Naked Wines: Testing to Build | In Practise

Naked Wines: Testing to Build

Founder and Former CEO at Naked Wines

Learning outcomes

  • The essence of good business model design
  • How Naked built a meritocratic culture of testing ideas
  • The power of voucher-led promotional activity to kick-start growth
  • How to measure and use LTV
  • Challenges in leadership and entrepreneurship
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Executive profile

Rowan Gormley

Founder and Former CEO at Naked Wines

Rowan Gormley is a South African serial entrepreneur who has successfully built 4 out of 5 startups to date. He was hired by Richard Branson in 1995 to identify new opportunities of which Rowan started Virgin Money, the UK retail bank which has over £1.6bn in net interest income today. Rowan founded and ran Virgin Wines from 2000-08 before starting Naked Wines in 2008. Naked Wines is a leading global online wine retailer with over £200m in revenue from 150,000 subscribers. Read more

When you set up Naked Wines, how did you look at making that company different?

We set up in 2008, which was the last crisis, before the current crisis. It was a weird time, but it also meant that everybody was willing to look at new ideas. The whole thought behind Naked was that, wine costs too much money, because winemakers need to spend so much selling it. If we could get customers to buy the wine, before it was made, then the winemakers wouldn’t need to waste the money selling it, which means the customers would get good wine, for better money. This means you wouldn’t need to sell hard to them, so you’d keep them for years, which meant you would have a good business. That was the original thought.

The thing about 2008 was, winemakers needed money desperately, because the banks weren’t lending. We didn’t have enough money to fund them, so the only place it could come from, would be our customers. It was partly inspiration, but partly, also, just desperation, that forced us into that. What we discovered, much to our surprise, was when we went to people and said, here’s a really good bottle of wine and you can have it tomorrow, whatever level of response that generated, we’d get four times that, where we said to people, here’s a winemaker who’s run into problems. You can’t taste the wine, but if you pay today, we can let you have it in a year’s time. People were much more engaged in that, than they were in a simple transaction to buy wine.

Although we didn’t quite understand it at the time, that turned into what we call a virtuous circle, where we wanted to build a company where our winemakers, our suppliers, our founders, our staff, were all in it together. We weren’t trying to exploit one group of people to the benefit of another, but that by everybody sharing in the benefit of the company, everyone would benefit.

We started doing that by making them into shareholders. With shareholders, you do that because they’re really shareholders. The new thing was to bring the winemakers in and make them part of the deal, as well. It took a few years to find exactly the right shape of the business but building it, eventually, into a business where the customer has funded wines in advance and winemakers could leave their day job and set up and just focus on making wine. That’s what made it different. Out of that, a lot of other benefits came, as well, such as, you don’t need to hard sell, because people have already bought. That changes your marketing approach, it changes the way you talk to your customers, your investors and everything else.

Clearly, you’ve thought about a new way to build a business, with customers at the forefront, that actually become the shareholders and finance the business, in a way. What about the culture that you looked to build, at Naked?

The interesting thing is, we never really thought about the culture. The first time I thought about culture was when Naked was acquired by Majestic Wines and, all of a sudden, I was stepping into a job. I’d never had a job before; I’d always started the companies that I worked for. When you start the company, you never think about the culture, because you start with nothing. When we were setting up Naked, to be honest, I think the way the culture was formed was a function of a couple of things.

First of all, it was 2008 when we started, so it was quite a weird time. There was a real feeling of, we’re on our own here; no one is going to help us. The second thing was, one of our competitors tried, quite hard, to get us closed down. They called our suppliers and said, don’t deal with these guys; they’re going to bankrupt you and that kind of thing. So it was a bit of an, us against them, against the world. We landed up with a very tight group of people. I read that one of José Mourinho’s techniques was always, us against the rest of the world. In a way, that happened for us. Then, of course, we were a bit anti-wine establishment, so a lot of the wine critics were scathing, I think is the kindest thing to say. It did build up this really strong feeling of, we’re trying to do something right, here. Lots of people don’t want us to succeed and, for that reason, fuck’em. It just spurred us on.

What I think that led to was a really collective sense of responsibility, which was aided by the fact that everybody left good jobs to start at Naked and everyone was a shareholder. Everyone had burnt their bridges and, if we succeeded, everyone was going to benefit from that. But if we failed, then we’re all in the shit together. I think, without doing anything else, that does create a really strong culture. I think a lot of start-ups benefit from that.

I think the hard thing is when you then go from one office to an international operation. Naked Wines is based in Norwich, which is quite a small town; a lot of people socialize together. All of a sudden, when we had an American business and an Australian business, I think one of the most surprising things to me was how similar the culture is. In fact, the Australian business was six months old, the first time I set foot there. The weird thing was, it was instantly identifiable as a Naked culture.

I think the key was, always try to move enough people into a new business. So if you were making sourdough bread, there was a really good starter and there were enough people to get the culture moving. It is an attractive culture. It’s very meritocratic, so there are a lot of young people who have not come from a glamourous track record – unemployed French horn players, unemployed actors – very talented people, who have gone on to do great things at Naked. I think it’s very meritocratic.

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Naked Wines: Testing to Build

April 9, 2020

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