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Section III – Building a Business Plan

Chapter 7 E-Commerce and the Entrepreneur (PPT 7.1)

Part One: Teaching Objectives

1. Describe the benefits of selling on the World Wide Web.

2. Understand the factors an entrepreneur should consider before launching into e- commerce.

3. Explain the twelve myths of e-commerce and how to avoid falling victim to them.

4. Discuss the five basic approaches available to entrepreneurs wanting to launch an e- commerce effort.

5. Explain the basic strategies entrepreneurs should follow to achieve success in their e- commerce efforts.

6. Learn the techniques of designing a killer Web site.

7. Explain how companies track the results from their Web sites.

8. Describe how e-businesses ensure the privacy and security of the information they collect and store from the Web.

9. Learn how to evaluate the effectiveness of a company’s Web site.

Part Two: Lesson Plan (PPT 7.2 thru 7.5)

Students of today are fortunate to be witness to the early stages of e-business. It is important for students to incorporate e-business in order to remain current in the marketplace. E-commerce has removed the obstacle of size for many small business entrepreneurs, replacing that with speed.

I. Benefits of Selling on the Web

 The opportunity to increase revenues  The ability to expand their reach into global markets  The ability to remain open 24/7  The capacity to use the Web’s interactive nature  The power to educate and inform  The ability to lower the cost of doing business  The ability to spot and capitalize on new business opportunities  The ability to grow faster  The power to track sales results

75 II. Factors to Consider before Launching into E-Commerce (PPT 7.6 thru 7.9)

As with any proposed change or new venture, business owners must consider the variables and challenges facing them:

 Is the product or service conducive to e-business?  Can the business afford not to add e-business to its mix?  Will customers use the web to buy?  How and where to best start a Web site?  What are the specific goals and objectives of the Web site?  What affects would a Web site have on customer relations, channels of distribution, financial condition of the business and so on?

III. Twelve Myths of E-Commerce (PPT 7.10 thru 7.20)

E-Commerce already has many stories of success and failure. Make sure that you do not fall victim to one of the following e-commerce myths:

1. Setting up a business on the Web is easy and inexpensive. 2. If I launch a site, customers will flock to it. 3. Making money on the Web is easy. 4. Privacy is not an important issue on the Web. 5. The most important part of any e-commerce effort is technology. 6. “Strategy? I don’t need a strategy to sell on the Web! Just give me a Web site, and the rest will take care of itself.” 7. On the Web, customer service is not as important as it is in a traditional retail store. 8. Flash makes a Web site better. 9. It’s what’s up front that counts. 10. E-commerce will cause brick-and-mortar retail stores to disappear. 11. The greatest opportunities for e-commerce lie in the retail sector. 12. It’s too late to get on the Web.

YOU BE THE CONSULTANT – Changing the Rules of the Game

Entrepreneur Andrew Field bought a print shop and used his selling skills to boost sales to about $1 million annually. The high fixed cost structure of his business resulted in only a break-even situation however and Field saw no hope for improvement given his relatively small local markets.

The idea for a website finally struck. Field devised an interactive Web site system to fill his idle capacity. Customers design and submit their orders through a simple program. The company then e-mails a project number and link to a proof of the order, and once approved by the customer, a production, shipping and delivery date are established.

Field filled his idle capacity and then took his company to the next level by soliciting more work and sub-contracting that to competitor companies. Word of the ease and reliability of Field’s system has spread, and the company now averages about 7,000 visitors to its site each day, generating sales of $8 to $9 million.

76 Q1. Would Field’s strategy for handling excess capacity be feasible without the Web? Explain. Q2. In what ways does the Web enable Field’s strategy to be successful? Q3. Visit the Printingforless.com Web site. Does the site accomplish its goal of making the process simple for customers? Explain. Can you make any suggestions for improving the site’s design?

A1. Field’s strategy would not be successful because of the limitations of the size of his local markets. The Web is Field’s link to a far greater volume of customers. A2. The Web enables Field’s strategy to be successful by providing access to the production capacity of other companies, by providing access to customers outside of his geographic area, and through a user-friendly system of designing, ordering and processing jobs. A3. Students will offer a variety of ideas and options.

IV. Approaches to E-Commerce (PPT 7.21 thru 7.26)

The short- and long-term goals of a company along with its target markets and budgetary constraints help to define the best approach to an e-business venture. Entrepreneurs have five basic choices:

1. On-line shopping malls 2. Storefront-building services 3. Internet Service Providers and Application Service Providers 4. Hiring a Professional to Design a Custom Site 5. Building a Web site In-House

V. Strategies for E-Success (PPT 7.27, 7.28)

 Consider focusing on a niche in the market.  Develop a community.  Attract visitors by giving away “freebies.”  Make creative use of e-mail, but avoid becoming a “spammer.”  Make sure your Web site says “credibility.”  Consider forming strategic alliances.  Make the most of the Web’s global reach.  Promote your Web site on-line and off-line.

YOU BE THE CONSULTANT – Two Companies That Get It Right

Chris Warner, mountain climber and outdoorsman extraordinaire, created Earth Treks, a web-based company that takes its on-line visitors to the peaks of the highest mountains and to the great volcanoes of the world through the photographs and journals created by the expedition leaders themselves. The site has created a community of dedicated climbers whose numbers continue to grow.

The company’s next generation market is also being developed through an educational program aimed at six-to-eighteen year-old students who learn about the different climates, countries and cultures of the world, along with leadership and team skills. The program also hosts birthday parties and provides training for kids on its indoor climbing walls.

77 Spencer Chesman developed iGourmet, a web-based company aimed at food enthusiasts from around the world. Customers learn about foods and related products through the photos and narrative on the site, and place orders that come with a 100 percent guaranteed return policy. iGourmet also developed a special foam-lined shipping chest that keeps its perishable items cool for up to 48 hours. That feature has contributed to the company’s 75% repeat business rate.

Q1. Which of the strategies for e-success described in this chapter are these two companies using? Explain. Q2. Although Earth Treks and iGourmet are in very different businesses, what similarities do you see in their approaches to e-commerce? Q3. Visit the Web sites for these two companies. Select a local business that has a significant Web presence and, in a brainstorming session with several of your classmates, develop a set of strategies for e-success based on what you have learned.

A1. Both companies have focused on very specific niche markets. Earth Treks has also been successful in developing a community among its site visitors. iGourmet’s credibility is enhanced through its 100 percent guaranteed return policy. A2. Both companies developed relatively low-cost sites that are customer friendly and that reach prospects from around the world. A3. Students will identify a local company and will apply some of the same strategies used by the two businesses in this case.

VI. Designing a Killer Web Site (PPT 7.29 thru 7.32)

Web users demand fast and reliable sites, have little patience, and currently buy from a relatively low number of the e-businesses that they visit. While there is no sure-fire formula for success, the following suggestions will help:

 Understand your target customer.  Select a domain name that is consistent with the image you want to create for your company and register it.  Be easy to find.  Give customers what they want.  Build loyalty by giving online customers a reason to return to your Web site.  Establish hyperlinks with other businesses, preferably those selling products or services that complement yours.  Include an e-mail option and a telephone number in your site.  Give shoppers the ability to track their orders on-line.  Offer Web shoppers a special all their own.  Assure customers that their on-line transactions are secure.  Post shipping and handling charges up front.  Keep your site updated.  Consider hiring a professional to design your site.

YOU BE THE CONSULTANT – The Amazon.com of the Pool and Spa Industry

Dan Harrison, founder of Poolandspa.com is an early pioneer and success story of e- commerce. The Long Island, New York based business started in Harrison’s basement in 1980,

78 moved to a retail store, expanded to include service and accessories in response to the recession of the early 1990’s and in 1994, explored something new he had heard about-- the Internet.

Harrison also created a Hot Tub Newsletter that was first mailed to the company’s 2,000 local customers. That number quickly grew to 20,000 as the result of the company’s 150-page Web site developed in 1995. The quality of Harrison’s newsletter and the presence and contributions of his Moose the Hot Tub Dog contributed greatly to the company’s popularity and success.

Harrison also embarked on an aggressive search engine marketing strategy. While that application comes with a high cost, it is carefully tracked through statistical data and analysis. Harrison’s company now generates more than $7 million in annual revenues and has a goal of becoming the Amazon.com of the pool and spa industry.

Q1. Why is search engine marketing so important to online businesses? Q2. Conduct a Web search to develop a list of at least five techniques that small companies can use to optimize their use of search engines. Q3. What advice would you offer a business owner who has just launched an e-commerce company about driving traffic to the company’s Web site?

A1. Search engine marketing is the means to attracting very large numbers of customers from around the world. A2. Students will recommend techniques that should make both marketing and financial sense for their selected small businesses. A3. Same answer as above.

VII. Tracking Web Results (PPT 7.33, 7.34)

Firms using Web sites must closely track the benefits of increased sales against increased costs. Web analytics are software tools that measure a site’s ability to attract customers, generate sales and keep customers coming back. Other tracking methods include: clustering, collaborative filtering, profiling systems and artificial intelligence. The art and science of quantifying the return on investment from e-commerce continues to develop.

VIII. Ensuring Web Privacy and Security (PPT 7.35, 7.36)

The Web’s ability to track the behavior of its customer raises concerns and issues over the privacy of that information. Companies are encouraged to take the following steps to ensure that the information they collect is being used in a legal and ethical manner:

 Take an inventory of the customer data collected.  Develop a company privacy policy for the information you collect.  Post your company’s privacy policy prominently on you Web site and follow it.  Consult with an attorney.

Security is another unresolved and developing Web site issue. Hackers, viruses, credit card fraud and unauthorized users continue to adversely affect companies, customers, and the growth of e-commerce. Virus and intrusion detection software and firewalls may help to wad off attacks from hackers.

79 Part Three: Suggested Answers to Chapter Discussion Questions

1. In what ways have the Internet and e-commerce changed the ways companies do business?

The Internet and e-commerce continue to revolutionize the business world. Small businesses now have markets that span the globe that include both customers and competitor companies who may cooperate as sub-contractors.

2. Explain the benefits a company earns by selling on the Web.

Selling on the Web can provide relatively low cost access to increased sales and profits. A Web business can be run from a student’s dorm room or from an entrepreneur’s home.

3. Discuss the factors entrepreneurs should consider before launching an e-commerce site.

Entrepreneurs should consider the following:

 How to exploit the Web’s interconnectivity and relationship building opportunities with customers  How to develop a plan that fits within the company’s overall strategy  How to generate the highest percentage of repeat business  How to create and maintain a meaningful and exciting Web presence  How to measure success

4. What are the 12 myths of e-commerce? What can an entrepreneur do to avoid them?

1. Setting up a business on the Web is easy and inexpensive-- careful planning, execution and follow-up analysis are a must. 2. If I launch a site, customers will flock to it-- assuming that the entrepreneur has a clear and attractive site positioned within the right search engine. 3. Making money on the Web is easy-- making money is almost never easy. 4. Privacy is not an important issue on the Web-- the world wide access of the web has also created worldwide access to hackers and other unwanted intruders. 5. The most important part of any e-commerce effort is technology-- technology represents just one of the components required for success. 6. A strategy is not necessary, just develop a site and the rest will take care of itself-- a strategy will result in an action plan that can help a company achieve its goals. 7. Customer service on the web is not as important as it is in a traditional retail store-- customer service is a major key to repeat business and referrals. 8. Flash makes a Web site better-- only if that flash is part of a well thought out marketing plan. 9. It’s what up front that counts-- what’s up front counts in part, but the rest of the system must be solidly in place as well. 10. E-commerce will cause brick-and-mortar retail stores to disappear-- e-commerce represents just one component of the marketplace and just one part of a firm’s target market mix. 11. The greatest opportunities lie in the retail sector-- manufacturing and service-based companies will continue to be prominent worldwide players. 12. It’s too late to get on the web-- e-commerce is currently in the early growth stages of the product life cycle.

80 5. Explain the five basic approaches available to entrepreneurs for launching an e-commerce effort. What are the advantages, the disadvantages, and the costs associated with each one?

1. On-line shopping malls (for products) offer the easiest and least expensive entry. Lack of prominence and control are limitations of this option. 2. Storefront-building services also offer easy and low cost entry. It may be difficult to distinguish one company from the next. 3. Internet Service Providers and Application Service Providers offer a low cost means to create an on-line store. Fees are often tied to volume that provides a correlation cost (to volume) structure. 4. Hiring Professionals to Design a Custom Site costs more but may provide far greater returns; this may not be a feasible option for a start-up venture. 5. Building a Web site In-House provides the owner with complete control but costs more.

6. What strategic advice would you offer an entrepreneur about to start an e-company?

An entrepreneur should use the same approach as starting any business venture-- a business plan. Special emphasis must be placed on both the non-personal and “personal” marketing efforts.

7. What design characteristics make for a successful Web page?

Successful design characteristics are very customer-connected and may include: a strong connection to the target customer, the proper and desired company image, be easy to find, be easy to use, provide access to the firm’s staff, provide the ability to track orders, and offer security, privacy and reliability.

8. Explain the characteristics of an ideal domain name.

The ideal domain name will clearly depict and communicate the nature of products and services offered.

9. Describe the techniques that are available to e-companies for tracking results from their Web sites. What advantages does each offer?

A variety of software exists and is being further developed that allows a company to count and track inquiries in great detail, to monitor customer behavior, to analyze correlations from those behaviors and to calculate return on investment. These and other upcoming features will allow a business to quantify and improve on the effectiveness of e-business ventures.

10. What steps should e-businesses take to ensure the privacy of the information they collect and store from the web?

E-businesses should establish, post and follow a privacy policy in order for it to be meaningful and effective.

11. What techniques can e-companies use to protect their banks of information and their customers’ transaction data from hackers?

81 E-companies should analyze and adopt virus and intrusion detection software and also consider a firewall that only allows company employees to have access to a company’s network and programs.

12. Why does evaluating the effectiveness of a Web site pose a problem for on-line entrepreneurs?

As with all statistical models, some information is hard or impossible to quantify. In addition, many of the traditional models do not fit well with e-commerce business and are currently in the development stages.