A Complete View of Costs Associated with Starting an e-Business Enabled Company
 

Startup expenditures

Even though ABC is a successful brick and mortar business in its own right, there are many expenses associated with starting an e-commerce division of a company. For instance, there are development costs involved. ABC wants to offer its users a unique and industry-leading searching mechanism for finding cogs based on several criteria. This will require development time and money. Further, the graphical layout for the new site will have to be determined. This will primarily be done in house, but a portion of the finished style sheets will be imagined and created by an outside graphic artist. This will require an expenditure. 

A minimal, but necessary, charge will be incurred to obtain a domain registration for the new company division. This project will require time from the marketing manager, e-commerce manager, graphics artist, programming, IT and accounting departments. The time involvement from these individuals is an incurred soft cost. Also, equipment must be purchased in order to service users in an efficient and secure manner. A middle-ware server must be bought and put in place so that credit card numbers are not floating around on the Net. This middle-ware server will also act as a liaison between the e-commerce site and the back-end inventory and financial systems. ABC will also require an additional router, a new hosting provider, and more programmed jobs to run security backups of information. 

These are the starting expenditures that must be considered in a financial plan. Next time we will discuss the operating expenditures.

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It is estimated that only 25 percent of companies incorporate predictive metrics in their plans. This means that 75 percent of decision-making is based on lagging indicators. This is a sobering statistic when it comes to financial planning. A financial plan needs to incorporate past figures and expected future results. Without both, considerations regarding future expenditures, profits and goals cannot be met. With this being said, the first thing that a company should do when creating a financial plan is to think ahead in a strategic way. That is to say, one must look at costs in an encompassing way. That is to say, one should consider startup expenses, operating expenses, cost-reduction techniques and budgeting. Let us begin with startup expenses. This should also be considered the beginning of a draft outline in regard to a financial plan for ABC Co.  Next time we will talk about the costs associated with starting an e-business enabled company.

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Improving profitability

Now that ABC has a plan to collect and join its data into a company-wide knowledge management (KM) system, it must begin answering the all-important question regarding improving profitability. Improved profitability can be achieved by utilizing the tools of the KM system. ABC can use the personal data of its customers to form a general description of its customer base. It can look at the products and services bought by the customer to answer questions regarding marketing and promotions. It can look at the internal notes on issues, complaints and resolutions to determine the best course of action when problems arise.

ABC can also improve its profitability by acting on the answers to its external environmental questions. It can improve its technologies to stay ahead of the competition. It can also utilize the technology and industry information to increase barriers to entry and effectively hold off competition for an extended period on time. The longer ABC can keep competition away from its customers, the longer it has to develop stronger relationships through increased customer service and to build up the customer’s loyalty to the company. Increased customer service and increased loyalty by the customer is a powerful barrier to entry in and of itself.

ABC can also act off the knowledge gained regarding its distributors and supplier’s power in the distribution chain. ABC can work to integrate systems and build stronger, mutually agreeable relationships with strategic alliances in order to minimize their power and increase ABC’s power in the chain. Because of the trends that can be seen from a KM system, ABC should be in a position to make educated guesses regarding its supplies and product substitutions. ABC should make it clear to its suppliers that if they cannot meet the demands of ABC’s customer to get the products delivered in a timely manner, ABC will seek out a comparable substitute from another supplier. The answers gained from the KM system will allow ABC to plan, create and implement an effective operations plan. An effective operations plan is only effective if there is also an effective financial plan. The financial plan of an organization takes into account many aspects of the business including viability, predictive accounting, operational costs and future goals, to name just a few.

In order to take a brick and mortar business and transfer its products and services online, the most important aspect to consider is the financial viability of the project. Just because a company is successful off-line does not necessarily mean that it will be a successful company on-line. Companies must live by the same business rules that traditional brick and mortar business live by. That is to say, once a traditional company expects more capital, then it should spend more money. This ‘traditional’ way of thinking, was not the direction that many early Internet retailers took. When one company, eToys, saw trouble ahead, and should have been looking to cut expenses, it still spent tremendous amounts of money on advertising.    This example is used quite often in the e-business arena to underscore the fact that a company cannot continue to show losses quarter after quarter and expect to stay in business. A solid financial plan is the first step a company must take before it takes the plunge into e-business.

Staying on this topic, we will next discuss how predictive accounting plays a major role in e-business success.

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Customer Data Integration

ABC wishes to create an enterprise resource planning (ERP) management system that will support and coincide with its business objectives.  In order to accomplish this, it must ask crucial questions that demand factual and documented answers.  These types of answers will provide managers with tools they need to assess their distant and direct partners.  The two most important sets of data for an ERP system are customer and external environment data.

The goals of customer data collection are to create a single, accurate and complete view of the customer, and to utilize that intelligence through each customer interaction at every touch point enterprise-wide.  The types of data that need to be collected on the customer should be found in either the customer relationship management (CRM) system or in the backend details of ABC’s financial and accounting system.  When the information in these two systems is combined, the ERP infrastructure is in place to begin answering the critical questions of the operational agenda.  The data that needs to be collected on the customer are listed below:

• Personal data
• Products and services bought
• Billing data
• Company-wide services being ordered on a growing basis
• Inside notes on issues, complaints and resolutions

Once this customer data integration (CDI) is entered into a single database that is then used to answer the pertinent business objective questions on a company-wide basis, ABC’s ERP system is the ending result.  However, ABC still lacks the information that a complete knowledge management (KM) system can provide.  In order to accomplish its KM goals, ABC must answer certain questions with regard to its external environment.

A company’s external environment can be broken down into three segments:  1.  The surrounding environment consisting of economic, social, political, technological and ecological issues; 2. the market environment consisting of entry barriers, supplier power, buyer power, substitute availability and competitive rivalry; and 3. the operating environment consisting of competitors, creditors, customers, labor and supplies.  Each one of these segments must be thoroughly investigated and questions must be answered for all of these areas in regard to ABC’s operational goals.  Once the company is educated on the external environment, this information can be combined with the CDI and ERP data to create the KM system.  This KM system will provide ABC with a 360° view of its customer and external environment.  Now ABC can begin focusing on profitability.

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These are fundamental questions that ABC must be able to answer in order to gage the effectiveness of its campaigns. It must know its customers’ ‘hot buttons’ in order to offer problem-solving solutions and advertise these solutions-based services to future customers. ABC could also look towards web analytical software to refine its marketing efforts and to help it determine future trends. The key to success is to not just gather and segment data but to use it to better understand customers. Once potential customers can be contacted and converted into true customers the next challenge is to ask the critical questions that will ultimately lead to a successful implementation of a company-wide e-business program.

Let us now examine the critical strategic questions that ABC Company must ask and answer to successfully implement its e-business operations. The focus will be on three main objectives: Data collection, joining information and improving profitability. Each one of these objectives will require a number of answers to a number of questions.   However, all of the answers shall be used for one purpose: to provide the management of ABC with the tools they need to assess their distant partners, or customers, and their direct partners, or distributors and suppliers.  These tools consist of INFORMATION.

Branding and Positioning

Pay-per-click advertisements on major search engines, direct mail and e-mail campaigns, trade journal advertisements, or e-newsletters to customers and targeted potential customers would be a way for ABC to create a powerful brand awareness campaign, while positioning itself in key areas where potential customers are most likely to find it and become a qualified lead. Next, ABC must look at its internal realties. That is to say, it must ask itself key fundamental questions regarding the way it does business internally and what connections it must make on the outside to secure competitive advantages in the future.

Internal Realities

ABC must answer many questions about its internal realities. It must answer how it plans to integrate Internet leads into its CRM program. It must also answer how it plans on tracking these leads into profits once they are entered into the back-office accounting system. Some companies combine the two systems into what is known as an ERP or enterprise resource planning system. Some companies take it a step further and add trends analysis information and other information into one central database called a knowledge management system.

Sizing Up the Competition

ABC must answer what it means to be a customer-focused company. It must answer questions regarding product pricing, placement, inventory, distribution, competition analysis and ethical concerns such as security and privacy issues. One point to keep in mind when studying the competition is to pay close attention to how the competitor structures its products and services while analyzing the following areas of the competition:

• Technical
• Sales
• Distribution
• Manufacturing
• Marketing
• Financial
• Legal

This information should be used to plan for the future with ones' competition in mind. Relationship analysis effectively drives more intelligence into strategic decision making, which will give one’s company a competitive edge. Understanding how one’s competitors relate to and work with other organizations provides a more accurate picture of one’s competitive landscape. Finally, ABC needs to measure the effectiveness of its efforts and answer whether or not it accomplished its strategic goals.

ABC believes it can accomplish these strategic goals by advertising in horizontally integrated e-marketplaces and by optimizing its website for content and backward linkage to increase its web page ranking and popularity with the major search engines.   ABC must answer which marketplaces will drive its target market to its website. Business-to-Business marketplaces like ThomasNet, Global Spec, Vert-Markets and similar horizontally integrated e-marketplaces could offer relevant lead generation for ABC. ABC must also answer the question of which advertising methods would offer the best brand awareness opportunities for the company. 

ABC could look towards various brokerage models when determining the appropriate marketing mix. Brokerage models are used to bring buyers and sellers together in an effort to establish business connections between them in order to form a mutually agreeable transaction. One example of a brokerage model is a search agent. Search agents attempt to take the user’s query, or criteria, for a specific good or service and find the best provider or best price for the user. Examples of brokerage models are, as mentioned above, e-marketplaces. E-marketplaces have many companies that advertise on their sites. When the user enters their criteria, the system selects the best company to fulfill the needs of the user. 

Another example of a brokerage model is the auction broker. Auction brokers do not get involved in the transaction, they simply take a percentage of the sales commission or require a small listing fee to list products or services on it site. An example of an auction broker would be E-bay. E-bay has a section of its website dedicated to the small business. ABC could look here in an attempt to procure auction brokerage business while getting rid of excess inventory.

A further example of a brokerage model business is the distributor. Distributor sites serve as an online catalog and lead generating tool for their advertisers. An example of a B2B online distributor would be ThomasNet’s online catalog of industrial manufacturers and distributors. ABC must also question how it wants to create brand awareness throughout the industry.

In the next post, we will discuss branding and positioning for our fictional company.

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