Creative entrepreneurship at iconstruye: a pan Andean e-procurement market maker.

Having identified the opportunity, the iconstruye team knew that it had to act fast to develop its ideas into a coherent plan of action, preempting other entrepreneurs who were working on similar concepts. The team considered that the stakes were high, Chile being a relatively small market that would support only a limited number of B2B procurement companies; it was essential to be the first to provide a successful business model.

Brainstorming around German's idea, the group identified the need to be associated with the most influential members of the construction establishment. In Chile, influence and power in the construction industry historically had centered upon the CChC. "We knew that without the support of this institution, the idea would not happen. Having their backing would make success just more probable," recalled Correa.

Errazuriz, who was self-employed, decided to focus his efforts exclusively on performing research, meeting with interested parties, including the Chamber, and drafting the business plan itself. The other two founders remained in full-time employment, but after work, attended late-night meetings at the Chamber, refined the online procurement model, and worked with Errazuriz on the business plan (see Table 2 for the founders' biographies).

Partnering with the CChC

The team at iconstruye was not alone in understanding the influence of the CChC. During the 2 months it took to complete the first draft of the business plan, six other groups with B2B internet site plans came forth to compete for the Chamber's support. Overwhelmed with meetings, the Chamber decided to identify a single company to support; it issued a request for proposals and a set a deadline. The challenge to become the electronic procurement portal officially backed by the Chamber provided the iconstruye founders with a goal upon which to focus their efforts. The 1 -month deadline imposed by the Chamber for submission of a proposal forced the iconstruye team to hone its ideas quickly and to refine its model in order to make an effective presentation of its business plan.

The Chamber hired an investment bank to perform due diligence and negotiate stock options with each of the competitors, probing for weaknesses. The bank recommended two teams to go forward and make formal presentations. Correa reflected:

Finally, the Chamber decided that we had the best idea and team; 1

think that the winning aspect was the team itself. I think the

Chamber realized that it was going to be a tough project that will

change everyday. At the time the groups made their presentations,

none of them knew exactly how to create a successful e-procurement

portal, because, even in the United States or in Europe, there was

not a good example of a successful plan in this area. When the

Chamber realized the difficulties involved in the creation of an

online business-to-business commerce site and the fact that the

Chamber did not know where the project was going to end, it decided

it needed the right team in place, a team that could adapt to

change, make the right decisions and find the track, so in addition

to the negotiation process and interviews, the Chamber took our

resumes into account.

Having won the official backing of the Chamber, Errazuriz and Bartel left their jobs and officially started work full time for iconstruye.com in December of 2000, just 6 months after the team had started its planning. Correa had reflected at the time: "Since there is money to be made in perfecting this market, the Chamber feels we could find a way to make it more profitable"

Building the Business

The Initial Business Model

The founders knew that their business plan was just a conceptual strategy and that the building of a successful B2B model that would work in Chile would require a creative solution. The team based its first model upon creating a website to match buyers and suppliers, be they in Anica, Santiago, or Punta Arenas. Having examined a variety of software tools through which they could develop their product, the team at iconstruye decided upon a U.S. vendor who had an excellent reputation for supplier relationship management software. The group was conscious, however, of its financial resources and understood that it needed to maintain a low level of expenditure. The team felt that the outfight purchase of a new software tool at this stage in their growth would be a disastrous mistake should the tool ultimately not match the requirements of the development team and therefore decided to rent access to the software for 2 years from another company. Having identified the software tool, the iconstruye team started to implement a business model based upon charging buyers a low monthly fee (approximately $40) for using the system and charging the suppliers 1.5% of gross margin as a transaction fee. After 8 months of working with the rented software, the implementation was complete. Buyers and suppliers started to sign up and transact.

The Partnership Model

Having studied the failures of the North American B2B software vendors, Correa understood that two factors would play a significant part in the success or failure of iconstruye's revised business model. First, the iconstruye model needed to incorporate significant ownership and involvement by the largest buyers and suppliers in the construction industry, and, second, the iconstruye model would need to add value for the entire participant base by sharing the rewards and returns from the venture with investors and customers.

The team at iconstruye understood the powerful influence of the Chamber and its members in the Chilean construction industry. As a consequence, in January 2001, just 1 month after starting the company, the iconstruye team met with the Chamber and proposed that the associates of the Chamber be given the opportunity to invest in and become part-owners of iconstruye. The iconstruye team knew that the strength of its system was to foster and reinforce relationships between entities, rather than trying to change, threaten, or destroy them. Correa explained:

In this way, these associates will have an incentive to become our

future clients and drive business through the site. We undertook a

series of presentations to potential investors and sold 29% of the

company to those associates who wanted to invest in us. In all 56

companies decided to invest. Today we have 60 shareholders, the

Chilean Chamber has a 60% stake, the 57 other shareholders own 29%,

and the three founders own the remaining 11%. We have a call option

to buy 19% back from the Chilean Chamber, so we could have 30%, and

the Chilean Chamber would have 41%. Those should be the final

numbers but, of course, we have to be able to buy those shares and

it will cost a lot of money; that's one of our challenges.

The Pilot Year

During 2001-2002, iconstruye's first operational year, the team's association with the Chilean Chamber proved extremely valuable. The Chamber acted as a stabilizing influence on the company while the iconstruye team identified market dynamics and trends. The software license iconstruye had initially issued to its customers soon started to show its limitations in relation to the traditional intercorporate and intracorporate procurement processes used in Chile. Historically, Chile had undergone periods of high inflation resulting in little use of catalogues that listed products together with prices. Similarly, long-term contracts were also rare. This uncertainty had resulted in a culture that primarily used request for quotes (RFQs) followed by a negotiation to set the final price. Unfortunately, the software iconstruye had licensed was based upon a North American catalogue structure that listed products and prices. This was a style of pricing and procurement practice that iconstruye knew did not fit comfortably into the existing processes and practices of the customers iconstruye was targeting. As Correa recalled, "it was very expensive and frustrating to have software that was not offering the functions that our clients were asking for and to not have the internal code so we could fix it ourselves." The team recognized that the system it had licensed would not be adequate for the RFQ-negotiation procurement model used in Chile and other Latin American countries. The team knew it had to build its own system and that the backing of the Chamber, the member companies, the shareholders, and the board of advisors would permit them time to work through the issues.

Refining the Business Model

Correa and the team were working 100-hour weeks in order to capture as large a market share as possible, as quickly as possible. The most dangerous potential competitor to iconstruye was thought not to be another start-up, but rather the threat of the large construction firms collectively creating their own system, or the threat of a powerfully placed individual firm building a system. It was feared that through sheer size, one of the companies could cause the industry to converge upon some other procurement model. The team at iconstruye understood that it had to demonstrate the adoption of the system by a significant percentage of the industry's members, including the largest companies in the industry, in order to build adoption momentum in smaller companies.