Burt's Bees Case Study

Background

Roxanne Quimby is the founder and co-owner of Burt’s Bees, a manufacturer of beeswax based personal care products and handmade crafts originally located in Maine. Quimby and her partner, Burt Shavitz, owner of the bee farm initially used for production, started Burt’s Bees in 1987 with very little capital and accrued no debt. In Maine, Burt’s Bees production was entirely hand crafted, both in production process and product packaging. The product, beeswax candles and other novelty items, achieved great success, exceeding Quimby’s first-year sales projections of $10,000, instead reaching $81,000 in sales in 1987. By 1993, Quimby and Shavitz’s hard work to satisfy market demands, resulted in an increase of sales to $3M.

Timmons Model Analysis

        According to the Timmons Model of Entrepreneurship^[1], the three critical factors of a successful new venture are opportunity, team, and resources. The model emphasizes that all three factors need to be in balance in order to achieve success. Currently, Burt’s Bees is experiencing increased demand for their unique, natural and organic beauty products. The company has seized a large opportunity niche within the larger, steadily growing market of toilet preparations products. Looking at the competencies of the team necessary to seize this available opportunity, it can be determined that Quimby’s company current lacks such talent. Finally, in order to balance the opportunity with a highly competent team, Burt’s Bees now needs the resources to scale the business, which Quimby can acquire through purchasing the plant in North Carolina and utilizing the area’s network of skilled labor. After evaluating Burt’s Bees to have an abundance of opportunity but not enough resources or team to balance the company, we have concluded the following problem statement:

“Having taken minimal risk with Burt’s Bees in the past, Quimby must now analyze the risk and reward and decide on actions that will best shape the company.”

Quimby’s Options

The business environment in Maine was unfavorable: taxes were high, there was a lack of skilled workers, and operations costs were expensive. Having hit operational capacity, Quimby decided to move the company to North Carolina where they could expand. However, this strategic decision forced Burt’s Bees to change their product line, as they would need products that could be made easily in the automated factory in North Carolina, not by hand. Quimby felt bad about the product change, and considered her options with the company moving forward: 1) Stay in North Carolina and start production; 2) Go back to Maine and cut her losses; or 3) Sell the company. 

Stay in North Carolina: It would be necessary to stay in North Carolina to grow Burt’s Bess and expand into a larger market. The state offered them a lower tax rate and there were more skilled workers than in Maine. Skilled workers would allow Burt’s Bees to automate their product operations, thus increasing production, sales, and profit. Additionally, North Carolina was a centralized location, allowing them to reach a wider customer market and save on shipping costs. Quimby also found leads in North Carolina for a sales and marketing manager with experience at Vogue, Lancôme, and Victoria’s Secret, and a plant manager with experience at Revlon. However, growing in North Carolina would require the debt averse Quimby to take out a bank loan. Further, staying in North Carolina would require renewed efforts in R&D to innovate the product line and achieve a continued growth in sales.  

Go Back to Maine: In going back to Maine, Burt’s Bees could rehire the employees it left behind and return to manual production. Unfortunately, they reached maximum operational capacity and couldn’t expand productions with the labor and facilities they had, thus unable to grow their sales. Furthermore, as she worked 20 hours a day in productions, Quimby had started to burn out as president, leaving concern about the future health of the company. However, this option allowed Burt’s Bees to continue to be debt free, which was a value that Quimby held high.

Sell the Company: Quimby does not want to stay at Burt’s Bees forever.  Given that perspective, especially considering that Quimby currently works 20 hour days running the company, this is a reasonable option. However, the company is currently not running at full capacity, so Quimby would be unlikely to sell for the full price. In North Carolina, though, the company has growth potential, and could be worth much more in the future, making selling the company more attractive as the business grows larger.

Financial Analysis

        To provide a grounded recommendation that will increase profitability with minimal risk, we conducted a financial analysis of the three options^[2]. We valued her company at $10.5M with her Maine sales of $3M, and since her operational capacities had maxed out in Maine, we concluded that to also be the value of the company if she were to sell now. To assess the potential of the company if she stayed in North Carolina, we calculated a 5-year financial projection for best, worst, and base case scenarios, including an initial loan investment needed to fund productions in North Carolina. Using industry growth averages and loan averages for 1994, we calculated valuations for each scenario as $47.5M, $33.5M, and $22.5M for best, base, and worst, respectively^[3]. In each scenario, the company value far outstrips the value she would obtain by moving the company back to Maine, even though she must take out an initial loan.

Risk Analysis

        To determine the level of risk associated with each option, we conducted a risk assessment of operations, finance, demand, capability, and brand.^[4] Moving to Maine provided the most risk for Quimby, scoring “High” in both operational and capability. Operationally, Burt’s Bees was maxed out in Maine. There was no room to grow, and they were maxed out on shipment loads. Capability risk is high in Maine due to the lack of skilled labor needed to make innovative products in addition to the lack of management skills required to run a company of the size that Burt’s Bees was becoming. Quimby herself was quickly burning out and would soon be incapable or unwilling to run the company herself. The financial risk of moving back to Maine is low, since the sunk costs can are small and can be made up easily through sales. The demand and brand risks score relatively low for this option, as there is still great demand for her product and she would not have to make any product changes, as she would in North Carolina.