The Pellucid Perspective - August 2011 - (Page 4)

came organically and success was owning/operating facilities and managing profit growth until a transaction event rolled around and everyone cashed in and switched horses. And then an unfortunate thing happened. Golf turned into a revenue generation business and profit growth swiftly shifted to extreme expense management during the transitional period. It caught us completely by surprise, and even the golf execs with backgrounds in hospitality didn’t shine in recognizing and adapting to the new world. Given, the math is tough: How do you increase marketing spending from 0.5% of gross revenue to 2.0% of gross revenue at the same time that your rounds are declining and your debt service potentially is rising? On a $1.5M annual gross revenue facility, that’s a swing in marketing spending from $7.5K annually to $30.0K annually. Where do you find that $22.5K and what if what you spend it on doesn’t work? Good questions, tough answers but we’re starting to see the effects of the lingering 5+ year duration of expense reduction decisions waiting for “the miracle” of revenue rebound. It’s written in the language of facility transactions at $.40-$.50 on the dollar deals and generally deteriorated physical plants (I mean the facility, but could also refer to the actual grass). Just to show that Mr. Jolly’s maxim isn’t confined to facility owner/operators, let’s take a look at how the expense reduction/efficiency gains program worked out for the folks over at Callaway. George Fellows arrived at Callaway Golf on August 1, 2005 after a successful career in the Consumer Package Goods (CPG) industry, culminating at the pinnacle of the Revlon organization. After the breaking in period and his orientation to the golf industry (which I can empathize with, to say that we do things differently in this cottage industry would be a gross understatement), he ascertained that investing heavily in changes in production sourcing, streamlining processes and international distribution expansion would lead Callaway back to its former glory. Despite coming from an industry known for marketing prowess, sophisticated product evolution and consumer insight-driven strategies, he left very little trace of the application of those skills when he resigned nearly six years later. In other words, from an outsider’s perspective, Callaway failed to pay attention to and invest in revenue generation; they focused on making a more efficient operation. While I have to stop short of saying that TaylorMade or Acushnet has a clear competency advantage in the area of revenue generation (Acushnet has no peer in “protecting a lead” and TMaG has captured lightning in a bottle in the short term with the feature du jour, white clubs), these two organizations at least are doing a better balancing act between revenue generation and expense management. Of interest is the fact that the opening salvo of the interim Callaway CEO, Anthony Thornley, was that he would immediately look for $50M in cost reductions (leaner organization and other cuts) and that he would reinvest “a portion of the cost savings in key marketing initiatives.” Given that his background is Callaway’s finance guy on the Board, we’ll see how that turns out, but I’m betting that Thornley won’t be investing a meaningful amount of that money in marketing. To his credit though, it makes for a good press release and it’s absolutely an about-face from Mr. Fellows’ strategy, which has failed tragically over an extended period of time. In summary, I’ve found Mr. Jolly’s observation about businesses attempting to cost-cut their way to prosperity to be empirically and universally true. In candor however, to operate in today’s golf environment under the sole mantra of “revenue generation” could also be characterized as whistling past the graveyard. If you put all your eggs in the revenue generation basket in Year 1, you could be dead in Year 2, which is not the intended outcome (unless you’re a $1B equipment manufacturer, then it takes 6 years of cost-cutting strategy and programs to kill you). As foreshadowed above, I believe the most prudent approach is a balanced attack of escalating revenue generation investment, programs and tracking, while continuing to make moderate, prudent expense reductions. Putting this into a real life example, when planning the 2012 annual budget, if you lower expenses by 2% and increase marketing investment by 4% then your revenue generation plans only have to give you 2% “lift” initially while you figure it out. Over the course of a season, it should provide an opportunity to try 3-5 revenue generation programs and find a few that work among the few that don’t. Then, when expense reduction reaches its terminal limit, you have some marketing experience behind you as you make the shift to your revenue generation programs having to be self-funding and, longer-term, net revenue generators. While I don’t know if Mr. Jolly is still alive, hopefully he would be pleased to know that he successfully passed on this piece of wisdom to the next generation of business managers and that I have passed it on to the improbable destination of the business of golf. n AugusT 2011 4 The Pellucid PersPecTive http://www.clubcar.com http://www.clubcar.com

Table of Contents for the Digital Edition of The Pellucid Perspective - August 2011

The Pellucid Perspective - August 2011
Contents
Why cost cutting doesn’t yield long-term prosperity
Get Golf Ready showing some traction
Danger, Will Robinson!
Golf holding up but heartland hammered by weather
U.S. golf course development dead, or just sleeping?
Whither the weather
Miami/Ft Lauderdale, FL Core Business Statistical Area (CBSA)
Comings & goings
A few changes of note in August’s dog days

The Pellucid Perspective - August 2011

The Pellucid Perspective - August 2011 - Contents (Page 1)
The Pellucid Perspective - August 2011 - Why cost cutting doesn’t yield long-term prosperity (Page 2)
The Pellucid Perspective - August 2011 - Why cost cutting doesn’t yield long-term prosperity (Page 3)
The Pellucid Perspective - August 2011 - Why cost cutting doesn’t yield long-term prosperity (Page 4)
The Pellucid Perspective - August 2011 - Get Golf Ready showing some traction (Page 5)
The Pellucid Perspective - August 2011 - Get Golf Ready showing some traction (Page 6)
The Pellucid Perspective - August 2011 - Danger, Will Robinson! (Page 7)
The Pellucid Perspective - August 2011 - Golf holding up but heartland hammered by weather (Page 8)
The Pellucid Perspective - August 2011 - Golf holding up but heartland hammered by weather (Page 9)
The Pellucid Perspective - August 2011 - Golf holding up but heartland hammered by weather (Page 10)
The Pellucid Perspective - August 2011 - U.S. golf course development dead, or just sleeping? (Page 11)
The Pellucid Perspective - August 2011 - U.S. golf course development dead, or just sleeping? (Page 12)
The Pellucid Perspective - August 2011 - Whither the weather (Page 13)
The Pellucid Perspective - August 2011 - Miami/Ft Lauderdale, FL Core Business Statistical Area (CBSA) (Page 14)
The Pellucid Perspective - August 2011 - Miami/Ft Lauderdale, FL Core Business Statistical Area (CBSA) (Page 15)
The Pellucid Perspective - August 2011 - Comings & goings (Page 16)
The Pellucid Perspective - August 2011 - A few changes of note in August’s dog days (Page 17)
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