Keyes: Handbook of E-Business
The e-business planning process is similar to any business planning process, with the exception of its emphasis on the Web. Presented here is an overview of the development of a business plan for a typical e-business. Whether the e-business is a separate entity or a division or subsidiary of a larger company, the e-business plan is developed in the same way. The reasons for this are simple: (1) there is a standard format for a business plan, and (2) the e-business should always be thought of as a separate entity regardless of its status within the organization.
An e-business plan is much the same as any business plan, where the business concept, its financials, aspirations, markets and goals are tightly summarized in thirty to fifty pages.
The e-business plan has two audiences. The first, and perhaps most important, is the management and staff. These are the people who are charged with realizing the concept behind the e-business dream. It is surprising how many dot.com companies flounder because they took the short route and hastily threw together a business plan on the backs of Post-its and cocktail napkins. Think of the business plan as the road map to success. Although writing one doesn't actually guarantee success, having one will most certainly prevent an untimely failure.
The second e-business plan audience is the management committee, corporate board, and outside investors. If the audience is the outside investor, then it is important that the e-business plan be even more carefully written. Unless you or your company has personal connections to an investment house, your e-business plan might change hands many times before it comes to rest on the appropriate desk. In point of fact, because oftentimes you just will not be there when the plan is being reviewed, how you write your plan can make or break you in terms of getting funded. So be succinct, detailed, and, above all, interesting.
Like all business plans, the e-business plan is composed of several sections:
As a guide for the creation of your own e-business plan, these ten components of the plan are explained here.
The idea of a one- or two-page executive summary should be no stranger. The goal of the executive summary is just that – to summarize. It is sometimes the only thing the outside investor will read and it is always the single document the CEO and management board will rely on to provide an understanding of an e-business model.
Executive summaries can take many forms. The two most popular are (1) the multiparagraph, free-form description that informally summarizes, in less than two pages, the entire business plan; and (2) the more structured, formal executive summary.
An informal executive summary is used to make your case for what you want to do, then describe what it is you are going to do, and then finally present the costs and revenues of your scheme. is a typical informal executive summary. Notice the liberal use of market data. If you are going to persuade outside investors and management that yours is a worthy cause, then you have to back it up somehow. While you certainly can perform your own market studies and include this in your e-business plan, there's nothing more reassuring to those reading the plan than corroborating statistics from a reputable research organization.
Informal Executive Summary
In 1998 Company A developed Product A, a software product that generates Web-based tests. In 1999, Company A launched Product A.com, a Web-based centralized Internet site for outsourcing employee and prospective testing.
We firmly believe that there is a vast opportunity to profit from the convergence of Web-based technologies and companies' increasingly complex recruitment requirements. This business plan will discuss the attributes of the Web-based testing model as well as its long-term growth potential and profitability.
According to International Data, Internet-based business is booming, with sales expected to grow from $50 billion in 1998 to $1.3 trillion in 2003. The most profitable sector, according to analysts, will be the business-to-business sector. A.com is just such a business-to-business e-business. Our potential customer is every organization in America – and the world – that needs to hire qualified employees.
According to the 1999 American Management Association's Corporate Concerns Survey of 5,432 respondents (out of a total AMA base of 10,000 members), organizations find it difficult to recruit skilled personnel: "Skilled managers, professionals, and technicians are in increasingly short supply. Finding and affording skilled professionals and technicians has been an organizational worry since our initial survey in 1996, but more recently labor shortages have expanded into the ranks of skilled hourly wage-earners and even those disappearing figures of the downsizing era, the middle manager and the supervisor."
According to AMA's 1998 survey entitled "Job Skill Testing and Psychological Measurement," 64.8 percent of responding organizations engaged in applicant testing. According to a February 1998 article in HR Magazine, the periodical of the Human Resources organization, computer-assisted interviewing and testing tactics can save organizations millions of dollars a year: "A major clothing manufacturer used computer-assisted interviewing to conduct the first round of interviews and screen out inappropriate applicants. The company saved $2.4 million during a three-year period by reducing turnover from 87 to 51 percent."
Figure D8-1 continued.
Informal Executive Summary
At the same time, employee-related litigation has skyrocketed – and the associated costs as well. According to the book The Excuse Factory, by Walter Olson, "the cost of simply bringing a case to trial is likely to exceed $100,000." Olson cites one widely referenced survey showing that median awards in sex- and handicap-discrimination cases amounted to $100,000, and age-discrimination cases, $200,000. Further, a 1988 survey indicated that awards for sexual harassment and defamation averaged $375,000. With this in mind, the author of the 1988 survey concludes that employers are generally finding it hazardous to hire, fire, or promote employees.
A.com has been designed to provide a neutral, impartial method of evaluating prospective employees using the Web for test deployment and delivery.
We believe that with a proper marketing and sales budget, A.com can become the premier site on the Web for employee testing and recruitment. Significant revenues can be generated from selling testing over the Internet as well as from job recruitment and advertising.
To this end, we need investment from private individuals and/or companies. A total of $2,000,000 is being raised, which will be used to finance working capital, plant and equipment, and staff during the first two years of the company's existence. The present company is an S-Corp incorporated in the State of New Jersey.
Financial Goals in 000
Year 1 Year 2 Year 3 Year 4 Year 5
Whereas an informal executive summary is written in the vernacular and personality of the person or team writing the e-business plan, the structured approach to the executive summary is all business.
Executive summaries of this ilk are very tightly worded, filled with information, and take up no more space than one page. As shown in , the structured executive summary is composed of a series of paragraphs entitled "Company," "Market," "Senior Management," and "Finance." At the top of the page appears the name of the company and the industry and sector of the industry that the company fits into.
Structured Executive Summary
EXECUTIVE SUMMARY COMPANY B SOFTWARE APPLICATION DEVELOPMENT/SOFTWARE ENGINEERING/RE-ENGINEERING
COMPANY:Company B, founded in 1997, with headquarters in New York City, NY, is a leader in the development of intelligent software systems for the applications development and re-engineering markets. The Company is highly innovative and has developed a series of programming tools that use proprietary, intelligent, document/text analytical and parsing techniques, which results in exceptional programmer productivity gains. The Company is profitable, even after development costs associated with the introduction of new toolsets. The Company intends to accelerate the introduction of new intelligent software engineering products, including Web-based products, which will be sold via the Company's Web site (www.b.com), its direct sales force, and through VARs and resellers.
MARKET:The market for the Company's core business are the millions of software developers in national and international corporate business arenas. Dataquest has estimated this market to exceed $238 billion and growing. Management has identified re-engineering, as evidenced by the highly publicized year 2000, Euro-Money, and Dow 10000 problems, to be a segment of the market that is underserved and suffers from a lack of innovation. Ovum has estimated the size of this market to be over 12 billion annually and growing.
SENIOR MANAGEMENT:Person 1 (48), CEO, is past managing director of R&D for Z Company, and was a prior officer of several large financial institutions. She was awarded a PhD from New York University and is the author of several books and over 200 articles. Person 2 (44), VP Marketing & Sales, has broad experience in both marketing and sales, with solid experience in high-tech. Person 3 (46), VP Technology, has over 20 years of valuable experience in the development and management of high-tech systems.
FINANCE:Company B seeks $2 million of growth capital to accelerate the rollout of new, or refinement of existing, NA-Series tools and for working capital. Revenue is expected to be $25 million in Year 3 and over $100 million in Year 5. The Company is free of debt. The exit strategy is initial public offering, sale, or buyout.
Please keep in mind that the examples shown above are just that – examples. Like any writing project you have to know your audience and write to them.
It is often been said that what makes an e-business attractive is 50 percent product and 50 percent management team. One has only to open any business periodical to find a plethora of articles not only about industry leaders Michael Dell and Bill Gates but also Amazon.com's Jeff Bezos and ebay.com's Meg Whitman. The day of the high-tech celebrity has arrived.
Most corporations came into being with little or no publicity afforded their managements, but today's e-business is a horse of a different color. e-Business is as dependent upon brand and word of mouth as any business is; the big difference is that there is much less time to brand the product/service or get that word of mouth. Competition is fierce, and the failure rate of businesses in this sector is staggering.
The management team is more than just window-dressing for public relations. Not only should it have a firm grasp on the technology but it should also be savvy in the management aspects of running a business. Since many corporations spin off their e-businesses to separate companies, there is a danger that the management team will not be structured properly. There is many a failure documented in the trade magazines. The reason? The managers were too heavily weighted on the technology side of the business. In other words they were technical gurus but incapable of managing.
It is no secret that many e-businesses are seemingly started by those fresh out of college. At least these are the ones you read about in the press. But what you probably don't read is that these same companies are usually forced by their boards or investors to hire what they refer to as "gray-hairs." These are the managers that will actually run the business end of the business. It is an interesting mix.
Perhaps the best way to demonstrate the management mix of a typical e-business is to go to one of the most popular sites on the Internet. e-Bay's Web site contains a tongue-in-cheek description of its own management team. Located at http://pages.ebay.com/community/aboutebay/overview/management.html, e-bay takes about a page to describe its top nine people.
e-bay's Web-Site Description of Its Management Team
Name: Pierre Omidyar
Title: Founder and Chairman
Most treasured collectible: Collection of Tintin figures.
e-bay responsibilities: Oversees strategic direction and growth, model and site development, and community advocacy.
Most valuable contribution to e-bay team: Had a really good idea.
Previous jobs: Cofounder, Ink Development Corp., which became eShop, one of the early pioneers of online shopping, subsequently bought by Microsoft. Developer of consumer applications for Claris, a subsidiary of Apple Computer. Prior to starting e-bay, Pierre was involved with developer relations at General Magic, Inc.
Education: B.S., Computer Science, Tufts University.
First job: Wrote a software program for his high school library at age 14.
Name: Meg Whitman
Title: President and CEO
Most treasured collectible: Burger King Mr. Potato Head.
e-bay responsibilities: Build a successful business while delivering on customer needs and expectations. Focus on the user experience, continue to execute on creating a fun, efficient and safe forum for online person-to-person trading.
Most valuable contribution to e-bay team: Develop the work ethic and culture of e-bay as a fun, open and trusting environment. Keep the organization focused on the big-picture objectives and key priorities.
Previous jobs: General manager for Hasbro Inc.'s Preschool Division. Responsible for global marketing of Playskool and Mr. Potato Head brands. President and CEO of FTD (Florists Transworld Delivery). Led the launch of FTD's Internet strategy. Also, president of Stride Rite Corporations's Stride Rite division, executive vice president at Keds Division, senior vice president of marketing for the Walt Disney Company's Consumer Products division, vice president at Bain & Company, and brand management at Procter & Gamble.
Education: M.B.A., Harvard Business School. B.A., Economics, Princeton University.
First job: Brand assistant for Procter & Gamble.
The nine persons described in encompass the full range of management capabilities: Founder/Chairman, President/CEO, Chief Financial Officer, Senior Vice President of Marketing, Vice President of International Operations, Chief Scientist, General Counsel, Vice President of Strategic Planning and Analysis, Vice President of Marketing and Business Development of ebay Great Collections.
An e-business in the start-up phase need not have, nor is it likely to have, this level of depth in its management structure. At a minimum, however, it is wise to include at least the President and/or Chairman, the CIO or Chief Technical Officer, the marketing and/or sales officer, and legal counsel.
Although it is not necessary for a company to provide a lengthy history of its many years in business, in the company history section it is necessary to provide enough information to the reader so that he or she can understand how the company got to the point of being able to push into the e-business arena. This includes information on (1) the expertise the company possesses that permits it to navigate unknown waters, (2) any marketing expertise it might have that will enable the new venture to successfully enter the market, and (3) how the idea for the e-business originated.
Answering the following questions will go a long way toward helping you flesh out this particular section:
In the product-description section you will provide more detail about the e-business product or service you are offering. For the most part this section can be split into two subsections: (1) features, and (2) benefits.
All e-businesses can be considered computer systems, even though it might not be software that they sell. Since your customers will be using a computer to gain access to your product and/or service, it is the interface to your e-business Web site that you are actually describing in the features section.
For example, an e-business offers employee testing over the Internet. An example of the way you might describe its features is as follows:
Can test any number of (prospective) employees at one time utilizing any number of tests at one time.Tests can consist of from 1 to 1,000 questions each with an image and unlimited hyperlinks.
Where the features section describes the nitty-gritty of what the e-business does, the benefits section is used to make a case for actually paying or using the e-business. An example of the way you might describe its benefits is as follows:
Utilizes a neutral, impartial source to assess prospective and current employee skills.Saves administrative costs associated with skills assessment.
While features and benefits are similar, think of the benefits as actually "selling" the features.
e-Business systems are by their very nature very graphical. If the e-business Web site has already been built, even in prototype form, it would be worthwhile to add color to the Business Plan by adding screen shots, color images of the most impressive of your Web site's pages.
Some business plans include a mini-tour of the Web site. Here business plans show screen images of each of the pages that are traversed during a routine visit to the e-business Web site. They then append descriptive text to each image. In this way the reader of the business plan is provided a mini-tour, or walk-through, of the e-business without actually having to log on to the Internet.
Rather than break up the flow of the business plan it is recommended that the tour be placed in an appendix that is referred to in the product-description section [e.g. "The Web site offers the following features (for a tour, see Appendix A)"].
The mantra in "Field of Dreams," a movie about building a baseball diamond in a wheat field, was "if you build it, they will come." When the Internet first came on-line for businesses, back in the early 1990s, that same mantra was used by people in the industry. It was true then. It is not true today.
Today to be successful in any e-business requires hard work. There is an amazing proliferation of companies, both long-established as well as entrepreneurial, that are moving onto the Web. It is easy to get lost in the crush. For an e-business to survive it must be adaptable and continually look for new opportunities. For example, a company that develops a software product and realizes that there are more opportunities to deploy it as a service across the Web than as a stand-alone software product could describe its opportunities as follows:
We will be offering customers exciting choices for doing business with us: we will be an e-business, an eService Bureau, and an eSoftware Developer. Customers will be able to do business with us: Over the Internet we will offer customers the ability to actually perform their inventory over the Internet. They will be able to log on from anywhere in the world and securely enter data. We will maintain their database either online or offline, depending on the level of security concern. Customers can then accordingly extract and manipulate data and obtain whatever reports they wish.
As a service bureau we will offer customers complete on-site or off-site (email, wire) inventory services, to the degree they desire. This means we can physically perform inventory at customer locations with our staff; train or assist the customer's staff; provide remote services (e-mail, wire); or any combinations of these. We will be a full-service "outsource" for inventory and asset management. Buy our system customers can simply be buyers of our system, if they choose, and use our product as a powerful, flexible tool to save money, to have ready access to information needed by management, and to better manage their business.
Note the multifaceted approach. It is an e-business, but it is also a traditional business.
Business opportunities come in many forms. Thus far we have described a way of deploying an e-business so that it takes advantages of on- and off-line opportunities. However, for an e-business to be really successful its management must plan on spending long hours on forging partnerships with other like-minded businesses, resellers, vendors, and even customers. This is most certainly a critical component of the business opportunities section of the business plan – the description of the methodology by which the e-business will expand its borders.
Competition is fierce in the on-line world. There are dozens of contenders in virtually every conceivable business, with more springing up overnight. Because most e-businesses are not composed of bricks and mortar, a clever and talented entrepreneur can develop a world-class Web site at little expense. Last year the press provided much coverage on a small, out-of-the-bedroom bookstore operation that rivaled Amazon.com in its offerings, actually matching every one of the millions of titles that giant Amazon sells, and surpassing Amazon in its level of service!
Most analysts predict that within the coming year only the strong will survive the net wars. In spite of this, your business plan's competition section must describe all possible forms of competition – the big, the small, and the yet-to-come. You are going to have to spend time and money on ferreting out just who the competition is, what their funding is, and what their plans are. Obviously not all of this is publicly available.
While much information can be gathered about competitors in the form of analysis of their Web sites, marketing literature, and from talking to their customers, the yet-to-come competitive analysis is harder to determine.
"Yet to come" means understanding the potential for who and what just might enter the field after your e-business gets started. Some call this "phantom analysis." For example, when amazon.com launched its e-business it would have been remiss not to have realized that Barnes & Noble (www.bn.com) would follow fast on its heels even though at the time Barnes & Noble had never even gone public about the subject of e-business. Of course, that Barnes & Noble would move into an e-business in a big way was an easy assumption. Others aren't so easy.
The following excerpt from a January 1999 press release should have made interesting reading for amazon.com and bn.com alike:
Also shrinking is the number of large U.S. publishers, which have been reduced because of buyouts and mergers, such as the German giant Bertelsmann AG's purchase of Random House last year. Bertelsmann also owns Doubleday and Bantam. In 1994, Barnes & Noble reported that books from the 10 largest publishers accounted for three-fourths of their purchases. Just three years later, those 10 companies accounted for less than half of the books sold.
Bertelsmann has grown omnipresent. In Europe it launched www.bol.com – a massive on-line e-book store. What are the ramifications for amazon.com and bn.com if bol.com takes off in the United States?
In the competition section list all known competitors and then explain how they pose a threat to you. It would be an excellent idea to also explain how you intend to minimize that threat (e.g. via a massive marketing campaign, through public relations, etc.). For phantom competitors you will need to include one or more paragraphs that explain the potential of the introduction of competition from unknown sources.
An e-business can quickly grow stale if its product and Web site stagnate. This means that the management team needs to ensure that time and effort are expended on the process of staying current with any and all technological advances.
Using amazon.com as an example, the company's management team decided they needed to expand amazon's offerings beyond the bookselling horizon. Outside observers have called this the "Wal-Mart" approach and doubt its long-term viability. Wal-Mart's Sam Walton devised a strategy back in the 1980s that enabled it to murder its competition in small towns. The strategy? To overwhelm the competition by branching out into every possible niche. When Wal-Mart expanded into the low-margin grocery business, however, a business it knew nothing about, it finally met its match. In 1994, Wal-Mart's stock was hammered on Wall Street, losing more market capitalization than any other company that year (see "The Next Wal-Mart," by James Schrager, The Industry Standard, December 20, 1999). The lesson to be learned from amazon is that a leading on-line seller of a product can decide to sell other products but must carefully study the costs, risks, and advantages of moving into each niche area. In addition, the on-line seller should take care to make sure that the list of products offered have some synergy with each other. Amazon's list of books, videos, and CDs all mesh together rather nicely. It remains to be seen how well hammers and saws fit into the Amazon jigsaw.
Beyond the type of product or service actually being market is the all-important Web site itself. The most successful Web sites are chock-full of features that make the site an exciting place to visit. Amazon.com, for example, provides a means for consumer ratings of any book. Bizrates.com goes even further and permits consumers to rate just about anything. Some sites have bulletin boards, others sport chat.
Landsend.com has been particularly innovative in their approach to retail on the Internet. The company offers a service called "Shop with a friend" that permits two or more people to collaboratively shop from remote computers. They also have what they call "Your Personal Model." Like a police sketch artist, the site can build a model of what you look like based on a description you provide and then let you try on clothes on it. When landsend.com implemented these services they – and they alone – made use of these two innovative technologies.
While consumer-based sites try to lure customers by adding "feel good" niceties such as chat and Web greeting cards, B2B sites lure customers by offering old-fashioned value. This, for a business owner, is what constitutes an exciting site. www.eletter.com, an on-line direct-mail service, generates customer loyalty by providing free proofs and discounted postage. www.staples.com, the venerable office-supply store, has started offering payroll services and downloadable business software. Perhaps the new breed of Web-based application service providers (ASPs) are the most innovative of the B2B bunch. ASPs such as www.eality.com are offering businesses the opportunity of saving basketfuls of money by tossing out their purchased or leased software and logging onto the ASP site to run Internetworked versions of that same software.
A company that first uses innovative technologies is called a "first mover." On the Internet this is important because first impressions are lasting impressions. For example, amazon.com is still far more popular on the Web than bn.com, although Barnes & Noble is a much larger company. Amazon.com was first – and that counts.
The research and development (R&D) section of a business plan, therefore, needs to discuss the efforts the company will undertake to get on top and stay on top. After a brief description of what it is the company intends to R&D, the section should close by providing the percentage of revenues that the company will spend on this effort.
How you're going to generate revenues is one of the most important things you need to consider. The e-business model has a number of ways to perform this feat, but be forewarned they have met with varying degrees of success. Here is a summary of e-business revenue models:
The pricing section of the business plan must spell out exactly how the company intends to make money. What will be the fees for its products and services? How much does the company expect to gross during the coming year? And next five years?
The marketing plan is a summarization of the external marketing plan, which might run into the hundreds of pages if it also includes pricing information from media kits.
A company can build the most exciting e-business there is, but if no one knows about it there will no profits – and eventually no e-business.
The marketing plan brief consists of sections on
The budget that is derived from this segment of the e-business plan can be stratospheric. Marketing budgets have steadily risen during the last few years to the point that it is not unusual for a newly funded start-up to expend the majority of its funding in this area – to the tune of millions. e-business is no place for the nonaggressive when it comes to funding marketing.
Starting an e-business requires that a company estimate both its expenses and its revenues. While a company that is porting its product or service to the Web as an e-business might have a very good handle on this, many start-up e-businesses haven't a clue. Interestingly, most venture capitalists do not even look at the financials in a business plan, suspecting the fiction that most certainly produced them.
Most financial officers have much experience in developing estimated financials of this nature. is a typical pro-forma brief.
If you are going to use the business plan to raise money, then be extra careful to ensure that you offer a substantially high return on investment. Venture capital (VC) firms usually want at least 40 percent back on their investment – anything lower is a definite red flag. Unrealistic projections can be just as damaging to a company's attempts to attract funding. Only seasoned finance professionals are capable of walking this fine line – being both conservative and optimistic at the very same time. provides insight into what ventures firms look for when reviewing a business plan.
What Venture Capital Investors Want
Writing the e-business business plan has two purposes. One is to guide the company along its path to success. The other is to secure funding. This second purpose is the more important of the two. Ultimately, without adequate funding to capitalize the increasingly expensive cost of marketing an e-business, the path to success is covered in potholes.
(a). Figures are estimated.
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