No business model? It's your funeral

The range of failed Web sites that went broke last year offers an important lesson to all would-be Web entrepreneurs. The lesson can be summarised thus: just because you can do it doesn't mean that you should do it. The fact that the technological capability is there does not mean that anyone wants the service or product being offered.

Take the case of Heavenly-Door.com, set up to supply funeral services. After five months and $26m (£17.3m) the business closed. Of course it did! Who in a state of bereavement would want to go to a Web site to arrange such a personal thing as a funeral?

On the other hand, not only does the Web site need to offer something that is truly needed and wanted, but there has to be a reasonable profit margin in it for the e-business.

Urbanfetch.co.uk illustrated this perfectly. Here was an attempt to give the consumer a fantastic deal by ignoring the realities of transport costs. But most companies just can't magic away the carriage cost and they have to levy a delivery charge. The delivery charge levied is sometimes not that large, with the supplier partly subsidising this cost out of the sale profits. But someone has to pay for the carriage. Transport is a key element in the economic equation and unless it is properly integrated into the cost model the business will not survive. Urbanfetch.co.uk lasted nine months before closing its doors.

The list of e-business failures will continue to grow until Web entrepreneurs begin to address the issue of drafting a workable business model. Last year most Web entrepreneurs simply estimated the market size and assumed they could easily grab a percentage of it. These calculations produced enormous potential sales figures. They seldom did in-depth analysis to understand how to obtain this business and what the cost of obtaining it would be.

A professionally produced business model needs to address two issues. First, a successful Web site needs to have a compelling and preferably unique reason for attracting people to it. Second, it needs to be able to charge a fee that will cover the business costs and make a profit for its investors. If these two questions cannot be answered then perhaps the e-business will not succeed.

In trying to answer the first part of this demanding question it is essential that the Web entrepreneurs take advice from potential users of the Web site. It's not good enough for them simply to imagine the reaction of potential clients. This was one of the issues that brought Boo.com down.

With regard to the second part of the business model, there is no point in proceeding with a business for which there is not an adequate number of paying clients. And these paying clients need to be reachable at not to great a cost. E-Stamp.com gave up and closed its doors because although there was a market for postage stamps in the US, it was costing a prohibitive $600 to get a client to sign up.

There is nothing new about creating a business model to ensure the business idea will "fly". But, it seems to be overlooked when Web entrepreneurs set up their operation.

It is is difficult to make a success of an e-business. Specifically e-business is complex, expensive and requires resources and skills or competencies.

However, if implemented correctly, it can provide a very good return and the challenge for this year is to avoid some of the types of investment we have seen before and aim more accurately and consistently at opportunities that can produce good value to users and a return to investors.

Dan Remenyi is an e-business consultant and author of several books on improving organisational performance through the most effective employment of IT. His latest book is The Effective Measurement and Management of IT Costs and Benefits.