E-Commerce Business Plans / Business Models

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E-Commerce Business Plans / Business Models
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Business Plan

• A document that describes how a firm will make a
  profit selling its products or services
• A selling document that should convey the
  excitement and promise to potential investors

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Reasons to Write One

• Convincing yourself
• To obtain capital
• Mergers, Acquisitions, and Strategic Alliances
• Attract key executive personnel
• Help maintain focus

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How to go about it?

• Start asking the right questions
• Provide piecemeal answers
• Dont try to get it all right right away! Its
  not going to happen

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How long?

• Summary Business Plans
• About 10 pages
• An extended executive summary
• Appropriate for a start-up
• Seeking seed capital
• To gauge investor interest
• Well known founders

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Healtheon Business Plan
Payers
Doctors
Healtheon
Providers
Consumers
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How long?

• Full Business Plan
• About 10-40 pages long
• Significant or later stage financing
• Strategic partnerships

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What should it contain?

• Cover Page
• Table of Contents
• Executive Summary
• Company
• Market Opportunity
• Product/Service
• Sales and Promotion
• Financials
• Appendix

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Cover Page

• Companys Name
• Address
• Main Contact (CEO or President)
• Name
• Phone Number
• E-Mail
• Confidentiality Statement

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Executive Summary

• Should give the reader a clear understanding of
  what you are up to
• Miniature version of the complete plan
• Keep it short (2 to 3 pages max)
• Attempt a draft before you write the rest of the
  plan it will expose weaknesses

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Company

• Mission and Strategy
• Past, Present, and Future
• People and Management
• directly relevant experience to the opportunity
  being pursued
• Skills and abilities, motivations and commitment

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Market

• Who are the buyers? Examples?
• Quantify the benefits
• Other measures convenience, etc.
• Pain-killer or vitamin?
• Growing or shrinking market?
• Objective analysis of competition
• Pricing strategy and its rationale

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Product/Service

• Key product/service features and a cost versus
  benefits justification
• Delivery issues
• After-sales issues

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Sales and Promotion

• Choice of sales channels analyze based on cost,
  relationships with channel partners, and
  competitive pressure
• Motivating the salespeople
• Product/service promotion

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Financials

• Income Statement
• Balance Sheet
• Cash Flow Statement
• Also, include a sales forecast explaining how the
  sales numbers are obtained.

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Cash Flow Statement

• Happiness is positive cash flow
• a record of cash available at different points in
  time
• It shows not only how much you might need but
  also when you will need
• Usually monitored monthly
• Cash on hand at beg. of month receipts actual
  disbursements Cash on hand at end of month

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Income Statement

• Revenues direct labors and materials gross
  profit or loss (GP)
• GP/Revenues Gross margins (can be compared
  across industry)
• GP indirect expenses pretax net profit or
  loss (PTP)
• Net income PTP - Taxes

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Balance Sheet

• A measure of business health
• Lists assets and liabilities
• Assets include current (cash and accounts
  receivable) and fixed (furniture and computers)
• Liabilities include current (accounts payable)
  and long-term (investor owned equity)

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Questions to ask

• How much will you need to maintain a positive
  cash flow?
• When will you need it?
• What form (debt,equity, or both) should it be?
• Need integrated financial statements

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Making good projections

• Cant avoid forecasting errors no forecast is
  correct!
• Can avoid technical errors incomplete or
  misleading models!
• Spreadsheets help but cannot replace basic
  accounting/finance knowledge.

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Relationships
Balance Sheet
Cash Flow Statement
Income Statement
Sales Forecast
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E-commerce What is it?

• Electronic commerce is a means of conducting
  transactions that, prior to the evolution of the
  Internet as a business tool in 1995, would have
  been completed in more traditional waysby
  telephone, mail, facsimile, proprietary
  electronic data interchange systems, or
  face-to-face contact Digital Economy II
• the ability to buy, sell, and advertise goods and
  services to customers and consumers W3C

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Example Dell Computers

• Dell has fully integrated its value chain using
  Internet technologies
• Daily Web-based sales gt 15m in 1999
• Customer orders are relayed to suppliers via
  corporate extranet
• Components arrive at factory JIT complete
  computer shipped out in hours
• Customers can track order over Website

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EC to e-business

• Electronic commerce denotes the seamless
  application of information and communication
  technology from its point of origin to its end
  point along the entire value chain of business
  processes conducted electronically and designed
  to enable the accomplishment of a business goal.

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Terminology

• Goods vs. services
• Good physical item which is delivered
• Service an act which is performed
• Digital vs. physical items
• Digital items all transactions are done
  electronically
• Physical items involve logistical activities
  such as transportation
• Degree of commoditization of products
• Standard/commodity available in large
  quantities, well-identified
• Custom-built or customized designed to customer
  spec.

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What is a business model?

• A business model is a representation of the
  activities of a business
• It describes what the business is about and how
  it will work
• It defines the competitive position of the
  business by identifying its value drivers
• It defines the structure of the business - as in
  its relationship to its customers, suppliers, etc.

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Internet Opportunities

• Companies can establish direct links to customers
  (and suppliers) to complete transactions more
  easily
• They can bypass others in the value chain
• They can develop and deliver new products and
  services to new customers
• They can become the dominant player in the
  electronic channel of a specific industry or
  segment.

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The shifting economics of information

• Reach
• Richness
• Bandwidth
• Customization
• Interactivity

Richness
Reach
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Establishing the Internet Channel

• Provide (at least) the same level of service that
  they can get directly from a salesperson
• Personalize the interaction so that customers see
  only what they want
• Provide new services inexpensively (customer
  reviews, FAQs,..)

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Features of the Internet Channel

• Could minimize or eliminate traditional sales,
  marketing, and service costs
• Allows increasingly higher levels of service
  without incremental costs
• First movers have the advantage of establishing
  relationships that make it hard for followers to
  woo them away
• Firms may be forced to participate by their
  competitors and customers

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• It costs a lot more to get a new customer than to
  retain an existing customer
• It helps to understand your customer needs and
  preferences
• Direct interaction with customers not only
  reduces your costs but also helps you understand
  your customers
• This is easier to do for start-ups without
  existing value chains a lot more difficult for
  established companies.

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Questions to ask

• How much would it cost to provide services that
  customers could get themselves online?
• How can individual customer information be used
  to personalize service?
• What help can customers be given by using the
  experience of other customers and the expertise
  of employees?
• Will it be a significant disadvantage if
  competitors are first to provide these services

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Pirating the Value Chain

• It is possible for a participant in the value
  chain to usurp the role of any other participant
• Examples publishers could bypass distributors
  and sell directly to readers Amazon could decide
  to publish books of its own
• Such pirates are in a position to define new
  business rules and introduce new business models

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Questions to ask

• Can significant gains be realized by
  consolidating parts of the value chain?
• Can significant value be created for customers by
  reducing the number of entities they have to deal
  with in the value chain?
• What additional skills and capabilties would be
  required?
• First mover advantages?

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Digital Value Creation

• The internet channel can also serve as a platform
  for innovation (new products and services without
  incurring traditional costs)
• Creating services for new customer segments
• Customer information can be used to up-sell and
  cross-sell

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Questions to ask

• Can additional information or transactions
  services be offered to existing customers?
• Can the needs of new customer segments be
  addressed by repackaging current assets?
• Can new sources of revenue be generated such as
  advertising or sales of complementary products?
• First mover advantages?

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Becoming the dominant player

• Firms can become category destinations (on-line
  versions of category killer stores such as Toys R
  Us)
• Factors that make this possible are
• physical distance is largely irrelevant
• growth is not cost prohibitive as it usually is
  in the physical world
• services can be differentiated for multiple
  customer segments

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Customer Magnets

• Firms that become customer magnets could organize
  themselves around
• a specific product or service (Amazon, Yahoo)
• a particular segment of customers(Tripod-
  GenXers)
• an entire industry (Auto-By-Tel, Carpoint)
• a unique business model (online auctions)

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Questions to ask

• Can the industry be divided into logical product,
  customer, or business-model segments that could
  evolve into customer magnets?
• What services could an industry magnet offer that
  would make it efficient for customers to select
  and purchase products or services?
• What partnerships or allainces would be needed to
  establish a critical mass?
• First mover advantage?