Case Assignment #6: Sendwine
1. Imagine that you are a Venture Capitalist in 1999 and that you have been asked to invest $30 million “B” round for Sendwine.com. Would you invest? What criteria would you use to make your decision? How is Sendwine position against those criteria?
If I was a venture capitalist in 1999 and I was asked to invest $30 million for Sendwine.com I would be a little skeptical at first. The internet was fairly new at that time and there was a lot of uncertainty around it. People weren’t sure if the older generation would learn to adapt to it and people weren’t sure if it was going to last in the future years. Some people simply viewed it to be a new fad but if they knew how much it would expand over the coming years they would surely invest in it. If I was a venture capitalist, I would consider the investment with the rest of my team and I would look at all of the alternatives I could invest my money in. I would look at the rise of the internet and make an informed decision about whether it was going to fade away or burst into the limelight. I would look at Sendwine.com’s previous investors, as well as their previous years’ profits. I would also look at the future path that Sendwine is looking to pursue and see what they are going to be doing with my $30 million. I would consider Sendwine’s operations and see how they run their business from the start of the product to the end result when the customer receives it. Sendwine is positioned very well along that criteria. Sendwine made huge profits in their first few quarters of starting their business and it only seemed to be going uphill from there. Sendwine was also in one of the most robust markets in the industry at that time, the internet. The internet was bringing about huge changes which would create many conveniences for the customer. It was surely only going to get better rather than fade away and therefore Sendwine would be one of the many benefiters from this. Sendwine also has a very solid foundation for their business, their core workers are very faithful to the company and they follow the values of the company very well. The retailers with which Sendwine works with are also very trustworthy and there is a good relationship between the two. Sendwine’s future ideas are also very internet oriented, therefore they also have the potential to grow exponentially. Considering all of this criteria, if I was a venture capitalist, I would invest.
2. Would you diversify into additional gift categories in time for the 1999 holiday season? Would you pursue the categories that Lannon is suggesting?
I would definitely diversify into additional gift categories in time for the 1999 holiday season. The internet is only going up from where it was and already having a built a solid base with their Sendwine status, send.com could benefit tremendously. The reason Sendwine became so successful in such a short period of time was because they started their operations before the 1998 holiday season. This is the time of year when gift giving is at its highest. People are looking for Christmas presents for their significant other, their parents, as well as other relatives who may not be living in the same country. These customers present a huge potential for Sendwine to increase their market presence. I believe that the categories that Lannon is suggesting to expand in such as cigars, gourmet food, other liquors and beer, as well as potentially adding gift certificates for some of the finer restaurants and spas would be the perfect products to branch off to. These products match with the whole Sendwine culture, they are higher level products that would attract some of the wealthier clients in this market. This would assist Sendwine in maintaining its price premium that came along with the wine.
3. How would you market for the 1999 holiday season? How would you reach your intended customer base? How much would you spend?
Previously, Sendwine’s marketing had been done mainly through advertising on the radio as well as putting a Father’s Day ad in the Wall Street Journal. I would market for the 1999 holiday season by continuing those previous operations but also advertising through TV and billboard ads. TV advertising was on the rise during that time period and more and more companies were beginning to advertise through TV. Sendwine needed to follow in pursuit with the other companies if it didn’t want to get left behind. TV advertising reaches a large audience through a short yet effective ad. Although advertising on TV was expensive, it was definitely worth it in the long run. Another way that I would market for the 1999 holiday season would be to expand on the website design. Although the website design was short and efficient, it lacked a lot of the things that consumers were looking for. There wasn’t much you could do on the website except choose your gift, and proceed to the checkout. I would expand to make more browsing options as well as create more functionality and flexibility on the website. This improved website design would attract many new customers as well as creating a better experience for the previous customers. I would be willing to spend a large amount, up to $10 million on marketing for the 1999 holiday season. I understand that this is a large number but if you don’t spend a lot on this area of your business you will never be able to expand to the level you are capable of. A good marketing scheme could increase your profits tenfold. That is why I would do a really good job marketing my product and having my website design up to par for the consumers so they could have a memorable experience.
4. What challenges does Lannon face in building the business? How should he respond to issues such as recruitment, acculturation and communication?
Some of the challenges Lannon faces in building the business are the decision to expand into send.com or not. He has the opportunity to take advantage of the internet craze but he could be potentially expanding at a rate that is too quick for his business to maintain. If he decided to expand he will face further issues of recruitment, acculturation, and communication. It will simply require him to hire more workers at a high pace which would lead to the latter problems of acculturation and communication. He wants to hire people that will fit well into his culture but he is having a difficult time finding good workers at such a quick pace. What Lannon needs to do is have a larger recruitment team that has an intensive application screening process which would allow them to hire the best potential employees. This would aid in finding people that are better suited to the culture of the organization rather than hiring someone and then later realizing that although they have good credentials, their values don’t align with the culture of the company. Lannon should deal with problems of communication by spanning out his responsibilities to lower level managers. Rather than having himself be the focal point of all communication, he should require his managers to have weekly or bi-weekly team meetings that would allow all of the employees to input their ideas and get the answers they need.