Fairway Golf's Inaugural Partner Letter

1. How Fairway Came About
2. What's New At Fairway?
3. State Of The Golf Market
4. Our Business Model
5. State Of The Business
6. Key Tools We Use

How Fairway Came About

Jeremie and I have always had a keen interest in technology and disruptive businesses in general. Jeremie works in the tech industry in his day to day life, and I invest in many of those companies - it is therefore no surprise to anyone that we end up discussing business, market and industry disruption every time we end up in the same city whether that’s around dinner, a beverage or a round of golf.

Over the last years, technology has significantly lowered the barriers to entry of many markets, enabling smaller, more agile businesses to start competing for very large profit pools and slowly gaining market share away from incumbents. Specifically, I believe we can all relate to how the e-commerce disruption forces were particularly difficult for brick-and-mortar retail incumbents (thanks Amazon?). Some have adapted in order to survive, others have simply failed and died.

Jeremie and I’s endless business discussions combined with our passion for golf sparked a question that ended up requiring a lot more thought and research than we had originally assumed - “why are good golf balls so d*mn expensive?”.  This will not surprise the ones of you that know us personally, but we arrived at that question after losing a double-digit number of balls on a lake-infested golf course in Florida.

After a cursory look around, we realized that the golf ball market had not really been disrupted “en masse” yet. Sure, there is Vice and a few other upstarts, but in all honesty, that has not changed the market dynamics at all (Callaway and Titleist continue to gain market share as we speak). 

Over time, having family members in the world of golf retail made me realize how “hush-hush” the Titleist wholesale-to-retail ball margins were. After digging some more, we realized how the involvement of middlemen created a ton of cost for us, the casual golfers.

For example, we estimate that on average, a golfer uses 3.6 golf balls per golf round. At that pace, who really wants to pay $5 for a high-quality golf ball if you’re already shelling out $85 or more on a green fee on a Saturday morning? We do not.

We realized that there was a nice market opportunity as soon as we started looking at it. Golf balls are just not THAT expensive to manufacture, but there are a lot of mouths to feed in the way the current supply chain is set up. With our background in dealing with technology companies and tool vendors on a daily basis, we knew our main difficulty wouldn’t be going to market with the golf balls, but rather designing and constructing high quality golf balls that golfers around the US and Canada would appreciate and be willing to pay for. With the rough go-to-market infrastructure plans done, we set out to learn how we could source premium quality products at reasonable prices.

After months of internal research combined with help from “on the ground'' third party researchers, we were able to secure a relationship with what we consider as a world class ball manufacturer in Asia. After we struck a partnership with this manufacturer, we set out to design high quality golf balls, our brand and the packaging. Once designed, we extensively tested the balls (both for quality and performance) and are extremely proud of the product we have today.

Fast forward to today, we are now selling 4 different golf balls as well as other accessories to our customers in the US, Canada and Mexico every day. 

This may sound quite simple, but there were a lot of ups and downs in the process. Overall, we feel grateful to have gone through such a fun and rewarding journey, which has culminated in what Fairway Golf has become today. 

This is only the beginning… stay tuned!

What’s New at Fairway in the Last Few Months?

A lot has changed at Fairway Golf over the last three months and before telling (more like boring) you more about how we envision the business that we are building, we wanted to share some exciting news from the recent months.

New Fairway Team Member Carlee Shoemaker (TikTok: @carleeshoe) joined the Fairway Golf team in August to help lead our growth and marketing effort. Specifically, Carlee runs everything that is video related for social media and helps us a lot with new product initiatives (stay tuned). We couldn’t be more thrilled to have her on board and her impact is already being felt (plug here: do check out our TikTok!). She’s an absolute star. 

Carlee is a former collegiate golfer and currently studying to achieve an MBA. She is a fellow golf addict and just like Jeremie and I, she loves business in general. Here’s a word from Carlee:

“As someone who loves golf and business, it has been an amazing experience getting to work with David and Jeremie to help grow Fairway Golf. Can’t wait to see how this company grows!” 

If any of you are interested in getting involved with Fairway, let us know. We mostly pay in free golf balls, golf rounds and transfusions :-) ! 

Fast & Cheap Shipping We’ve upgraded our logistics function, big time. When we launched, we partnered with a smaller company out of Wisconsin to manage our fulfillment and logistics function. They’ve been great, but with Shopify acquiring Deliverr, we made the decision to move all of our inventory to Deliverr, which provides us with much faster fulfillment and shipping times, at a MUCH lower cost to our customers. 

In the past, shipping, fulfillment and logistics had been a headache for us and our customers. With this massive logistics upgrade, we now offer Free Standard Shipping to all of our customers in the USA. Customers that are in a rush can also pay extra (at cost and at no profit for us) for next day or two-day shipping (depending on how close they live to a major US metro).

We are truly excited about this.

Amazon Prime, Baby! As part of our growth efforts, we recently expanded to marketplaces such as Amazon. We are very happy with the performance of the Amazon channel to date - we just need to scale it and get more reviews on the platform (wink wink, if you can order on Amazon and share the love with a review, that goes a long, long way). 

Being an Amazon Prime vendor has been great as it gives us a whole new channel to sell our products while still ensuring great customer experience, prices, and shipping speeds.

We also expect to launch on the Wal-Mart online marketplace in the coming days, stay tuned. We hope this leads to potential in-store relationships with the global brand.

New Accessories In September, we launched Fairway Towels which are high quality towels for golfers to keep their club and golf balls clean while adding some fun and stylish designs to their golf bags.

After selling out of our headcovers in the summer - we’re finally fully back in stock with our headcovers, and added NEW models - check them out here.

Breaking The Golf Ball Cost Curve! This week, we launched the newest ball of the Fairway Golf Family. The Par Tour. 

Selling at only $19.99 for a dozen (inclusive of free shipping) we expect to make a lot of noise in the golf ball market. Stay tuned for a press release in the coming days.

New Ways To Save Money On Balls Coming To You Soon In the coming weeks, you will learn more about Fairway Refills - a simple way to purchase our best selling golf balls (the Eagle Pro and the Birdie Tour). 

Refills are 12 golf balls coming to you in a canvas bag instead of a box with sleeves. Pouches are much more eco and waste friendly as well as being less expensive for us on the manufacturing side, which means getting you high quality golf balls at an even lower price.

State of the Golf Market

The golf industry has seen significant growth throughout the Covid-19 pandemic. Although that growth has slowed in 2022, rounds played, and dollars spent are still significantly above 2019 levels. Specifically, rounds played in the US in 2022 are down 2.6% from 2021, but 2021 was 19% higher than pre covid levels. Outside of the US, rounds played are still up year over year in Europe and Asia.

Each year, the National Golf Foundation estimates that 2mn golf beginners will start playing golf. However, in 2020 and 2021 we saw more than 3mn golfers each year. Women are also taking up the game with 25% of all on-course golfers being women (but account for 37% of beginners, and 36% of juniors, which is highly encouraging for the industry).

We estimate our global addressable market to be $7.2bn. However, to reach that we would have to start selling in stores, not just online. With US e-commerce accounting for ~15% of total retail sales, we estimate our sellable addressable market at more than $450mn in the US and Canada. We arrive at that estimate using Titleist estimates as per the below:

• The golf ball market is a $1.9bn dollar a year industry, of which ~$800mn is in the Americas.
• Golf Apparel is a $3.4bn market, of which ~$1.4bn in sales generate from the Americas.
• Golf Gear (including headcovers, and towels) is a $1.5bn, of which $600mn in sales generate from the Americas.
• Golf gloves is a $400bn market, of which ~ $160mn in sales generate from the Americas.

In terms of growth, we estimate that online sales of golf balls are up mid to high single digit over the last twelve months, while offline sales are likely declining low to mid single digit this year.

Our Business Model

Direct-to-consumer model with opportunistic partnerships in store for now

• We are building a direct-to-consumer brand. Which for us means that our core business will always be centered around our own Shopify store. However, we have expanded into other channels (online marketplaces such as Amazon and Wal Mart) which we see as key enablers to our brand recognition as well as nice channels to drive incremental growth. 
• We do not anticipate going big in retail, or wholesaling our products, generally. However, we will strike opportunistic partnerships when it makes sense.
• Fairway Golf balls are now available at the Swing Lab located in Kingsport, Tennessee. The Swing Lab was launched by an awesome gentleman named Kelly Lott - he is a fellow golf addict (and a very good one by the way). If you are ever in the region, I strongly recommend spending time on his state-of-the-art golf simulator. In terms of partnerships going forward, we expect to land a few more locations later this year, and a few more early next year. 

Healthy mix of durables and consumable sales

• Since launch (including the time before we had golf ball inventory) sales have been roughly 70% durables (headcovers, hats, towels) and 30% consumables (golf balls, tees, gloves).
• We see this as a healthy mix for a business that is starting because:
• Durables inherently carry higher margins, which creates more near-term cash flows for us to invest in new customer acquisition. On durables sales, based on our current fully loaded customer acquisition cost (CAC), we generate profits from our first sale to a new customer buying 1 unit.
• Our consumables business carries lower margins. Because of that, we do not break even on a single dozen golf ball sales sold to a new customer that we acquired through a paid channel. However, consumables are recurring in nature, and on the second order from a customer, we start generating a small profit.
• Over time we would expect our mix of consumables to grow to 50-60%, providing more predictable revenue streams with a nice upsell potential of higher margin products such as headcovers and towels (and eventually full line of apparel).
• Consumables being a more recurring sale, we expect our repeat customer rate to be ~35%, with an average lifetime value of 5 orders for these returning customers. On that math, at $20 customer acquisition cost (CAC), we believe we can run the business at 20% + contribution margins (gross profit - CAC), leaving ample room for a healthy and profitable business to scale.

Investments and Capital Returns Focused

• Now that we have scaled out inventory, technology, and distribution capabilities, we are focusing all of our efforts on the returns any incremental dollar invested will generate in the business in the future.
• We feel that we are in a good position from a backend perspective and will focus on scaling the top line above our fixed and variable costs over the coming months.

State of the Business

Fairway Golf continues to grow at a healthy pace. After record sales in July, August and September were slower. We toned down our advertising spend due to our logistics upgrade (we moved our inventory from one place in Wisconsin to a dozen different Deliverr fulfillment centers) as well as the fact that we ran out of our best-selling headcovers.

As golf season comes to an end for most of us northerners, the business continues to progress nicely on Amazon and organically in our own Shopify-powered store. We are geared up for the 2023 season with the significant inventory investments we made over the summer for golf balls and headcovers. We expect to invest into the holiday season this year and believe Fairway Golf products can make for great gifts for golf fanatics and loved ones.

We are still operating at a loss, but we expect a slower November on the investment side, while sales continue to grow, which should drive our first fully profitable month since we launched the company more than a year ago.

Funding wise, Jeremie and I have funded the business in its entirety thus far. Although the business is operating at a loss (with a lot of inventory paid upfront) we feel like we are in a strong position to deliver on our growth ambitions for 2023. We expect to continue funding Fairway Golf ourselves until a major growth opportunity comes along - 2024 maybe the year we consider external capital.

Looking into 2023, we expect significant growth throughout the golf season as we continue to take incremental market share from incumbent brands who are still mostly selling in offline channels.

Key Tools We Use

For the “curious about tech” people out here, we figured we’d share what tools we used to build our business.

• Shopify: We built our webstore on Shopify from day one. The experience has been A+ as the company is leaps ahead of any other e-commerce storefront software we have tried. Shopify integrates with basically everything and has been impressive in rolling out new tools like Shopify Inbox in the last few quarters, to which we’ve now consolidated our customer support / chat / email functions. We use many of the marketplace apps on Shopify too to ensure we have the best and latest features for our online store
• Klaviyo: We use Klaviyo for email and SMS marketing and website email capture. With Klaviyo we’ve built flows to automatically contact customers when they interact with our online product. We also run all of our marketing campaigns on Klaviyo. The GUI is A+ and the flows are easy to build. Furthermore, the platform cost is almost nothing, I don’t see us changing tool for our outbound efforts at any time in the near future.
• Canva: With Canva we create and edit our product pictures, our social media content and some of the graphics we use on our website.
• Quickbooks: Our financials run on Quickbooks (supplemented by google sheets for financial analysis). Quickbooks integrates nicely with all of our tools which makes our (and our bookkeeper’s) life easier.
• Deliverr: After the Shopify acquisition and the early integration with Deliverr was successful, we decided to move all of our non-Amazon inventory to Deliverr. Deliverr uses a network of (mostly) 3rd party warehouses and service providers, which are linked by Deliverr’s proprietary software platform. Fees wise - at least 15% cheaper fulfillment cost vs. our previous 3PL provider, with an incredible inventory management software platform. With Deliverr we can ship one-day / two-day in most of the country (although customers will have to pay for that extra). On top of the cost savings, everything is easier and better integrated than what we had set up previously which will lead to much faster fulfillment times.
• Fiverr: We use Fiverr a ton - whether for graphic design, accounting/bookkeeping/ help with website design or building our Golf Tournament management software (stay tuned). 
• G-Suite: Best productivity suite out there for a small business - all of our email and file sharing is underpinned by Google.
• Google Analytics: We use Google Analytics a lot to better understand our conversion funnel on the website.
• Amplitude: We supplement Google Analytics with Amplitude for more real time conversion analytics, but we will likely churn next year as the value add for an e-commerce website remains limited.
• LegalZoom: LegalZoom is our registered agent and helped us out through all the LLC filings and registration process.