Three things separate the great new businesses from the rest: strongly differentiated positioning; first mover advantage; and positive cash flow.
My wish list for an ideal new business would be something like this:
- It would involve something that I was passionate and knowledgeable about.
- There would be strong and constant demand.
- The barriers to entry would be low-ish but not too low.
- I would be able to be materially different to the competition in a way that was very attractive to a large enough segment of the market.
- I could sustain this difference, perhaps by leveraging a first-mover advantage.
- I could not only make a good return on capital but the business would be cash positive and scalable too so I would be able to easily access funding when I needed it.
- I would be such a potentially destabilising force in the market that I’d quickly be on more established players’ radars as an acquisition target.
Until today I hadn’t heard of Naked Wines, a five-year-old company that “allows wine lovers to become venture capitalists”. This is a powerful but rather misleading allusion though as venture capitalists are normally looking for some pretty hard financial return on their cash rather than the softer crowd-funding benefits that are attached to Naked’s retail proposition. It got my attention because of the super PR it is putting out at the moment saying it so successful that it may have to stop people “investing “ (paying for their wine in advance) as it isn’t able to meet the demand. This is understandable, as it has grown rapidly over the past two years and as it is fundamentally a vertically integrated supplier there is a real limit to how rapidly it can develop and grow its supply base, whilst maintaining quality.
Naked’s investors’ monthly subscriptions fund up-and-coming winemakers around the world, and in return for this up-front cash, for working capital, it gets a good deal on bulk purchases from these wine makers. This cash flow positive payment model is not only one of the defining differences of the customer proposition but it is, of course, wonderful for Naked Wines’ business model too. By buying in bulk from less well established producers it says that it can give you better wine for your money and you’ll have the added benefit of investing in new winemakers.
Positioning wine buyers as investors is brilliant, as it leverages this relatively recent crowd-funding enthusiasm to be more involved, an insider to the production process, rather than just being an anonymous consumer. Naked calls itself the “Kickstarter of vineyards”. This is a great example of how any business can be truly different, with the application of a little ingenuity, and how powerful strong and differentiated positioning is in driving growth and value. Naked Wines posted its first profit of £1M in 2012 and it has grown by more than 50% for each of the last two years, with revenues of £60m last year. Naked is gaining 500 new members a day and since 2008 it has invested in 100 independent winemakers around the world.
Naked Wines comes pretty close to being my “wish list” business. It is hard to fault what it has done to date and there is much to copy and emulate; I wait with interest to see who is going to buy it.
Author profile: Mark Ballett
Mark Ballett is a very experienced business manager and mentor based in London who, over the past ten years, has helped many successful businesses to grow and develop.
Whilst Mark only works with a small number of personal clients at any one time he is also the founder of Business Growth Guides based in Austin, Texas and London, which provides online training, guidance and support to a wider audience.