Riding the supply and demand curves

When a supply shortage in nature failed to satisfy a demand increase, Craig Stoddart saw an opportunity to apply his management accounting skills to a sport he has since become passionate about: surfing.

Surfing is one of the UK's fastest-growing sports. According to the British Marine Watersports Participation Survey, participation grew 40% between 2015 and 2017.

Stoddart, ACMA, CGMA, an entrepreneur and surfing enthusiast, said that while demand for surfable waves is rapidly increasing, there is, clearly, no increase in supply. Stoddart plans to capitalise on this opportunity by building a large-scale inland surf park business. The first location of The Wave, near Bristol in the west of the UK, opened at the end of October.

"The supply of surfable waves is obviously limited by nature," Stoddart said. "Down at the beach, even at really good surf beaches, 70% of the time, there are no waves to surf. They're either too big, too small, or ... the tide doesn't make them surfable."

In an hour or two hours you might get one or two good waves, he said, whereas at The Wave most people get "up to about 15 waves per hour".

He said the other part of the supply equation is that the vast majority of the population live a long way from the UK's surfing beaches, "so you have the combination of lack of supply and high growth, and that makes it a real opportunity".

Stoddart projected that The Wave Bristol will be the first of ten surf parks over the next ten years for the company — initially in the UK, then elsewhere in Europe and then at global locations.

"I know of at least 30 or 40 developments around the world that are happening now. In ten years' time, there will be a hundred of these in the world," he predicted. In the US, the parent company of global surfing events organiser World Surf League together with world champion surfer Kelly Slater has established The Surf Ranch in Lemoore, California. Other global surf park locations include Texas in the US, Snowdonia in the UK, and China.

Stoddart's vision is for a "whole new generation of surfers who have struggled to do it [and] who have never experienced anything like it. They will be competent and capable surfers when they go to the beach."

The Wave Bristol has the potential to attract 300,000 visitors a year to enjoy the sport, as well as nature walks, retail stores, and "glamping" (glamorous or high-end camping) accommodations.

He explained that the surfing area of the 100-acre site is an "enormous lake — we're talking the size of five football pitches".

The process he used to build the park is a useful case study for management accountants working with startups, as it involved developing new technology, obtaining financing, and having a keen awareness of market positioning.

Technology solution

Technology has been a critical part of the project, Stoddart said — both in determining the shape of the lake's bottom and how the waves themselves are created.

The wave-making technology has been supplied by a Spain-based company, Wavegarden. The company's previous "Lagoon" technology was deemed by Stoddart and his partners at The Wave as commercially unviable because of its low wave capacity and its many single points of failure. For Stoddart, addressing those issues with Wavegarden has been a collaborative process. "We have been shaping their thinking about what makes it commercially viable. I would say we've been pretty influential in determining that," Stoddart said.

Financing

The Wave was started with £500 by its founder Nick Hounsfield — a long-term friend of Stoddart. Stoddart, who is now CEO, came on board as an early investor, became a nonexecutive director, and supported crowdfunding of £250,000. Angel investors helped steer the planning and design process (see the sidebar, "Entrepreneurial Finance: A Guide," below).

With planning permission and the land ready, further funding was required for construction. Stoddart and Hounsfield spent two years pitching to more than 250 investors. Those investors weren't convinced of Surf Loch, the American technology that Stoddart and the team were considering at that time. However, a telephone call from Wavegarden about its new technology led key investors to travel to Spain to try it.

That was a turning point, Stoddart explained. "One of the investors who had never surfed before in his life, had never put a wetsuit on ... by the end of the hour, he was riding the big two-metre-high wave, screaming, 'Where do I sign?'"

Expansion

"Part of this is a little bit like a gold rush," Stoddart said. The plan to build five parks in five years and ten in ten years working with Wavegarden as the technical supplier would position The Wave as "one of the key players" in this market, he added.

The company's plans include opening a surf park in 2023 in the Lee Valley Regional Park in the north east of London, which includes much of the land used for the 2012 London Olympic and Paralympic Games. As part of the Games' legacy, a new body, London Sport, was set up with the aim to get 1 million Londoners more active. The Wave's site fit neatly with that objective.

The site was originally a golf course that was losing money in an area oversupplied with courses. A total of 30 bidders took part in a six-month tender process, which was won by Stoddart and The Wave's team.

Preserving intellectual property (IP) rights has been crucial, he explained. The company's team structure, systems, and supply chain have been designed to achieve that.

"So, all of our design team, our engineers, our architects, our project managers are all exclusively working with us in the surf park markets," Stoddart said. "Effectively, they've given us a platform to do more of these without losing a lot of the IP."

The Wave's back-end systems work on a multi-site, multi-currency, multi-language basis, and that has been built in right from the start.

The team includes the experienced developer of London's ExCeL events centre, Iain Shearer, and Gaynor Coley, who led the Eden Project visitor attraction in Cornwall in the west of England that contains an indoor rainforest.

Stoddart explained that building sustainably — predominantly using glass, timber, and recycled and reused materials, and planting 17,000 trees and shrubs to offset the carbon impact — has been important for the Bristol site.

The person who "holds us to account and makes sure we're really considering the environment and social impact very clearly" is Chris Hines, a former Eden Project sustainability director and founder of Surfers Against Sewage — a UK-based advocacy group.

The Wave plans to attract 150,000 surfers and the same number of nonsurfers a year to the Bristol site, which is a short distance from one of the UK's main motorways, the M5. In providing a mix of waves for beginners, intermediates, and pros, Stoddart is maximising the market opportunity. Lessons are available, too, for the uninitiated, as are wetsuits — for those not comfortable with the British weather.

Entrepreneurial finance: A guide

Entrepreneurs who want to raise funding for their dream ventures need lots of perseverance and some ingenuity to find the money they need, says Thomas Hellmann, professor of entrepreneurship and innovation at Oxford’s Saïd Business School in the UK. So, what practical steps can entrepreneurs take to fund their ventures? Here are the main options:

Family and friends: Borrowing small amounts from family members may be an option for some — or asking for a little help from friends. The first cheque in most ventures actually comes from those closest to the entrepreneur.

Angel investors: These are wealthy private individuals who fund startups in return for equity. In some countries, like the UK, and also in some US states, there are generous tax credits that make angel investing fiscally attractive. The best angel investors are often those who started companies themselves and understand what it really takes to build a successful venture.

Crowdfunding: Many companies raise money through crowdfunding campaigns, seeking donations through platforms such as Kickstarter. There is also the possibility of raising equity finance on crowdfunding platforms, such as Seedrs or Crowdcube in the UK, two pioneering platforms that connect startups with angel investors, providing a well-defined support structure for raising equity financing. African entrepreneurs can turn to crowdsourcing platforms, Afrikstart (afrikstart.com) or Uprise.Africa (uprise.africa), which pairs investors and entrepreneurs. In China, e-commerce site Jingdong (jd.com) launched the crowdfunding platform Coufenzi (coufenzi.com).

Corporate venture capital: Many startups get funded by striking alliances with established companies. These investments often involve not just equity but may also be part of a broader strategic alliance, for example, a research collaboration or distribution agreement. Institutional investors also may be a source of funding for startups.

Oliver Rowe is an FM magazine senior editor. To comment on this article or to suggest an idea for another article, contact him at Oliver.Rowe@aicpa-cima.com.