From the Response Control PR
E-business Program

Creating an E-Commerce Business Plan
By John Bremner

Many people have great ideas for online businesses, but the truth is that few people can translate those ideas into reality. It’s a complex process and it takes knowledge, vision, persistence, technical skill, money, and just as much business acumen as it takes to make a bricks-and-mortar business successful. There are many pitfalls for the unwary, so it helps, before you start, to create a realistic business plan that is as complete as possible. At Response Control PR, we have seen hundreds of plans from the very professional to the most amateur, and we have gained a vast amount of experience in helping our clients to succeed through good planning. We are also in this business ourselves and we find that careful planning helps us to maintain our edge. We are constantly developing our e-business knowledge in response to the demands of the marketplace, and we also do a lot of research to keep up-to-date with new developments.

Whilst we concentrate our business focus on providing the complete PR solution, we bring with us a deep knowledge of online business, and our clients are aware of the many advantages that gives them. Clients come to us, not just for PR, but for the competitive edge we can give them in a highly competitive marketplace.

The Plan

If you are seeking finance, a business plan is not only helpful, but essential. Bank managers, venture capitalists and other finance sources will want to pick it over very carefully. To impress them, you need to anticipate their questions and build the answers into your plan. Even if you are financing the business yourself, a good business plan is essential to keep you on track.

Some parts of your plan may need to be repeated for clarification purposes in other sections.

Definition

Let’s start at the logical beginning. You should be able to express the most important elements of your business idea in one sentence or less. Sam Goldwyn, the film producer, used to say that if you couldn’t write your idea on the back of a business card, you didn’t have a clear idea of what it was all about.

Look at the idea again. Is it original? If so, try to establish why it has not been done before. It could be that the idea is too difficult to implement, or it could be that others have tried it and failed. Nevertheless, if your plan is better perhaps you can make it work. Make it clear, right from the start, that you don’t need to rely on luck. You are going to make your own luck.

Application Service Provided or Boxed Solution?

Another way to put this is, do you want a complete business solution, or a DIY solution that may leave you with a number of problems to solve? Your response is fundamental to the costings in your business plan. The old phrase, you get what you pay for, is never more true than with e-business solutions. The difference between a web-based solution and a boxed solution is fairly simple to understand – Applications Service Providers provide the entire e-business infrastructure to support your online business. They usually supply the domain name and host all the software, customer databases and e-commerce on their own servers. This means that they are responsible for everything from data security to backups and bandwidth, and it leaves you free to concentrate on the business without having to worry about the technology.

What you get is a more expensive hosting solution, but you save a great deal on capital outlay. If, on the other hand, you go for a solution out of a box, you need to provide the entire infrastructure yourself, and this can be a fairly tricky business. You need to obtain a domain name, probably wait to have it transferred to your hosting providers, load and learn the software, and obtain a merchant account with your bank. You may also be responsible for setting up a server and mail account, getting secure e-commerce facilities, doing all backups, and importantly, ensuring the integration of all the separate elements that go to make a modern functional e-business website. You'll need all the hardware, and you'll also need to find some way to maintain the persistence of your site on the Internet. This last item is probably the most difficult for a DIY Internet based business to achieve, requiring a stable power supply, software that does not crash (how many times have you rebooted your computer this month?) and wide bandwidth to be able to cope with hundreds or, if you are successful, thousands of users logging into your server at the same time.

Big or small?

You need to decide, right at the beginning, if you are going to take the high road or the low road. They may both lead to the same place, but they won’t both get you there at the same time. Do you want to start a one-person business, and still be doing that in five years time, or do you see yourself as the CEO of a big company? Clearly, if you are planning to go big, you will need a more complex plan that takes into account all the additional costs and benefits of such an operation, and you are likely to be personally scrutinised in a much closer way. Does your background give you the credibility you will need? The days of new graduates being given massive sums to splash out on crazy ideas are over. If you don’t have suitable experience, you may need to bring someone else in as a manager.

Gain IT Literacy

Another preliminary step. Perhaps you are already familiar with the terms involved in e-business, but if not, you will need to bring yourself up to speed. You could read up on the subject, but you should also consider getting some professional training from a company with real experience in the world of e-commerce.

Learn to Present Yourself Well

If you want to be taken seriously, turn up for meetings looking like you are ready for business. Rehearse your presentation, and make it as interactive as possible. And remember, whatever your views of politics, religion, or the world in general, others may hold different beliefs, so keep them to yourself and concentrate on business. Be enthusiastic, and optimistic, but make it clear that your feet are planted firmly on the ground. If you are not confident of your ability to make the presentation, you could hire a professional to do that for you, but you won’t get one for much under £1000/day. Alternatively, you could go for training to learn what to do yourself. It may cost you about the same, but you will be able to continually reuse the skills you learn.

The Elements of a Business Plan

Overall Presentation: Black print on plain white paper is adequate and preferred, unless you are selling your presentation skills. Colour example sites and diagrams are acceptable. Use a good quality printer and print on only one side of the paper.

Cover: Businesslike and professional. Remember it is the content that counts. It is acceptable to include professional artwork or a logo on the cover. A good quality binding helps to lend a professional air to the plan.

Page I: Business name and contact details of the major players in your plan.

Page II: Your ‘Sam Goldwyn’ summary, followed by a few brief paragraphs that explain what the business is about in more detail. You should cover all the main points of the plan, as a quick guide for people who just don’t have the time to go through the whole thing.

Page III: Section titles and page numbers. Use an easy to follow layout and plenty of white space.

Section 1: Directors backgrounds and areas of expertise. Include yourself here. Give a page for each director, and make sure you are going to be working with good people. Try to pick people with good experience in the real world. A small warning here – research at Manchester University over a lengthy period shows that the ability to perform well at interview may be a negative predictor of success in the workplace. On the other hand, those who did best in practical tests of ability, had greater success than expected, even if they performed badly at interview. So if you are looking for a sales director, make sure that he or she can sell. If you need an accountant, make sure he or she can add up.

Section 2: Benefits of the Business. This is where to put your arguments about the need for the business, and the service you will be providing. Don’t forget that every business, besides being a sales business (even if it is your own skill you are selling) is also a service industry. List the benefits that your customers will achieve by using the service you intend to provide.

Section 3: Research & Competition. Detail the research you have done which shows that the demand for your goods or services is real, and establish clearly that you know everything there is to know about the competition and what advantages your business will have over the others.

- How many new competitors started up last year, and how many are still in business?

- How well are the survivors doing?

- How does their business model compare to yours?

- What are your unique selling points? Can you do it better, cheaper, faster or bigger than the competition?

If there is no competition, clarify why not, and show that you can establish a market for your goods or services. Remember that it is always more difficult to break new ground than to dig over cultivated earth. It is also important to ensure that what you will be offering for a fee cannot be obtained free of charge. Your research should have covered that.

It is also worth looking at how you can work with competitors to your mutual advantage. What can you offer them, and what can they offer you? At Response Control PR, we often work with competitors, collaborate at trade shows and marketing fairs and swap ideas. We are always open to learn from what others are doing, and if you can show that you have that open attitude, you can establish another point in your favour.

Section 4: Clarify your objectives. What do you hope to achieve in one, two and three years time, and how do these objectives fit with your business model? Allow yourself room to manoeuvre. It is particularly important not to be overoptimistic about when you expect to go into profit, because that puts you on the road to disappointing your backers. Better to plan for slow steady growth, and exceed that, than to aim for instant success and never achieve what you led everyone else to believe. In e-business, as in any other type of business, a good customer database can take many months to build up. Thus, it is important that you can predict long-term success, but it is equally important to be realistic about when that will happen.

It may also be important to point out, if this is not your first Internet based venture that you have learned from your mistakes. As John Powell said, “The only real mistake is the one from which we learn nothing.

Section 5: The Marketing Plan. Here you need to explain exactly how you will achieve profitability in the long term through marketing your business. You should cover all of the following points in the marketing plan.

- What objectives must you achieve to become profitable, and how will you go about making them happen?

- How did you obtain your profitability model, and why is it credible?

- What expert help can you call on to help you achieve your objectives?

- Will you need ongoing financial boosts?

- How much of your plan is fixed, whatever happens, and how much depends on the success or failure of your plans? Also, how will you modify your plans to take changing circumstances and customer reaction into account?

- What can you offer investors in exchange for funding? This usually involves issuing equity shares, but you have to work out a value for your company to know how many shares is equal to 1% of your company, or what percentage of your company you will give away for a certain investment.

- What is the minimum investment you will accept? Yes, you are keen for money, but you need to be thinking of a few major investors who will get seats on the board rather than hundreds of small investors. That gives you less people to keep happy, less to deal with, and more control over what happens to your company. It is also worth pointing out in the plan that you will accept only supportive investment. Don’t make the shares too easily redeemable, or you may attract quick profit takers. Make sure your investors are serious about wanting your company to succeed. As before, this will also help to reassure investors that you won’t suddenly be in a crisis because of withdrawal of funding.

- How many products/services will you sell, and how will you decide what to concentrate on?

- Where will you keep stock? Can you put in place a Just in Time (JIT) stock model?

- How have you decided on a pricing model for the product/service you will be selling?

- How will you get customers to pay, and what will you do about those who don’t pay?

- What are your Unique Selling Points?

- What is your projected cost of acquiring each customer, and what do you calculate will be the lifetime value of each customer?

- How do you plan to collect customer statistics from your website, and use those statistics to help build your business? You should already know your customers from your research, but you need to show how you will get to know your target customers well enough to create user profiles.

- How many customers are you aiming to get in the first year? How many potential customers are in the market for the product or services you will provide, and how frequently do you think they will buy from you? Justify your answers.

- Where are your customers located?

- How will you turn new customers into repeat customers?

- How will you publicise your business? What forms of advertising will you use, and how much will that cost?

- What are your long-term aims for the business? Diversification? International expansion? Stock market listing? Be sure to actually have long-term aims.

Section 6: The Website. Here is where you present your online requirements and identify key design and technical features matched to your present and future needs. You will need to translate your business requirements into technical implementation and cover both the business-oriented requirements of your site and the customer oriented requirements.

True scalability is obviously a prerequisite, because the requirements of online businesses always grow with time. If your solution is not scalable, you may have to start from scratch when you want to upgrade.

Try to ensure that the solution you decide on is kept as simple as possible. Flash intro's look great, but lose customers became of the time they take to download. Remember, you are in charge. Your website is probably not the place for the graphic designer to create a showcase of his/her multimedia skills.

There are also a number of other questions you need to answer about your solution:

• What will be your business domain name?
• What are you going to sell? (You need to reiterate here).
• What information will you provide for each product? Will you show pictures? If so, how will you obtain them?
• Are you going to need a transactional or a display site?
• Will you have multiple departments or just one? Will it be a vortal, a portal, a shopping mall, or a single shop?
• Is web-space an issue?
• Will you be taking credit-card details? If so, who will be your Payment Service Provider, and what will be your security arrangements?
• Will you be letting out web space on your site to others as a way of increasing revenue streams, or not?
• Are you aiming for a worldwide market, or a local market?
• How will you achieve search-engine registration and maintenance?
• What will the site look like? (A storyboard should be included, showing the initial layout and elements of your site.)
• Who is going to run, update and maintain the site?
• How will you keep customer information safe?
• If you are not using an Applications Service Provider, what will you do about data backups; how will you provide telephone support for visitors to your website, and how will you deal with problems?
• How will you keep track of stock and orders, arrange delivery and deal with complaints, returns, refunds, out of stock items, and order tracking?
• What shipping options will you offer?
• Will you have a special offers area?
• How can you generate additional revenue through your website? Advertising? Subscriptions? Affiliations?

Affiliation: If you are going for affiliation, there are obviously things that need to be decided: Are you going to put your entire database into the affiliation system, or just part of it? Do you want to bring people into your website through highly profitable items, or through loss-leaders?

You will also need to decide on commission levels for your affiliates, and there are various ways for this to work. You can pay for clicks through to your website, or you can pay for actual sales generated through your affiliates websites. Usually, it's better to pay for the sales - it's less prone to abuse, and you can more easily factor the costs into your budget.

You can pay a straight percentage on all sales, or you can vary the percentage according to the sales made - for example, you could reward affiliates for achieving a certain level of sales by increasing the commission for affiliates who earn over, say £1000 per month.

Don't forget the affiliation company's override, which usually works out to between 25% and 50% of affiliate's earnings. That can add up to a substantial amount every month. However, you get what you pay for. The better systems can put you on more websites, and they are more popular with affiliates. It's a matter of factoring everything into account when you are working out how much commission you are going to pay affiliates. Don't forget that even if it means you make no profit on a particular sale, you've gained a customer who has a credit card, likes buying on line, trusts you, and will be open to more offers from you.

Affiliation fees can therefore be seen as a part of the cost of customer acquisition, and they are usually a worthwhile part if you are selling in competition with others.

As your company becomes bigger, and better known, you will be able to increase your profit margins by reducing your affiliates percentage of the sale, by sourcing your products cheaper, and by making a higher percentage of your sales through other routes.

Section 7: Funding requirements. How much do you need? How much do you already have and what funding avenues have you already explored? What interest have you raised so far? What options depend on the funding you can raise, and why can’t you do this with your own money? You will need to show commitment here. Andy Kitchener, CEO of Shopcreator, started the business in 1998 by remortgaging his house. He believed in what he was doing. Do you have the same level of belief in what you are doing?

How will you keep your costs under control? Get down to the practical details here and cover everything from the premises you hope to acquire, to the people who will be answering the telephones. It is difficult to get this right, because there are always unforeseen costs, but you should allow a generous sum for contingency. Aim, if you can, after all costs are taken into account, to have a full year’s cash reserves on hand. A major reason for business failure is low cash reserves. If you are waiting to be paid from a company, and they take twice as long as they should (it will happen), you still want to be able to pay the wages.

You should also list your wages here, and those of your other directors. What, if anything, will you pay executive and non-executive directors, and what other incentive can you give them to want to be a part of what you are doing.

Section 8: Summary. This section should be no more than one page that reiterates the most important aspects of your business plan.

• Who your customers are and how you have identified them.
• Why there is a need for your product, and why customers will buy from you. Repeat your Unique Selling Points.
• When you will have the business up and running, and when you expect to go into profit.
• What will be your business domain name, and how will you set up the website? Through an Applications Service Provider, or on a DIY basis?
• How you will achieve a turnover? How you will build the business to achieve long-term profitability? How investors will ultimately profit?
• Include a contact number at the end of your business plan in case anyone loses the contact details page. Think everything through and get to know your plan well – you are certain to get some very detailed and penetrating questions.

Remember, we provide the most effective PR in the business. Include a budget for ResponseControl PR in your business plan, and we will help with every aspect of your business!

Contact John Bremner for more information on 01904-340916, or 077438-96302.