E-Commerce
Business Plans / Business Models
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
Reasons to Write One
• Convincing yourself
• To obtain capital
• Mergers, Acquisitions, and Strategic
Alliances
• Attract key executive personnel
• Help maintain focus
How to go about it?
• Start asking the right questions
• Provide piecemeal answers
• Don’t try to get it all right – right away!
It’s not going to happen
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
Healtheon Business Plan
Payers
Doctors
Healtheon
Consumers
Providers
How long?
• Full Business Plan
– About 10-40 pages long
– Significant or later stage financing
– Strategic partnerships
What should it contain?
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Cover Page
Table of Contents
Executive Summary
Company
Market Opportunity
Product/Service
Sales and Promotion
Financials
Appendix
Cover Page
• Company’s Name
• Address
• Main Contact (CEO or President)
– Name
– Phone Number
– E-Mail
• Confidentiality Statement
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
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
Market
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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
Product/Service
• Key product/service features and a cost
versus benefits justification
• Delivery issues
• After-sales issues
Sales and Promotion
• Choice of sales channels – analyze
based on cost, relationships with
channel partners, and competitive
pressure
• Motivating the salespeople
• Product/service promotion
Financials
• Income Statement
• Balance Sheet
• Cash Flow Statement
• Also, include a sales forecast explaining
how the sales numbers are obtained.
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
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
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)
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
Making good projections
• Can’t avoid forecasting errors – no
forecast is correct!
• Can avoid technical errors – incomplete
or misleading models!
Spreadsheets help – but cannot replace
basic accounting/finance knowledge.
Relationships
Balance Sheet
Cash Flow Statement
Income Statement
Sales Forecast
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 ways—by 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]
Example: Dell Computers
• Dell has fully integrated its value chain
using Internet technologies
– Daily Web-based sales > $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
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.
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, wellidentified
– Custom-built or customized: designed to customer spec.
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.
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.
The shifting economics of information
– Bandwidth
– Customization
– Interactivity
Richness
• Reach
• Richness
Reach
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,..)
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
• 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.
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
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
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?
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
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?
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
Customer Magnets
• Firms that become customer magnets could
organize themselves around
– a specific product or service (Amazon, Yahoo)
– a particular segment of customers(TripodGenXers)
– an entire industry (Auto-By-Tel, Carpoint)
– a unique business model (online auctions)
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?