Friday, 27 October 2006

Small enterprises

I originally wrote this article, “Small enterprises” in October 2003


An opportunity is defined as consisting of an idea and other components.The following enterprise case study allows comparison with othercompanies in the industry and shows little investment, small marketshare, low wages and low productivity for Burt’s Bees. It is explainedthat the company's success is due to it's uniqueness, Roxanne'squalities, her family, marketing and resource management. The companyshould keep to it's plan of producing in North Carolina to allow thevalue of the company to continue to grow, prior to harvesting. According to Timmons and Spinelli (2003:106):

“Roxanne Quimbysat in the president's office of Burt's Bees newly relocatedmanufacturing facility in Raleigh, North Carolina. She was surroundedby unpacked boxes and silence from the unmoving machines with no onethere to operate them. Quimby looked around and asked herself, "Why didI do this?" She felt lonely and missed Maine, Burt's Bees' previoushome. Quimby had founded and built Burt's Bees, a manufacturer ofbeeswax-based personal care products and handmade crafts, in centralMaine and wasn’t convinced she shouldn't move it back there. Sheexplained:

“When we got to North Carolina, we were totallyalone. I realized how much of the business existed in the minds of theMaine employees. There, everyone had their mark on the process. Thatwas all lost when we left Maine in 1994. I just kept thinking 'Why didI move Burt's Bees?' I thought I would pick the company up and move itand everything would be the same. Nothing was the same except that Iwas still working 20-hour days.”

Quimby had profound doubtsabout this move to North Carolina and was seriously considering movingback to Maine. She needed to make a decision quickly because Burt'sBees was in the process of hiring new employees and purchasing a greatdeal of manufacturing equipment. If she pulled out now, losses could beminimized and she could hire back each of the 44 employees she had leftback in Maine, since none of them had found new jobs yet. On the otherhand, it would be hard to ignore all the reasons she had decided toleave Maine in the first place. If she moved Burt's Bees back, shewould face the same problems that inspired this move. In Maine, Burt'sBees would probably never grow over $3 million in sales, and Quimbyfelt it had potential for much more.”

The difference between an idea and an opportunity

Anopportunity consists of a market, timing, resources, networks and anidea. An idea is a component, or part, of an opportunity. An idea is ofacademic interest only when, judged in isolation and is inert, untilcombined with the other factors to create an opportunity.

Ideacreation is the entrepreneur’s first step to realizing a favourableopportunity. An idea needn't be owned by the entrepreneur and could beregarded as a tool. It could be licensed from another company orestablishment. An idea must interact with other components to create anopportunity, but many ideas need to assessed till the right one ischosen to become part of an opportunity. It might be a great innovationor may simply be a more effective way of doing something. Insight orexploration may generate an idea or it may be accidentally stumbledupon.

Opportunity construction is the next step in theentrepreneurial process where the idea is positioned in the real world.The idea is combined with marketing and economic factors to form theopportunity and to determine the likelihood that a gap between marketneeds and wants can be filled. A real need in the market must besatisfied or created and the timing should be right. An opportunityshould add value for the buyer and both profit and growth potentialsshould be high for the entrepreneur.

It could be argued that opportunities, the real world viability of ideas, are more important than the ideas themselves.

What can be learned from the case study?

Fivefacts can be learned from the case study, in comparing Burt's Bees withother companies in the same industry. Investment, market share, salesper employee, value added and wages are all very different betweenBurt's Bees and the industry average.

Investmentby Burt's Bees is significantly lower than the industry average of$13,898 per production worker. This is evident in the company'sdescription of un-automated processes.

Market sharefor Burt's Bees is only 0.015% of the total toilet preparationindustry. This should not attract the major market player's attentionto compete.

Sales per employee for Burt's Bees’ 44 workers is only 21% of the industry average.

Value addedper Burt's Bees' production workers is significantly less than theindustry average of $377,541 per production worker due to no investmentin automation and an unproductive, unskilled workforce - as describedin the case study.

Wages for Burt's Bees' production workers are less than half the $10.93 per hour average for the industry.

Otherinformation could be derived from the case study, but not withcertainty.  Assets cannot be compared because it's not known ifBurt's Bees leases or has bought, for example, vehicles for the salesrepresentatives. Additionally, the ratio of production tonon-production workers can't be compared as the number of salesrepresentatives for Burt’s Bees is not stated in the case study. It'santicipated that there are proportionately less non-production workersat Burt's Bees than the average for the industry.

Why has the company succeed so far?

The company success is due to the company's uniqueness, Roxanne's qualities, her family, marketing and resource management.

Thefacts given within the case study show that Burt's Bees is verydifferent from other companies within the industry. The company'sfinancial strategy creates a competitive advantage against similarsized companies.

Roxanne brings many desirable qualities to thecompany, acquired through her unforgiving background and because of hercharacter. Roxanne worked hard throughout her childhood in smallindependent ventures to raise money for college and afterwards, priorto forming Burt's Bees. According to Roxanne, "I liked buying andselling things well, adding value. Loved [the] freedom of starting abusiness, of not knowing how it would turn out.”

The interactionbetween the family, Roxanne and Burt, and Burt's Bees is favourable tothe company. The family's need for liquidity is low and profits havebeen retained within the company. There is no conflict between thefamily and the business, and Burt's readiness in agreeing with Roxanneto relocate from Maine to North Carolina demonstrates an ability toadapt to the changing requirements of the business and shows that thecouple share the same perspectives. Roxanne says about Burt that, "he'smy main sounding board and [he] gives me a lot of moral andpsychological support ... there's never been a conflictbetween us."

Burt'sBees' marketing of the product contributes to the success of thecompany. Being first in the market and positioning the new product inan un-served market niche helps. Roxanne knows her customers and thatthere are consumers living in urban areas who have "an unconsciousdesire for more simplicity and our products speak to that need." The product line was expanded to include other hand made crafts andbeeswax products like lip balm to appeal to the same market niche.

Resourcesare carefully controlled by the company. A bootstrapping approach isused to finance the company from retained profits. This means that thecompany has no debts and actually refuses to sell products to retailerswho don't pay their bills within thirty days. The resources of theNorth Carolina Commerce Department were used to identify new premiseson favourable terms. During the growth of Burt's Bees, the minimalamount of resources is used at each stage. New employees are hired onlywhen sales increase. Household kitchen appliances are used tomanufacture the product and, without a telephone, messages werereceived from a local health food store. Roxanne's willingness to sleepin the back of a truck at trade shows, the rental of the derelictschool house as a factory and low production worker wages are furtherexamples of the efficient use of resources. According to Roxanne,"Since the beginning of Burt's Bees, the company had never once dippedinto the red, had always turned in a profit and it's profits had alwaysincreased.”

What should Roxanne and Burt do now?

Roxanneand Burt have three options. They can sell the business, return toMaine or remain in North Carolina. They should remain in NorthCarolina, as explained below.

Sell the business
Roxannedoes not want to be at Burt's Bees forever and has other ambitions tofulfil, like living in India. Burt's Bees will be sold by Roxanne andBurt at some time in its business cycle. Now would not be the best timebecause the company continues to grow rapidly and it's foreseeable thatrevenues could be more than ten times their current levels if thebusiness is allowed to grow. The company has no tangible assets and theonly asset is intangible 'goodwill'. The company could be currentlysold to a willing buyer for, say, a few million dollars. However, withthe company's continued growth, it could be sold for several tens ofmillions of dollars within a few years. It is not advisable to harvestthe business at this moment in time.

Return to Maine
Theproduction workers at Maine have a good attitude. Yet, they areunskilled and this, combined with no automation, creates the lowproductivity in comparison to the industry average. Roxanne spent mostof her time alongside the production workers to give supervision and tosupplement the workforce. This left no time for Roxanne to focus onbroad management issues. New management could not be attracted to theMaine environment. The production facility could hardly meet currentdemand and sales were determined by the limited production capacity.The Maine facility incurs high transportation and payroll taxes. It isnot wise to retum to Maine, where company growth would be difficult andRoxanne would be frustrated.

Remain in North Carolina
Burt'sBees remaining in North Carolina is the only alternative that allowsthe company to grow, realize its full potential and become ready forharvesting for a price which is fair to Roxanne and Burt.Transportation costs and payroll taxes are lower in North Carolina thanin Maine. The location is more attractive to hire a management team tosupport Roxanne. This would release her to consider broad managementissues, rather than involve herself in direct supervision of theproduction workers. Operations in North Carolina require a change inproduction methods from manual to automated manufacture. This isnecessary to control labour costs and to ensure that future revenue isnot limited by the means of production, as it was in Maine. A largepercentage of the country's population lives within a twelve hour drivefrom the North Carolina plant and this places Burt's Bees closer to themajority of its customer base. Additionally, there is a greater supplyof labour in North Carolina that is skilled. Although more expensive ona wages per hour basis, it is expected that productivity gains, byusing skilled workers, will more than offset the higher hourly wages.


Anew venture is proposed for the sale of Asian artefacts throughconventional high street retailing and export to Australia, NorthAmerica and Europe. Typical products include hand carved furniture andornaments from Indonesia and pottery from China. A market is alreadyestablished and the new venture has a competitive advantage by usingtargeted marketing and a low rental outlet. There are competitive,technical and financial risks involved and strategies are required tobe developed to reduce the impact of these risks. Supplierrelationships need to be developed and a shop layout is required. Abusiness plan needs to be created with monthly and quarterly budgets.

Market assessment

Thereis a market of Caucasian customers who purchase Asian artefacts whilston vacation, or residing, in the South East Asia region.  TheSingapore market is currently served by very small souvenir shops ormedium sized retailers located in prime, but expensive, shoppinglocations. Passing trade accounts for most of the business.  Amajority of the medium sized businesses have ceased trading and haveclosed in the previous two years. This is a result of lower revenuescaused by less travellers to the region recently and the migration ofexpatriates to their home countries during the recession. Continuallyhigh shop rental prices accelerated closure of the medium sizedbusinesses. The new venture will be located outside of expensiveshopping areas and will compensate for lower passing trade byattracting customers to the outlet through specialized marketing attourist hotels events and expatriate residential areas.  Theeconomic    and highly available Singapore transportsystem is an attribute. Additionally, export of goods via the Internet,using international courier, will complement over-the-counter shopsales. The local market will expand over the next three years of theeconomic cycle from it's current trough.

Risk determination

Thecompetitive risks of the new venture are that medium sized retailerswill return to the market in prime shopping locations and now useInternet technology for export of their goods.

The technicalrisks involve the compromise between high shop rental and passingtrade, import/export procedures, inventory range/value, web sitestructure/maintenance and payment mechanisms.

The financialrisks are commitments to fixed rental payments for a period, inventoryinvestment, supplier reliability, customer receivables and assuredrevenues.

Production planning

Agreementsneed to be signedwith up to six suppliers in ASEAN countries. Thecontracts are to cover logistics, product ranges, import/exportprocedures, scheduling, payment, cancellations, defaults, quality,agreement enforcement and contract termination.

The new ventureshop layout and telecommunication methodology need to be defined tosupport both the local and international aspects of the business. Aregister of non-current assets needs to be created to help costestimation.

Advice and guidance need to be sought from acquaintances in non-competing, but similar, existing businesses.

Cost estimation

Abusiness plan needs be created to provide a good estimate of initialcosts, expenses and projected revenues for the new enterprise. Theanticipated fixed costs are shop rental, fixtures, fittings, utilities,minimum inventory, minimum staff, telecommunications, computer hardwareand software. Variable costs are expected to be turned-over inventory,shipping, marketing and additional staff. Monthly budgets need to becreated for the first twelve months, followed by quarterly budgets forthe next two years.

Feasibility evaluation

Finally,the above mentioned risks to the success of the new venture arerequired to be analyzed to determine how they could be managed andcontrolled. Strategies to reduce the impact of competitive, technicaland financial risks to the business need to be formulated. Anopportunity screening task is required to be done for the proposedbusiness before the decision is made whether or not to proceed with theventure.


Timmons, J.A. Spinelli, S. 2003, New Venture Creation, Mc Graw Hill 2003

No comments: