identifying success factors for rapid growth in sme e-commerce

Identifying Success Factors for Rapid Growth in SME E-commerce

Small Business Economics

19: 51–62, 2002. 2002 Kluwer Academic Publishers. Printed in the Netherlands.

ABSTRACT. With high unemployment rates and majorcompanies downsizing, SME policy has started to move centrestage. The small business job-creation thesis can be traced toDavid Birch, who placed great emphasis on the job genera-tion process of very rapidly growing businesses he termedGazelles: “In fact most firms don’t grow. Gazelles do. Andthat is only 3% of all small companies.” This paper focuseson the baby gazelles of the Internet economy. It looks atcritical success factors that fast growing E-commerce venturesneed to take into account in the start-up phase. Based on theresults of the EU project KITE, the article demonstrates linksbetween critical success factors, and highlights the competi-tive advantage deriving from the application of a certaincritical success factor. It will compare the critical successfactors identified for high growth E-commerce ventures in thestart-up phase in KITE with research into the success of highgrowth companies in general.

1. The KITE sample: selecting high growth 1. E-commerce SMEs

With high unemployment rates and major com-panies downsizing, SME policy has started tomove centre stage. The small business job-creationthesis can be traced to David Birch, who placedgreat emphasis on the job generation process ofvery rapidly growing businesses he termedGazelles: “In fact most firms don’t grow. Gazellesdo. And that is only 3% of all small companies”(Hopkins, 1997). Most firms that do not die onlygrow in the first few years after start-up and thenstabilise to provide the owner manager with anacceptable income. Most owner-managers seem

satisfied with this comfort level of activity anddo not actively grow their firms beyond it (Burns,1996). In the EU there are 16 Million companies,99% of them employ fewer than 250 people; 93%are micro-enterprises with fewer than 10employees. The net employment effects of theseEuropean SMEs were created by “. . . only arelatively small number of more dynamic andinnovative SMEs” (EIMS, 1996) or, pace DavidBirch, by the European baby gazelles.

The paper is based on research undertaken inthe framework of the ESPRIT project KITE1

which collected information about 150 SMEE-commerce ventures world-wide demonstratingthe range of ideas and activities that is currentlyunfolding in SME E-commerce. To compile data,1000 E-commerce activities were contacted.Instead of inflating numbers by including multiplecompanies serving the same market, e.g. 20Internet-based music suppliers, KITE’s effort hasbeen directed at finding innovative SMEs acrossa wide range of sectors, and covering micro-SMEs, medium-sized companies, electronicmarketplaces and auction sites serving whole SMEcommunities, Internet-only start-up companies,and SMEs for which E-commerce is a new marketchannel.

For the KITE best-practice study, the teaminitially selected a sub-sample of 46 InternetSMEs from the inventory. These were chosenbecause they were viable Internet businesses thathad reported high growth and/or had been goingconcerns for a minimum of six to nine months.Phone interviews were conducted in August/September 1999 to establish their strategies andobjectives. Twenty-seven of these venturesshowed a positive attitude to growth, and wereretained as best practice, 17 of which were baby

Final version accepted on August 15, 2001

Sylvie Feindt ConsultingIsenburger-Kirchweg 16b51067 KolnGermanyE-mail: [email protected]

Sylvie FeindtJudith Jeffcoate

Caroline Chappell

gazelles. These 17 baby gazelles come from eightdifferent European counties.

KITE has classified its SMEs by growth andmotivation as more traditional categories such assize, market sector or business-to-business orbusiness-to-consumer E-commerce proved to beinappropriate for E-commerce. KITE adapted aclassification system originally developed byDavid Birch at MIT, which identified gazelles,growth-orientated companies that have achieved aminimum of 20% compound sales growth eachyear over the previous five years, starting from abase of at least $100,000. Gazelles are primarilymedium-sized enterprises (i.e. with 100–499employees). Looking at the KITE sample weidentified the KITE “baby gazelles”. A babygazelle is a very innovative micro or small enter-prise (i.e. with 5–49 employees) with the clear aimof wealth creation. These companies have thegreatest potential to become a gazelle, i.e. theirowners are consolidating the company and mar-shalling resources for growth.

Deriving from the three generic strategies ofPorter (1984), the fast growing KITE companiesfall into two distinct groups:

• Baby gazelles with a differentiation strategy(broad market);

• Baby gazelles with a cost focus (niche market).

Unlike much larger companies, SMEs taking upE-commerce have very little choice of strategy. Allmust start out in a niche market, with some meansof differentiating themselves from their competi-tion (differentiation focus). From this competitiveposition, they may move into a broad market basedon differentiation, or, in a few cases, into a nichemarket where they can offer a cost advantage (costfocus). Many of the KITE baby gazelles areseeking broad markets for their differentiatedproducts and services, by replicating their successin other geographic areas and market sectors.Others are seeking to become price leaders in veryfocussed markets: As SMEs, they cannot hope tobecome cost leaders in a broad market, however.

The 17 KITE baby gazelles comprise retail,wholesale, manufacturing business and otherservices companies. They range from an onlineauctioneer, telecom wholesale trader, software andelectronics suppliers and third party secure tradingservice provider, to an online publisher, market

researcher, online supermarket, specialist foodbroker, vendors of groceries, fruits, delicacies orsunglasses, as well as a digital network for inter-mediaries in the footwear industry. Of the 17 babygazelles 14 were created in 1997 or later, thus theycan all be considered to be at an early stage ofgrowth although in terms of Internet time they arealready legacy companies. The two oldest com-panies are a manufacturing company and asoftware house, which were created in 1979/1980.Of the 17 baby gazelles nine had or have, in themeantime, obtained external capital. Three babygazelles have floated on the stock market and havethus certainly grown to gazelles.

KITE as a whole focused on SMEs thatgenerate at least part of their revenues over theInternet, which represented a small share of theoverall SME population in Europe in 1999.According to the European Observatory for SMEs(2000) 42% of European SMEs had currentlydirect access to the Internet, but only 7% used itfor distribution of sales and goods. As this paperfocuses on fast growing Internet ventures in theearly stages of their businesses, these representan even smaller, but as we believe a highly inter-esting category. Critical success factors derivedfrom this group are of interest to growth orientedSMEs entering the Internet. The article willdemonstrate links between the critical successfactors, and highlight the competitive advantagederiving from the application of a certain criticalsuccess factor. It will compare the critical successfactors for the start-up phase of E-commerceventures identified in KITE with research into thesuccess of high growth companies in general.

2. High growth companies: the current 1. research

The following studies have looked at the factorsinfluencing high growth SMEs. However, theyhave not looked specifically at SMEs engaged inE-commerce, which we took as the focus of theKITE study. The results of the research areoutlined to enable a comparison with the successfactors identified by the KITE project.

Analysis of the growth of SMEs has beenaddressed in a range of theoretical and empiricalstudies. Theoretical work includes models for thegrowth of a firm in stages, such as the models of

52 Sylvie Feindt et al.

Greiner (1972) and Churchill and Lewis (1983).Each offers a framework for considering thedevelopment of a business in five stages. In theGreiner model each of the five stages has a par-ticular management style (creativity, direction,delegation, etc.), faces a particular managementproblem and is characterised by a crisis which hasto be overcome before the business can move on.In the Churchill and Lewis model the stages aredifferentiated by the changing importance offinancial or personnel factors and businessresources on one hand and the owners’ personnelgoals, managerial and delegative capabilities, andstrategic abilities on the other. A key contributionof this model is the Success-Disengagement stage,where after reaching a level of stability, the firm’sowner-manager may voluntarily choose not topursue further growth as an objective. This articleconcentrates on the start-up phase.

In her analysis of success factors of SMEs inTaiwan Yeh-Yun Lin (1998) draws five majorlessons: Parallel progress in activities related tostructure, technology, and people is crucial forsuccess. Successful SMEs place greater emphasison soft issues (people) than hard issues (tech-nology, structure). The management skills andconcepts of the founders are deemed much moreimportant than their technical skills. Employeeskills are of crucial concern and can be mosteffectively developed in a nurturing working envi-ronment. Nevertheless the impact of businessfounders on organisational success remains theleading factor. A report from the London BusinessSchool identified six common factors associatedwith successful growth companies which partiallycorresponds to the list of Yeh-Yun Lin (Burns andHarrison, 1996):

1. An experienced owner-manager with a goodknowledge of the market and industry;

2. Close contact with customers and a commit-ment to quality of product and/or service;

3. Innovation and flexibility in marketing andtechnology;

4. A focus on profit not sales, with good man-agement systems controlling costs;

5. Attention to good employee relations, oftenbacked by a bonus scheme;

6. Operating in a growing market.

As will be shown later, these factors apply to the

KITE sample, although employee relations andskills have not been investigated in our survey. AKITE gazelle, however, remarked that in order totie good employees to the company they need tohold a stake in it. As a result the venture changeditself into a joint-stock company.

Other empirical studies such as the article ofLew Perren (1999) identified four interim growthdrivers that influence micro-enterprise develop-ment: owner’s growth motivation, expertise inmanaging growth, resource access and demand.These interim growth drivers are in turn influ-enced by a myriad of independent factors. Otherpublications are more sectorally oriented, such asthe article of Ralf Müller (1999) which outlinesthe ideal development process of a softwarecompany. Based on an empirical study with 53software houses, the article describes market,product, co-operation and financing strategies inthe different life cycle phases – idea, start, growth,maturity and revitalisation.

A study commissioned by the Dutch Ministryof Economic Affairs on high growth companies inthe Netherlands surveyed almost 300 high and lowgrowth companies. The two main conclusionswere that firstly, the original founder often stillplays a crucial role in the performance of highgrowth companies. Secondly, while there is noblueprint for growth, high growth companiesmanage to effectively break through the “growthbarriers” that they encounter. Generally theirinternal business processes are better organisedthan in low growth companies. Thus growthappears to be primarily a matter of good entre-preneurship. (SME Policy Unit, Ministry ofEconomic Affairs, 1999). Also Hay concluded inits investigation why some firms grow and othersdon’t that, “over the long term it is the internalrather than external barriers to growth that exertthe decisive influence upon SMEs’ rate of growth.The key internal growth constraint is managerialcapacity and the unwillingness on the part of theowner-managers to incur risks associated withgrowth” (Hay, 1994, p. 288).

A study by the European Innovation MonitoringSystem (EIMS) focuses on innovative fast-growthSMEs in industrial manufacturing sectors. Theyrepresent a small but special subset of fast-growthSMEs and innovative SMEs who have succeededin combining technological novelty with signifi-

Identifying Success Factors for Rapid Growth in SME E-commerce 53

cant and sustained business expansion. The studyidentifies three key processes which are criticalto small firm growth (EIMS, 1996):

• Generating capabilities: recognising and devel-oping a distinctive capability with sufficientcompetitive advantage compared to other firms;

• Mobilising resources: securing necessary finan-cial, human and technological resources toenable growth;

• Negotiating transitions: making effectiveadjustments in the company with regard to thechances in organisation, products and marketsthat are associated with the different phases ofgrowth.

The EIMS study reported a reliance of all innov-ative fast growing companies on an innovativeproduct even if there is a considerable diversityin the type and combination of capabilities onwhich the firm relies for its innovative competi-tiveness. Most of the companies researchedavoided dependence on a small number of largecustomers but also stayed clear of mass marketsof individual consumers. However, most of themoperated internationally. The majority of com-panies rely on their customer closeness andspecialised know-how along with the dynamicdevelopment of their tacit capabilities as the basisfor maintaining their technological advantageagainst competitors. Accordingly internal R&Dplays an important role in over 90% of the inves-tigated cases. However, few businesses can bedescribed as innovative in the literal sense –completely new. The majority of owners may notbe entrepreneurial in the dynamic, glamorousinterpretation of the word. They may be entrepre-neurial in the way they use their resources to growtheir businesses (Burns and Harrison, 1996).

3. Identifying the KITE critical success factors

Critical success factor (CSF) analysis is associatedwith the Sloan School of Management and hasbeen used as a model for information systemsdevelopment and integration. The idea of criticalsuccess factors was developed by Rockart (1979)to help executives define their information needs.They are defined as “the limited number of areasin which results, if they are satisfactory, willensure successful competitive performance for the

organisation.” KITE sought to identify the areasin which satisfactory results ensures successfulE-commerce performance for SMEs, and to find,for each CSF, a set of best practices that supportsit.

CSFs are applied within the context of businessobjectives. We expected an SME to have 1 to 3objectives, with each objective supported bybetween 3 and 8 CSFs. We drew up a question-naire in which we took a two-step approach todetermining the CSFs applicable to SMEs:

• We asked SMEs about their objectives. Anobjective was described as a specific target thatthe company wanted to achieve within aparticular time scale. The example given was“To gain 5% of this year’s revenues from salesgenerated by the Web site”.

• We asked SMEs to identify the set of factorscritical to success in meeting these objectives.The questionnaire provided a set of nine cate-gories of CSF, with examples. Thus theexample given for the CSF, Content, was “byproviding additional product information on theWeb pages”. This set of CSFs was based on ourinitial desk research into the factors relevant tothe competitive performance of small busi-nesses entering the e-commerce market.

We analysed the sets of CSFs that emerged fromthe research to determine a list of factors that arecritical to the competitive performance of SMEsundertaking e-commerce. We have followedRockart in looking for CSFs in key areas. Rockartidentified four areas where executives shouldsearch for critical factors:

• The industry in which the firm operates. Allorganisations within the industry will sharesome CSFs (e.g. access to raw materials).

• The company itself. These CSFs depend on itscompetitive strategy/industry position. Largeplayers may determine these for the others.

• Environmental factors and temporal factors(e.g. economy, country or politics). Notnormally of concern but may be for a time.

• Time-dependent organisational areas. Thebusiness unit is the key area for determiningCSFs.

SMEs, by virtue of their size, do not tend to bestructured into business units, so we have ignored


this area as a source of CSFs. Regulatory issueshave affected some SMEs: for example, thecosts of telecommunications infrastructure, andconsumer protection legislation. However, it isbeyond the scope of this study to assess howSMEs can mitigate the effects of regulation anduse it to their competitive advantage. Therefore wehave not identified CSFs relating to environmentalor temporal factors.

As companies carrying out E-commerce haveparticular characteristics in common with eachother, regardless of the industry sector in whichthey operate. This has prompted us to add a fiftharea to Rockart’s list: the E-commerce space itself.We have therefore related this extended list to theKITE inventory by identifying three sets of CSFs:

• CSFs relevant to all companies engaged in E-commerce;

• CSFs relevant to all companies in a particularindustry sector;

• CSFs relevant to individual companies.

The three tables below list the three sets of KITE

critical success factors relevant to the e-commercespace, the industry sector and the individualcompany. All critical success factors are definedand their competitive advantage is indicated.

The role of technology is to support the criticalsuccess factors, rather than act as a critical successfactor itself (Chappell and Feindt, 2000). Certainlythe technology matters, it helps to put a businessstrategy into effect, but it is just a means to an end.An ambitious E-commerce venture needs to decidehow much technology it wants and needs to doitself and how much it wants to outsource. Fewcompanies will want to build and manage every-thing themselves. All in all, E-commerce is moreabout strategy than about technology. Early E-commerce ventures have used their understandingof the technology’s potential and the absence ofany baggage to rush into markets that wouldpreviously have been closed to them. But in thefuture simply having a good business idea andbeing technologically smart is unlikely to beenough (The Economist, 26/6/99).


TABLE ICSFs relevant to all companies involved in E-commerce

Critical success factor Definition

1. Content The presentation of a product or service offered over the Internet in a way that is attention-grabbing and compelling.

2. Convenience The usability of the web site for the purpose for which it was designed: for example, to assist,buying or selling, to find information, to track a process.

3. Control The extent to which organisations have defined processes that they can manage. For example, anSME may have an agreed process with its fulfillment company whereby it is informed when itsproducts are delivered to customers; or an SME may have a process for responding to customerqueries within a certain timeframe; or for changing and updating information on its web site.

4. Interaction The means of relationship-building with individual customers by providing timely pre-salesinformation and excellent after-sales support.

TABLE IICSFs relevant to all companies within a particular industry sector


5. Community The means of relationship-building with groups of like-minded individuals/ organisations by enablingthe exchange of information and services tailored to the needs of the community.

6. Price sensitivity The sensitivity of a product or service to price competition on the Internet.

4. KITE CSFs for high-growth E-commerce 4. ventures

The eleven critical success factors that emerged asa result of the qualitative analysis for SMEs inE-commerce were segmented into three phases tomatch the different phases of growth throughwhich an SME may pass. Some will be requiredin the start-up phase, some will become impor-tant when growing and establishing the business,and some are important to ensure the business cansupport high volume E-commerce activity.

A SME with a determination to grow and createwealth has to take into account most of the criticalsuccess factors at an early stage in its develop-ment. A cost focus baby gazelle has to take intoaccount as many as seven critical success factorsright from the start, whereas a differentiation focus

baby gazelle has to handle the first six criticalsuccess factors to compete effectively. The tablebelow shows the critical success factors, whichbaby gazelles have to take into account in differentphases of their E-business.

4.1. CSFs in the Start-up phase

A start-up baby gazelle with a cost focus will needto consider seven critical success factors (listedin Figure 1) in order to compete effectively. Astheir E-commerce business grows, the babygazelles will need to add the critical successfactors community, partnership, process improve-ment and integration to maintain competitiveadvantage. Such critical success factors are addedincrementally: they are not replacements for thosein earlier phases of growth. Commitment and


TABLE IIICSFs relevant to individual companies


7. Brand image The ability to build up a brand name for the E-commerce business, and its products and services,using online and offline brand-building techniques.

8. Commitment A strong motivation for using the Internet and the will to innovate.

9. Partnership The extent to which an E-commerce venture uses partnerships to leverage Internet presence and expandits business.

10. Process improvement The extent to which companies can change and automate business processes.

11. Integration The provision of links between underlying IT systems in support of partnership and processimprovement.

Figure 1. Critical success factor appropriate for SME category and phase of growth.

content remain just as important in a high volumebusiness phase as at start-up, for example.

Some baby gazelles may address most or all ofthe critical success factors in their start-up phase,whether or not they will deliver competitiveadvantage at that point. The critical success factor,Integration, is an example. A baby gazelle maywish to implement a scaleable integrated systemsplatform capable of supporting a high volumeE-commerce business from day one. However, ina start-up phase, such integration represents a cost:the baby gazelle needs a business plan thatjustifies its investment. By the time high volumehas been achieved, however, the fact that the babygazelle has the necessary integration in place tosupport it will give it a competitive advantage overothers that do not.

The 14 baby gazelles that existed for amaximum period of nearly 2 years by the time weundertook the interviews, had on average imple-mented 5.7 CSFs out of the 7 CSFs that werecommended in the start-up phase. This highoverlap of best practices of the successful com-panies in the KITE sample, suggested that thereis a general set of best practices. All of these 14companies provide high levels of commitment, i.e.a strong motivation for using the Internet and thewill to innovate. Thirteen companies address thesuccess factors content and brand image and tenconvenience and price sensitivity. Price sensitivityhas clearly been omitted by those companies whopursued either a community approach or areproviding value added services. The lowest gradenine obtained the critical success factors controland interaction. Interaction includes responsive-ness, pre-sales information, order fulfilment,product performance, post-sales service andsupport aiming at the creation of a critical mass ofloyal customers. The relatively low grading of thisCSF suggests that perhaps some of the KITE babygazelles are not doing enough.

The grading of control is perhaps relatively lowas these KITE baby gazelles are still in their earlyphase of development, and perceive this as notnecessary at this stage. However, as baby gazellesare aiming from the start for high growth, they willneed defined and repeatable procedures in placeto cope effectively with increasing transactionvolumes. Certain business processes are specificto managing an E-commerce business. Other

processes are common to both real world andcyber businesses. Successful baby gazellesmaintain tight control over all their businessprocesses in order to maintain their responsivenessto customers and to outperform the competition.

4.2. CSFs related to all companies in 4.2. E-commerce

When mapping the identified critical successfactors to be taken into account in the start-upphase against the three sources of CSFs identifiedbefore – E-commerce space, industry sector andindividual company – it emerges that all criticalsuccess factors relevant to the E-commerce spacehave to be taken into account at the very begin-ning of the venture. All these success factors arepeculiar to E-commerce. Content and conveniencerelate to the virtual shop, which as the window toclients, is an important differentiation factor on theWeb. The Web is anonymous and global whichrequires SMEs to work much harder in terms ofcontent, convenience and interaction to differen-tiate themselves from competitors. In this respectKITE baby gazelles try to continually enrichcontent in response to requirements arising fromcontinuous research and form partnerships toprovide other content providers’ content. EvenBaby gazelles with a cost focus find that contentis important as a way of attracting people to theirsites. Here, the emphasis is on the range ofproducts offered, the ease with which customerscan retrieve information about prices and comparethem with the prices of competitors, and the “fun”element of the content, such as bargains, sales,auctions.

Also, E-commerce SMEs need to ensure thattheir sites are set up conveniently from the startin order to capture maximum business.Convenience techniques enable visitors to fulfiltheir purpose on the site and encourage them to doso because the site is so convenient to use.Customers will more readily return to a site whereit is easy to do what they want.

The CSF convenience is closely linked to theKITE success factor interaction. Interactionactivities help to build relationships with thepeople, who visit and use the site, by making theSME appear highly responsive to their inquiries,orders and needs. Simple interactive activities can


be highly effective: for example, responding tocustomer inquiries very quickly establishes “real”presence and shows interest. Interaction withcustomers builds their trust and loyalty, ensuringnew and repeat business. Loyalty is still aboutearning the trust of the right kinds of customers.Contrary to the common view that the Web ispopulated with volatile customers, the Web isactually a very “sticky” space. For building onlong-term customer relationships KITE babygazelles follow membership strategies, offeraccess to additional information to registeredclients, or excellent customer support. Othersmake the whole delivery process, including pro-duction and processing of orders, completelytransparent to the client. Authorised customershave access to all business transactions within thecompany: orders, past purchases, repairs, and soon, which make the relationship transparent. Thereis a clear focus on long-term relationships withcustomers. In addition, national offices deal withlocalisation of content, which is of key impor-tance, as public organisations tend to buy locally.Customers also prefer to contact a national organ-isation in case of complaint or enquiry. SuccessfulE-commerce ventures need to comply with thissuccess factor right from the start to build a criticalmass of loyal customers.

Also, the importance of the success factor,control, is peculiar to SMEs engaging in E-commerce: as they are potentially aiming at theworld market, they are likely to use externalproviders right from the beginning, in particular,for delivery and customer support. SMEs will notbe able to carry out all the processes internallythemselves – they will rely on partners to carryout certain processes. It is important that theyhave, right from the start, systems in place tocontrol processes external to the company as wellas internal processes, because the customer per-ception is that the SME is responsible for both.Control means thus reliability of partners in termsof timeliness and delivery, but also trust in, andthe integrity of the partners, particularly inknowledge-based ventures. The reliability ofpartners that provide delivery or support servicesis often checked via customers’ response.Ensuring the proper functioning of these supportservices is an important element of a customerloyalty-building strategy.

4.3. CFS related to individual companies or 4.2. industry sectors

The other three critical success factors, pricesensitivity, brand image and commitment, are notparticular to the E-commerce space, but have –as defined by KITE – a particular connotation forE-commerce. This applies in particular to pricesensitivity and brand image (only for cost focusbaby gazelles). Price sensitivity is a particularissue for E-commerce ventures, as customers tendto expect lower prices on the Web. Companiesneed to develop clear strategies either to avoidprice competition or to maintain a value-for-money image. For differentiated goods/servicescustomers could not obtain locally, such as sun-glasses, high quality seafood or other delicacies,they are often happy to pay higher prices. On theother hand, customers will be attracted to the siteof a cost focus baby gazelle primarily because ofits pricing strategy for the goods and servicesoffered. These companies tend to sell considerablycheaper than real world shops, consciously main-taining their value-for-money image. Cost focusbaby gazelles tend to offer a mix of cost reduc-tions on common goods and services withpremiums on specialist services. The low priceson commodity items will attract customers, andthe price reductions can be subsidised by thepremiums on specialist services, such as person-alisation.

Brand image does not matter so much to SMEsin the real world as they are integrated in theirlocal/regional markets with personal contact withcustomers. On the Web, where the next shop isonly a click away and the potential customer baseis defined by the language addressed by the Website, brand building activity is thus a necessity inorder to become known to the larger market. Babygazelles with a differentiation strategy may findtheir differentiated product/service enough in astart-up phase to recommend them to early cus-tomers. However, in order to reach a wider marketthat will underpin growth, they will need topromote their brand widely and energetically. Costfocus baby gazelles will also need to build a brandimage at an early stage of the business in order tobuild a critical mass of customers quickly. Itsstrategy of being a low cost provider will dependon its ability to achieve high sales volumes and


win market share. It will only achieve theseobjectives if customers know about the company,are convinced of its value proposition, andperceive it to be a better alternative to buyingthrough other channels. This means advertisingeffectively to its potential customer base and asso-ciating its brand with qualities/sites/personalitiesthat will help promote it to its target audience.

Finally, commitment is a success factor that isimportant for all start-up companies. Particular tothe Web economy is the pace of change requiringinnovation, openness and flexibility combinedwith a profound understanding of technology.Wetherefore defined commitment to mean the pre-paredness of a baby gazelle (under the directionof its owner) to continuously innovate andreinvent its business strategy. This requires thecompany to be open and flexible to new ideas,new technologies, new customer behaviour,market opportunities and partnerships, and to beable to quickly incorporate these into its businessstrategy. All the KITE baby gazelles demonstratedcommitment to such flexibility by:

• Continuously developing new products to stayahead of the market. Although very small, someof the baby gazelles put considerable effort intoproduct development, even pioneering devel-opments in their markets. As a reward theseventures tend to be extremely successful.

• Opening offices, forging partnerships or pur-chasing smaller/competitive ventures to aggres-sively conquer new markets. This strategyacknowledges that, although the Web can beaccessed from anywhere, localised sites aremore successful and high quality support needsto be close to the customer. Also, publicorganisations, which represent a considerablepurchasing power, prefer to buy locally.

• Expanding their business through the extensionof the offered products and services withoutlosing focus. Existing product ranges wereexpanded by adding related products andservices: dairy products, for example, wereextended to all kinds of food, CDs to books andvideos, wholesale of telecom capacity to IPcapacity. In one case the business was split intwo in order not to lose the simplicity of theoriginal idea: fruit baskets, as a healthy giftwould have lost its focus if extended to delica-

cies and liquors. Thus two, interrelated siteswith distinct business cases were created. In thesame way, the online auction segments contentaccording to two business models: business-to-consumer and consumer-to-consumer.

The senior managers of baby gazelles are usuallyentrepreneurs who have invested considerablesums of their own money in their Internetventures, and have worked hard to attract externalinvestment. They have put effort into developingdetailed and ambitious business plans and contin-ually seek innovative ways of delivering againsttheir plans. In fact, of the 17 KITE baby gazelles,nine had, or have in the meantime, obtainedventure capital. One baby gazelle is a joint venturebetween a glass manufacturer and a small Internetdesign house, thus combining the know-how oftwo companies in a strong commitment. Anotherthree baby gazelles have floated on the stockmarket and have thus certainly grown to gazelles.If strategic partners provide capital for the venture,the pressure to succeed is not as strong as ifventure capitalists provide the funding. Oftenstrategic partners are interested in new technolo-gies or complementary products. Venture capital-ists provide not only liquidity but alsomanagement expertise and the use of their contactnetworks, which are of high value to some busi-nesses. In return, however, they expect ambitiousgoals, against which the performance is measuredregularly (Müller, 1999). While most of the KITEbaby gazelles which obtained external funding,secured venture capital, a few such as afruit/delicacy retailer received funding fromstrategic partners. A manufacturer/distributorwhich was successfully in business for more than15 years explicitly avoided venture capital andwent to the stock market to raise capital.

5. A comparison of KITE critical success 1. factors in the start-up phase with other 1. research into high growth companies

The KITE set of critical success factors for thestart-up phase of E-commerce ventures does notmap one-to-one on any success factors set asoutlined in the literature review. It does, however,comprise most of them directly or indirectly. Theonly factor that has been ignored in the KITE


survey is the relation to and the qualification ofthe employees.

The table below maps the set of KITE SMEE-commerce venture success factors that babygazelles need to take into account in the start-upphase, against success factors identified in theliterature.

The KITE success factors correspond mostclosely to the processes defined in the EIMS studyof generating capabilities, mobilising resourcesand negotiating transitions. The critical process ofgenerating capabilities, which is defined as theprocess of recognising and developing a distinc-tive capability with sufficient competitive advan-tage compared to other firms, comprises the KITEsuccess factors commitment, content, price sensi-tivity, convenience, interaction and brand image.The combination of these factors will lead to anE-commerce venture with a strong vision, a cleartarget and strategy, able to build customer trust andloyalty with attractive content, pricing, conve-nience and customer support. The critical processof mobilising resources which entails the securingof financial, human and technical resources,corresponds to our success factor, commitment,i.e. strong motivation for using the Internet andthe will to innovate. A committed owner willmobilise financial and human resources necessaryto develop his venture – which did indeed happento a different extent in all KITE baby gazelles.

As we have concentrated on the start-up phase,it is not surprising that the process ‘negotiatingtransition’ corresponds only to the KITE start-up

critical success factor, control. Critical successfactors that we have identified for later growthphases, such as integration and process improve-ment, are essential for managing the change in thestate of the company. We have included the criticalsuccess factor, control, in the start-up phase of anE-commerce venture, as these fast growingventures need to define processes to managefulfilment through third parties or to respond tocustomers in a particular timeframe. Customertrust and loyalty will depend on the quality ofcustomer support, and on-time and convenientdelivery. To ensure customer convenience andinteraction, the company needs to control itsprocesses from an early stage.

The success factors defined by Perren and theLondon Business School overlap only with indi-vidual KITE critical success factors. The KITEcritical success factor, commitment, is very broad,comprising in many cases more than one factordefined by others. For instance, it corresponds tothe first three of Perren’s (1999) four growthdrivers: owners’ growth motivation, expertise inmanaging growth and resource access; as well asto four of Yeh-Yun Lin’s factors: the parallelprogress infrastructure, technology and people,emphasis on soft issues and the importance of thebusiness founder and his management skills. Alsothe success factor “experienced owner-manager”of the London School of Economics relates to thisfactor. KITE has combined, in a single successfactor, all the issues centring on owner motiva-tion and abilities defined in other literature. The


TABLE IVMapping KITE E-commerce venture success factors against SME success factors of other studies

KITE success factors EIMS important processes Perren’s success factors London Business School

Commitment Generating capability Owners’ growth motivation Experienced owner-managerMobilising resources Expertise in managing growth

Resource access

Content Generating capability

Price sensitivity Generating capability

Convenience Generating capability

Control Negotiating transition Cost control

Interaction Generating capability Close contact with customer

Brand Image Generating capability

critical success factor, commitment, is as impor-tant to E-commerce ventures as it is to real worldbusiness.

The critical success factor, control, is relatedto the factor “a focus on sales, with good man-agement systems controlling costs” identified bythe London Business School. Apart from financialcontrol, the control of internal procedures andfulfilment partners to ensure customer satisfactionare understood in the KITE success factor.

The KITE critical success factor, interaction,corresponds to the factor “close contact withcustomers and a commitment to quality of productand/or service” identified by the London BusinessSchool. As the WWW is a very new and directchannel to the customers, fast growing E-commerce ventures will have to spend more effortin customer interaction than their real worldcounterparts. Whereas the real world SME isknown through its physical presence and haspersonal contacts with its customers, the Web isanonymous and SMEs have to work much harderto differentiate themselves from competitors.

The KITE critical success factors content,convenience, price sensitivity and brand image, donot map directly to success factors identified inthe literature. All four success factors are,however, an integral part of a market positioningstrategy and thus of the EIMS’ process of gener-ating capabilities.

6. Conclusions

All KITE baby gazelles are innovative fastgrowing SMEs, innovative in terms of products,application of technology and/or the businessconcept they are pursuing. Some of them arepioneering their field of activities, such as marketresearch or online trading of telecom capacity.Maturing of E-commerce ventures can happenextremely fast. One of the KITE gazelles wascreated in 1997 and entered the stock market inSeptember 1999, employing more than 100people. It has thus passed the processes definedin the EIMS study of generating capabilities,mobilising resources and negotiating transitions ina record time.

The KITE research has identified 11 criticalsuccess factors, out of which 6–7 need to be takeninto account by the fast growing baby gazelles

right at the start of their business. FollowingRockart we have defined three sources for criticalsuccess factors for fast growing companies inE-commerce. A group of success factors applic-able to all companies operating in the E-commercespace – content, convenience, interaction andcontrol – is essential for all E-commerce venturesfrom the start of their business. The three othersuccess factors for the start-up phase relate toindividual companies or the industry they areoperating in. Some of these factors such as com-mitment are equally important for all SMEs,however, as defined by KITE they have a partic-ular connotation for E-commerce ventures. Inaddition, success factors, such as branding areimportant for high growth Internet ventures at anearlier stage than for real world companies. In fact,most baby gazelles of the KITE sample do takeinto account a majority of these factors.

This paper has shown that the KITE CSFs forE-commerce ventures do not map one-to-one ontoany set of CSFs outlined in the literature review.It has, however, to be kept in mind that thesefactors were developed for real world business.Nevertheless, the KITE CSFs comprise most ofthem directly or indirectly. The combination of theKITE CSFs described for the start-up phase willlead to an E-commerce venture with a strongvision, a clear target and strategy, able to buildcustomer trust and loyalty with attractive content,pricing, convenience and customer support.

Commitment is derived as one of the KITSCSFs, which comprised the owner’s wealth-creating motivation and his/her capacities – afactor highlighted in all publications outlinedabove. Given the critical role of the entrepre-neurial individual for the success of the E-commerce venture, further research into ownerprofile, background and motivation could provideinteresting insights into the reasons for successand failure. Also it would be interesting to deter-mine the level of technical skills or know-howrequired by the e-commerce entrepreneur.

Note

1 Within the context of the G8 pilot project ‘A GlobalMarketplace for SMEs’ the project KITE set out to collect,illustrate, analyse and inform on the diversity of E-commercethat is undertaken specifically by small and medium sized


companies (SMEs). To achieve these goals an Inventory witha self-registry mechanism was set up, an analysis and a bestpractice guide were produced. In addition, the projectsupported the activities within the G8 pilot project and dis-seminated best practice in E-commerce.

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identifying success factors for rapid growth in sme e-commerce

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