Are You a Human Being, Visionary or Entrepreneur?

A friend/mentor at the Tech Coast Angels sent me a one-sentence email today that simply said:

"Person who sees problem--human being; finds solution--visionary; solves problem--entrepreneur."

No commentary was provided and none was needed.  The line comes from Naveen Jain and appeared in his article "How Entrepreneurs Become Visionary Leaders."  The full quote is:

"An entrepreneur is not a person who starts a company but he is the person who actually solves a problem. It’s all about execution and it is a state of mind. A person who sees a problem is a Human Being, person who finds a solution is visionary and the person who goes out and does something about it is an entrepreneur."

My favorite part of this paragraph is that entrepreneurship is a state of mind. Starting a company is as easy as spending 30 minutes and $500 on Legalzoom.com. Anyone can do that and it doesn't make them an entrepreneur. Solving a real problem does. And that can happen whether you're the founder or one of 10,000 employees at your company.

Is First the Worst?

I was taking a Sunday stroll with my family last weekend when, upon leaving our favorite neighborhood coffee shop, my wife asked - "Do you think Starbucks is successful because they were the first or because they make the best coffee?"

Great question.

The concept of first mover advantage is an important one to me as the COO and part-owner of a first mover.  And there is no consensus on whether it's actually an "advantage."

Intuitively, being the first seems like a good thing.  So much emphasis is placed on the "idea" that it makes sense that the first person with that idea will be the one who's successful.  For many years, this is how I viewed the world.

Then I learned that great ideas are in abundance and the keys to success are execution, monetization and timing.  It's not nearly as sexy to be #3 but be the best at providing the right solution at the right time with the right business model, but that's usually how you win the game.

My MBA professors almost universally agreed that being the first mover is a disadvantage.  The first mover spends tremendous resources creating a market and learning how to service it.  Customer acquisition costs are through the roof.  Each iteration drains more time and money.  And, right when you figure it out (if you're still around at that point), second and third movers with clean balance sheets and nimble teams come in and capitalize on the foundation you've built.  First movers put in the labor... second and third movers eat the fruit.

There are many examples of this.  Friendster before Facebook.  AltaVista before Google.  Atari before Nintendo.  And so forth.

But I don't believe this is a universal truth.  The exception is if the first mover can create significant barriers to entry, and fast. 

Starbucks is successful in my opinion for two reasons.  First, they had a great concept - create a "third place" for people to comfortably spend time outside of the home/office.  Second, they were able to scale quickly, opening a new store every work day, by utilizing debt financing to open company-owned stores as opposed to franchising like most QSR's, thus providing this "third place" for people wherever they may be.  Now, whether I'm in NYC or Temecula CA or Lake Geneva WI, I know that I can go to Starbucks to catch up on work and meet with clients/friends because I know exactly what I'm going to get.  And that's why people go there - not for the burnt coffee.

There are other barriers you can create as well - exclusive contracts with key suppliers, strategic partnerships with large industry incumbents, IP, customer loyalty, economies of scale, switching costs and others.

At TGA, I'm confident in our first mover advantage because we've created several of the aforementioned barriers.  But it hasn't stopped others from trying to compete.  And that, to me, is a good thing.  It validates the market, grows it and expands awareness of our concept.  It also makes us appreciative of being five steps ahead and keeps us obsessively focused on getting to six, seven, eight...

If you've come up with a new idea and no one else is doing it, there may be a reason for that.  But if you validate the concept in the marketplace, go for it.  Focus on scale and creating barriers to entry quickly.

If you've come up with an iteration on an old idea, that's great too.  It's how most businesses are started.  I remember hearing a story that Steve Jobs had the idea for the iPad a decade before its release (and versions of the concept can be traced back to the late 60s) but he didn't feel the market was ready for it yet. 

People have built great companies both ways.  Whichever path you go, remember that execution, monetiziation and timing usually win the game.

Good luck and happy entrepreneuring.

Not Feeling the Love? You're Probably on to Something Good

There was an article in the Harvard Business Review last weekend that caught my attention.  It was called "If You're Not Pissing Someone Off, You're Probably Not Innovating."  I found myself agreeing with much of it and finding it especially relevant to the golf industry.

The premise of the article is that industries are controlled by incumbents who do not look kindly on new ways of doing things.  As a result, a "fundamental obstacle to innovation that all would-be disruptors must be prepared to face is the potentially hostile response of incumbents who don't want to see their market advantages threatened."

This is very true in the golf industry where "tradition" is the cornerstone of a powerful culture.  "Innovation" to many is seen as a direct threat to the sanctity of the game they love and this causes emotions, both positive and negative, to run especially high.

Additionally, the industry is controlled, like most industries, by an exclusive "inner circle" that is difficult to penetrate. 

Fred Wilson talks about this concept in a blog titled "Insurgents vs. Incumbents."  In it he says: "The startup world is about insurgents. A person or a few people with an idea. And they drop everything and go for it. They are going up against the incumbents and that doesn't just mean the big companies that occupy the market position they want. That means all the people, institutions, and organizations that are in cahoots with the big companies."

In golf, this would be the PGA of America, PGA Tour, The First Tee, USGA, LPGA and a few others.

If you're a current or aspiring golf entrepreneur, be prepared to feel the opposite of loved by these groups.  And that's okay.  The golf industry has been contracting for a decade so these folks have reason to be defensive, and the data clearly shows that the current way of doing things is not working.  It's also a $76 billion industry in a volatile environment, making it a great time/place for disruption.

Being an "insurgent" is awesome.  It's thrilling, purposeful, educational, humbling and an opportunity to do something significant and meaningful.  But be prepared to face people every day - every hour, even - who don't share your vision.  Who will try to derail you.  Who will be dismissive.  Who will react negatively to the very premise of your concept.

But if you're getting this type of response from incumbents, know that you're on to something good.  Be resilient.  Because if what you were doing wasn't a threat to them, they either wouldn't care or would try to help.

We've faced this for years at TGA with success so it's definitely possible to overcome.  And now that we've reached a point where our footprint is too large to ignore - two franchise systems, 67 franchisees, >150k students, strong growth and huge opportunities on the horizon for 2012 - the "inner circle" is starting to open up their arms. 

I'm okay with having to prove ourselves to the incumbents and you should be too.  The goal is to be one of them, soon.  We just need to make sure that if/when that happens, we continue to be innovators.  It goes back to something I wrote about in the past - it's the pace of innovation that determines the winners, not the original idea.

Don't Drive Into a Storm on Bald Tires

I started to write this post about National Golf Day after seeing my Twitter feed held hostage for most of yesterday, but then, thankfully, I received an email about a more relevant topic for golf entrepreneurs so I switched directions.

In short, you can learn about National Golf Day here and read an account of the day's festivities here.

Which leaves me with this note that just crossed my inbox from an entrepreneur I met at StartEngine about his search for seed-stage investors:

"In retrospect, it would've been good to understand early on how important "traction" is.  It's more important than many of the other elements we spent so much time working on (pitch, slides, due diligence, projections, even much of the networking).  We'd have re-prioritized."

That's great feedback for me as a Mentor and great advice for all aspiring entrepreneurs.  He's absolutely correct.  "Traction" is proof that a market and customer exist.  That is more important to investors than anything else.  And it should be the top priority of entrepreneurs as well.  What does a great pitch, deck, business plan, etc. matter if there isn't a market or customer?

The chicken/egg question that then arises is - how do you get "traction" when you have no money but investors want traction before giving you money?

The answer is to bootstrap.  One of my most influential MBA professors wrote a great article and created a great slide show on this topic that I encourage you to read.

Bootstrapping requires acquiring customers early and often.  It's a constant focus on sales.  It's minimizing your start-up costs by generating revenue and churning cash flow quickly.   If your product or service is really that good, you may even be able to get PO's before the product/service is built - which, in essence, would make your customers your financiers.  Bootstrapping works especially well when manufacturing is involved.

But bootstrapping for a length of time isn't financially feasible for many tech entrepreneurs who don't have a clear and immediate revenue model.  Too many of these folks are, in my opinion, focused on the astonishing success of the Instagram's of the world ($1 billion for a team of 13 with no revenue?!?!) and not mindful enough of the reality that 1,000s of companies with this model fail for every one Instagram that succeeds.  TechCrunch et al just don't publish the failures (understandably) so the picture you see of easy start-up glory painted in the news does not reflect reality.

If I could do it all over again, I'd advise my friend at StartEngine (who has a mobile app company) to bootstrap, get a Minimal Viable Product (MVP) into the App Store, and then spend a minimum of 50% of his time thereafter focused on user/customer acquisition.  If the product solves a major pain, people will use it even if it's not perfect.  The bigger the pain-point, the more users you'll get.  And that provides the traction you need to convince the investment community that you're worth the risk of their capital to see what the proverbial "flop" holds for your company.  Add a revenue model to that equation - which I believe every start-up should have from the outset - and you're ready to put the pedal to the metal.

Equally as important for you the entrepreneur, "traction" let's you know whether you're spending time on a real business with a viable market and customer-base.  With it, you know to endure the valleys because the peaks could be spectacular.  Without it, you know (hopefully) that you're driving into a storm with bald tires and life is too short for such nonsense.

Leadership Change at the PGA

This week saw more big news in the golf industry as Joe Steranka, CEO of the PGA of America, announced that he is retiring at the end of 2012 following 25 years with the PGA and 7 as its Chief Executive.

I met Joe once to discuss a potential partnership with TGA Premier Junior Golf.  He was cordial (and is generally well-regarded throughout the industry as a nice guy and universally respected) but we didn't agree philosophically.  He said: "I don't believe in privatizing or profiteering from junior golf."  My stance was (and still is) that this mentality is why we've seen a 34% decline in youth golf since 2005 (when he became CEO) while other sports with different philosophies have grown.

It will be interesting to see how Mr. Steranka's legacy unfolds.  Based on the state of the industry, it won't be positive.  Golf has contracted significantly since 2005 and that is why I think this is a positive and necessary change.  Whether or not the contraction has been the result of his policies, or bad luck with the economy - or even if he's done an incredible job at minimizing the bleeding - we'll probably never know.  Like any administration presiding over tough times, the causes don't matter as much as the results.  However, ultimately I believe his legacy will be handcuffed to the success of Golf 2.0, which is good news as I believe it has a great chance of success if executed properly.

I look forward to seeing a change at the top of the PGA and hope that Mr. Steranka's successor is collaborative, embraces innovation and supports entrepreneurship.  I encourage his successor to study the inclusive and open-minded culture of the United States Tennis Association, which has led to a 13% growth in tennis participation since 2005 while golf has seen a 13% decline in that same time.

I wish Mr. Steranka all the best in the next step of his career and thank him for his service to the golf industry.  He was dealt a tough hand and had mixed results, but from I've seen and heard, he deserves gratitude and applause from everyone in the industry for his commitment to the game. 

Analyzing Taylor Made's Purchase of Adams Golf

This has been a big news week in my world – the PGA Tour announced significant structural changes, my company TGA officially announced the launch of TGA Premier Youth Tennis with the USTA as a Founding Partner, Los Angeles announced itself as a meaningful startup community at Start Engine’s Demo Day (where I’m a Mentor), and Taylor Made announced its acquisition of Adams Golf.

I’m going to talk about all of these items in future blogs, especially TGA’s strategic decision to enter the tennis industry as the lessons learned are already reminding me of case studies I used to debate in business school. 

Today, however, I want to look at Taylor Made’s Acquisition of Adams Golf, which was announced on Monday.  I’m going to look at it from three perspectives – financial, strategic, and implications for entrepreneurs.

Financial:

Taylor Made Adidas Golf Group acquired Adams Golf for ~$70 million, or $10.80 per share. This represents a premium of ~71% over the share price from before Adams Golf announced it was examining major new strategic directions in early January and a 9.5% premium over their closing price last Friday of $9.86.  Upon news of the acquisition, shares rose 8.8% to $10.73 on Monday (where it currently remains), indicating that the market likes the acquisition, at least for Adams Golf.  Shareholders must like it too considering the stock at this time last year was $5.22.

Adams Golf had $11.85 million of operating income in 2011 on $96.50 million of revenue, so Taylor Made gets an equipment company that is profitable with ~12% operating margin. This seems pretty good considering Callaway, the other publicly-traded golf equipment company, had an operating margin of almost -10% last year with $81.09 million of losses on $886.53 million of revenue.  Therefore, Taylor Made paid 0.72x revenue and 6x earnings.  I don’t have any comps to compare these multiples to, but at first glance they look pretty good to me considering the lack of profitable equipment manufacturers in the industry.

Strategic:

Adams Golf’s focus on mid-high handicappers nicely complements TM’s portfolio of products that focus on low-mid handicappers.  Therefore, the acquisition buys top-to-bottom market share for Taylor Made.  Additionally, when analyzed through Porter’s Five Forces (which is a great model for looking at strategic decisions), the deal looks like a good one:

Threat of New Competition – the acquisition makes the largest golf equipment manufacturer even larger.  I agree with many leaders in the golf industry who feel that we’re about to see consolidation amongst equipment manufacturers and this move is a step in that direction.  As a result, threat of new entrants into the market decreases as barriers such as capital requirements, brand equity and economies of scale tilt more in favor of Taylor Made. Analysis – thumbs-up for TM.

Threat of Substitute Products or Services – since there are no alternatives to golf clubs – meaning, you need to have them and them alone to play on a golf course – this “force” doesn’t apply much to the acquisition.  In terms of customers spending their time/money on activities that substitute for golf, this deal also has no impact. Analysis – neutral for TM.

Bargaining Power of Customers – consolidation almost always leads to less bargaining power for customers due to fewer options that create less competition.  Analysis – thumbs-up for TM.

Bargaining Power of Suppliers – this move gives greater economies of scale to TM and therefore gives them greater influence over suppliers. Analysis – thumbs-up for TM.

Intensity of Competitive Rivalry – I believe the acquisition will increase rivalry in the short-term as competitors scramble to compete with a growing market leader through increased advertising spending and so forth.  However, in the long-term, I don’t believe any equipment company can create a sustainable competitive advantage through innovation due to USGA regulations.  Therefore, manufacturers will (and are) evolving from R&D houses to marketing firms.  Once this happens, golf clubs will essentially become a commodity from a technological standpoint and industry leaders will need to succeed through brand equity.  New  private-label entrants will then be able to enter the market with equal quality and significantly reduced price-points through reduced overhead, thus increasing competitive rivalry for everyone.  For both the short-term and long-term, that spells trouble for Taylor Made.  But, I believe this will happen regardless of the Adams acquisition. Analysis - neutral for TM.

Implications:

For entrepreneurs, I think consolidation is bad news in the short term and good news in the long term.  As technology becomes a commodity, and big players fail to innovate (as is often the case with consolidation), opportunities will arise for new entrants to capitalize on the huge market of people who want top-of-the-line technology but don’t want to pay $500 for a driver.  If and when that happens, hopefully entrepreneurs will be there with a solution that makes golf more affordable and therefore gets more players into the game.

A 19th Hole - at the Beginning of the Round?

I made a quick jaunt to Northern California last week with a hectic work schedule but was fortuitously able to incorporate a little golf into the itinerary.  The golf was spectacular (see pictures below), my game was not.  Complicating matters was that we were pushing it by trying to fit two rounds into very limited time.  As such, we essentially pulled into the parking lots of each golf course, checked in, hit a few putts and teed off.  You can imagine what those first hole scores looked like.

My TGA colleague Nate Wright had a couple of intriguing thoughts about this process that I’ve been chewing on since and wanted to pass along.

As I was finishing up my double bogey putt on the first green of our second course, Pasatiempo, he said – “Wouldn’t it be great if golf courses were built with 19 holes and the first was a warm-up?”  I laughed it off but he persisted – “You could have a Marshal walk with each group and determine, based on the scores and what he or she saw, what tees the players needed to use for the rest of the round.”

I initially laughed it off again but the idea grew on me as I thought more about it.

There are obvious complications – incorporating a 19^th hole into existing layouts, adding to the length of a round, disrupting the concept of an 18 hole course, adding another employee to payroll, potential subjectivity of the Marshal determining tees (and the corresponding displeasure/arguments), etc.

But there are also benefits – minimizing the need for practice time before the round, increasing enjoyment of the round by having a warm-up hole to minimize high first-hole scores, faster pace-of-play on the other 18 holes due to players playing from the appropriate tees, etc.

The first “practice” hole would need to be very easy, such as a wide open 350 yard par 4 with a flat green.  Maybe there would be rules regulating the maximum number of shots to get on the green at four and the number of putts at three.  Maybe players with handicaps below a certain number could bypass it altogether and play from any tees they wanted.  Maybe the practice hole could be added to the side of the driving range, where space is often more abundant and easier to carve out, as opposed to including it in the course layout.

With the USGA considering new rules and some golf courses starting to develop innovative ways to make the game more attractive, all options seem (thankfully) to be on the table.  I think this idea stands up with many of the others and merits a place in those conversations so I wanted to throw it out there. 

What do you think?

And, hat tip to Nate Wright for the ideas.

18th Hole at Pasatiempo - Me on the left, Nate Wright on the right

11th Hole at Monterey Peninsula Country Club's Shore Course