The New Frontier of Profits

Whether a fledgling Internet startup or an extension of a brick and mortar store, successful ecommerce sites all have one thing in common. In his latest column, Rob Spiegel takes a look at this trend among small business dot coms.

I recently participated as a judge for Inc. magazine’s Web site competition. I expected the experience to demonstrate just how sophisticated Web sites have become among the small businesses that make up Inc.‘s readership. I didn’t see the level of quality I expected, but I was even more encouraged by what I actually found, a wide-ranging display of sites that were selling everything from exotic soaps to electronic parts. And they were doing it profitably. Raw entrepreneurial energy oozed through these sites as they experimented with serving new customers.

The segment of the overall contest I was assigned to was ROI, the new lexicon for return on investment. ROI has become rallying cry of ecommerce as it tries to get off the defensive and back up on its feet. Not surprisingly, it’s a new category this year. Up until the cyber-crash of 2000, Internet companies were blissfully free of the dirty need to produce a return on cash invested. The small business audience of Inc. magazine never had this peculiar luxury.

The dot com boom was a high-flying gamble by high-moneyed players. Venture capitalists and large enterprises put up the stake, and the young dot commers were either new to business or young upstarts flooding in from the investment and technology communities, both of which are nestled in the padded nest of major corporations. ROI was the least of their concerns. The dream was very big, and when you dream really, really big, mundane thoughts of profits are typically left for the next generation of managers

The chronically under-funded small business community was late to the Internet world. The owners of small companies live on a razor thin edge, and if the blade slips, it cuts into personal income. One small blunder can cut very deep, setting the owner back years. For small company owners, attention is just as dear a commodity as capital. Take your eye off the ball for just a moment and your customers start scattering in all directions.

Small business owners were late to the Internet game for two clear reasons. The customer wasn’t demanding an Internet presence and the ROI was difficult to see. No matter how far-thinking the owner may be, how can he or she justify venturing into an area where customers are not waiting? In the Internet world, executives used the imagery of hockey great Wayne Gretzky who clamed he didn’t skate to the puck, he skated to where the puck was going to be.

This is great theory, but for the small business owner, anticipating where the customer is going to be is not sufficient. The small entrepreneur has to hit the customer exactly on target every time. So the small business mantra concerning the Internet was, “If you can’t connect with a sale immediately, stick to the sales you can make.”

Now, amid the rubble that once was the Internet gold rush, small companies are entering and finding some success. Perhaps a portion of the company’s customer base has made it known they are willing to buy online, or perhaps the cost of entry, in both capital and management attention, is now low enough to take the risk. Whatever the reason, small companies are moving slowly, cautiously and successfully to ecommerce.

The sites I visited for judging defined themselves in ROI. Either they were Web extensions of existing companies or they were Web-only start-ups. For existing companies, the site had to deliver new, profitable customers. For the Web-only companies, the site had to simply show a profit. Some of the sites were bare-bones mall shops, while others were fully-integrated arms of a flourishing enterprise.

They all had one thing in common: they were built of the tough strands of small business muscle and bone. There is nothing more honest in business than a trend that delivers results for small entrepreneurs. The Inc. contestants may show a new door the opens the Internet as a legitimate, profitable channel for new markets and, surprise – surprise, additional profits.

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