The Web Is Falling!
Counteract dire predictions
about Internet business by applying basic retail principles to your Web
"The Web is falling! The Web is falling!”
— Chicken Little’s Granddaughter,
This cry, while somewhat melodramatic, started echoing
through people’s minds this spring, spurred by predictions that major e-tailers
would fail. One report said that 51 Internet firms would run out of cash
within the next year — companies like CDNow Inc., Drkoop.com Inc.,
Medscape Inc., and online grocer Peapod Inc. It was predicted that Amazon
would run out of funds within in 21 months. According to these reports,
all sites will have difficulty raising new capital; the Wall Street
honeymoon is over.
Is the honeymoon really over? Or is it just that reality
has finally set in? While the Internet may seem to offer a new way of
doing business, it really doesn’t. Think about it: You have a
“storefront,” you order products, you inventory them, and you sell
products. At the end of the day, if you have money in your pocket, you
made a profit. This is the business world that your grandfather taught you
Now you have Internet businesses set up by
twentysomethings with little or no business acumen. Their ideas sound
wonderful, so investors pour money into them. These twentysomethings
establish a business and revenue model, often without testing it. Their
gross profit structure is too low, and their advertising costs are too
high. And, worse yet, their return on investment for ad dollars spent is
horrible. I had an Internet client last year whose total annual revenue
was $25,000. We put together an e-commerce strategy that looked good to
investors, and within three months the business was sold for $30 million!
Somebody perceived a value in the business, and the total annual revenue
was deemed immaterial.
Before you go saying, “I told you this Internet would go
the way of the hula hoop,” let’s look at some simple commonsense
business rules for operating an Internet business. And if they seem
familiar, that’s because they mirror the steps you took when you set up
your first store.
Think about profit. Michael
Dell, CEO and founder of Dell Computers, said it very well at a conference
I attended: “In spite of what people think, you still need to make a
profit.” His company is now the largest computer company in the U.S.,
and it makes a profit. Too many folks think that the cost of doing
business online is smaller, since you don’t need a bricks-and-mortar
store. Wrong! In many cases, the cost of an online store is greater than
the cost of a bricks-and-mortar one. Toys “R” Us spent $80 million on
its online store, ToysRUs.com.
Be sure you that have enough gross profit (GP) built into
your products. I usually see online retailers establishing a 30 percent
GP, whereas their bricks-and-mortar counterparts establish a 50 percent
Examine your purpose.
You first have to determine what your reasons are for creating an online
presence. Do you want to sell online, or drive traffic to your
bricks-and-mortar store? What is your target market? Why should somebody
do business with you? What differentiates you from the hordes of
Ask yourself what your customer
wants. Too often, we make the mistake of thinking that we
understand our market, and we develop a plan based on that knowledge. The
correct method is to ask your customers or prospective customers what they
want from your store. If you really want to do things right, conduct a
series of focus groups with your target audience, and listen to what those
people are looking for in a Web site. Probe them to find out if they would
purchase from you online. How do they find you now? What would convince
them to come to your site? While focus groups usually cost between $5,000
and $7,000 each, and should be done in threes, you’ll find that they are
some of the best investments you’ll ever make.
Think about how you will fulfill
orders. Will you be able to fulfill the additional orders
generated by an online site? Will you stock more inventory, or have your
supplier fulfill on a just-in-time basis? Are your back-office order
processing, inventory, and accounting systems up to date? Another factor
to consider is that the Internet is a global market and can potentially
give you international business. Are you prepared to handle that? Or do
you want to ship domestically or locally only?
Plan out your site. Now
that you have established your preliminary goals, you have to consider
what to include in your site. Be sure that the buyer using your site can
easily navigate between products and categories. A good rule to follow is
“two clicks to find, three clicks to buy.”
Focus on your core business and avoid the temptation to
stray. For example, don’t accept banner advertising from others if it
doesn’t add to your site.
Build communication and support.
In a series of focus groups that we did recently, we discovered that the
number one concern was communication. People wanted to know when there are
delivery issues, and they wanted to be able to contact somebody and get
prompt responses, via either e-mail, fax, or telephone.
Don’t be fooled into thinking that a Web site will
require less support than your physical store does. Since the Net is
global, and since folks like the convenience of shopping at any time of
day, you may need to provide 24/7 support. This support may consist of
answering questions via e-mail or phone, or conducting real-time online
Create comfort and trust.
In order for customers to buy from you, they must be comfortable with your
business, your products, and your longevity. So you need to convey staying
power and trust. Write a detailed explanation of who you are, what you do,
and why someone should do business with you. Expound on your history and
the size of your organization.
Avoid the latest and greatest.
Content is still king! Folks are more interested in knowing who you are
and what you do than they are in the prettiness of your Web site. Don’t
use meaningless graphics or “splash pages” (i.e., pages that pop up
without any links to other sections). Keep in mind that many people still
use slow modems and old computers; thus they can’t access streaming
video or Java script. And, unless you are selling music, forget sound.
Your customers may browse at your store from their offices, and sound
suggests to their colleagues that they are goofing off. A simple and
elegant site is much better than a gadget-filled one.
Have your site tested on different browsers. Netscape
works differently from Internet Explorer, which works differently from the
America Online browser. Some features that look great on your machine
won’t work at all on others.
Privacy is a concern, both in terms of financial security and in terms of
the ways you use the personal information you gather about your customers.
You need to post a privacy statement that alleviates customer fears.
These tips are the same ones any smart businessperson
would use with a bricks-and-mortar store. Whether you’re in physical
space or cyberspace, a simple, commonsense approach to running a business
is the best way to establish a solid footing in an unstable world. n