TaylorMade – David Shapiro (KPS Capital)

“TaylorMade and competitors shortened product cycles dramatically in declining market. New products came out way too frequently, basically repainting and putting different names on clubs. Result: flooded the market with first product, had to discount it before the next one arrived. Margins took big hit. Consumers learned to wait four months for 50% discount. What should be high 40s gross margin business dropped to low-mid 30s from heavy discounting. Virtuous circle going the wrong way.”— David Shapiro

p. 6

Business & Entrepreneurship · Strategy & Decision Making · Operations & Execution

DUR_ENDURING

Shortened product cycles trained customers to wait for discounts

“Marketing spend evolution: TaylorMade had 400+ athletes under contract focused on driver count (how many drivers in play at tournaments). Wasn't moving the needle. KPS and management flipped approach: reduced absolute spend but concentrated on athletes who actually move the needle. Focused on social media following instead of biggest name or TV draw. Identified who has biggest Instagram/Facebook audience and drove content through them directly to consumers.”— David Shapiro

p. 16

Business & Entrepreneurship · Strategy & Decision Making · Operations & Execution

DUR_CONTEXTUAL

Fewer, better-targeted endorsements beat spray-and-pray

“TaylorMade went from over $1 billion in sales and $100M+ EBITDA to below $600M sales and $200M EBITDA loss in worst year (2015). Many looked at that and said not fixable. KPS focused on: why did revenue drop, what did they do to offset it, and did their infrastructure lag reality by a couple years? Often companies are still built for $1B+ revenue business but now doing $600M, carrying same overhead and fixed costs.”— David Shapiro

p. 7

Business & Entrepreneurship · Operations & Execution · Strategy & Decision Making

DUR_ENDURING

Cost structure lags revenue reality by two years

“The big issue was the product cycle. David Abeles had worked at TaylorMade earlier, was brought back in 2015 to rethink and sell the business. He wasn't burdened with justifying bad decisions from his watch. He was marketing-oriented, KPS was cost-structure oriented. That combination was very good: he tempered KPS instincts to reduce expenditures, KPS tempered his instincts to make significant expenditures. Insight: quality of information flow matters.”— David Shapiro

p. 8

Leadership & Management · Operations & Execution · Strategy & Decision Making

DUR_ENDURING

Complementary biases create balanced decision making

“KPS started with restructuring advisory in 1991, then in 1997 realized capital was missing in troubled manufacturing. Wherever there's a lack of capital, there's probably going to be an opportunity. Strategy: invest in troubled manufacturing, focus on controllable costs, don't count on revenue growth or market bailout. As they became more sophisticated, they expanded from strict cost focus to strategic thinking.”— David Shapiro

p. 3

Strategy & Decision Making · Business & Entrepreneurship · Operations & Execution

DUR_ENDURING

Market inefficiency creates opportunity where capital is absent

“Pricing breakthrough: commercial side had been stagnant for years. Real fear of breaking certain thresholds (driver at $399, belief that you cannot get people to pay more). KPS pushed hard: you've been held at that price for five years, adding technology and great stories, but selling at same price. How do you know how elastic the market is? During KPS ownership, top driver went from under $500 to over $600. That's all margin.”— David Shapiro

p. 17

Business & Entrepreneurship · Economics & Markets · Psychology & Behavior

DUR_ENDURING

Untested pricing assumptions leave margin on table

“KPS commissioned surveys to understand golf equipment buying. One finding: out of 10 attributes, nobody admits they care which pros play those clubs. Almost universally ranked 10th. But it really does move the needle. People buy clubs because Rory McIlroy plays them even though that seems ridiculous. This was tricky for KPS to value: how do you quantify those sponsorships and relationships? How important is it? How many do you need?”— David Shapiro

p. 8

Psychology & Behavior · Business & Entrepreneurship

DUR_ENDURING

People deny caring about expert endorsement but act on it

“Exit timing philosophy: we try hard not to fall in love with our companies. We become very attached to businesses and people, but we know what our job is: get returns back to investors at the right time, and sooner is better. By 2021, TaylorMade had three really strong years, company and brand in great shape, products coming were really good. View: let's not try to hold onto this too long. We've got a huge success here and there should be real interest. Why don't we take it out?”— David Shapiro

p. 19

Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Sell into strength while optionality remains

“Product cycle fix: elongate timing and enforce discipline to ensure each new product has a real story around meaningful difference. TaylorMade guys were awesome storytellers; KPS didn't touch the digital content and media work because it wasn't an area where they would add value. Key tension: having discipline to wait for truly differentiated product versus pressure to keep releasing.”— David Shapiro

p. 15

Business & Entrepreneurship · Operations & Execution · Leadership & Management

DUR_ENDURING

Fixed product cycle by extending timeline