Erik Anderson (United States) is one of the world’s top global innovation leaders, investors, and philanthropists. He is founder and CEO of WestRiver Group, which provides integrated capital solutions for the global innovation economy. He has also been named one of the 100 Most Intriguing Entrepreneurs of 2017 by Goldman Sachs.
Erik Anderson is a world leader, entrepreneur, and investor by heart. He currently works as co-chairman and CEO of Topgolf Entertainment Group, a global sports entertainment company. In this role, he has received numerous honors, including the 2014 Ernst & Young Entrepreneur of the Year Award in the Southwest region.
Erik is also on the board of directors for Singularity University, a global community using exponential technologies to tackle the world’s biggest challenges.
I (Jonathan) sat down with Erik to talk about startups, building companies, and how to catch waves.
Please share the story about your latest golf startup with me.
Topgolf originated back in 2000 in the United Kingdom with two brothers who invented a way to track golf balls using radio frequency identification (RFID) sensors. They started Topgolf by enhancing a driving range with this technology and opened three locations around the London area, all of which are still operating today. In 2005, I was part of a group of investors that brought the concept to the United States, starting with Alexandria, Chicago, and Dallas. We spent several years improving the design and perfecting the model—adding to the menu, enlarging the venues, creating programming and events, and so on. The venue went from 60 bays to 102, with 500 associates and a full kitchen and sports bar.
TOP originally stood for target-oriented practice. That’s probably the best way to compare where we started versus where we are now. If you think about our current customer base, it’s a good thing we called it Topgolf, because no one would go to Target-Oriented Practice Golf. Now, you go to Topgolf for parties and events and nightlife. So that probably captures the two ends of the spectrum. We started to become an experience.
When did you get actively involved in the company?
I started as CEO and chairman in 2012 with my partners Neil, Randy, and Richard Grogan, and we really focused on the experience element. That led to the next level of growth. Along the way, we started to observe how large our audience was; we were getting half a million visits per site. I was thinking about what to do with that audience and by analogy observed Major League Baseball’s MLBAM and Red Bull Media. It became evident that that could be a good model and decided it was the smart thing to do. We started to look for how would we do it, and we found a company called World Golf Tour. They were the largest digital golf audience and had a good team and creative capabilities, so we thought they could form the basis of Topgolf Media. Lucky for us, they were available for sale. We got into the process late, but we moved quickly and acquired them.
We also acquired Protracer, which was another great technology company, and all of that has converged now into what Topgolf is today. There are a lot of moving parts, but the most important lesson was adapting to the experiential economy and the emerging millennial consumer. We caught that wave.
How important is it to draw up a business plan and market analysis? Is it a waste of time and “old school,” or what do you think?
It’s great to aggregate information and it’s great to understand markets. It’s absolutely important to do the analysis because it informs your thinking. But it’s also important that you have the willingness to look at your own best thinking and say, I think the value proposition can overcome the data.
If you had done a market analysis on Topgolf at the time, what would have been the result?
I actually think that the analysis would have told us not to do it. There had been many driving range ideas: Jack Nicklaus tried one; other people took a run at building nicer facilities and family golf centers, and those sorts of things had failed. So, the analysis would have challenged us.
The question is, Are you going to be controlled by the past? We looked at the market, but then we said to ourselves, This is a digital, interactive game; maybe the technology changes it. Maybe it’s a different group of consumers. Although you had to be really smart to see that millennials were going to turn out to be experiential consumers. What makes everything look so good in retrospect is that it seems like we saw something others didn’t. We didn’t necessarily see it 10 years ago, but like I said earlier, we were able to adapt and catch the wave. The market analysis is naturally going to be constrained by available data and best practices, and it might not reflect your best thinking. That is the point of departure as to whether you go forward or not.
Should you do a business plan?
Yes, but realize that everyone overestimates their understanding. Some people might think it’s a waste of time because doing a plan assumes that you know a lot of things and that it will be a linear journey. You will notice most business plans are very linear. It’s an excellent discipline, but realize that if you have a large value proposition and you have a plan to get there, the probability that the original plan will get you there is low. It’s new, so by definition, you can only understand so much of it.
In your opinion, why do most startups fail?
Most startups fail because it’s hard. There are so many things that have to go right, so there’s a lot of luck. People might go back and try to find patterns and say it’s always A, B, or C. Someone said that startups fail because they run out of money. If someone keeps giving you money, you’ll never fail, or at least you’ll keep going. But I think it’s just hard.
Deeper below that, there is a point that’s consistent with the question about investors. An important practice for us is making the distinction between volatility, learning, and mistakes. Many things can be misinterpreted as strong signals that cause you to quit or lose confidence in management, when in reality it was (1) you had an understanding gap or (2) there was volatility.
If we look at Topgolf, there could have been all sorts of places where we missed a number or we were behind, and you could have interpreted that as poor management or a bad model, but really it was just volatility. Luckily, we had the right investors, so we could have an informed conversation about what was happening. It wasn’t always a strict assessment of where management failed. Sometimes it’s just learning. People often confuse a learning moment with a failure moment.
As an investor, how do you know if you are investing in the right company or not? What parameters do you look at?
I always look for something that has a significant value proposition. It sounds simple, but sometimes you have to dig hard to see where it is. Docusign was a classic example. When we looked at Docusign as an investor in the Series B, which was an early round, the value proposition was simple. We could charge $0.40 to get something signed, accurately and on time. It was also greener and much faster. People were spending $30 sending signatures back and forth on FedEx. A significant portion of FedEx’s revenue at the time was packages for signatures. And that’s assuming you got it right the first time. If you could solve that problem and take just 10% from FedEx, then that was a really good business. The big question there was whether it would be an enforceable signature.
What about the investment in Topgolf?
Topgolf was simple. A driving range bay typically had one person in it and they hit a bucket of balls for maybe $10. We put four to six people in it and added beer and food. The simple math said if they spent twice as much and you put four people in the bay, you were getting eight times the revenue per unit. There was a very clear model and value proposition. So, I tried to unbundle all the pieces of the model, whether it was the margin on food or the staffing model or the technology, and see if there was an example anywhere in the market for each element. Then all I was doing was aggregating existing elements that are operating that way at scale, so I know it’s doable, I can find people and systems to do it, and I know I will have flow-through to the bottom line.
Typically, not all the elements of the model are new. Many of them are being used in other businesses. If I can unbundle them and have reference points and I can understand the buildup to the value proposition, then I know over time I will be able to get there.
How important is culture and purpose?
Culture and purpose are more important than ever, for both the employee and customer. Having a higher purpose—in Topgolf’s case it’s “connecting people in meaningful ways”—creates a powerful culture within the company. This culture is what drives the employees of today—they are motivated not by money, but by creating amazing experiences for our guests, by building bonds with their coworkers, and by seeing the good we can do in the community. The modern customer is similar. With unlimited options available, people are drawn to brands that are authentic and purposeful. Simon Sinek talks about this in his book Start With Why. People don’t buy what you do, but why you do it. If our guests can see that Topgolf really does connect people in meaningful ways and does good in our communities, they are more likely to come back to connect with us and feel good about doing so.