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E-Business 

Q  I have an existing brick-and-mortar business. Should I venture into e-space?

A There are many feasibility considerations with positive business implications to analyze such as: reaching customers beyond the radius of the store, targeting additional customer groups, providing more efficient customer and vendor transaction processing, lowering marketing costs, improving public relations and company image, providing online customer service, providing 24/7 shopping, and utilizing improved customer relations techniques. There are also many negative business implications to think through, such as:

  • Will we be repositioning into a tougher competitive environment?
  • Will we have more direct competitors in e-space, and lose our differentiation among them?Will pricing pressure grow and pricing power diminish?
  • Will we be seeking and attracting less profitable customer groups?
  • Will the acquisition cost per customer be unreasonable?
  • Will it be necessary to reorganize the company to isolate the e-business component of operations and the IT department from regular operations?
  • Can we budget and afford future investments required to stay current in technology?
  • Will our current distribution and fulfillment systems be adequate in capacity or function to support the e-space activity?
  • How will our cash flow and financial stability be affected?

In the present business environment, this decision boils down to one basic business principle, "Will the investment and ongoing expense be paid back with profit?" Most small businesses, and large businesses as well, do not have the luxury of investing resources without a payback and increase in the bottom line profit. How do you determine if the move to e-space is feasible? The best approach is to analyze the risks. Break the functional elements to be implemented down into profit centers, and determine the costs involved with each. Do not forget the hidden costs, such as overhead and indirect time spent administering the project, distractions caused for management and employees, future budgets for technology upgrades, etc. Develop cash flow, income statement, and balance sheet pro forma projections. How positive is the impact? How long does it take to pay back the investment?

Investigate outcomes that vary from the projections and use sensitivity analysis to see what the impact would be on the company. For example, assume that it takes twice as long to implement the online presence as planned, expenses are double, and revenues in the first year are half of the projections. Can the business survive under various potential scenarios? A very good resource is another business that has traveled a similar path. If the owner or management team are approachable, perhaps they will offer insight and advice that will illuminate blind spots in your planning, eliminate uncertainties and mistakes, and establish confidence. Seek assistance from a business professional for this critical decision.

 


 

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Page last updated: October 11 2013

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