E-Commerce Business: Focus, Focus, Focus

By , October 19, 2001

October 29, 2001 Last week, when I read the book Dot.Bomb (by J. David Kuo), one amusing recurring theme was quite familiar. It seemed that every few pages, Kuo’s CEO would “announce” (or another employee would “suggest”) a drastic new direction for Value America, which was started as an internet retailer.

The company’s original “affinity” notion of sharing a slice of sales with charities, turned into a business unit developing custom stores for charities.  Offered a potential “internet mall” page at FedEx, Value America’s CEO sought to persuade FedEx to create an entire internet retail store under the FedEx web site (the notion that FedEx would become its own customers’ competitor was ludicrous).  Potential marketing partnerships with Citibank and Visa, morphed in the CEO’s mind into vast financial-services businesses for Value America.  Another employee sought to shift Value America’s consumer retailing business into a business-to-business superstore, while others wanted Value America to simply become a service provider for other e-retailers.

These stories were familiar, because I have experienced them myself, as a consultant to e-commerce merchants.  I am sure the temptation exists for every business owner: the opportunities may seem boundless, or the grass may seem greener on the other side of the fence.  So the company that starts as a retailer, considers becoming a wholesaler.  As the company struggles and spends huge sums on custom software development, it seems obvious that all that work might be resold to others.  And every industry is covered by newsletters, magazines, or directories, which the newcomer may view as acquisition targets or as potential competitors.

On the good days, when the primary business seems to be on-track, my client will suggest that some new venture be “added” to the company’s portfolio.  All we have to do is task several people to this new idea, and then we’ll have a new profitable business unit. (Of course, we don’t have those people to spare, and we can’t hire enough new people for the core business, much less a new one, nor do we have funds to sustain the new business for the many months it will take to launch, nor do we have the infrastructure resources.)

On the bad days, when the primary business seems less promising, the client will propose that the old business model be abandoned, and all eyes focus on the new idea.  (Alas, the new idea is really a whole new business, which will require a substantial investment that’s not available, since the old business probably has debts exceeding equity.)

Of course, diversifying or expanding a successful business can often be a good idea.  And, if one business idea fails, it makes sense to shift many available resources to another, more promising idea.  The highest risk, however, exists when a “marginal” or “emerging” business, starts to make reckless bets on fringe ideas.

The “new idea” often seems to come from left field, and my own experience, as an “outsider,” is that most of these ideas can be quickly analyzed and “shot down.”

For example, more than one client has suggested buying or launching some kind of “publication” (whether in print or online).  The idea is to have an “independent” editorial vehicle that will help us get our message to potential customers.  Alas, if we own it, it’s not “independent” and it won’t be trusted, and if the existing publication earns its revenue from advertising, we must choose whether to “help” our competitors by carrying their ads, or forgo all advertising revenue in order to “capture” this enture channel.

Another common pair of ideas: “let’s become a wholesaler” or “let’s sell our experience developing our great e-commerce web site.”  In both cases, the client must worry about providing too much help to direct competitors, while also facing huge (usually insurmountable) expenses to re-align existing systems and staff to this new goal.  (If we can’t raise money to carry our business forward, it’s questionable how another company can raise funds to pay us to help them compete in the same market.)

Bottom line: Whenever I hear a client suggesting a “new direction,” I immediately focus on the old direction.  First, I ask the client what’s wrong with the original business idea. “You came to me 3 months ago and said you wanted to sell widgets, and you thought there was a substantial business in selling widgets over the internet at a fair price.  Was that idea wrong?  Has the market changed?”  The client usually stresses that the “old” idea is a good one, but will require more work and a longer “curve” (revenues, profits) than originally expected.  “Okay, then, you are saying you want to stay in the original business, and you recognize that you are stretched thin already.  How could it be better to start a new business unit, and create a huge new list of tasks to be completed?”

Often, the client points out that the “venture capitalists” are at fault.  “When we started, they wanted us to grab market share at all costs, spend ten bucks on advertising to generate a dollar in consumer sales.  Then they said, forget sales, build a ‘community’ where your customers fell comfortable.  Then they said, it’s all about advertising, put advertising banners on your site and find sponsors.  Then they said, it’s not about consumers any more, we want ‘business-to-business’ e-commerce, people who sell to businesses, that’s a bigger market.  Then they said, it’s not about selling products, it’s about creating and maintaining the ‘infrastructure’ for e-business.  Then they said, it’s about the infrastructure of the internet itself.  And then they stopped returning our calls, period.”

(In the end, I think my clients’ businesses are always about one simple thing: selling their products to customers, at fair prices, and making a net profit from those sales.  And I insist that my clients focus on that core business.)

Mark J. Welch

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