Used to be, the dream was starting the next McDonald's, or maybe inventing a new widget that everybody would need--putting you on the fast track to wealth so immense it could scarcely be counted. Today, of course, the dream is to come up with the new Amazon or Yahoo!--but that might be the wrong dream.
Isn't this guide all about launching the Next Big Thing? Nope. It's about building businesses on the internet. Nowadays, a very good argument can be made that there's a smarter way to go than scouting around for the idea that will spawn a new Amazon.
Taking Care of Business
Consider Walt Geer. It was in late '98 that Geer, a partner in an Atlanta promotional products company, faced up to reality. His little business--which sold logo merchandise such as pens and coffee mugs to companies to hand out to employees and customers--was chugging along OK, but it was just one of 19,000 promotional products companies in the country. So he decided to cut the cord on his traditional company, dump his existing customers and put his business online as eCompanyStore.
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How is he doing now? Well, there were a couple months of hard swallowing: "We had no revenue coming in," recalls Geer, "but we had to focus our energy on the internet because we didn't have the resources to do it and run our traditional business." But, he says, "In just a few months, the internet let us move from being a small company to a national player. Before, we serviced lots of little accounts. Now we have Microsoft, for example. The internet lets us go after big accounts."
eCompanyStore is just one of hundreds of a new breed of business-to-business (B2B) enterprises, where companies sell not to consumers but to other businesses. Listen up, because in 2001 Forrester Research--a technology research and consulting firm--predicted that the B2B sector would go vertical, with North American B2B online sales reaching $7.2 trillion in 2006.
In the meantime, Forrester predicted, online retail--that's the business- to-consumer (B2C) market--would also grow, but the numbers were piddly in comparison. In 2006, says Forrester, B2C e-commerce will reach $219.8 billion. Do the math: B2B will generate 33 times the cash--and that's a multiple that demands attention.
Why the rush by businesses to purchase on the internet? Simply put, they are realizing that using the internet allows them to drive down costs.
How much? "Shift purchasing to the web, and a business can eliminate about 90 percent of the cost of a transaction," says Rob Rosenthal, a senior research analyst at technology research firm IDC. "It can be pretty dramatic."
B2B Vs. B2C
There are many small B2B web companies thriving despite the current economy. And there is more good news: Venture capitalists are also more interested in B2B companies than in B2C companies nowadays, says IDC's Rosenthal. "The deals aren't as lucrative as they used to be [before the dotcom bust], but they are getting done in the B2B arena," says Rosenthal. "Companies are looking to invest in dotcoms that are less consumer-oriented and more B2B-focused, such as companies that provide tools for large companies or products for large companies." Why? "Because many VCs got burned investing in B2C companies, and most of the good ideas in the B2C segment are already taken, in my opinion," he says.
In key respects, the bar may be higher in B2B e-commerce than it is in B2C, and the requirements for succeeding likely will be stiffer. "B2B is different from B2C," says John J. Sviokla, a vice chairman of DiamondCluster International Inc., a global management firm that helps companies develop and implement growth strategies. "To succeed in this space, you will need deep domain knowledge." You don't need to know much about farming to successfully peddle peaches to consumers, but to build an exchange for farmers, you have to grasp the fundamental issues in that industry. Lack that, and there will be no trust on the part of your target audience.
Another hitch: B2B involves long selling cycles, and, likely as not, before big deals are nailed down, you'll need to do face-to-face selling. It's one thing to buy a $10 book with a mouse click. It's an entirely different matter to buy $100,000 worth of coffee mugs. "A web site won't close deals for you," stresses eCompanyStore's Geer. "To make B2B deals, often you've still got to put feet on the street."
Some analysts are somewhat suspicious of pure-play B2B e-commerce companies in general (these "pure-plays" are purely online--they don't sell out of storefronts, etc.). "I know there are probably some successful ones out there, but I think that is the minority," says Christopher Dallas-Feeney, a New York-based vice president with management consultancy Booz Allen Hamilton. "I think all businesses need to be able to reach and service their customers in a variety of channels, both online and offline. In my mind, unless they reach out to customers in a variety of channels, they become incomplete solutions for large or middle-market customers."
But not everyone agrees. In general, it's a great time to be in B2B e-commerce if you're a small company, says IDC's Rosenthal. "You can reach buyers all over the country, all over the world, and because of the technology and service available," he says, "it's easier to appear to have the resources to deal with a big company."
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