of golf course design.  And undoubtedly there are opportunities out there for entrepreneurs to capitilize on this shift. 

Create, Know & Obsess About Your KPI's

Please note that a variation of this blog catered towards franchise candidates first appeared in the Franchise Business Review.  You can read it here.

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1.    Efforts made in marketing (i.e. Are you doing the work?)

2.    Conversion Rate (i.e. How effective is your message?)

3.    Profitability

A good set of KPI’s addresses these three topics. 

If you’re running a business, your KPI’s should be central to your thoughts and actions at all times.

If you’re thinking about starting a business, figure out what your KPI’s will be in advance so you can make an honest assessment of the opportunity.

If you’re analyzing a business as a potential investor or franchise candidate, ask about KPI’s to quickly ascertain the health and key drivers of the business model.

Hopefully this outline provides some guidance on recalibrating or creating these incredibly important measurements which will serve as the lifeblood of your business.  Good luck and happy entrepreneuring.

In working every day with current and aspiring entrepreneurs I often find that metrics and data don’t receive the attention they should.  I often hear comments like – “How much money can we make?” or “How long will it take to do so and so?” but these are cursory questions that often don’t scratch the surface of a business model.

Every business, whether real or in creation, has key revenue and expense drivers.  All entrepreneurs should translate these drivers into “Key Performance Indicators” (“KPI’s”) or something similar to measure the company’s performance.

KPI’s are the heart, brain and central nervous system of a business.  Want to know if you’re investing your time and money in the right places?  Know how these investments relate to your KPI’s.  Want to know when to crack open the champagne or hit the panic button?  Know the ceiling and floor of each KPI and create reasonable goals/milestones.  Want to know if a key employee is the right person for the job?  Look at their impact on the KPI’s relative to what they’re costing the business.  And so forth.

I was speaking recently with Brian Destarac, a business coach and founder of Cobalt Business Solutions, and he had a great outline for looking at KPI's that I wanted to pass along.  He identified three categories:

Core Golfers & Technology

The National Golf Foundation recently released a report called “Core Golfers & Technology – Engagement with the Digital World, Including Social Media.”  I wanted to pass along some of the key findings along with my thoughts about their implications for golf entrepreneurs.

The data focuses on “Core” golfers, which accounts for 14.8 million of the 26.1 million total golfers in the United States.  “Core” golfers play 8+ rounds per year and are a critical market for most companies in the golf industry to capture. 

Here are the highlights:

Internet / App Use:	% or #
Researched Golf Equipment Online	84% (30% purchased)
Downloaded Golf Related App	2.4 million, or almost 20%
Would prefer high tech device in app form over dedicated device	4.3 million, or 29%
Regularly read blogs/reviews about golf brands, courses or travel	4.6 million, or 31%
Use Facebook, LinkedIn or Twitter	71% (compared to 56% of nt’l pop)

All numbers from this chart are increasing significantly by the year.  For example, mobile app downloads for golf-related items are double in 2011 what they were in 2010 across several categories, including apps to: receive industry news, engage with specific brands, book tee times, track scores/handicap and measure distances.

Turning now to marketing and brand engagement, core golfers had this to say about how they prefer to connect and interact with brands:

Communication Preference – Email vs. Social Media:	2010	2011
Email	94%	93%
Social Network Service	6%	7%

Likelihood to Increase Loyalty & Expenditure:	2010	2011
Email	36%	51%
Social Media Service	15%	25%

Email remains consumer’s overwhelming preference for engaging with golf brands but the gap is closing while both communication venues are increasingly important for building loyalty.

Here’s what I think it means:

The takeaways from this data will vary depending on your niche in the industry, but I think there are a couple of overarching themes for all of us:

1.    Golfers are increasingly using the Internet for golf research and purchases so you need to be there with an engaging website that includes blogs, reviews and other relevant information.

2.    A strong email marketing campaign (and thus a large and growing email database) is essential for communicating with customers.

3.    An active and relevant social media campaign is less important right now than email marketing but this gap is closing so it’s time to get on Facebook, Twitter, LinkedIn and others with a well-planned strategy.

4.    If a mobile application is relevant to your business in any way, develop and deploy it.

Good luck and happy entrepreneuring!

TGA is Now TENNIS & Golf Adventures

I’m pleased to announce that TGA has officially launched a second franchise company called TGA Premier Youth Tennis that closely replicates the model of TGA Premier Junior Golf.

The decision to enter the tennis industry has been under consideration for at least a year and it brought up a host of issues that drilled to the core of our company and its entrepreneurial spirit.  I wanted to share some of them with the hope that they’re applicable to you as you consider, pursue and/or manage your entrepreneurial endeavors.

Core Competency – What is the company really good at? 

Most people think of TGA within a golf context – that we’re really good at running golf programs on elementary school campuses.  For many years, we saw ourselves in this way too. 

But as the company evolved, we recognized that anyone can walk onto a school campus and try to teach golf.  Many have.  But no one has achieved anywhere close to our type of size and impact.  The reasons for this are twofold – 1) we created a viable business model for scaling a school-based youth sports business; 2) we focused heavily on being an “enrichment” program – i.e. building a classroom environment with instructors trained on educational concepts who deliver programs that include character development, life skills, physical activity and the integration of academic subjects such as math and science. 

Thus, our core competency is not about golf but rather the ability to deliver enrichment programs through a business model that is viable, replicable and scalable.  As such, we believe that any popular sport/activity not traditionally done on a school campus (e.g. tennis and golf) can be plugged into this model with success.

I believe that understanding a company’s core competency is probably the single most important factor to building long-term sustainable growth and I’m confident that we got it right.

Organizational Values – What does the company stand for?

Everyone involved with TGA is hugely passionate about golf.  Most people get involved with us to pursue this passion and it's one of our single most unifying values.  However, while some of these folks are also tennis enthusiasts, just as many are not and have no emotional interest in being involved with a tennis company. 

We put tremendous thought and research into whether a voyage into tennis would fracture the foundation of our organizational values.  We determined that the answer is “no.”  The reason is because we believe there is a deeper value we all share than golf, and that is a stronger passion to positively impact kids, families and the communities we serve.  We feel that tennis adds opportunities for us to do this in greater scale and effectiveness.

Additionally, franchise law forced us to offer tennis as a separate franchise from golf so people can choose which programs and passions they want to pursue – golf, tennis or both. 

I believe that having a corporate identity with clear core values is critical to building a strong organizational culture and I think tennis keeps ours intact while offering opportunities to make it stronger.

Risk vs. Opportunity – How much are we willing to gamble?

We ran pilot-programs for tennis in six markets nationwide and the early results were encouraging, albeit preliminary.  Then, various opportunities of high intrigue within the tennis industry started arising as people took note of what we were doing.  Joshua Jacobs, TGA’s CEO and my friend/partner, is an ambitious visionary who operates mostly based on experience and instinct so he wanted to move full steam ahead.  I am more of a quantitative, process-driven individual so I wanted to proceed slowly, if at all.

Ultimately, I remembered something my dad always says which is: “Things either get better or they get worse, they don’t stay the same.”  And I think that is very relevant here.  Josh was right – we have an opportunity to do something great with tennis and opportunities like this are few and far between.  So we compromised by slowing him down and speeding me up. 

Yes, there are definite risks and significant challenges with our decision.  But we’ve been diligent about our preparation and feel confident with our decision.  And that’s the key – understanding risk tolerance and making educated decisions.  For us, it’s time to take the leap and see what happens.  “Ready Fire Aim.”

Or, as we say at TGA, “Keep Swinging!”

"Owner's Discretionary Income"

Everyone wants to know the same thing when analyzing a business – what’s the profit?

Prospective business owners want to know a company’s earning potential.  If analyzing a franchise, candidates should (and often do) ask existing franchisees how much money they’re making and what the financial viability of the system is.

Business owners want to know how much value they’re deriving from the company.

Investors, board members, franchisors and other interested parties want  to know the operational efficiency of the business.

The problem is that determining “profit” isn’t as simple as looking at the bottom line of a P&L – especially when analyzing a private company like TGA Premier Junior Golf that is usually home-based with a single owner/operator.  That’s because the P&L often includes a variety of benefits to the owner that are entered as expenses, such as an owner’s salary/draw, entertainment, etc.

At a recent conference, I learned of a financial calculation from a fellow franchisor that solves this problem.  It’s called “Owner’s Discretionary Income.”  Here’s the equation:

company profit (Net Income line of the P&L)

+ owner’s salary (including draw, dividends, etc.)

+ fringe benefits (things you’d likely pay for out of your own paycheck if not a business owner)

= Owner’s Discretionary Income

This calculation tells you exactly how much value a business is delivering to its owner.  It also tells you how well the business is functioning from an operational standpoint.  That, in my opinion, makes it extremely relevant and important for business owners and prospective entrepreneurs alike.

Robo Golf

Several months ago I learned about Sphero (hat tip to Brad Feld), the world’s first robotic ball that is controlled by smartphone apps, and it keeps popping up in my thoughts.

The company has a golf app that is pretty cool.  Essentially, you use movements of your smartphone to control the movements of the ball.  Brilliant.  I don’t know if I’d pay $130 for one, but I do know that I’d want it if I were a kid.

Here's "Office Golf" -

And here's a ridiculous version of "night golf" -

With all the talk in the golf industry about needing to make the game easier and more fun, the Sphero product has me wondering about what other software-based inventions could arise.

How about a ball whose spin can be controlled by a mobile app a la Tiger Woods Golf.  Or, a ball that actually listens to commands like “get down!” or “go!” 

How about a clubhead with a laser in it to show where you’re aimed.  Or, a putter that uses GPS to calculate the distance to the hole and then shows with lasers how far to take the club back and through (a la the lines on a putting mat).  Or, an interesting product someone emailed me about recently involves a putter that reads greens. 

Personally, I’m a golf traditionalist so I likely wouldn’t use products like this outside of testing them and having a little fun.  But I certainly think it would be interesting if stuff like this existed.  With software advancements at their current trajectory, it’s simply a matter of time in my mind before there’s an intersection with golf. 

Sure, the products I described would essentially create a real-life golf video game experience, but who cares?  For most, golf is all about having fun.  If a product like the Sphero gets more people playing and enjoying the game, I’m all for it.

Perception Trumps Reality

I attended a “Franchisor Boot Camp” last week in Denver that was hosted by Greg Nathan, a well-respected expert on franchising and psychology.  The goal of the conference was for franchisors to learn techniques for building more profitable partnerships with their franchisees.  It was a great learning experience with lessons that apply to both business and life, and I’ll likely touch on many of them for a long time in this blog.

One of the first and most frequent things Greg Nathan said was:

“When perception meets reality, reality comes in second place.”

This resonated with me because I recognize it as being very true but it’s a difficult concept for me to wrap my mind around. 

“Reality” is defined as the state of things as they actually exist, rather than as they may appear or might be imagined.  “Perception” is defined as the process of attaining awareness or understanding of the environment by organizing and interpreting sensory information.

My tendency is to look at facts, analyze them in black/white terms and come to a logical conclusion.  Meaning, I focus on “reality” and place a lot of value on it.  And I’m a big believer in taking responsibility for this reality.

What can be missed in this process, however, is an analysis of how people perceive these facts/terms/conclusions.

For example, when a franchisor rolls out a new initiative, have they taken into account how the franchisees will receive it?  Let’s say the initiative will create long term value but it requires an initial investment of time and money.  How will the franchisee feel when he hears about this required investment?  Maybe his cash position is strong so he sees it as a great opportunity.  Or, maybe his margins have been squeezed during the recession, the financial stress of which has caused stress with his spouse, and this new expense will be perceived as the proverbial “straw” that breaks not only the business, but the marriage. If the franchisor is unaware of this, the messaging and execution will be way off.  Now, while the franchisor feels good about themselves for this new initiative, the franchisee blames the franchisor for ruining his business and his marriage.  The seething franchisee then becomes vocal about his disdain for the franchisor and starts eroding the culture of the entire organization.  Meanwhile, the franchisor doesn’t know what the hell just happened.  They deployed an initiative that creates long term value, which is what the franchisees pay royalties for, right?

This is extreme, but it demonstrates how a mismatch between reality and perception can spin out of control pretty fast.  Whether you’re a franchisor, franchisee, entrepreneur, manager or anyone else in the workforce, you can probably think of your own similar examples.

So how do we build a better understanding of people’s perceptions?  According to Greg Nathan, the answer is to connect with them on a personal, human level.  Talk to them.  Ask questions.  Understand what’s going in their lives.  How are they feeling?  What are they nervous, excited, etc. about?  Let them tell you where they’re coming from.  Empathize, and be authentic.  Not only does this help you understand their perceptions, it develops trust and commitment.  And this makes all the difference in your ability to communicate, assist, lead and motivate.

Developing healthy relationships is a critical component of business success, especially for an entrepreneur when the company is young and fragile.  Understanding that perception often trumps reality is a key part of building these strong, healthy relationships.  I’ve added another post-it note to my desk to remind me of this “reality” and hopefully the advice helps you too.

Good Sales vs Awful Sales

Please note: A variation of this blog, targeted towards franchise candidates and titled “Buying a Franchise Shouldn’t Feel Like Buying a Car,” originally appeared on the Franchise Business Review’s website.  You can read it here.

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I bought a car this week from a dealership for the first time in many years.  After multiple trips, dealings with several people and countless headaches, I came to the conclusion that there are two types of sales – good and awful.  And this translates well to the start-up world.

The point of sales is to solve a problem.  The buyer has a pain, and the seller can cure that pain.  It’s actually a beautiful concept.

“Good sales” reflects this problem-solving mentality.  The buyer and seller agree on a transaction that is mutually beneficial and everyone walks away better off than before.

“Awful sales” occurs when there’s a breach of trust in the inherent “mutually beneficial” aspect of the transaction.  For the seller, the goal is not about solving the customer’s pain but rather getting as much from them as possible.  Which, in fact, usually adds to the pain. 

Most of my car experience was of this “awful” variety.  Ultimately I got the car I wanted at a price I wanted from a decent guy, so I’m happy with the outcome, but the game was overly tedious and left a bad taste in my mouth.

As I went through this process, I thought a lot about my experiences at TGA Premier Junior Golf.  I recalled those initial years when a sale could determine whether or not we made payroll.  And I thought about all of our franchisees who go through this same reality as they start their business. And I reflected on my current role as both the head of franchise sales and franchise training.

For a young company, initial sales are critical.  So it’s natural for entrepreneurs to do everything they can to secure a sale and get as much from the customer as possible – a la the mentality of several of the car salesmen I dealt with.  But this is wrong.  Initial sales are important, but so is sustainability.  And you will only have the latter if you’re creating mutually beneficial agreements with your customers.

At TGA, we established a solid system of checks-and-balances with our franchise sales process.  I’m responsible for selling franchises, but I also have a critical relationship with each franchisee long after a transaction takes place.  So, while I’m providing training and support, I’m there when rubber hits the road and the things I said/did pre-transaction come to fruition or not.  This gives me a strong inherent interest to create mutually beneficial situations.  I encourage all companies to set up control mechanisms like this. 

Contrary, most sales people are in situations where the relationship severs at the point of transaction.  Systems like this create the environment for “awful sales” because the salesman doesn’t have to worry about the ramifications of his actions.

So, if you’re involved with sales – which all entrepreneurs are – please focus on the “good” variety and make a commitment to solving problems as opposed to closing deals.  You may lose some short term sales but you’ll gain long-term relationships and ultimate prosperity. 

And as customers, we decide who we buy from so let’s make a point of opening our checkbooks for the good guys. 

If we all do this, we’ll sell and buy solid vehicles that do a great job of navigating, driving and supporting us on our various journeys.