Wednesday, June 22, 2011

What Does a Franchise Fee Buy You?

(Please note - this blog originally appeared in Franchise Business Review.)

Franchising is a great option for folks who dream of owning a business but don't have a great idea and/or want to mitigate the risk as much as possible.  When you invest in a franchise, the question really is - what am I paying for?

The answer, in a word, is “opportunity. “  Described in the dictionary as:

1. A situation or condition favorable for attainment of a goal.
2. A good position, chance, or prospect, as for advancement or success.

I’m the COO of a franchise organization called TGA Premier Junior Golf that filed its first UFDD in 2006 and currently has 47 franchises in 21 states.   We’ve been named to numerous rankings/lists as a top “franchise value” and “low cost franchise” in the U.S. with an average franchise fee of $17k and change.

I recently had one of those unfortunate conversations with a franchisee who wasn’t executing well and he wanted to know his exit options.  Thankfully I’ve only had a few of these conversations in my TGA career and this one was unlike the others because the franchisee pointed the finger at me.  “You sold me a bad territory.”  “This isn’t a viable business here.”  “Etc. Etc.”

Never mind that the franchisee down the road is one of our best in the country.

The conversation turned into a discussion of the central relationship between a franchisor and franchisee.  The franchisee believed his investment in a TGA franchise would guarantee success (even though the disclaimers clearly state otherwise).  “Build it and they will come.”  I’ve heard this sentiment from others as well.  And it is wrong.

The franchise fee buys an opportunity.  A “favorable (situation) for attainment of a goal.”  A “good … chance … for advancement or success.”

I remember the first few years at TGA when we were losing money.  We made several mistakes.  We asked questions of our customers.  We learned.  We pivoted.  We took three steps forward and two steps back.  We launched the business in 2003 and first said hello to the black in 2006.  By then, we had figured it out.  And we grew – quickly.  Profitably.

When a franchisee invests in TGA, they get two things:

A)   An express pass through those initial 3-4 years when a new business typically loses money, makes mistakes and constantly walks the survival line.  This “pass” comes in the form of TGA’s proven product, IP, strong brand, training, support, inclusion in partnerships and so forth.  As a result, most of our franchisees are profitable in their first year.

B)   Tangible goods that, in our case, would cost more than $17k if purchased/developed on their own - $2,000 worth of supplies, a website with backend CMS, a robust CRM system, national and local PR, cost-savings due to favorable agreements with suppliers among other things. 

Franchisors provide a model/framework for success.  You want to build a castle and we provide a proven blueprint and the necessary tools.  That’s what your franchise fee buys you.  The first thing I learned in my MBA program was that entrepreneurship is about execution.  A franchisor provides a great opportunity.  If you're exploring the franchise path to entrepreneurship, understand that it'll ultimately be up to you to capitalize on this opportunity by picking up the tools, following the blueprint and building.

Thursday, June 16, 2011

Why the U.S. Hibernation?

The U.S. Open begins today and you’ll be hard-pressed to watch coverage without hearing about how the U.S. is getting dusted these days by international players.  Here’s the landscape:

·         The top three ranked players in the world are Europeans (Donald, Westwood and Kaymer, in that order).
·         Europe possesses the Ryder Cup and has won 4 of the last 5 meetings.
·         Europeans hold the U.S. Open Trophy and the Wanamaker Trophy (PGA Championship) with Graeme McDowell and Martin Kaymer, respectively. 

Adding salt to the wound is the fact that South Africa, a country 1/6 the size of America with 49 million people, holds the other two major trophies – The Open’s Claret Jug with Louis Oosthuizen and The Master’s Trophy with Charl Schwartzel.

Is there a sensible explanation for international dominance and U.S. hibernation on professional golf’s largest stages?  I decided to explore.

Theory 1: People are picking up golf at a greater rate overseas than in the states.


Europe has been growing in overall golfers at a greater clip than the U.S. since 1985 but they’ve generally followed the same pattern.

Additionally, the number of golfers in Europe’s largest golf market, the UK and Ireland, actually decreased 4% last year.  This is the same market where five of the top ten golfers in the world reside. 

Thus, I don’t think growth/decline in golf participation is the culprit.

Theory Two: There are more overall golfers and/or a larger percentage of the population is playing golf overseas.

Total Players
% of Population
South Africa

This data suggests that the U.S. should dominate professional golf.  We have 5.9x more golfers than Europe and 176x more than South Africa!

Theory Three: We have less junior golfers who can be developed for competition at a young age.

The top 5 ranking European countries in terms of the percentage of overall golfers who are juniors are:

1.    Turkey (51%)
2.    Latvia (28%)
3.    Romania (24%)
4.    Greece (21%)
5.    Czech Republic (15%)

i.e. Not the U.K., Ireland, Germany and Spain where Europe’s top pros come from. 

Additionally, with 2.7 million kids playing golf in America, more than 50% of Europe’s 4.3 million total players would need to be juniors in order to outpace the U.S.  As shown above, that is not the case.

(Side note – if, in 15-20 years, we see young stars tearing up the PGA Tour from Turkey and the rest of Eastern Europe, you heard it here first.)

Theory 4: The quality of junior competition in the U.S. is inferior to Europe and others.

This is subjective and cannot be proved or disproved with data.  The folks at the American Junior Golf Association (AJGA) and U.S. Kids Golf would likely point out that top teenage golfers from around the world travel to the U.S. to compete … not vice versa.  Same with collegiate golf – top International players come to ASU, USC, Oklahoma St., Georgia, etc.  So, I doubt this is the culprit.

Theory 5: It is happenstance and we’ll see a return to equilibrium shortly.

My findings are that disparities in overall participation, growth in participation, youth participation and competitive preparation are not the causes for Europe’s recent dominance in professional golf. 

Thus, in conclusion, my lack of a conclusion leads me to believe that it’s happenstance – a perfect storm resulting from Tiger’s implosion, Phil’s struggles and the incubation period of America’s young guns like Rickie Fowler as they evolve from good to great.

Maybe equilibrium will start its process this week.  As a result of this analysis, my fantasy squad is loaded solely with Americans.

On a serious note, I look at this data as an entrepreneur and see two things:

1.    The golf industry is seemingly ripe for innovation to turn around the declining participation numbers.

2.    The international golf market is starting to blossom in places like Turkey, Eastern Europe, South Africa and elsewhere (i.e. China) and there will be some big winners who capture this growth.  Hopefully it’s you and me.

Have a great U.S. Open week and Happy Entrepreneuring. 

(All data about golf in the U.S. courtesy of and data about golf in Europe and Africa courtesy of ... along with personal computations.)