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http://www.businessweek.com/stories/2006-11-12/no-gimmes

Magazine

No Gimmes


When it comes to business, Mike Bonneau has found success in virtually every venture he has entered. In the 1980s, Bonneau patented several designs for a coronary stent and made a small fortune when he sold the rights to medical-device giant Medtronic Inc. In the years since, the 54-year-old entrepreneur has made a nice living in Silicon Valley as the owner of an outfit that makes precision-machined parts for the semiconductor industry. But the admitted golf nut has experienced only heartache and frustration since starting a company to sell a line of putters he designed. Four years after launching Aserta Sports Inc., Bonneau says he hasn't sold enough of the putters to cover his hefty expenses, which include $3.5 million for advertising alone. Asked if he'd do it all again, he doesn't hesitate. "Probably not," he says. "It's too expensive to market products in the golf industry. I just don't know if I have a lot of good things to say about the golf business."

Bonneau isn't alone. Eager to indulge their passion for the game they love, more and more business executives have jumped into the golf business in recent years--all harboring dreams of becoming the next Ely Callaway, who launched the wildly successful Callaway Golf Co. after a long career as president of Burlington Industries Inc. But many of these aspiring golf moguls have discovered the hard way that there's only one Ely Callaway, and that replicating his success is tougher than they imagined. Rudy Slucker can attest to that. Four years after acquiring the TearDrop, Tommy Armour, and RAM lines of golf equipment--troubled brands that he hoped to turn around--the former hardware magnate was forced to sell them in a 2001 bankruptcy auction. Ditto for leveraged buyout kings (and avid golfers) Henry Kravis and George Roberts, who bought the venerable Spalding brand in 1996 for $370 million only to sell it in a bankruptcy auction seven years later for less than half that amount. (A spokesperson for Kravis' firm noted that the firm did extremely well in a golf resort venture; efforts to reach Slucker were unsuccessful.)

Those entrepreneurs who try to bring back an iconic brand find that's not easy either. Ask Barry Schneider, who bought MacGregor Golf Co. in 1998. Schneider should know how to revive a business: After taking charge of his family's small flooring-installation business in 1977, Schneider turned it into a $300 million company employing 2,000 workers in 31 states. Yet eight years after Schneider acquired MacGregor, the venerable clubmaker still has less than a 1% share of the market for woods, irons, wedges, and putters. Schneider remains optimistic that his investment will eventually pay off--so much so that in late October he acquired the Greg Norman Collection apparel line, and brought Norman in as a major investor in MacGregor. "While we're relatively small in the U.S., the innovation is everything that I hoped for," he says.

Why is it so hard for business executives to replicate in the golf business the success they've achieved in other fields? The tough golf environment doesn't help. With retail sales of equipment flat for several years, newcomers must steal market share from entrenched players such as Titleist and TaylorMade Golf Co. Recent U.S. Golf Assn. restrictions on equipment specs don't help either: The current generation of entrepreneurs can't differentiate their product as Callaway did, when he introduced a driver that was nearly a third bigger than everyone else's. On the other hand, some of the would-be tycoons have only themselves to blame for their lack of success. Industry watchers say some neophytes get into the business for the wrong reason--namely, to rub elbows with PGA Tour pros--and then learn an expensive lesson on the golf business. "A lot of these executives achieve financial security, but now they want fame," notes Gene Parente, who as owner of an equipment-testing company, Golf Laboratories Inc., has worked with scores of wannabe golf moguls over the past 17 years. "I've seen executives who call me all excited and say, I'm staying at Arnold Palmer's house.' They cease to be dispassionate about the business."

A number of entrepreneurs admit they underestimated how tough it is to crack the golf business. Consider the plight of Dick Eyestone. A former executive vice-president of Bay Networks Inc. in Silicon Valley, Eyestone cashed out during the dot-com boom in the late 1990s at age 52, perfectly content to spend the rest of his years playing lots of golf. But frustrated over his inability to get his handicap below 15--and exasperated that lessons didn't help--Eyestone used his knowledge of technology to develop a club that would help him analyze his swing. The result: a driver with special circuitry built into the shaft that allowed users to record and, with software, later see the exact arc of each swing they took on the course or range. After lining up outside investors, Eyestone began marketing his SmartSwing driver to teaching pros, who he hoped would incorporate SmartSwing into their lessons and then sell the club to students. To his chagrin, Eyestone sold only 300 of his high-tech clubs over the next two years, prompting him to close SmartSwing last January after suffering what he will only say were "considerable" losses. "We had Top 100 teaching pros look at this and say, I could really use this,' but we couldn't get anybody to commit," he says. "We really needed to go direct to the consumer, but the cost of an infommercial was prohibitive."

PAY TO PLAY

Industry insiders say eyestone might have overestimated the willingness of teaching pros--like golfers themselves, a relatively conservative bunch--to embrace an unproven product. "The golf industry is very slow to adopt new technology," says Chris Hart, chief executive of Interactive Frontiers Inc., which bought the rights to Eyestone's technology. "It takes a lot of work to convince golf pros, if they've already got a routine that works." Eyestone admits he might have overestimated the desire, if not the ability, of instructors to sell his clubs to their students. "They're teaching pros, not salesmen."

For many entrepreneurs, the best route to success can be simply to convince a top tour pro to play their club. After Nick Price used a putter designed by Bobby Grace to win the 1994 PGA Championship, Grace was deluged with 27,000 orders on Monday morning. But small clubmakers complain that the majority of today's PGA Tour pros, more mindful of their endorsement value, are less willing to play clubs without some form of compensation. Bonneau claims he was approached by several PGA Tour pros--he would not name names--who told him they loved his putter enough to play it on tour. Bonneau just had to match the endorsement money being offered by other clubmakers, which in many cases was $100,000 or more, a demand he says he couldn't afford.

Then again, when entrepreneurs do spend the dollars for endorsements, they find that's no guarantee of success. Bruce Burrows, who made a fortune with the Oasis water-cooler business, spent millions to gain Champions Tour endorsements from the likes of Ben Crenshaw and Bruce Lietzke for his unique line of drivers, only to fold his business after a few years when sales didn't materialize. "I don't think the Champions Tour endorsements resonated," says George Montgomery, a former president of TaylorMade and a friend of Burrows. Golf industry insiders say they caution newcomers about getting into the game, given the low odds of success. "The business is flat, the costs of manufacturing are increasing, and sales prices are decreasing--why would anybody get into this business?" asks Barney Adams, the founder of Adams Golf Inc. But even Adams admits there's a magnetic pull to golf that will continue to draw new entrants. "As I speak, I guarantee there are 500 fairly successful people in the U.S. getting ready to get into the golf business. It's an intoxicating game."

By Dean Foust


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