The Internet can be a scary place for any company. For small and medium-sized enterprises (SMEs) without a big IT department or a management team stuffed with MBAs, it can be terrifying. At a time when dotcoms are losing money hand over fist, big retailers are launching sites which flop spectacularly, and sites stymied by their own success can't deliver on their promises, can SMEs really make a success of e-business?
In fact, Web consultancies believe SMEs have a number of advantages when it comes to making the move into e-business. First, they enjoy much greater flexibility and freedom compared with large companies: they can make decisions and act on them quickly without getting too hung-up about cannibalising their existing business. That's one of the reasons many big companies are spinning out their e-business activities into separate divisions, which can act like SMEs.
Second, SMEs can provide an online experience which can be just as good as anything dreamt up by a big company. "It's all about how you present yourself on the Web and what your offering is, rather than the size of the organisation," points out Alex Barnett, director of sales and marketing at Web creations company Bluewave.
What SMEs often lack are the resources - technical, financial and Internet marketing skills - to turn vision into reality. Those resources are likely to become ever more scarce and expensive in the near future, but big companies are also suffering a brain drain, as bright sparks leave to set up dotcoms and join small start-up companies.
Barnett thinks that SMEs with strong ideas may be able to capture some of that talent because they can offer a less corporate atmosphere, plus the responsibility and rewards that would-be Internet entrepreneurs are looking for, backed by the security of an established company. Technical staff will also welcome the chance offered by SMEs to get their hands dirty with all aspects of an e-commerce solution, rather than being stuck as a small cog in a big project.
However, before SMEs rush into e-commerce, they should bear in mind that some products are definitely more suited to e-business than others. Barnett points out that companies offering intangible products - such as software, where you can offer time-limited trial versions for download - will find e-business a lot easier than businesses delivering real-world goods.
"The classic issue for real-world goods is to state clearly the limitations for delivery. People are often surprised to find business coming from Australia, Singapore and the US, and you have to set rules - and publicise them - for what business you will turn away," he explains.
There is also the practical issue of delivering physical goods. Sean McAvan, Internet development manager at ISP Digital Exchange, suggests that the SMEs who will find it easiest to make the transition to e-business will be those selling small but high-value products, where there is sufficient margin to cover the effort of despatching them to customers individually.
McAvan also sees great potential for e-business where interactivity with customers is a key part of the process. The Web will be an ideal medium for offerings where customers need to fill out forms before receiving appropriately-tailored follow-up, in the form of a telephone call or specific literature.
Bluewave director Barnett agrees that service-based SMEs - especially those offering professional services - can do particularly well on the Internet.
"People are actively looking for professional services on the Web and conversing with professionals through the Web," he says.
McAvan thinks the Web can actively help service-based SMEs compete more effectively against bigger rivals, especially if they can offer extra levels of service such as online booking of appointments or online consultations.
What SMEs can't do, unlike large corporates and pure dotcoms backed by venture capital, is to run their Web site at a loss to gain market share. "SMEs need to get a quicker return on investment, grow more organically, be more commercially focused and be more sensitive to what is or isn't working for the company," suggests Barnett.
That means e-business initiatives for an SME have to be backed by a sound business plan. Chris Webster, head of integrated supply chain management at Cap Gemini, points out that it's very easy to spend a lot of money on technology without knowing why you're doing it. "The first step is to understand what you want to do as an SME," he says.
Francesco Benincasa, a director of Ihavemoved.com, which helps people moving home to notify banks, utility providers and so on in one fell swoop, agrees that SMEs need to think carefully about which services to take online, and then identify the people, premises and technical resources required to make that happen. Only when they have done that should they look at selecting service providers and Web consultants.
Another key question to answer before you start looking for technology partners is the size of your budget. McAvan feels there is a fine balance to be struck between spending too much on e-business and spending too little. "If you spend too little, you will end up with a poor shopfront," he warns. "If you spend too much, you won't get a return. The key thing is to have a clear idea before you approach a Web designer or consultancy of your budget, the goals you want to achieve and the timespan you want to achieve them in."
Finding the right technical partners can also be particularly tricky for SMEs. McAvan thinks smaller companies tend to suffer more from bad advice because they lack the resources to shop around. "Big companies will look at a dozen consultancies - the average SME will look at just two," he says. "There's also a temptation to go for an off-the-peg solution which, while it will work, may not offer anything specific for your business or product."
Ihavemoved.com took its business brief to a series of agencies to get their reactions and ideas. "You need to find a company that really understands what you're trying to achieve and which can respond rather than slavishly fulfilling the brief," Benincasa says. "You also need to find someone who can demonstrate similar projects and show how it will work for you." That's why Barnett advises on always finding e-business consultants through the Web. "Go to sites you like and find out who did them, then check out the developers' own sites," he says.
The next step is to understand what resources will be required in-house to maintain and manage the site once it has been delivered to you. You should also do some modelling to look at what might happen if, for instance, the site becomes much more successful than expected. Webster points out that one of the keys to being able to handle rapid expansion is to automate as much of the process as possible. Where processes involve people, you will face issues recruiting and training them quickly enough so that the workflow is not impeded.
Picking the right technology can also be something of a lottery at the moment, because the marketplace is moving so quickly and your own requirements may be shifting too. There are definitely technical limitations on some of the low-end solutions being offered, but highly scalable, highly robust technologies are very expensive.
Case studies show that almost all SMEs now trading successfully on the Web have been prepared to junk the first version of their site - often because it has served its purpose by allowing them to learn how to move on to the next stage.
Barnett suggests that because Internet technologies are evolving so quickly, it's actually not reasonable or feasible to ask for a system which you can afford today but which can increase by several thousand per cent in the future. He also thinks it doesn't make sense to spend a lot of money to support volumes you're not expecting for another year. He agrees you should start small and learn from that experience, then be prepared to look around for a new system when you need to make the next step.
However, Barnett goes on to point out that if you are expecting significant growth in the short term, your developers must be made aware, so they can incorporate an upgrade path into the solution. A good tactic, he says, is to develop a modular system so you can start with simple or small-scale solutions and then swap in more complex or robust solutions later.
This will also allow you to take advantage of e-business services, such assecure creditcard authorisation, offered on a pay-as-you-go basis by Internet service providers (ISPs). "It will be rather like operating a franchise within a department store, where you rely on the store's infrastructure to help sell your goods," Webster suggests.
Finally, Benincasa urges that you should provide a clear window for testing before launch. "Most sites are developed in a rush and testing suffers, but it's critical that you eliminate small bugs, which will immediately put off visitors," he warns. "It's more prudent to push back the launch date than to launch a product that's not robust."
However, even if your site looks good and works well, you may still face problems. Simon Cairns, business development director of portal software supplier Ardeo, points out that SMEs don't have the brand name and promotional spend that big companies have to attract customers to their sites. He also thinks that search engines don't serve SMEs well, since many search engines operate on the principle of indexing the biggest and most popular sites.
"Because SME sites aren't big or popular, it can be like putting a billboard in the middle of a field seven miles from the M1. You won't do any incremental business except with your regular customers," he says.
The solution, he says, is to link into a portal or community-based site, since these will attract enough traffic to be indexed by search engines, while you should benefit from passing traffic attracted initially by other firms on the site.
Ardeo offers software that allows ISPs and trade associations to create portal sites for a particular geography or community of interest. It is also franchising a number of geographically-based Ardeo Business Centres which will create local portals and offer services such as training, graphic design and catalogue imports to tenants.
If your site does get known, you could find your business going global. Handled in the right way, the Inter-net can allow SMEs to extend their geographical reach, Webster points out. But it can also cause you problems, as US-based popcorn retailer The Popcorn Factory found.
"We haven't really addressed international sales as well as we should, partly because there are lots of restrictions with food products," admits director of marketing Cheryl Zatz. The company's current approach is to ask surfers outside the US to telephone the company.
McAvan suggests that having a company with a .co.uk domain name rather than .com will usually exclude most foreign traffic. "It's also about managing customer expectations by stating clearly on the site where you are prepared to deliver." He suggests this should be reinforced by limiting the options users can select when entering a delivery address.
Despite these difficulties, SMEs can make a success of e-business, once they realise there is no mystique to it. They should treat it like any other business proposition, says McAvan. Look at where you are now, where you want to be in one, two and three years' time, what the site should say about your company, what you want to sell and in what volumes, your budget and how much you expect to reinvest - and develop clear business plans.
He offers a final piece of advice. "You should then stick to those plans: if you're not meeting your goals after the cut-off point you set, you should cut your losses and invest in something else."
10 steps to SME e-business success
Case study: Just the ticket for Nottinghamshire County Cricket Club
With its main ground - Trent Bridge - a leading venue for international cricket, Nottinghamshire County Cricket Club was quick to recognise the potential of the Internet to communicate with supporters around the world. The message was driven home during the 1999 Cricket World Cup, when the club's Web site was bombarded with requests from supporters looking to purchase tickets online. Since the majority of the club's sales were already made by credit card, with a sizeable proportion made over the telephone, Web-based sales seemed a natural progression.
The club therefore scrapped its first, information-only Web site, created around two years ago, and developed a new one providing online sales of tickets and merchandise, using BT's StoreCentre catalogue service. Lynn Steel, the club's membership secretary and ticket office manager, explains that StoreCentre was chosen because the club felt it would be simple to set up and easy to maintain, as well as cost-effective.
The revamped site was launched last November to coincide with the release of tickets for this year's international matches. Tickets for all international and domestic games, as well as coach travel and club memberships, are now available through the site. Web customers can also purchase club merchandise and around 250 items of cricket equipment, building on a limited mail-order service already being operated by the club shop.
Development of the site was handled entirely in-house by the shop and ticket management team, who have only limited technical expertise. According to Steel, they were amazed at how easy it was to set up StoreCentre. The major drawback, she explains, is that the visual appearance of the StoreCentre part of the system can't easily be customised to look like the rest of the Nottinghamshire County Cricket Club site. The club is now pressing BT to develop StoreCentre to make this possible.
In the site's first six months of operations, around £20,000 of business has been received, mostly for international tickets and club memberships. Steel is delighted that the Web site appears to have tapped into new markets, since a high proportion of people booking through the site have never previously visited Trent Bridge. Sales of cricket equipment are also starting to take off as the domestic season opens.
The club hasn't yet received any international orders from customers in the two countries whose test sides are touring England this year - the West Indies and Zimbabwe. However, Steel expects to see significant overseas traffic through the site next year, when Pakistan and Australia are playing, since the company normally receives a large number of telephone-based orders from Australian supporters.
Visit the site at: www.trentbridge.co.uk
Case study: Catalogue of success for the The Popcorn Factory
The Popcorn Factory has been selling gift tins of popcorn through mail order catalogues and a factory shop in Chicago since 1979. Retailing its products through the Internet was a relatively simple step, because it was already set up to make home deliveries, and it has been trading online since 1997. "We saw that other catalogue companies were getting good results by linking up with Internet service providers (ISPs) such as AOL, so when the Internet opened up, we felt we couldn't fall behind," explains Cheryl Zatz, The Popcorn Factory's director of marketing. "We felt that we should at least get our foot in the door and learn, even if we didn't create the best Web site to start with."
In fact, the company quickly realised that its first site wasn't up to scratch - with reliability a particular problem - and that it needed to invest more in its online activities. In October 1998, it brought in European-based Web creations company Bluewave to overhaul the site. According to Zatz, Bluewave was able to take The Popcorn Factory's marketing ideas and translate them into a robust technical solution, finding partners such as its host ISP, PsiNet, as well as creating the site.
Zatz explains that the Web site doesn't simply replicate the paper catalogue: the number of products is limited, to avoid creating navigation problems for users, but the site does include a number of exclusive lines. Zatz says it also proves a very useful channel for clearing older or overstocked merchandises, since offers can be added easily and then removed quickly once the stock has been sold. The company also sends out monthly e-mailings to alert customers to special deals on the Web site.
The new site has proved a hit. According to Zatz, sales through the Web have grown from 5% in its first year of operation to 10% this year, despite the company undertaking very little marketing to promote the site. Around half of these orders are from new customers, although Zatz is still analysing the data to determine how many are pure Internet customers and how many have previously received a catalogue but are choosing to place their first order online. "One of the things we are trying to monitor is whether we are cannibalising our catalogue sales, but so far it seems to be incremental business," she says.
However, success has brought some problems. In the run-up to Christmas last year, the site proved so popular that bandwidth bottlenecks became an issue, while additional sales through the Web caused problems with stock levels because they hadn't been accurately factored into the company's manufacturing forecasts. The company is now planning to introduce a new order entry and fulfilment system later this year which will be integrated with the Web site, so that customers can find out whether stock is available and check the progress of their order.
Visit the site at: www.thepopcornfactory.com
Case study: Virtual reality flythrough fires up Chantry Kitchens' trade
Getting yourself noticed among all the clutter on the Internet is a hard task for any company, but it is especially difficult for smaller businesses. A revamp of its Web site has helped Yorkshire-based Chantry Kitchens to improve its performance and position in search engine results, while a virtual reality flythrough of its showrooms is grabbing the attention of potential customers. As a result, the company has increased its business by around 10% month on month since the revamped site was launched six months ago, and it has extended its customer base from Yorkshire to the whole of the UK.
The company, which manufactures its own range of kitchen furniture and offers associated services such as planning and installation, first went online around two years ago with a very simple, static site. Managing director Graham Ware explains that the company was spurred on by the sense that it simply had to have a Web site to remain credible, but he admits the company initially found it hard to relate the possibilities of the Web to its own products.
The breakthrough came when the company began investigating computer-aided design (Cad) and estimating software. Around the same time, one of Ware's former business partners joined Web consultancy Vital Online and opened Ware's eyes to the potential of combining Cad models with the Web. Ware commissioned Vital Online to develop the virtual reality showroom and overhaul the rest of the site.
Although Chantry Kitchens uses its Web presence to generate leads, Ware says the company has no plans to move into selling flat-pack kitchens entirely over the Web. "We fully intend to continue to offer the full service you would get from a specialist kitchen company," he says. However, the volume of responses - between 20 and 40 leads a week from across the UK - has obliged it to change the way it interacts with customers.
"Initially we sent out our full-colour brochure to each enquiry made through the Web site, but that proved very expensive," Ware explains. "Now we send out a more limited leaflet, with information about the company. We only send out the full-colour brochure if potential customers come back to us. We're also hoping to determine through the Web site what potential customers are looking for, in terms of style, price range and whether they've already had plans drawn up."
The company's transition into a nationwide supplier - with the majority of its Web business coming from the South East - has also forced it to make changes to its fulfilment operations. Ware points out that many different components have to be brought together to create a complete kitchen. The cost of getting that wrong and delivering an incomplete or incorrect order becomes much higher when you are delivering to customers who are 200 miles away rather than 20. Its Web-generated business has therefore forced Chantry Kitchens to strengthen the management and quality control aspects of its fulfilment process.
Visit the site at: www.chantrykitchens.co.uk