Question

Case 5 Jimmy Beans Wool Can an Online Yarn Retailer Get Its Groove Back? In 2002, Laura Zander, a former software engineer, decided to turn her recently acquired knitting hobby into a business. She and her husband, Doug, who also has a background in technology, invested $30,000 of their own money to open a 500-square-foot knitting store, Jimmy Beans Wool, in Truckee, California, a small town of 14,000 people near the Lake Tahoe resort area. To expand the reach of their busi- ness, the Zanders built a Web site and used social media and instructional videos to drive traffic to the company's Web site. As evidenced by Jimmy Beans Wool's tag line, "Your local yarn store online," Laura's strategy was to offer the same personalized customer service that she offered in the store online. She wrote newsletters to keep customers up to date on trends, fashions, and techniques and created 1,100 free instructional videos made in a simple, friendly, homespun style that resonated with her target customers. The videos are posted on YouTube and on the company's Web site. Internet sales soon made up 98 percent of the company's total sales. As the company grew, Laura added a customer service line that customers could call to have their questions answered by a friendly, well-trained employee. By 2005, Jimmy Beans Wool had grown so much that Doug quit his technology job and began working for the business full-time. By 2007, annual sales had reached $1 million and in 2013, sales had grown to $7 million. Con- sultants told the Zanders that Jimmy Beans Wool could become a $ 100 million business, and that became the co- preneurs' goal. They decided to add fabric to their product line, investing $150,000 in inventory, with the anticipation that fabric sales would double the company's revenue within three to five years. The Zanders also decided to create a flag- ship retail store in Reno, Nevada. The 20,000-square-foot store housed the company's offices, warehouse, and retail space. Laura began to move out of her day-to-day role in the business, leaving those tasks to the company's rapidly growing staff, to become the "face" of Jimmy Beans Wool and its spokesperson. The Zanders also embarked on several rather costly marketing initiatives, including partnerships with the United States Ski and Snowboard Association and the National Institutes of Health. They also doubled the size of the company's marketing staff to eight and hired a chief technology officer to allow Doug to focus more on expand- ing the company. The Zanders were confident that the changes they had implemented would increase sales. However, the company's sales growth evaporated, and then sales began to decline, all while expenses increased. Laura soon realized that they were spending too much money to spread the Jimmy Beans Wool message. The company was headed for a cash crisis; the Zanders stopped drawing salaries and had to meet pay- roll for their employees out of their savings. They had to get Jimmy Beans Wool back on track. The Zanders put their growth plans on hold and be- gan to look closely at what had made their business suc- cessful and what it had become. Jimmy Beans Wool had lost its small, family business feel and was operating like a big, impersonal corporation. Employee morale was flag- ging. The Web site had been neglected, and its bounce rate had increased. Jimmy Beans Wool's search engine optimi- zation strategy was outdated and ineffective, and its social media presence had faded without Laura's attention to drive it. Overall, the Zanders realized that in the midst of their growth plans, their company had lost touch with the peo- ple who were most important-its customers who loved to knit. To revitalize their business, the Zanders faced several important questions: Should Jimmy Beans Wool become a $100 million company? Should they drop their line of fabric and stick to selling wool and knitting supplies? Should the company build its brand online, perhaps by focusing on in- ternational sales, or should it open other retail stores around the country, perhaps by franchising? The Zanders hired a consultant and found themselves and some of their employ- ees sitting before a whiteboard ready to generate potential ideas for solving the company's problems. Questions 1. Is the Zanders's dilemma-expansion goals causing the company to lose the character that made it success- ful in the first place—a common one that entrepreneurs face? Why? 2. Assume the role of the Zanders's consultant. What ad- vice would you offer them concerning the fundamental questions they have about their business?

Answer 1

1) Yes the Zander's dilemma is a very common problem that most entrepreneurs face . The reason can be attributed to something as simple as ignoring your original customer base in a hurry to diversify your business. It is important for entrepreneurs to understand the importance of business consolidation before business expansion or diversification.

2) I would advise them to consolidate their pre-existing business and do proper market research before looking for expansion or diversification.The first step would be to get the website up and running.Then reduce expenditure on marketing and advertising for the new business for the time being, untill more cash can be arranged so that first employee salaries are paid, Then there is a need to boost employee morale by convincing them that it is just a minor setback and we will come out of this stronger than ever before.

For the time being they should drop their line of fabric and stick to selling wool and knitting but they should not drop their plans of becoming a 100 million dollar company, because a stagnant company is a dead company in the long run.