e-Biz Revisited

The Internet is responsible for some of the most spectacular failures in business history. What will make you different?
Magazine Contributor
11 min read

This story appears in the November 2002 issue of Entrepreneur. Subscribe »

Ah, those were the days: IPOs, "e" and "i" everything, Superbowl ads, Pets.com, eager VCs and aeron chairs. But enough reminiscing. It wasn't that great anyway. Now that most of us have caught our breath after the dotcom free fall, it's time to get ourselves together and figure out how to move forward and make e-business work.

Rob Powell is a one-man band. The founder, owner and manager of EngineerSupply.com steered his engineering equipment site through the storm, all the while maintaining a full-time engineering job. E-tailing has been one of the most maligned victims of anti-dotcom sentiment, but Powell, 31, shows it can be done smartly and profitably.

Powell's first good move was registering the EngineerSupply.com domain name in 1999 in Christiansburg, Virginia. He had heard and read about the online boom and was excited to secure a site of his own. Six months later, the site was launched as a purely informational resource that became popular with engineers. As Powell got up to speed on the vagaries of e-commerce over the next two years, he slowly weaned the site off information and built a retail outlet in its place.

While his site was evolving, e-business as a whole was choking. The dotbomb list was sobering for Powell to read, but he had one definite comfort: profitability. He's willing to share his secret to thriving in e-tail: "my small amount of overhead." Drop-shipping products straight from the factory and backing it all up with fastidious customer service kept revenues rolling. If this sounds familiar, it's because we've been hearing about it in the offline business world since before the Internet was a gleam on Tim Berners-Lee's monitor.

"It's never too late to tweak your business model, but it's a bit harder to really pin down what makes a smart e-business model."

What's the best news? The worst is probably over. Heather Petersen and Lauren Wang had their own doomed dotcom once. After the crash, they took their hard-earned expertise and started Handl Consulting, a technology business consulting firm in San Francisco. "The way people talk has changed," says Petersen. "What they're focused on has changed. It's come full circle in some ways. Hopefully, we're going to be back on some kind of an upswing."

At a time when most e-businesses can't get the time of day from venture capitalists, DataCert, a Web-based e-billing company in Houston, has just rounded up $11 million in funding. With 61 employees and profitability just around the corner, CEO, president and founder Eric M. Elfman must be doing something right. For Elfman, 39, the answer is simple. "Smart business models still get funded," he says.

It's never too late to tweak your business model, but it's a bit harder to really pin down what makes a smart e-business model. The dotcom shakeout helped by imposing the survival-of-the-fittest rule. Keys to DataCert's strong showing are focus, more focus and a dose of forced luck. DataCert narrowed in on legal e-billing, specializing in working with Fortune 500 companies. Smart move. That's definitely a solid marketplace. A carefully planned move into health-care e-billing next year will help propel them forward. Know your target market, keep it specific, and make sure it is actually worth mining.

Limited capital in the early years of DataCert kept them from being swept away in the waves of hype circa 1998 and 1999. "To us, it was always about the customers and revenues and dollars coming in the door, and not about eyeballs and stickiness," Elfman says. "This bootstrap mentality, even though it was forced on us, was good in the long run." Bootstrapping is once again the name of the game. Accept it as a challenge that will help keep your e-business lean and competitive.

By Design

A potential customer arrives at your web site. Quick, you've got less than 15 seconds to impress him or her. With surfers getting savvier, it's more important than ever for Web design to walk the thin line between basic HTML and frustrating visitors with too much Flash. Powell keeps EngineerSupply.com slim and attractive with a clean layout and clear graphics. That approach works great for his customers: engineers and their businesses.

Sometimes, your type of e-business site might call for more vim. Like crushing aspirin in honey, a bit of sweetness makes the data go down easier. Jori Clarke has seen and helped build her share of Web sites. The founder, president and CEO of e-marketing and research company SpectraCom in Milwaukee recommends a simple graphical approach with layered content mixed with rich media where appropriate. "People enjoy streaming content if it's worth the wait," she says. Always be sensitive to the dial-up surfers, but don't neglect the entertainment factor.

One rule of thumb that Clarke suggests, especially for consumer-oriented e-businesses, is to design for the inner (and outer) child. Not only are kids the customers of the future, but also a surprising amount handle online product research duties for their parents. "If it's easy for kids," says Clarke, "it's going to be easy for adults-and it's the easy one to use that's going to be the winner."

Getting Resourceful


Seek and you shall find many Web sites that can help in your quest to better your e-business. If it's any indication that things are looking up, dotbomb-tracking sites like TheCompost.com, DotComFailures.com or DotCom Scoop have either ceased operations or scaled back significantly.

Understanding the Web world around you is critical to your e-business success. To keep a handle on hard facts, visit CyberAtlas. This collection of market research covers demographics and geographics with sections devoted to specific market areas. WhatIs is a quick stopover for technology definitions. If you need to brush up on what "arachnotaxis" means, this site is for you.

Some other sites you might want to keep on your radar include the World Wide Web Chamber of Commerce and the SBA-sponsored U.S. Business Advisor. The Business Advisor features e-services information and resources with handy outside links that cover different aspects of business on the Web. And in case you were wondering, according to WhatIs, "Arachnotaxis is the use of a table or structured list of URLs for Web sites (or words that hyperlink to Web sites) to help locate them."

Trends to Watch

Online advertising may have sunk down to basement level, but marketing is still an essential part of growing your e-business. Banner ads are certainly abundant and cheaper than ever before. However, they're an amorphous proposition for a growing e-business with a tight budget. Getting results is all about good targeting, and banner ads can be iffy unless they're run on tightly relevant Web sites.

Powell has made use of several low-cost marketing tools that can be effective for many types of e-businesses. The first is a newsletter with product offering updates that he sends to an extensive opt-in e-mail list, much of which signed up when EngineerSupply.com was just an informational site. An affiliate program rewards other engineering sites for sending sales his way. He had 50 affiliates signed up after one month, a dozen of which are high-traffic engineering portals. "I haven't done much of the marketing where you just take a shot in the dark," he says. "Most of it's pay-for-performance. It's the only way when you don't have any capital."

Clarke is excited about games--advergaming to be specific. It's not everybody's cup of cybertea, but a craftily designed online game can hold customers' attention while helping your company establish branding. Interactivity is the key element.

As a tightly focused B2B service provider, DataCert doesn't have much need for regular forms of advertising. They haven't ventured into advergaming, but they have found a marketing winner in the offline world. Academic-style e-billing seminars done in conjunction with professional services powerhouse Ernst & Young have been "hugely successful," says Elfman. Web seminars conducted solely online can also draw in leads. Just be sure to take an informational, rather than an infomercial, approach.

Everything from security issues to Internet company failures has taken a toll on the psyches of online customers. To counteract this credibility incredulity, Petersen says, "smaller companies can associate themselves with brand names and have partnerships with established players. That may attract customers because they want to see that you're in it for the long term." The term ROI is being enthusiastically bandied about. That goes not just for your own ROI, but the ROI proposition you offer customers. "Let them know how their investment in you helps them save money or grow their business, because everybody is looking at the bottom line these days," she continues.

It's hard to imagine the words "buzz" and "Internet" going together again without causing nausea. But that's how many analysts are looking at the growing area of Web services. There is legitimate reason. Essentially, Web services are parked on servers that make them accessible from any Internet-access device. A rudimentary example is booking a flight from a cell phone, PDA or computer. Possible applications range from subscription-based consumer services to e-business-enabling services.

For entrepreneurs specializing in building new technology, the market for Web service software and development looks attractive. Heavy-hitters like Microsoft already offer tools, but the area is fresh enough to make room for agile entrepreneurs with strong imaginations. Visit the Web Services Interoperability Consortium at www.ws-i.org to keep up on what's moving and shaking.

According to Petersen, other hot areas to keep an eye on are biotechnology, wireless, storage infrastructure, network security and health care. "E-business to a large extent mirrors what's going on in the economy at large," she says. She also points to international markets as major growth points. Opening your e-business up to overseas sales can be a giant step. Check into international commerce laws and the cost of making your Web site accessible across languages and cultures before you leap.

What we think of as "e-business" is set to expand in the future. After all, the "e" stands for "electronic," not just "Web" or "Internet." Clarke sees wireless playing a big role: "We've been chomping at the bit. It's probably about two years before the U.S. is wired in a way that makes sense and brings costs down." She suggests that wireless e-business entrepreneurs can cast their net for global opportunities until the United States catches up.

Nobody is expecting an e-business resurgence on par with the original rush, and that's a good thing. "E-business is not its own separate category-I think that's been proven," says Petersen. "It's not immune to the laws of business in general. However, the pace of the Internet is different. The customers are becoming more and more like mainstream customers." Entrepreneurs are adapting and playing to the strengths of the Web to help their e-businesses move forward out of the remnants of the storm.

Whether you're an EngineerSupply.com, a DataCert or something else entirely, you can lay a solid foundation on the shifting sands of the Web and grow from there. Consider these parting shots. As Clarke sums it up: "E-business is about business basics done in a digital manner."

And according to Petersen, "If you can cut through the hype, there's growth there. There's potential there. More so than almost any industry." You've already got your feet wet. Now go ahead and dive in.

Let Me See That


  • Shop.org, an association of online retailers, says that 56 percent of online retailers reported profitable operations in 2001. That surprisingly high figure shows that many e-tailers made it through on the strength of a profitable business model.
  • Jupiter Media Metrix reports that two-thirds of U.S. consumers will not pay for any services on the Internet. This should make entrepreneurs think twice about relying on consumer services for revenues. Business services has proved to be a healthier area.
  • Web-native ASP services in the United States will attract $1.5 billion in spending in 2006, up from just $200 million in 2001, according to IDC. This could be a strong growth area for online entrepreneurs.
  • According to Forrester Research, 67 percent of European consumers will be online by 2006. International markets will offer opportunities for e-businesses that make the effort to reach out.

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