Show Me the Cash!

I remember the moment well.  I had just reviewed the P&L and things were looking good.  The business was healthy.  Sales were up.  Expenses were down.  Projections were being hit.  Everything was moving in the right direction.  I smiled. 

And then, our Controller walked into my office and said: (numbers fictitious)

“We have a problem.  I have $40k of bills on my desk and payroll is due this week, and we only have $80k in the bank.”

I thought of a phrase I’d heard a thousand times, and at this moment, I finally understood it:

A quick look at the balance sheet showed a monstrous Accounts Receivable number.  Yes, sales were up and expenses were down, as the P&L showed.  But people weren’t paying us on time.  Revenue reported as sales wasn’t showing up as cash in our bank account. 

Thankfully we were at a stage with the company where we could weather the storm.   We have always been diligent about keeping the company debt-free so it’s easy enough for us to get a credit line from a bank or a short-term loan from investors if need be.

However, many early stage companies don’t have this luxury.  Cash in the bank is their life blood.  Run out and you’re done.  You can have a stack of purchase orders and a P&L that makes you feel like a rock star, but without cash you’ve got nothing.  Seems simple enough.  But, in my experience, it’s often overlooked.  And I’ve been guilty myself.

In my situation, cash flow comes from the royalties paid by our franchisees.  We establish our operating budget based on them.  If franchisees are late with their payments to us, we have a problem.  Often, it’s the result of a trickle-down effect – the franchisees’ customers are late in paying them so they’re late in paying us.  The cash flow problem runs downstream.

Which is why I encourage entrepreneurs, franchise candidates and early stage business owners to do two things:

1. Start with more cash than you think – like 2-3x
2. Establish a culture with customers of prepayment or 30 day term maximums (with a sizable down payment) from the outset and be ruthless about enforcing it

We were way too laid back in the beginning about Accounts Receivable.  Our mentality was – “we want our franchisees to know that we have their backs and if that means delaying a payment to help them out, so be it.”  The problem was that the effect was the exact opposite of our intent.  It created debt-ridden franchisees, put the company as a whole at risk, and penalized the franchisees who were paying on time as they didn’t get all the services/products they otherwise would have had we had more money to invest in projects and infrastructure.

We’ve been working for years to turn around this mentality.  But culture is hard to change.  It takes a lot of time and energy.  It’s much better to establish a good one from the outset.  My suggestion for how to do so is threefold:

1) If you’re launching a company, start with as much cash as possible.  Make sure to add a “cash flow” line to your pro forma to see how much you’ll need.  Then double it.

2) If you’re in revenue and signing up customers, get them to pay as much as possible up front and be adamant that they meet your financing terms.

3) And if you’re in the throes of running a small business, give cash flow as much (if not more) attention than sales and income.

Because at the end of the day, cash really is king.  And it’s the type of lesson you don't want to learn the hard way.

Does Buying a Franchise Guarantee Success?

I was talking to someone recently who’s interested in purchasing a TGA franchise when he made a statement that encapsulated several thoughts I’ve been having:

“I get it – I’m not buying a business, I’m buying a system.”

I couldn’t agree more.

I believe that the purpose of buying a franchise is threefold:

Get a developed system in a proven market that operates like a well-oiled machine so you’re setup for success from the outset.

Get a recognizable brand that is growing exponentially due to HQ building it nationally/globally and franchisees building it locally.

Get access to the intellectual capital and support of a tight-knit family that includes HQ members and fellow franchisees.

In my opinion, it is rare that our “system” doesn’t work in a given area.  All territories have their niches that require slight modifications, but the system as a whole is highly transferable from one area to the next.  That’s the point of franchising.

When I look at TGA’s most successful franchises, they didn’t get there because of the system.  They got there because of themselves.  TGA provided a system that works, but that’s our job and that’s why we’re paid franchise fees and royalties.  It was the franchisee who took the system and made it a successful business.

At TGA, we have a concept called the “Recipe for Success” that asks three questions on a scale of 1-10:

1.  How hard are you working?
2. How closely are you following the model?
3. How well are you engaging the network?

It’s almost universal that franchisees who score high on these questions are doing well and the folks who don’t are not.  This list translates well to non-franchised businesses as well … you’d just need to add questions about product and market.

People often mistake buying a franchise with buying success.  It’s a big mistake to make as it can lead to (among other things) complacency.  Building a business is hard, whether it’s a franchise or not, and success comes down to your ability to execute.  

Buying a franchise tilts the odds in your favor as it provides a proven market, developed product and successful system.  But, if you ever consider investing in a franchise, I encourage you to do so with the understanding that it is ultimately up to you to take these things and turn them into a successful business. 

Are Your Competitors Really Who You Think They Are?

Back in 2004 when I started with TGA, I had an Outlook folder titled “Competition” where I would put emails/information related to other junior golf programs.  I chuckle about it now as it demonstrates how little I initially understood the business I was about to spend the next 8+ years helping to build.

I’m asked daily about TGA’s competition.  Usually the question comes from a franchise candidate and goes something like this – “My city has a First Tee chapter and several local golf facilities have good junior programs.  How does TGA compare with these competitors?  Can the business be successful coexisting with them?”

As TGA grew in size and scope, it became clear that our market was not the same as The First Tee’s. They are a non-profit focused predominately on programs for under-resourced youth that emphasize life skills and take place at golf facilities.  TGA is a for-profit focused predominately on parent-funded programs for middle/upper income youth that emphasize "enrichment" and take place at elementary schools.  Both causes are important and needed, but besides having golf as the common denominator, they’re very different.  TGA franchisees overlap with First Tee chapters across the country and our paths almost never cross.

It also became clear that TGA’s market was not the same as a golf facility's.  When a golf course holds a junior program, almost all of the kids who register have played golf before and/or come from golfing families where mom or dad has taken an active interest in getting them into the game.   When TGA offers our enrichment program at a school, almost all of the kids who register have never played golf before and come from non-golfing families – meaning, they’re not the ones showing up at the local golf facility.

At TGA, we’re not focused on competing for the 2.4 million kids who play golf but rather on capturing the 74 million kids who don't.  As a result, our competition does not come from other golf organizations or programs.

We compete for kids’ limited time and parents’ limited budget.  When parents make their purchase decision with TGA, they’re comparing us to karate and chess club and art class and soccer and basketball and drama and the many other activities available to kids.  That's our competition.  They are not analyzing whether they should sign up for TGA or The First Tee or the program at the local golf club.

And that, to me, represents three important things:

1. It’s a great example of the entrepreneurial journey and how your “competition” folder can end up looking nothing like it did in the beginning.
2. We have made important strides at TGA to become more razor-focused on who we serve, why we matter and what we want to accomplish.
3.  There is a staggering number of kids in the U.S. not playing golf and we should all be obsessively focused on bringing the game to them as that is where the true opportunity exists.

Knowing your competition is a crucial element of understanding where you fit into the industry ecosystem.  A business professor once said something along the lines of – “if you can’t identify and describe your competition within 30 seconds of being asked, you don’t understand your business.” 

Eight years ago, I had no clue.  Most entrepreneurs don’t.  That’s what the entrepreneurial journey is all about.  Thankfully we have a great team at TGA that figured it out together and did so fast enough that I'm able to write this blog from TGA’s office as the COO. 

And with that, now I must get back to figuring out how to strengthen TGA’s value proposition against swim class, gymnastics, baseball, music lessons and cooking class.

Golf Participation is Soaring! Electronically, That Is.

The NGF recently released a study saying that 56 million people in the U.S. play video game golf, 45.5 million of whom are non-golfers.  That’s an amazing stat in my opinion.

First, I’m surprised that 39% of actual golfers (26.1mm) are also golf gamers (10.2mm).  Given the perception of the golf industry, I find that data interesting in a good way.

More importantly, the fact that 39mm people who have "never played golf" are hitting the links on their big screen shows that a lot of people are interested in playing the game.  Unfortunately it's just not in the way that we as an industry want or need.  Concepts like the Chicken Stick and games like Tiger Woods PGA Tour Golf are moving the needle by making the experience remarkebly real-life in the comfort and convenience of one's family room.

Visit a TGA Premier Junior Golf Class and you'll hear almost all of our elementary and middle school students say that they’ve played golf before – miniature or “putt putt” golf, that is.  Almost all of the hands go down when students are asked if they’ve ever been on a golf course or to a driving range.

Then consider that TV ratings have skyrocketed in the last 10 years.  Thursday's record-breaking Ryder Cup viewership is the latest example of this.  More people are watching the game now than ever before.  

For me, all of this adds up to an important message – people are interested in the game of golf.  A lot of people are interested.  And that interest is growing.  This makes me optimistic.

But that interest isn’t translating into rounds at the golf course where participation is down 13% over the last five years.  People say that time and cost are the hurdles keeping them away.

For golf entrepreneurs, I believe that figuring out this dilemma is the biggest opportunity in the industry.  It is also the most important conundrum facing the health of the game.  Perhaps we’ll simply follow the cycle of the economy.  But I think it requires a fundamental shift in how we think about the game. 

I believe that the 18 hole round will always be the backbone of golf.  But perhaps, as an industry, we need to look at an 18 hole round as one way, not the only way, to enjoy the game.  The 46 million non-golfing gamers are telling us we should.  We as an industry need to embrace this, innovate around it and find ways to monetize the opportunities.

Concepts like TopGolf, AlmostGolf and Off Course Network are already trying to do this.  There are others as well.  But the door is wide open for someone or something to come in and revolutionize the way golf is played and enjoyed.  Are you going to be the one breaking through that door?  If so, how?

Will TopGolf Revolutionize the Driving Range Experience?

The executive golf course a block from TGA HQ has had some controversy the last few weeks and it’s an interesting discussion about the future of golf.

The Lakes at El Segundo is a city-owned facility that sits on land donated by the nearby Chevron oil refinery.  The site boasts a fun and quick executive course (Par 29), good practice facilities including a two-tiered driving range and a decent 19^th Hole.  It’s developed such a family-friendly environment that it doesn’t make sense for my company TGA Premier Junior Golf to partner with them because their junior programs are always sold out.

A few weeks ago the Daily Breeze broke the story that city officials were strongly considering replacing the practice facilities, clubhouse and restaurant with a concept called TopGolf.  This is a brief description from TopGolf’s website:

TopGolf is the premier golf entertainment complex where the competition of sport meets your favorite neighborhood bar. The fun is in the innovative and addicting point-scoring golf games that anyone can play. Just picture a 240 yard outfield with dartboard like targets in the ground. The closer to the center and the further out you get, the more points you receive. Add in an awesome menu and refreshing cocktails, and TopGolf is far from your average bar or golf complex. It’s not golf – it’s TopGolf.

TopGolf's concept of a driving range with targets for points

Bringing in TopGolf would also require eliminating one hole and restructuring two others.  It would be a major overhaul of The Lakes and initial estimates put the cost at $15 million.

The city says that it is necessary because the facility is losing money.  According to sources, the range does $700,000 in annual sales which is almost certainly profitable.  I drive past the course every morning and evening (and often during lunch and other times of the day) and it is always packed – like, two groups waiting on each tee packed.  If The Lakes at El Segundo is losing money, I worry about the future of all executive courses – which is concerning as I believe these types of facilities are an important part of the game’s future.

I’ve heard great things about TopGolf.  It looks like a fun, social and cost-effective way to enjoy the game in a timely manner.  You don’t have to be a good player to enjoy hitting balls.  As their website says, it’s like bowling with your friends – throw a gutter ball and no one cares… have a good laugh and another sip of your drink.  These are the types of innovative approaches we need to make golf more inviting and enjoyable.  Whether or not TopGolf is successful will depend on a variety of factors, but conceptually I think it’s fantastic.

TopGolf's "About Us" page where pics sum up the philosophy

However, The Lakes is a bad fit for it. This is one of the short courses that gets it right with their focus on families, timely enjoyment of the game and integrating with the community.  The foot-traffic at the facility and the harsh response to the city’s decision is evidence that the community doesn’t want to see this change. Thankfully it seems as though the message has been said and heard.

Short courses have been the hardest hit by the downturn in the golf industry.  While I believe TopGolf would be a failure at The Lakes, there are many other facilities that could be great spots for them.  I hope TopGolf is successful growing their business and I applaud their innovative and much-needed approach to growing the game.