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Diploma in Business (Marketing)
Unit Number and Title
Unit 33 Small Business Enterprise
Small business enterprises (SBEs) are an internal fabric of any developing or developed economy. Year after year, and day after day entrepreneurs devote their time, energy, ideas, and optimism into building their respective SBEs that further contribute development of economy and nation as whole (Tolstoy, 2014, pp.17-35). Over a period of time SBEs have proved their importance in the economy specially when in a situation like economy recession in various countries SBEs have continued to grow and create job opportunities and contribute to the stability of the economy. Purpose of this task is to focus on the processes involved, through change management, of reviewing and improving the performance of a small business enterprise.
Before analysing further about a selected SBE, it is first important to understand that what parameters play a critical role in identification of a SBE. Based on report published by Business Population Estimates, BIS in 2012 London had approximately 27,000 SBEs with combined turnover of 135,196 GBP, also in terms of employment they contributed for employment of more than 520,000 people within UK (Small Business Statistics, 2014). Thus according to the UK's Companies Act 2006 a small company is defined as one that does not have a turnover of more than £6.5million, a balance sheet total of more than £3.26 million and not more than 50 employees. In order to have better understanding of the businesses existing in SBE segment, it will be appropriate to have an example of real life SBE. For this purpose selected SBE is Naked Wines. Naked Wine can be defined as an organisation which is basically an online wine retailer launched in mid of severe economy recession in December, 2008. The basic business they do is to fund independent winemakers from around the world, in return for exclusive wines at wholesale prices (Daniel et al, 2014).
Naked Wines serves various purposes such as it acts like a social site where customers are invited to rate the wines which they have tested. Thus customer rate, post comments interact with fellow drinkers as well as wine manufacturers. The unique strength or feature which Naked Wine offers is the platform which it provides to the wine manufacturers to directly interact with its customers. It has removed the middle level in the marketing of the wine. Hence if a particular customers likes the wines, they can become "wine angels" or investor where a monthly payment of £20 lets the customer order bottles at a discount from winemakers while allowing Naked Wines to plan its investment in them. Hence to a large extent it can be said that Naked Wine is also serving as a crowdsourcing platform for wine manufacturers across the world. Concept of crowd sourcing is basically focused on raising funds from multiple individual through an internet based platform such as crowdsourcing websites. Hence Naked Wines provides direct funding to the winemakers and removes the middleman and marketing costs for the wine manufacturers. Today, Naked Wines has turnover of over £40 million and ships over 10 million bottles of wine a year (Kotelnikov, 2014).
However one major weakness of the Naked Wines is its dependency on the wine market. Even though some people might highlight it as its strength, but as a SBE Naked Wines needs to understand that further diversification will enable it to scale up further else it will remain a SBE with focused approach on the Wine market only. Thus its unique strength lies in the fact that it has chosen to bring a product online which is generally reserved for brick and mortar stores. Wine a product is generally sold through physical stores itself. However, Naked Wines has brought this innovative concept of creating a social site around wine a product and help connecting customers and wine manufacturer in a mutually beneficial environment. One important weakness of Naked Wines is also the lack of funds to scale up further. After 6 years of its existence, Naked Wines is yet to receive major funding from any big capitalist or investor. This might prove to be a hindrance in future growth of the organisation. Nakewines.com was founded by Rowan Gormley, and in December 2013 was named one of the top 1000 companies to inspire Britain by the London Stock Exchange Group.
Performance measurement is an important aspect related to a SBE. Performance is based on what organisation has actually achieved as compared to the business expectations, whether set internally or compared with competitors. Since its inception in 2008, Nakedwines.com has witnessed robust growth year on year. This can be understood by the fact that in financial year of 2014, Nakedwines.com reported a 40% growth. Due to which turnover of nakedwines.com passed the figure of £50m milestone (Naked Wines, 2014).
Nakedwines.com which has successfully integrated the wine retailing with social media while also crowd funding to finance independent winemakers, reported its worldwide turnover at £53m in 2013, from £38m in 2012, whereas in UK its operating profit almost doubled to £2m. For a SBE its growth can be judged by the interest shown by the angel investors who generally invest in a SBE if they see growth potential in it. In case of nakedwines.com this growth has come as more Angel Investors have shown faith in the company and have been signing up with the company, as a result of which these investors basically agree to spend a set monthly amount, which is then used as a finance amount for the winemakers, in return for wholesale prices. Popularity and growth perspective of nakedwines.com can be understood by the fact that the number of ‘Wine Angle Investors’ doubled to 220,000, beyond the 185,000 required in order to break event. These investors together spend more than £5m a month, whereas company continues to the company ships 25,000 bottles of wine a day (Sahut & Peris-Ortiz, 2014, pp.663-668).
Nakedwines.com has also been performing well in the international market. This can be analysed by the fact that in 2013 it won an investment of £6.4m ($10m) to invest in new wine to further boost its international presence. For nakedwines.com, growth has been robust especially in countries like US and Australia, where the company arrived in 2012, after it was launched in UK in December 2008. Another important performance measure of nakedwines.com is its profitability. After nakedwines.com made its maiden profit in 2013, it shared a combined profit of £1.2m among its workers, where it handed over £35,000 to 34 staff after making its maiden profit. Thus based on above data, it can be clearly seen that how nakedwines.com has been focusing on both domestic as well international market. Important aspect is that in its growth nakedwines.com has already achieved the profitability which is very important for a SBE to sustain in future.
As evident from the above section, nakedwines.com is a SBE where it has less than 50 employees is relatively small company as compared to various other online retailers who exists in different categories. One major weakness of the nakedwines.com is its complete dependency on the wine segment itself. Agreed that it has positioned itself as an online wine-seller but over a period of time it should focus on diversifying its product portfolio. Diversification is important aspect of any SBE to grow further. For example as of now nakedwines.com can focus only on the wine drinkers which are limited in number. Even though over past 4-5 years organisation has witnessed a steady growth, but considering the fact that population of wine drinkers will not grow exponentially, hence after some point of time nakedwines.com growth rate might stagnate. In order to avoid this manager in the organisation should focus on product portfolio extension. It can be done on the trial basis like inclusion of other alcoholic drinks. If the test run is successful, then the organisation can expand further and include new products as well.
Another important aspect which nakedwines.com can focus on its physical stores at selected locations. Even though it sounds contradictory but considering the unique brand appeal organisation has in the field of wine retailing can help it to create its own position in the brick and mortar model as well. This can enable the organisation to leverage on its brand appeal and further diversify its business operations from its virtual business operations.
It has been often observed that SBE at times grow rapidly, however they are unable to sustain the growth momentum and cannot maintain and strengthen their performance further. For nakedwines.com it is important to focus on following areas to ensure that its robust performance is maintained and strengthened further:
Evaluation of staffing requirement: Currently nakedwines.com has close to 40 employees. Based on its positive growth, it is important for the management to have a proper staffing plan for future, so that in case of scaling up of the business at domestic as well as international level it has sufficient manpower to handle the business operations.
Maintenance of current market position: Currently nakedwines.com has established and positioned itself in a unique position in the market. There are hardly any company in the online retailing of the wines. Hence the organisation should ensure that it maintains its leadership position, and further strengthen its grip on the online retailing of the wine market.
Focus on the inflow and outflow of the cash: Often promising SBEs go bankrupt just because they are not able to keep a track of their finances, gradually debts starts mounting up resulting into closure of the business. Hence nakedwines.com should ensure that it has complete control on its finances. All the operational expenses are consolidated and accounted for, so that the money which is received as capital from other investors is used in a proper and well-structured way.
Relationship with suppliers: Nakedwines.com exists because of its positive reputation among the wine suppliers or the wine manufacturer community. Suppliers who are associated with the company trust the platform, hence nakedwines.com should ensure that this relationship with the suppliers remains intact and from time to time appropriate measures should be taken in order to resolve any issue proactively.
Focus on creating brand awareness: nakedwines.com should also ensure that it spends considerable amount of budget for promotion of its website and services. Publicity based on word of mouth can go to a certain level only, beyond that there needs to be marketing push in order to sustain the brand in the competitive market.
Nakedwines.com has plenty of areas where it can expand its business. It is important to understand that business expansion is an important strategy for any SBE to grow further. Considering the fact that nakedwines.com is an online retailer for the wines, the next logical growth steps can be inclusion of other alcoholic drinks in it product portfolios. As discussed in above section even though business growth of nakedwines.com has shown considerable growth over past few years, but it cannot sustain the same momentum with same target segment of customers. Hence it needs to diversify and target new customer segment. For example beer as a drink has tremendous potential to be sold online. It has been observed that apart from some universal brands there are certain region specific brands which are available in a particular region only. Nakedwines.com can include such brands as well and can provide them in other regions as well.
Other important diversification strategy can be opening up of physical stores in selected prime locations. Considering the fact that nakedwines.com is already popular among the wine community, it will be a logical step to setup a brick and mortar shops, where customers can walk-in and taste the wines in reality.
Existing business strategy and objectives of nakedwines.com is relatively straight forward. The objective is to provide a platform where wine lovers, and wine manufactures can be connected to each other in a mutually beneficial environment. As a result of which wine lovers based on their preferences invest certain amount towards a specific wine manufacturer, whereas in return the investor gains benefit on the wine supplied by that particular manufactures.
It can be said that overall objective of the organisation is easy to understand and has been implemented as well. Often SBE setup high level objectives and fail to achieve them. In case of nakedwines.com it has up till now successfully achieved its business objectives. Another business strategy and objective which nakedwines.com has related to its international expansion. This objective is also being focused by the organisation as it has already established itself in the market of United States and Australia apart from having a firm grip on the domestic market of United Kingdom. It can be said that overall business plan of nakedwines.com is relatively organic in nature which means the organisation knows its strength well and is focusing on capitalizing it to the maximum level.
One important aspect which the overall business skill plan for nakedwines.com misses is the focus on diversification. Currently the business plan of nakedwines.com revolves completely around wine manufacturers and customers. However in future the organisation needs to understand the important of reducing its risk which might arise due to too much dependency on one particular market. Hence it should include diversification plan as well in its business plan and objectives. As it has been already discussed in above sections, as part of its diversification strategy nakedwines.com can include new alcoholic products in its portfolio and can also launch its physical stores in the selected locations. Another important aspect which nakedwines.com should need to consider is related to mergers and acquisitions. Considering the fact that online wine market is still in its nascent stage nakedwines.com should focus on further consolidation of its market share. It can do this by acquiring or entering into partnerships with similar companies such as Drink Britain. This will allow the organisation to gain further customer base, and expertise of other similar companies.
Action plan for the suggested change can be implemented for a time duration of one year. Following are the core activities which will be part of this action plan:
Market research: Before embarking for implementation of any change, it is first important for the organisation to understand the current market situation. For this purpose it can use various tools such as PESTEL (Political, environmental, social, technological, economic, and legal) analysis, SWOT analysis etc. These analysis will enable the organisation to understand its current market position and accordingly prepare itself for future plan.
Estimation of finances: Being a SBE, nakedwines.com needs to ensure that it has sufficient capital in place to support its various plans. For example in order to setup physical shops it might require significant amount of capital. Hence it should ensure that its finances are properly planned so that as result of any change its existing operations should not get affected negatively.
Setting up organisational structure: is also critical part of the action plan. If the company want to grow further and implement new plan then it needs to have properly managed organisational structure where accountability is fixed for each and every member of the organisation.
Creation of the implementation team and setting up a timeline: it is important for the organisation to identify the key members who will be the part of team implementing the changes. It is also essential to implement the suggested changes in a phased approach rather than going for a big-bang approach.
Assuming the above changes are implemented by nakedwines.com then following will be the impact on the business and its personnel:
Increase in revenue of the company: Since diversification was key aspect of the proposed change, hence beer as a product has been included in the online product portfolio of the nakedwines.com on test basis. This will result into increase in the overall revenue by additional 5% in its total revenue.
Pressure on operational expenses: Since opening up of a physical store was also part of the proposed change hence it has resulted into the increase of the operational expense for the organisation. For example there are several new costs like rent for the shop, electricity bill etc.
Focus on accountability of the personnel: Since nakedwines.com is a SBE hence with new changes there has been increased focus on the productivity, efficiency and accountability of its personnel.
Change can be managed through proper change management strategy. It is important for nakedwines.com to have well-structured change management plan which can take care of any possible impact which might take place due to implementation of the new changes. For example, as part of the change management plan firstly the employees of the organisation should be made aware of the intention of the changes which are planned. This will ensure that all the stakeholders associated with the business and business environment are aware of the proposed changes.
Imparting training to handle any new business processes which might have been introduced as a result of the implemented change is also important. For example the supply chain which was up till not focusing on the wine supply maintenance needs to focus on beer as well. Considering the fact that storing requirement for both drinks are same, hence accordingly changes needs to be done and communicated to the operations staff as well
Implementation of changes is not the end of story for any SBE. Similarly for nakedwines.com it is important to have a proper monitoring of its performance. Monitoring will enable the organisation to evaluate its performance on various parameters. For example, nakedwines.com can setup weekly meetings for monitoring various changes being implemented at micro level such as progress of activities related to setting up of a new physical store, or updating of the online product portfolio etc. Monitoring will enable in micro-management of the smaller activities in a more efficient and structured manner. Similarly nakedwines.com can setup a monthly meeting to analyse its progress in terms of revenue and operational cost. This will ensure that the management of the organisation is well aware of the loss or profitability of the organisation and can accordingly plan its future business strategy. Thus assuming the fact that the proposed change is estimated to be implemented over a period of one year. Hence monitoring activities can be implemented on daily, weekly and monthly basis. This will ensure that all the possible activities are under control and there is no region which gets missed due to lack of monitoring efforts.
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Kotelnikov, V. 2014. Small and medium enterprises and ICT.
Naked Wines | London Stock Exchange Group. 2014. Naked Wines | London Stock Exchange Group. [ONLINE] Available at: http://www.lseg.com/online-retail/naked-wines. [Accessed 02 November 2014].
Sahut, J. M., & Peris-Ortiz, M. 2014. Small business, innovation, and entrepreneurship. Small Business Economics, 42(4), 663-668.
Small Business Statistics. 2014. Small Business Statistics. [ONLINE] Available at: http://www.fsb.org.uk/stats. [Accessed 02 November 2014].
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