role of e com in entrepreneur initiative

8/18/2019 Role of E com in entrepreneur initiative

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ROLE OF

E-COMMERCE IN

ENTREPRENEURSHIP INITIATIVE


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Introduction

The rise of the World Wide Web and electronic commerce has created one of the most

challenging environments for entrepreneurship in recent history. Market needs and the

technology required to meet those needs can change even while the product or service is still

being developed (Iansiti and MacCormak, 1997). This framework demands that founders of

organizations strive for "relentless innovation," leading their firms through the continual infusion

of new ideas, and emphasizing constant innovation, experimentation, and rapid change (Cohen

and Jordan, 1999).

The environment of e-commerce enables entrepreneurs to rapidly try new approaches, quickly

share successes and failures, and monitor what is new and useful (Oliva, 1998). E-commerce

permits managers to become quicker in how they gather, synthesize, utilize, and disseminate

information. Those who are willing to experiment with new product and service offerings will be

positioned to compete most effectively (Hodgetts, Luthans, and Slocum, 1999). The extent to

which entrepreneurs capitalize on the conditions presented by e-commerce and engage in

experimentation and innovation is of major interest in contemporary research.

Because of the demand for innovative organizational behaviour present in e-business, this is an

important domain in which to study entrepreneurship. However, because it is so recent, very

little is known about the role attributes or innovative activities of entrepreneurs in Internet

organizations. What enables emerging organizations to achieve effective performance? What are

the opportunities and constraints in operating within this environment? These and many others

questions are arising as the field of Internet entrepreneurship grows and develops. The answers

will inform the development of the growing research base in this area and will facilitate the

subsequent comparison of key variables and relationships found in firms engaging in e-

commerce with those in traditional brick and mortar firms.

This paper presents the emergent practices and processes of e-commerce entrepreneurship,

explores the key challenges facing the new ventures, and offers a research agenda to guide future

work in this area. The paper draws on recent research findings and focuses on founders and

organizations whose activities encompass the Internet, conducting multiple transactions on the

Web, rather than on organizations that use the Web only for customer advertising and


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information gathering purposes. It is the premise of this paper that the first major step in

developing a model of e-commerce entrepreneurship is to examine the processes and behaviors

found within the ventures. The examination is conducted along several dimensions and

contributes to our understanding of the nature, opportunities, challenges, and future directions of

the entrepreneurial firms.

This paper addresses the following areas of e-commerce entrepreneurship:

• What does the entrepreneurial landscape for e-commerce look like, and what are some

recent trends in Internet entrepreneurship?

• What are the values and strategic orientations of Internet entrepreneurs (“netpreneurs”)?

• What focus does innovation take within these firms?

• What specific human resource practices are critical to the success of these firms?

• What are the most important entrepreneurial skills needed in Internet entrepreneurship

start-ups?

• What are the key challenges facing netpreneurs?

• What are the implications for entrepreneurship education?

• What are some recommendations for future research and entrepreneurship development

in e-commerce entrepreneurship?


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The Entrepreneurial Landscape: Emergent Trends in E-Commerce Entrepreneurship

Entrepreneurship has always been a vibrant force in the economy and at the forefront of

adaptation and growth of new markets. The 20th century has been described as the "century of

the entrepreneur" (Bangs and Pinson, 1999). The entrepreneurial landscape continues to be

transformed; as the 21st Century unfolds, a new form of entrepreneurship is taking shape. With

the rapid acceleration and availability of technology, electronic commerce is changing the nature

of business.

Electronic commerce experienced dynamic and rapid growth in the late 1990s. By the end of

2000, it was estimated that there were 407.1 million Web users World Wide. In the United States

and Canada alone consumers spent more than $45 billion shopping online in the year 2000, while

Net-commerce (both B2B and B2C) accounted for more than $657 billion worldwide ($488.7

billion in the United States). Total Worldwide Net commerce -- both B2B and B2C – is expected

to hit $6.8 trillion in 2004 (Forrester Research, 2001). By some estimates, annual online sales

will reach $200 billion by 2004 and will exceed $1trillion a year within 10 years (Birnbaum,

2000). It is projected that, by 2003, 40 million U.S. households will shop on the Web, and

revenues will approach $108 billion (Forrester Research, 1999). These statistics reflect the

increasing number of ventures that will be launched on the Internet.

With the rapid acceleration and availability of technology, electronic commerce is shaping an

evolution in organizational processes and practices. New forms of arranging work can be seen,

such as collapsing boundaries between firms, suppliers, customers, and competitors. New and

expanding markets are creating increased competition and greater consumer choice (Morino,

1999). This phenomenon will play an increasingly important role in emerging organizations.

Prospective entrepreneurs who wish to capitalize on this trend will need to identify the factors

necessary to successfully found and sustain this type of business. Effective “e - businesses” will

seek out and act upon the demands of the market, differentiating themselves through customer

management, relationship marketing, and community building (Shannon, 1999). In order to meet

many of their financial and operating goals and objectives, many e-businesses are engaging in a

variety of corporate initiatives that emphasize new market penetration, mergers and acquisitions,

mass customization, and technology and process improvements (Drucker, 1997; Hitt, 1998).


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In order to achieve many of these initiatives and goals, many e-businesses have had to find

innovative ways to increase levels of efficiency, lower costs, and improve technological

processes throughout the entire organization. In addition, the companies and their management

teams have had to formulate strategies that are flexible to allow for continual redesign and

reconfiguration of an organization as it grows and matures. Figure 1 illustrates how changes in

technology/information and globalization factor into the new competitive landscape.

The issues faced by e-commerce firms as they move through the various stages of the

organizational life cycle include the following:

• Strategy and Technology Development• Resource Assembling• Standardization of Systems/Controls

• Organizational Structure/Design• Management Style and Roles• Human Resource Development• Evaluation of Results• Reward Allocation

All of these issues play a critical role within each of the stages of growth of the e-business (i.e.,

inception, survival, growth, expansion, and maturity). On a broader level, however, e-commerce

firms must also deal with outside pressures and forces that may influence how they grow and

refine their competitive positions in their respective markets. These forces include governmental,

legal, socio/economic, technological, and environmental issues that could have an impact on the

performance and survival of the e-commerce firms.

Netpreneurs will need to build organizations that have several dimensions paramount for

effective performance (Morino, 1999). According to Morino, these are: speed (advances in

computing and globalization have changed stakeholders' expectations about the pace of change);

adaptability (the business must be much more flexible and able to identify and respond to

changes in technology, competition, and buyer patterns); multidisciplinary and collaborativeefforts (integrating such diverse disciplines as technology, services, and graphics). The

boundaries where the enterprise starts and ends will become blurred, as Extranets connect

vendors and information networks of capabilities (Cohen and Jordan, 1999).


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Netpreneurship: The Key Values and Strategic Orientations of Internet Entrepreneurs

The rise of the World Wide Web and electronic commerce has created one of the most

challenging environments for product and service development in recent history. Market needs

and the technology required to meet those needs can change even while the product or service is

still being developed (Iansiti and MacCormak, 1997). This framework demands that netpreneurs

strive for "relentless innovation," leading their firms through the continual infusion of new ideas

(Cohen and Jordan, 1999). A new set of core business values appears to distinguish Internet

entrepreneurial teams from other entrepreneurial teams. These values are constant innovation,

experimentation, and rapid change. Such an orientation is similar to what Miller and Blais (1992)

characterize as “maverick” behaviors, with firms adopting innovative modes based on their

competencies, competitive situations, or managerial preferences. The environment of e-

commerce enables firms to rapidly try new approaches, quickly share successes and failures, and

monitor what is new and useful (Oliva, 1998).

As founders of Internet ventures attempt to meet the opportunities and demands of this new

economy, a set of entrepreneurial orientations and behaviors will emerge that can begin to

characterize the nature and process of e-commerce ventures. These are introduced in the

following section.


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Strategic Posture of Internet Entrepreneurs

The ability of entrepreneurs to be proactive in their orientation has been described as a critical

dimension of entrepreneurship. It includes the propensity to act on perceived market

opportunities and enter into new or existing markets (Lumpkin and Dess, 1996). Miller and

Friesen (1983) first characterized the entrepreneurially oriented firm as one that innovated and

fully exploited environmental opportunities while repressing environmental threats. Researchers

have since identified two key dimensions that underlie an entrepreneurial strategic posture

(Covin and Covin, 1990; Slevin and Covin, 1995) or an entrepreneurial strategy-making mode

(Dess, Lumpkin, and Covin, 1997). The two dimensions are the competitive aggressiveness

entrepreneurs display as they pursue new opportunities, innovation, and experimentation, and the

proactivity that leads to their being the first mover among their competitors. An entrepreneurial

strategic posture emphasizes a value for innovation. Page (1997) characterized such a posture as

the identification or recognition of opportunity and its proactive pursuit.

Interestingly, even though new ventures are often the result of entrepreneurs’ recognizing

strategic opportunities within turbulent environments and capitalizing upon them (Cooper, Folta

and Woo, 1995; Palich and Bagby, 1995), research has suggested that entrepreneurs are less

successful in identifying and pursuing new opportunities beyond the start-up phase (Meyer and

Dean, 1990). A significant challenge for young technology ventures is entrepreneurs’ ability torecognize a highly competitive environment and proactively change their strategic orientation to

survive and grow (Page, 1997).

Research findings in this area have been mixed: Miles, Arnold, and Thompson (1993) found that

the degree of perceived environmental hostility was negatively correlated with the CEO’s

entrepreneurial orientation. Other studies point to the positive relationships between hostility and

entrepreneurial posture. For example, Smart and Vertinsky (1984) described an entrepreneurial

posture as a function of the entrepreneurial personality and that it is deliberately adopted as a

strategic response to an uncertain environment. Covin and Slevin (1989) introduced the

possibility of positive financial benefits tied to the adoption of an entrepreneurial posture in a

hostile environment.


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The role of strategy in the Internet start-up is evolving as the contrast between traditional

planning in organizations and the demand for flexible, responsive experimentation in electronic

commerce is increasingly evident. Kanter (2001) describes strategy in Internet firms as

“improvisational theater,” in which the performances of many “troupes” accumulate to take the

organization in a new direction Entrepreneurs perceive strategy it as emerging and revealed

through action; the action itself shows the goal. Thus, the primary mode of strategic operation in

these ventures is sense-and-respond, as opposed to the traditional make-and-sell (Bradley and

Nolan, 1998). This orientation enables entrepreneurs to move at Internet speed; consequently, the

traditional strategic plan is one on which these entrepreneurs can no longer rely.

The strategic orientation of Internet entrepreneurs includes behaviors such as experimentation,

going to the customer, and building the customer into the venture as an “actor” (Oliver, 2000).

This is similar to Kanter’s metaphor of strategy as improvisational theater, in which the

“audience” (or customers) interacts with the venture and influences its outcomes. Further,

strategy tends to flow through the organization in all directions, rather than from the top down as

it has conventionally moved.


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Opportunity Recognition Behaviors of Internet Entrepreneurs

In a recent study (Kickul and Gundry, 2000a) we measured the relationship between the

entrepreneurial posture of Internet business owners who operate within a highly uncertain

environment (i.e., their rapid response to change, value for innovation, and development of inter-

firm alliances) and their opportunity recognition behaviors. Further, we investigated whether this

relationship influences the technological innovations implemented by Internet entrepreneurs.

(See Figure 2.)

Our study found that the strategic orientations of rapidly responding to change as well as placing

value on innovation were linked to externally oriented opportunity search behaviors. According

to Koshiur (1997), netpreneurs must be continually prepared to make changes within the

infrastructure of their businesses to meet and prepare for future opportunities and technological

advancements. In addition, flexibility further allows the business to be a successful player in the

virtual value chain – “converting the raw information into new services and products in the

information world” (Koshiur, 1997, p. 103).

The current electronic marketplace requires new innovative models that deal with firm

organization, production, and overall market institutions (Choi, Stahl, and Whinston, 1997;

Lange, 1999). Indeed, as others have suggested (Cohen and Jordan, 1999; Oliva, 1998), Internet

firms that emphasize innovation and rapid response to change are best positioned for success in

this new form of entrepreneurship.

Developing relationships with other firms was also shown to be a determining factor associated

with externally oriented opportunity search behaviors. A promising application for netpreneurs

and their firms in electronic commerce is to use Web technology for business-to-business

interactions (Choi, Stahl, and Whinston, 1997; Shannon, 1999). Contracting with other

organizations allows the netpreneur to have a more decentralized, non-hierarchical organization

that may foster the recognition and implementation of opportunities associated with new

product/service ideas and solutions (Morino, 1999). Moreover, having inter-firm relationships

that are fluid may also be necessary for uncovering opportunities related to the marketing and

distribution of information about the value of the firm’s products and services.


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Finally, our study also found that Internet firms engaged in opportunity search behaviors that are

externally focused had implemented technological innovations dealing with new information

technology, and new computer technology, as well as new methods of advertising. Our results

suggest that Internet entrepreneurs tend to rely on network activity (Singh, et al., 1999) to enable

them to capitalize on opportunities and to reach technological innovations for their businesses

and for the marketplace. Given the rapid pace of technology and business, Davis and Meyer

(1998) have asserted that there is a greater need for entrepreneurs to be connected with their

suppliers, customers, and business partners. This need for connectivity forces Internet-based

organizations to e-evaluate the intangible benefits of the company's technology infrastructure and

its product/service offerings. It is expected that, as more Internet entrepreneurships are

established and identified, research attention will grow and focus on additional strategies and

behaviors of this pioneering group.


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The Focus of Innovative Behavior in E-Commerce Entrepreneurship

Drucker (1998) described four areas of innovative opportunities that exist within a company or

industry, including unexpected occurrences, incongruities, process needs, and industry, and

market changes. Even though these innovative opportunities may be present to Internet

entrepreneurial teams, there may be additional areas such firms may identify for potential

innovative actions.

This emphasis on innovation and change will be oriented not only to the outcomes of these

organizations (e.g., products, services, and new markets) but also to the structure and work

arrangements of the ventures themselves. Oliva (1998) has noted that a successful Internet study

needs to be designed to assess the following research questions: To what extent have these

entrepreneurs been engaged in innovations? What is the direction (type) of these business

innovations?

In another study, (Kickul and Gundry, 2000b) we examined the type and direction of innovative

actions incorporated by Internet entrepreneurs in their businesses. Six distinct innovative

behaviors displayed by netpreneurs were uncovered, ranging from continuous product/service

improvements to managing human resources. These innovations varied to the extent that they

were considered and implemented into the operations and business of the Internet firm.

Improving products/services, seeking alternative markets and opportunities, and incorporating

additional marketing strategies were the critical factors associated with initiating innovation and

change. According to Koshiur (1997), netpreneurs must be continually prepared to make

innovations and changes within the infrastructure of their businesses to meet and prepare for

future opportunities and market/industry advancements.


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Moreover, creative behavior and flexibility further allows a business to be a successful player in

the virtual value chain – “converting the raw information into new services and products in the

information world” (Koshiur, 1997, p. 103). The current electronic mark etplace will require new

innovative models that deal with firm organization, production, and overall market institutions

(Choi, Stahl, and Whinston, 1997; Lange, 1999). Indeed, as others have suggested (Cohen and

Jordan, 1999; Oliva, 1998), Internet firms that emphasize innovation and rapid response to

change are best positioned for success in this new form of entrepreneurship.

Although our study examined the various types of innovations engaged in by Internet

entrepreneurs, future researchers should investigate how these innovations are related to the

firm’s strategic focus and orientation. More work should test the strategic requirements for

successful Internet enterprise developments that have been proposed in the literature, including:

How do the strategic orientations of first-to-market, first-follower, competitive aggressiveness,

and rapid response to change predict innovative behavior? Does the enactment of innovative

marketing behaviors, for example, give competitive advantage to a firm? What types (direction)

of innovative actions seem to matter most to a firm’s ability to respond rapidly to change?

In view of the rapid pace of technology and business, Davis and Meyer (1998) have asserted that

there is a greater need for entrepreneurs to be connected with their suppliers, customers, and

business partners. This need for connectivity forces an Internet-based organization to re-evaluatethe intangible benefits of the company's product/service offerings. Internally, a firm will also

periodically need to reorganize its organizational structure so that it can react to market forces

and adapt appropriately. It is expected that as more Internet entrepreneurships are established and

identified, research attention will grow and focus on additional strategies and tactics of this

pioneering group.

Many of the entrepreneurs in our sample reported innovative behaviors that can be characterized

as growth extending, as they adapt to market conditions and negotiate a position for their

ventures in the rapidly expanding e-commerce environment. Of further research interest is

determining the degree to which entrepreneurs eventually increase their growth-enabling

behaviors as a means to sustain performance. What role, for example, do recruiting or training

play in the development of technological innovations (a growth-extending behavior)? More

research is needed to ascertain the behavioral supports found in firms.


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Additionally, more researchers should investigate how Internet entrepreneurs form and develop

strategic relationships and alliances with other organizations. How are partnerships formed and

dissolved to meet clearly defined business goals and imperatives? As discussed by Hartman,

Sifonis, and Kador (2000), Internet firms that are able to define their core competencies and

work side by side with complementary partners will be able to exploit many of the opportunities

existing in the marketplace. Moreover, those firms that are able to continuously improve their

businesses and competencies as well as their alliance structure will also have an advantage when

meeting the next new opportunity (Choi, Stahl, and Whinston, 1997; Griffith and Palmer, 1999;

Shannon, 1999).

Contracting with other organizations allows the netpreneur to have a more decentralized, non-

hierarchical organization that may foster the implementation of new product/service ideas and

solutions (Morino, 1999). Kelley and Rice (1999) found that the rate of alliance and interfirm

formation was directly related to the rate of new product introductions in new firms. Moreover,

having interfirm relationships that are fluid may also be necessary for the marketing and

distribution of information about the value of the firm’s products and services. Alternative

methods of marketing found in the electronic marketplace that depend on business-to-business

cooperation and communication include: soliciting and exchanging Web links, soliciting listings

from search services, and endorsing and reviewing products/services on news groups.

More work should also be done to examine the strength of the association between the Internet

firms and their suppliers, value-added resellers (VARs), and customers in determining

organizational effectiveness and performance. Value-chain migration (Hartman, Sifonis, and

Kador, 2000) is one strategy that integrates the supply-chain and customer-facing systems into a

single, integrated process. Innovations and improvements are made in the ordering,

configuration, and manufacturing processes to bring real-time data, knowledge, and information

to multiple partners along the value chain. This increased connectivity may allow Internet

entrepreneurs to become responsive and flexible to meeting each customer’s particular needs and

demands (Neese, 2000).

Even though our study was able to uncover multiple dimensions of innovative actions in Internet

firms, future researchers should examine the effects of these ideas and solutions on several non-

quantitative factors related to organizational effectiveness and performance. McGrath,


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e-commerce firms need to take a strategic approach in order to leverage their knowledge and

information over time. Ultimately, they should be able to capitalize on the information and

experience they already have and quickly apply new intelligence and knowledge.

Moving Toward New Entrepreneurial Roles

The explosive commercial growth of the Internet presents both new opportunities and challenges

to entrepreneurs in how they formulate, develop, and implement innovations into their

businesses. As Drucker (1998) has asserted, innovation is the specific function of

entrepreneurship. Moreover, distinctive innovative behaviors appear to characterize the emerging

group of Internet entrepreneurs when they are compared with owners of ventures not fully

dedicated to electronic commerce. “What sets netpreneurs apart is not that they are different

from other entrepreneurs but that they are operating in a universe of transforming change. As

pioneers of the new networked society, they are both defining and learning new ways of doing

business” (Morino, 1999, p. 1). Because of the rapid acceleration of technology, it is becoming

more critical that Internet entrepreneurs have the ability to respond quickly to changes by

bringing revolutionary new ideas into their businesses and the electronic marketplace.

In this way, they are creating new patterns of entrepreneurial behavior and performance. The

results uncovered in this research represent one of the first empirical investigations into the

processes associated with e-business founders. This study attempts to increase our understanding

of the phenomena surrounding the formation and growth of these businesses and has focused on

the distinctive innovative actions of a group of these entrepreneurs. Exploring the direction of

such behavior should facilitate the development of new entrepreneurial models for predicting the

successful identification and exploitation of e-commerce opportunities.

Whether the managerial emphasis on innovation and change results not only in the creation of

new products, services, or markets but also in the nurturing and establishment of innovative

internal and external relationships is the focus of another recent study (Kickul and Gundry, in

press) on the impact of top management team functional diversity and creative processes on the

assessment of new e-commerce opportunities for the organization. Further, the study investigates

the relationship between opportunity assessment and innovative organizational practices.


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The results uncovered in our research represent one of the first empirical investigations into the

managerial roles and processes associated with e-commerce firms. As a first and foundational

step to increasing our understanding of managerial practices in e-commerce organizations, we

examined CEOs’ perceptions surrounding k ey firm behaviors that foster innovation. The

emphasis of recent work by Iansiti and MacCormak (1997), Hodgetts, Luthans, and Slocum,

(1999), and Shannon (1999) has been on the significant roles of adaptation, innovation,

experimentation, and change in the environments of e-commerce organizations. The necessity of

realigning managerial roles and practices so that these organizations can take advantage of

emerging opportunities has been proposed. Accordingly, our study attempted to measure

empirically some of the managerial processes that stimulate innovation. If, as scholars have

suggested, e-commerce firms must innovate to survive, we have begun to explore the

prerequisites and primary influences on this critical set of actions. The results of our study yield

information that will be useful in guiding future research addressing key factors present among

these top management teams, including comparative studies between e-commerce and

traditional, brick-and-mortar organizations. Exploring the new managerial roles and practices,

such as the development of innovative relationships with suppliers, customers, competitors, and

employees of these businesses, will facilitate the construction of new models to predict success

factors for managing e-commerce organizations.


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Managing Relationships in E-Commerce Firms: Emergent Practices and Needs

A recent study by Inmomentum, Inc., an organization that researches the best practices of

Internet economy businesses, reported that companies that helped their employees feel connected

to their vision and values were growing at a rate of 141%, compared with a 10% growth rate for

companies that did not do this well. This emphasis on the development of internal relationships

in the e-commerce firm is an interesting one to watch as entrepreneurs continually search to

recruit and retain top talent for their ventures. However, the reality is that, in the early part of

2001, there were more than 200 CEO searches under way in Silicon Valley. Further, 300 CEOs

had been in their positions for less than one year. Developing and delivering a clear vision and

connecting it to company values is a very great challenge.

Internet entrepreneurs’ ability to harness the richness in breadth of perspective made available to

them by functionally diverse team members is a key component of innovative actions. But a

further step is needed to make the creative exploration useful in the form of actionable ideas and

opportunities. Our research has shown that effective opportunity assessment has a mediating

effect on the interaction of diversity and managerial creativity, facilitating the formation of

external and internal organizational relationships as well as the introduction of new products and

services. Thus, such an assessment enables managers to form strategic alliances necessary to

achieve market growth and to develop methods to attract and retain the top talent so in demand by Internet organizations. Exploring the direction of such behavior contributes to our

understanding of the changing roles, challenges, and opportunities confronting managers in e-

commerce firms.

The development of innovative internal management relationships was operationalized in our

(Kickul and Gundry, in press) study as finding unusual and creative ways to recruit, retain, and

reward employees. These are emerging as one of the most significant entrepreneurial challenges

of the information age. The predominance of knowledge workers has shifted the balance of

traditional organizational resources of equipment, capital, and people. Although historically

production workers have been replaced with technology, leading to strong productivity gains, the

same scale of substitution is not possible in knowledge-based organizations, as pointed out by

Pottruck and Pearce (2000). Those authors concluded that the most critical parts of the human

resource in an organization cannot be synthesized, and those are the creative brain, imagination,


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and spirit that fuel the information economy. Some of the new managerial practices of the CEOs

in our sampled firms included unusual methods of retaining top talent in their organizations, as

shown in these responses:

“We are more than an employee’s paycheck. The firm is committed to the belief that it shares a

large part of the responsibility for the overall well-being of a given employee, and this spiritual

belief alone is what helps us keep our best employees. They see us putting their welfare at a

higher priority than the numbers on the quarterly profit reports, and they wind up sticking around

when the going gets rough for a while.”


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“A guarantee that their voice will always be heard in decision-making.”

“Our arrangements permit a literal network of top level, talented and proven services and

professionals to ‘morph’ to suit the problematic demands of new clients. The organization is

truly a team, with me as ‘leader’ but without any hierarchical or concomitant structure. Only via

affiliate resourcing can this be accomplished in the information sector where ‘trust is paramount’

and ‘content is everything’ in terms of both branding and perceived reliability.”

One CEO represented the feelings of many in his expression of frustration in response to the

challenge of attracting and retaining employees:

“Whatever we do it is not enough, as the competitive arena in thi s location makes success for us

extremely difficult.”

This scenario undoubtedly contributes to the necessity of taking innovative steps to meet the

organization’s internal strategic goals. Ester Dyson, one of the foremost thinkers on the

implications of the Internet for business and for society as a whole has said: “The limitation on

the application of technology will never be ideas or capital. It will be finding enough people who

are trained and excited about taking the ideas of the technologist and making them real in the

world” (Dyson, 1997, p. 69).

We also found that CEOs engaged in forming innovative external relationships with their key

constituents, including suppliers, customers, and competitors. This increased connectivity may

allow e-commerce organizations to become responsive and flexible in meeting each customer’s

particular needs and demands (Neese, 2000). Contracting with other organizations also allows

the e-commerce firm to have a more decentralized, non-hierarchical organization that may foster

the implementation of new product/service ideas and solutions (Morino, 1999). Kelley and Rice

(1999) found that the rate of alliance and inter-firm formation was directly related to the rate of

new product introductions in new firms. Having inter-firm relationships that are fluid may also

be necessary in the marketing and distribution of information about the value of a firm’s

products and services. The nature of these relationships is described by the following responses

of CEOs in our study:


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“We use what others would call competitors a lot. We have no competition, just resources we

have not used yet!”

“We rely upon strategic partners around the globe. They are the keys to our success.”


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Entrepreneurial Skill Requirements for Internet Firms

Some of the most important competencies that entrepreneurs must have to survive and thrive in

the new Internet economy are discussed in this section. Above and beyond the skill repertoire

needed by all entrepreneurs, for Internet entrepreneurs the ability to think creatively and to

“relentlessly innovate,” as we have seen in previous sections, is paramount. The field is moving

from an acceptance of “good” ideas to a need for truly “unique” ideas or business concepts.

Leadership ability is essential, and this includes visioning and setting clear direction. Acting

quickly involves creating economies of structure, such as the use of Intranets to get information

out to employees rapidly so they can make decisions. This is one example of how entrepreneurs

are using technology to stimulate communication and action in their organizations.

Key Challenges for E-Commerce Entrepreneurs

There are many challenges confronting these entrepreneurs, and perhaps the economic downturn

of recent months has created an even greater set of difficulties to overcome in this arena. One

challenge is the slowed spending and decrease in the availability of outside capital to fund and

grow a firm. There will be rigorous examination of future business models, and it is likely that

entrepreneurs may turn to models that emphasize unique business processes and concepts.

Numerous legislative challenges affect entrepreneurs, including taxation of goods and services

sold over the Internet, fraud and identity theft, introduction of new domain names (e.g..biz and

.auto), international management of the Internet, and others. (cite SBA paper here). A significant

challenge for owners of young technology ventures is their ability to recognize a highly

competitive environment and proactively change their strategic orientation to survive and grow

(Page, 1997). It is estimated that nearly three out of every four e-business ventures will fail

because of lack of technological understanding and poor business planning (Steensma, 2000).

Research findings in this area have been mixed. Miles, Arnold, and Thompson (1993) found that

the degree of perceived environmental hostility was negatively correlated with a CEO’s

entrepreneurial orientation. Other studies point to the positive relationships between hostility and

entrepreneurial posture. For example, Smart and Vertinsky (1984) described an entrepreneurial

posture as a function of the entrepreneurial personality and said that it is deliberately adopted as

a strategic response to an uncertain environment.


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Implications for Entrepreneurship Education: Transforming Business Innovations into

Entrepreneurial Opportunities

The challenge for universities with entrepreneurship programs, therefore, is to design a

curriculum that is both comprehensive and integrative in order to facilitate the learning needs of

the students involved in launching and developing an e-business. (See Figure 5.) Within each

particular stage of the e-business life cycle, attention must be given to how entrepreneurs can use

information as they encounter each relevant issue. By focusing only on new venture creation

aspects of the e-business and those issues seen within that stage, the entrepreneur captures one

component of the process but neglects those specific areas of management and development that

are salient in the later stages of growth (e.g., increasing value of the e-business, staffing and

retention, and management succession). Each student brings to an entrepreneurship program a

rich array of experiences, models, and theories to make sense of their world and observations,

values, and practices nurtured by their past work environments. The challenge for educators is to

integrate different learning methods that capitalize on the opportunity to bring real business

issues into the classroom, thus assisting entrepreneurs in all stages of growth and development of

their e-commerce ventures. Just as future entrepreneurs must find creative ways to sustain their

competitive edge through the introduction of new products/service, new processes, and new

growth methods of redesigning their organizations, universities and educators must also find

alternative means of acting entrepreneurially to survive in the 21st Century.

New approaches to the instruction and delivery of entrepreneurship courses should be

incorporated into a e-commerce program. There is a need to move toward more unconventional,

experienced-based teaching, and evaluation methods. Traditional paradigms may not be

applicable when the focus of the learning is to broaden horizons and perceptions of e-commerce

entrepreneurship. The new approaches to instruction in e-commerce-based courses should

emphasize both deductive and inductive learning, as well as co-participation in knowledge

creation.


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Both Deductive and Inductive Learning

In order to produce lasting skill learning, many educators contend that both deductive and

inductive learning should be emphasized (Bigelow, 1998). Deductive learning occurs when a

student applies what others know. It does not in and of itself, however, change entrepreneurial

skills and behaviors. With inductive learning, students do not necessarily emulate others'

solutions but rather identify entrepreneurial issues in a new and complex situation, set objectives,

develop an action plan, and assess results of their decisions. Emphasis on inductive learning,

gives students the opportunity not only to apply what they have learned but also to formulate

creative and innovative solutions that are unique to the problem/issue faced by a netpreneur. The

form of a student's behavior is generated internally, thus allowing learners to become more self-

prompting in situations. By emphasizing more inductive learning within the entrepreneurship

curriculum, educators are preparing their students for the ambiguities and transformations that

occur as they improve their own e-commerce organizations.


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An Agenda for Future Research in E-Commerce Entrepreneurship

As more organizations enter the arena of electronic commerce, future research is needed to

examine how these firms effectively design and integrate new business processes and practices.

Although we believe that we have made an important first step in identifying dimensions of

innovative behavior associated with and found inside e-commerce firms, more work should

concentrate on how these innovations relate to changes in organizational training and

development, channel management, and client and customer relationships. These are all

particularly relevant, given that the expanded description of electronic commerce includes on-

line information technology and communication that is used to enhance customer service and

support (Choi, Stahl, and Whinston, 1997; Koshiur, 1997). We have attempted to set out the

foundation of a research agenda for e-commerce entrepreneurship. Much empirical research on

important questions is needed to build our knowledge base in this rapidly growing sector of the

economy in general and entrepreneurship in particular..


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Are creative entrepreneurial practices transferable across organizational environments?

Amabile (1998) and others have identified specific management practices that support creative

environments in traditional (brick-and-mortar) organizations that may be useful to managers in e-

commerce firms. Comparative studies would be useful for an understanding of the requirements

within each environment.

What other entrepreneurial behaviors are associated with successful innovation in Internet

firms?

In addition to creativity and opportunity assessment, do decision-making, allocating resources, or

risk-taking influence innovation processes?

What specific human resource practices are critical to the success of these firms?

One CEO noted “The HR practices of the traditional company simply are not applicable in the

Internet environment.” Another said, “We stress the intangibles of the working environment and

keep pay competitive.” Clearly, more research is warranted to uncover the strategies that work in

this evolving form of business.

What degree of entrepreneurial proactivity is demanded in e-commerce organizations?

Many of the CEOs in our study affirmed the need to stay ahead of the customer, as evidenced by

the following response: “We must get in front of our clients in both technology and the way in

which we leverage that technology. You need to know your customer and his needs better than

he knows them himself!”

Work has been conducted on the role of entrepreneurial proactivity and its relationship to new

venture creation and other outcomes (Bateman and Crant, 1993; Becherer and Maurer, 1999).

This may prove an interesting variable to investigate in Internet organizations, where it has not

been previously studied.


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How do Internet entrepreneurs sustain the external relationships on which they focus?

Our study disclosed the importance of networks, partners, and other key stakeholders in the

development of the Internet firm’s innovative capabilities. How do these relationships evolve

and how are they sustained over time or the life cycle of the organization? Here is the view of

one CEO, who echoed the words of others in the sample:

“We are strong believers in the Japanese concept of ‘Keiretsu.’ We have a cadre of long -term

suppliers that we value. When we are in a hurry, they give us priority. When there is a problem,

they always make it right. We understand their abilities, limitations, and quirks and do things to

make their jobs much simpler and easier. Most of all, we LISTEN to them and they listen to us.”

What types of innovative entrepreneurial behaviors and actions are most important to e-commerce organizations?

Previous research cited in this paper has reported these findings from respondents:

“The need to shift from services to products and services, launching new product lines that have

never been done before.”

“This is a business that changes daily, it cannot be structured.”

“We are always dealing with moving targets. The challenge is to adapt quickly.”

More research is needed to determine whether, in fact, ‘hyper-innovative’ practices are required

in these organizations that go beyond what would be considered in traditional firms to be novel,

different, and change embracing.

How do Internet entrepreneurs form and develop strategic relationships and alliances with

other organizations?

That is, how are partnerships formed and dissolved to meet clearly defined business goals and

imperatives? As discussed by Hartman, Sifonis, and Kador (2000), Internet firms that are able to

define their core competencies and work side by side with complementary partners will be able


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to exploit many of the opportunities existing in the marketplace. Moreover, those firms that are

able to continuously improve their businesses and competencies as well as their alliance structure

will also be at an advantage when meeting the next new opportunity (Choi, Stahl, and Whinston,

1997; Griffith and Palmer, 1999; Shannon, 1999).

What degree of strength characterizes the association between the Internet firms and their

suppliers, value-added resellers (VARs), and customers in recognizing new opportunities?

Value-chain migration (Hartman, Sifonis, and Kador, 2000) is one strategy that integrates the

supply-chain and customer-facing systems into a single, integrated process. Innovations and

improvements are made in the ordering, configuration, and manufacturing processes to bringreal-time data, knowledge, and information to multiple partners along the value chain. This

increased connectivity may allow Internet entrepreneurs to become responsive and flexible when

meeting each customer’s particular needs and demands (Neese, 2000).

What non-quantitative factors can be used predict entrepreneurial effectiveness and

performance in Internet firms?

Even though our study was able to uncover various innovations by Internet firms, future research

should examine the effects of these ideas and solutions on several non-quantitative factors

related to organizational effectiveness and performance. McGrath, Venkataraman, and

MacMillan (1992) emphasize three such factors: enhancing the value of the firm, creating worth

for customers, and insulating the firm from its competition. By using this set of criteria to

evaluate innovations, researchers should be able to capture a more complete assessment of an

Internet entrepreneur’s innovations and solutions from an immediate and/or long-term perspective. For example, even though the financial benefits of implementing new methods of

advertising or promoting a product or service on the Internet may not be readily observable, such

innovations may give the business a sustainable competitive advantage in building brand loyalty

and customer satisfaction. Over a period of time, the innovations may lead to positive financial

rewards and benefits for all stakeholders involved in the Internet firm.


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How do these entrepreneurs effectively design and integrate new business processes and

practices?

Although we believe that we have made an important first step in identifying dimensions of

innovative behavior associated with and found inside Internet firms, more work should

concentrate on how these innovations relate to changes in organizational training and

development, channel management, and client and customer relationships. These are all

particularly relevant, given that the expanded description of electronic commerce includes on-

line information technology and communication that is used to enhance customer service and

support (Choi, Stahl, and Whinston, 1997; Koshiur, 1997). Keeney (1999) has outlined several

areas of customers’ concerns and values that can be used by entrepreneurs to design and grow

their Internet businesses. By implementing objectives that are centered on customers’ concerns

related to using the Internet (e.g., maximizing product information, access to information, and

convenience, as well as minimizing cost and time spent), entrepreneurs can begin to meet the

values and demands of current and potential customers.

How do entrepreneurs evaluate their technological infrastructure and competencies in

order to meet their e-commerce strategies and initiatives?

Future researchers should investigate how Internet entrepreneurs incorporate developments in

core and emerging technologies, such as electronic data interchange (EDI), databases, data

communications, and security-related technologies. Many of these developments may prove to

be important factors in the long-term growth and profitability of the business. Selection and

integration of the correct technology for any e-commerce business employs capital and

organizational efficiency and serves as a foundation for building the business (Davis and Meyer,

1998; Weintraut and Davis, 1999).


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Impact of e-commerce on entrepreneurs and small businesses: opportunities,

challenges, and strategies.

The Internet and the World Wide Web (WWW) are revolutionizing the way organizations are

functioning around the world. The Web is used by organizations in a myriad of ways, some of

which include collaborating, communicating information, obtaining information, providing

information, and sharing information. One application of the Web that is grabbing headlines in

virtually every media is Internet commerce or Electronic Commerce (e-commerce). E-

commerce--the marketing, promotion, buying and selling of goods and services over the Internet

is experiencing unprecedented growth (Williams, 1999). In the past 2 or 3 years, e-commerce

growth has been astonishing and is expected to continue at a similar rate over the next four years.

Small business use of the Internet (e-commerce and other applications) has increased from 10

percent in 1996 to about 75 percent today; this use is expected to increase to 85 percent by 2002

(Song, 2000). However, currently, only 28 percent of small companies sell goods and services

online (Maxwell, 2000). If one looks at businesses with fewer than 10 employees, one sees a

slightly different picture. In 1999, about 15 percent of these 7.5 million small businesses in the

U.S. conducted e-commerce (Business Week e.biz, 1999). This number is expected to increase to

20 percent by the year 2001. Although these statistics provide evidence that smaller

organizations are now conducting e-commerce activities, large companies still account for the

majority of e-commerce activity in the U.S. These statistics also fail to tell us whether or not

selling online is a better method for small business.

Over the past few years, a decrease in the prices for software and hosting services has reduced

the barriers to entry in the online environment. Even the smallest of businesses can now have a

presence on the web and conduct commerce. Selling online, however, is not without its perils.

Blindly diving headfirst into the Internet without a complete understanding of technical,

managerial, and competitive challenges may result in stressed operations or bankruptcy.

A question, then, arises: should small businesses and potential entrepreneurs embrace the

Internet? The answer to this question lies in how well a business understands e-commerce

opportunities in its environment and implements strategies to take advantage of these


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opportunities. This paper will examine the opportunities that are available for small businesses

and entrepreneurs on the Internet, identify the challenges they are likely to encounter, and

suggest strategies they can develop and implement to take advantage of e-commerce

opportunities.

OPPORTUNITIES

E-commerce takes a number of forms: business-to-consumer (B2C), business-to-business (B2B),

e-procurement, and e-marketplace. According to Forrester Research (2000), the U.S. share of

global B2B e-commerce sales will grow to approximately $3 trillion by 2004, while B2C e-

commerce sales will account for $184.5 billion (see Table 1). E-commerce is growing much

faster in the B2B sector compared to B2C and is largely dominated by larger companies. By the

year 2002, 85 percent of small businesses are expected to conduct business via the WWW.

Retailing or "e-tailing" is the most typical B2C activity. New ventures or small businesses can

use the Internet to either start a new retailing or service business, enhance an ongoing business or

provide hardware, software, or services that allow other businesses to integrate the Internet into

their business model. A small business selling from a traditional store, called "bricks and mortar"

may see the opportunity to increase market share by creating a Web page and selling on the

Internet.

While there are many large Internet service providers (ISP), such as America Online (AOL),

there are also many small businesses that provide this service. According to a report by Williams

(2000), most of the 7,100 ISPs in 2000 have fewer than 12 employees; the number of ISPs is

expected to reach 10,000 in the next 2 to 3 years; and the U.S. ISP market generated an estimate

of $15 billion in receipts in 1998. The number of small businesses that provide Internet services

have experienced tremendous growth because of the increase in demand for Internet access.Many of them are finding opportunities in providing additional hardware, software and service

opportunities as they see the opportunity to host and design web sites for Internet businesses.

They are also providing consulting services for those new businesses.

One of the major opportunities for entrepreneurs and small business in the future will be in the


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area of B2B. According to Boston Consulting Group, by 2003, more than 65 percent of all B2B

e-commerce purchases will be made by six sectors: retail trade, motor vehicles, shipping,

industrial manufactured equipment, and the government. This will provide ample opportunities

for entrepreneurs and small businesses to find niches in this market.

B2B e-commerce is primarily concerned with increasing the efficiency of businesses through the

use of Internet technology. It helps companies find buyers for specialized goods and services,

time-sensitive goods, second-hand goods, and excess inventory. Small businesses can benefit

from B2B e-commerce through the formation of coalitions that negotiate for better prices.

Sellers of goods and services can benefit through the reduction of costs associated with finding

new customers. Other advantages of B2B e-commerce include improved service and retaining

customer loyalty. B2B e-commerce also provides small companies an alternative to traditional

EDI networks in doing business with large companies (buyers) who are increasingly forcing all

of their suppliers to trade electronically.

Marketplaces have recently become an Internet application for business-to-business procurement

using an auction mechanism where businesses that supply an industry bid for the opportunity to

sell their goods. A number of general sites such as Commerce One and Ariba have pioneered this

activity, but now individual marketplaces for specific industries have grown, developed by

companies within these industries.

For entrepreneurs interested in software development, it is important that software be integrated

with other software that the clients use. This can also be a barrier to entry if programming skills

and intimate knowledge of the programming in other software packages is not available.

One of the primary reasons for the wide influx of new online ventures is the low barrier to entry.

You can start an Internet business for as little as a few hundred dollars. In addition, companies

like BigStep.com, eCongo.com, Earthlink.com, Tripod.com, and Freemerchant.com offer free

online services to setup a business with access to online catalogs, credit card processing, and

order-tracking services. However, entrepreneurs and small businesses must use caution because

some companies require long-term agreements that would eventually lead to extra expenses for


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added services and expensive support for technical problems. Microsoft, Intel, Intuit also offers

inexpensive sites. These trends have accelerated the migration of entrepreneurs and small

businesses towards conducting commerce on the Web.

There are several advantages to having an Internet presence. For example, statistics show that the

Internet is increasingly becoming global (Forrester, 2000). Furthermore, having an Internet

presence allows a company to remain open seven days a week, 24 hours a day. You can also

build your business in a phased approach. Additionally, in many cases the consumer will not be

able to tell the difference between a small versus a big business, thus limiting your liability of

smallness. You can be a one-person operation that competes with a 500-employee firm.

Small businesses can use the Internet to expand their markets, improve efficiencies, attract and

retain customers, and exploit new e-Business opportunities (Oracle, 1999). Other opportunities

include customer service, technical support, data retrieval, public and investor relations, security

and payment issues, cutting costs, and obtaining advice/information. Existing businesses have

the opportunity to adopt e-commerce early and build an infrastructure that dramatically reduces

the costs of doing business while improving relationships with buyers and suppliers. Through e-

commerce efficiencies, they have the ability to reduce the costs of billing, payment, customer

service, distribution/ fulfillment costs, reduce supply chain management, procurement, and

expense management costs.

Small businesses have the advantage of using the Internet to build relationships with suppliers

who before gave them little recognition. With the Internet, small businesses have the ability to

gather information and goods much quicker, reducing inventory and thus reduce costs. The use

of customer service through the Internet can also assist a company through product descriptions,

technical support, and order status information online. This frees up a company's customer

service staff to handle more complicated matters. For example, Internet sites like Realestate.com

have allowed consumers to reduce the time to purchase a home by 75 percent by providing

information on purchasing homes.

One of the key opportunities of the Internet lies within the value chain. Companies have the

opportunity to cut out the middleman or become a middleman. For example, the traditional value


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chain flows from the manufacturer, wholesaler/distributor, retailer, and consumer. With the

advent of the Internet, entrepreneurs and small businesses have the opportunity to develop

relationships with the manufacturers and sell directly to the consumer without having control of

the products.

An example of an intermediary can be seen through an entrepreneur that developed a web site

called www.avengers.com. The Avengers is an old television series from the 1960s. The site

contains a plethora of information about the series and also has merchandise for sale that

includes copies of the old shows. When you go to purchase some of the videos, it sends you

directly to Amazon.com. If the person purchases the video from Amazon.com, the company

receives a percentage of the sale.

Other opportunities on the Internet include companies whose business models are standard

online storefronts (e.g., amazon.com), transaction brokers (e.g., e*trade), content providers (e.g.,

espn.com), auction sites (e.g., eBay), software development companies (e.g., ariba.com), startup

consulting companies (e.g., exodus.com), and hosting services (e.g., sitehosting.net).

Small businesses can learn from some of the most innovative companies that have successfully

used the Internet: Dell Computer, Sun Microsystems, and Cisco Systems. Dell Computer has

become the ideal example for B2B e-commerce. They set up premier pages with over 5000 U.S.

companies that allow businesses to order quickly with few errors. The pages are especially

designed for each company, connected into their Intranet, and allow the employees to order

directly online.

The Internet provides for improved customer service at a lower incremental cost. This is

important since we are moving from a product driven to service driven (supplier versus demand)

economy. The Internet also provides new distribution channels and new ways of exchanging

information. According to Porter (1999), supply chain management will be more cost effective

as a result of the Internet. However, the basics of business (e.g., design, technology, and

manufacturing) will not be altered. Porter states that the industries where the Internet is likely to

be transformational are industries that provide the service or basic information (e.g.,

stockbrokerages, auctions, or providing digital goods). Table 2 summarizes some of the


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opportunities of Internet/WWW for small businesses and entrepreneurs.

CHALLENGES AND STRATEGIES

Small businesses have been slower than big businesses to embrace e-commerce. Although small

businesses and entrepreneurs use of Internet is increasing, they will face a number of challenges

as they start using Internet/WWW for e-commerce. Further global expansion of e-commerce will

create new challenges for small businesses and entrepreneurs. This section examines both

challenges and the strategies that small businesses and entrepreneurs can utilize to take

advantage of e-commerce.

The B2C market is currently in its shakeout stage and is a low margin, high capital business that

will take until 2003 to be profitable. Over the past few years, B2C companies have skyrocketed

in value, however the recent downturn in the Internet sector has seen many companies lose 50

percent or more of their value. Investors are putting pressure on these firms to produce profits. In

the past, these firms were valued by their sales, now investors are demanding that these firms

produce net profits along with a strong revenue model.

As a result of these activities, money raised by B2C companies has dipped 23 percent to $1.4

billion in the first quarter 2000 from the fourth quarter of 1999. During the first quarter of 2000,

only 5 percent of venture capital funding went to e-Commerce startups, down from 12 percent in

the previous quarter (Donahue & Girard, 2000).

An increasing number of B2C companies are withering away due to an increase in the number of

competitors (Oracle, 2000). This effect has been particularly felt in retail industries such as toy

stores, computer sellers, and office supplies. Survival projections for several of the dot.comretailers look bleak (Forester Research, 2000). Clothing retailer boo.com recently liquidated their

company after burning $100 million in six months.

The low barriers to entry and increase in competition will have an increasingly negative effect on

entrepreneurs and small business owners' ability to survive within the B2C area. Both traditional


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and virtual companies' weaknesses have been amplified. Consumers have gained power in the

distribution channel by demanding and receiving the lowest prices available. Consumers can

achieve this through information intermediaries like CompareNet.com who have information on

prices and vendors for over 100,000 consumer products. According to John Hagel of McKinsey

& Co., "Consumer infomediaries can save an average client household the tidy sum of $1,100 a

year by searching for the best deals on its behalf. The reduction in transaction costs will give

more power to the buyer." It is estimated that these infomediaries will grow from $290 million in

revenues in 1998 to $20 billion in 2002 (Hof, 1999).

There has been a tremendous surge in the number of B2B companies or exchanges, however

most of these businesses are nothing more than meeting places. Hence, it is likely that current

projections of large-scale bankruptcies among B2B companies will also become true due to the

lack of value-added services for the trading partners. These services typically include integrating

back end systems, providing industry specific content, and assisting in the development of RFP's.

Horizontal exchanges (e.g., Freemarkets) that provide trading services for several industries are

faced with the additional burden of providing compelling content for their customers.

In a sense, the pressure is on for small businesses because they have to eventually participate in

buyer initiated exchanges. This is especially the case for small businesses that are tier two or tier

three suppliers for large companies like General Motors. In an effort to rationalize and streamline

their supply chain, larger companies are insisting their suppliers upgrade their IT systems to a

level of sophistication that is on par with the organization. Larger companies want suppliers to

deliver goods in a shorter period of time in a cost-effective manner. This requires not only

sharing demand forecasting and inventory information but also exchanging information that is in

compatible formats. It is also essential that transaction details be easily integrated with back end

systems. For example, suppliers are likely to insist that order information should directly be

pushed into their order processing systems, rather than retype all the information. On the other

hand, large organizations would prefer that supplier initiated information be fed seamlessly into

their internal ERP or legacy systems.

For small businesses that have not yet established formal relationships with large company's


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supply bases, there is also the question of whether to become affiliated with horizontal versus

vertical exchanges. It is likely that eventually small businesses will have to participate in several

of these exchanges. Typically, several of these exchanges require registration fees, subscription

fees, and maybe even transaction fees. Hence, it is important for small businesses to perform a

cost benefit analysis before joining an exchange.

Technical Challenges

Once a small business or entrepreneur has decided to conduct business on the Internet, their next

strategic decision is to decide how to host their web site. These businesses have three options:

host their own web site; host their site with a web hosting service provider; and host their site

with a portal such as Yahoo or GeoCities. For a small monthly fee, portals like Yahoo will help

any small business develop its site, perform payment processing and tax calculations, maintain

the site, and collect site statistics. While this really reduces the development effort, it also

reduces the flexibility. Most portals will not let merchants have a virtual domain name. So

instead of www.merchantname.com, the address will be store.yahoo.com/merchantname. Also,

these portal-based storefronts do not necessarily grow with the business and could get tedious,

expensive, and cumbersome when the order volume increases. Since portals like Yahoo host

several other storefronts, the download time for potential customers could be very high.

Increasing the growth rate will eventually require a site that is more reliable. Finally, if the site

requirements grow beyond the capability of a portal-based host, it is impossible to transfer the

site contents into a standard format. This is because portals like Yahoo do not allow one to

convert site contents developed in their storefront into any recognizable format such as HTML.

Another alternative to portal-based hosting is buying a server. There are downfalls to this

strategy as well. For instance, the business might not be able to make decisions about hardware,operating systems, and application servers. This also requires considerable knowledge in

installation and setup of a web server. Server connection fees can be prohibitive. The merchant

typically will need at least a 64 Kbps connection line to the Internet backbone. This entails line

installation costs as well as any other costs for network routing equipment


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In most cases it is best to start with a web-hosting provider where the business is not concerned

with hosting issues but at the same time has a certain degree of flexibility. However, selecting a

web-hosting provider requires careful consideration of several issues: length of the contract, disk

space offered per account, ability to run CGI (Common Gateway Interface) and other scripts,

conduct secure transactions, e-mail management, availability of access logs, instant credit card

validation, connection speed of the web host with the internet backbone, server redundancy in

case of traffic spikes, adaptive pricing plans which correspond to scalable requirements,

throughput--the number of http requests that a particular web server can handle, and the response

time for the server to handle a page request.

Hosting the site with a web-hosting provider might require the business to incur initial

development time, cost, and effort. However, with the advent of easy to use tools, this task has

become considerably easier. At the most basic level, a typical e-commerce infrastructure for a

small business or entrepreneur consists of a web storefront for buyers to browse the site and a

payment gateway to collect credit card payments.

In order to perform these functions, several software components are required. First, storefront

content development tools such as HomeSite, FrontPage, and PageMill are useful for developing

site content and also include features such as creating customer survey collection forms. Second,

database connectivity tools such as ColdFusion, ASP, and VisualInterDev are useful for creating

database driven applications. Database connectivity is crucial because the web catalog should be

consistent with the actual inventory database. Third, setting up a payment gateway requires an

HTML based form that collects customer credit card and shipping information. This information

is then encrypted using Secure Socket Layer (SSL) and sent to a third party provider (such as

First Data), which then forwards the information to the customer's credit card issuing bank. After

authorization and a deduction of transaction fees, the net amount is credited to the merchant's

account. Typically, payment-processing software like QuickCommerce take care of some of the

above functions. It is also important for the merchant to get authentication from a certification

authority such as Verisign. Ancillary tools are useful for functions such as tax calculations (e.g.,

Taxware), site traffic analysis (WebAnalyzer), diagnostics (LinkSleuth), chat sessions (Ichat),

live help (Humanclick), and e-mail management (eGain).


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Another challenge is to maintain the business 24 hours a day, seven days a week. This requires

staffing for customer service as well as technical problem troubleshooting such as site upgrades,

hosting failures (server crash), and environmental failures (power outages). Sites also need to be

constantly re-evaluated for stress testing (how well they handle peak traffic), page download

times, link validation, and usability. It is also important to evaluate how many high margin

transactions occur on the site. Small businesses and entrepreneurs with low margin items should

consider offline authorization or authorization on a batch basis as opposed to real time credit

card authorization. This is because third party payment processors such as First Data as well as

the customer's issuing bank charge fees for processing every credit card transaction on a real

time basis.

Security is one of the most important aspects of web site operations. Typical attacks include

hacking into the site for credit card numbers or even denial of service. Part of the reluctance on

the part of customers to buy on-line is their perception that their credit card and other

information is not secure. Hence, entrepreneurs and small businesses need to assure their

customers that they take adequate security precautions.

It is also important to have contingency plans in the event of an attack. The consequences of not

having adequate mechanisms and a contingency plan can be severe. The inability to thwart

security related attacks on the site would be unnerving to consumers. The direct effect of this is

an immediate drastic reduction in market share because the site is now branded with an image

that credit card and other private information is not secure. While contingency plans do not really

alter the damage, they can be more useful in that they can be used to reinforce the impression of

a secure site.

Business Challenges

When developing a web site, small businesses and entrepreneurs must make sure that they create

an attractive site with a sense of community. Building one-to-one relationships and a quick

delivery of quality products will be keys to success. Customize your site for clients and receive


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e-mail to get feedback about the site. If you are selling products, have a virtual catalogue that

includes pictures on the site. To save space and decrease the download time, place pictures in

small thumbnails. Give the consumer the opportunity to hit a thumbnail to see the big picture.

One of the keys to having a successful online business is brand name recognition. With a lack of

brand name recognition, customer perceptions may lead to a lack of trust. Customers may be

reluctant to purchase online, especially give out credit card information for fear of hackers. To

overcome this objection companies are attempting to create a strong brand name through heavy

advertising. As competition increases on the Internet, companies will be increasingly forced to

develop their brand name on the Internet and the traditional marketplace. Some strategies that

companies have been using are creating gimmicks such as free shipping or offering free items to

entice customers to purchase items from their site. The problem with these gimmicks is that they

do not lead to a company's sustainable competitive advantage.

Innovative marketing is also a key to success. Some of the more common approaches include:

reciprocal links with complementary sites, banner advertising, retailer-search engine portal

alliances, prospect fees for visitors who complete some action, and affiliate programs with other

merchants. Given the click through rates of 2 percent and then further prospect conversion rates

of 3 to 4 percent, it is not only important to attract new customers, but also devise strategies to

increase purchases as well as strategies to retain existing loyal customers. These strategies

include: personalizing content and promotions, placing complimentary items beside core

products, attractive and functional design, and building a loyal user community with chat rooms

and discussion threads. For example, online grocery sites can be personalized for specific tastes

and preferences such as health conscious groups or international foods.

For sites that feature several product categories and brands, a big issue is usability. Navigation

through 10 to 12 screens might result in a frustrating experience for the customer. Instead, it

might make more sense to create personal shopping lists that are based on usual purchases. Yet

another way companies can enhance their competitiveness is through the reduction of problems

related to logistics (e.g., late delivery) and poor inventory management (e.g., out of stock). More

recently, companies have found innovative ways of providing customer service on the web.

Having links with answers to frequently asked questions is an innovative tool being used by


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companies.

The Internet has also created new challenges for companies that have traditionally fulfilled the

role of middlemen; i.e. bringing buyers and sellers together (for example insurance agents).

Companies that have been operating with physical storefronts have had to devise new strategies

to compete successfully. This includes the ability to leverage their offline activities with their

online operations. For example, Williams-Sonoma, a bridal registry, allows couples to register

online while gift buyers can use kiosks located at various places in their physical storefronts to

access an updated database of gifts bought.

It is also very important to understand the people who visit your site and which products they

purchase. It would be worth investing in site evaluation tools such as SiteAnalyzer to identify

typical customer profiles. These tools also provide information related to revenue by page or by

product and also revenue by the incoming referral url address. This will help the merchant to

evaluate the effectiveness of his banner advertising strategies. Other strategies include

developing strategic alliances with other net companies and exchange banners on their sites,

hosting a chat room or discussion group, or advertising on other sites.

Other Challenges

Entrepreneurs and small businesses also need to realize the scarcity of human capital. The U.S.

economy is at its lowest level of unemployment in 30 years. Competition for the brightest

workers has skyrocketed, resulting in high salaries and a lack of employee loyalty. However,

with the recent downturn within the Internet sector, many companies are laying off employees to

reduce their costs.

Other challenges include the theft of intellectual material on the Internet. It is essential to protect

your site through copyrights and patents. Also make sure that the web designers make your site

reliable. Users will also need to be assured that any information given out over the Internet will

be used for internal use only and customer service must be in place. Finally, other concerns

include the lack of a predictable legal environment, concerns that the government will overtax


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the Internet, and uncertainty about the Internet's performance, reliability, privacy, and security

(Margherio, Henry, Cooke, Montes & Hughes, 1998).

The companies that succeed will take the time to understand the context of the industry in which

they operate, rather than focusing on the technology. It is imperative that they understand the

industry's distribution channel. If a company can find the fastest and cheapest way of performing

theses activities, they will be in a strong competitive position.

Entrepreneurs and small businesses that are interested in doing business online should seek

assistance through their local Electronic Commerce Resource Center (ECRC) (www.ecrc.ctc.

com). There are over 50 centers located throughout the U.S. ECRCs offer free or low-cost

training, seminars, technical support and outreach in a variety of e-commerce areas. Most of their

classes are free and include areas like "Marketing Your Goods and Services Using the Internet,"

"Web Page Creation Using HTML," and "Using the Internet for Business-Related Electronic

Commerce."

Finally, be aware that running a business on the Internet takes a lot of knowledge about both

technology and business. It is best to outsource as much as possible. Overall, you will have to do

a good job in all of the various aspects of running a web business in order to be successful. You

must also move quickly to satisfy the customer's needs.

Despite the enormous number of new ventures taking advantage of opportunities on the Internet,

no one clear path or business model has been identified as a winner. Different models have

worked for different organizations. Having a unique technology or brilliant management does

not guarantee profitability. Being a first mover also does not guarantee success.


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CONCLUSION

The explosive commercial growth of the Internet presents both new opportunities and challenges

to entrepreneurs in how they formulate, develop, and implement innovations in their businesses.

The issues, challenges, and future directions presented in this paper represent one of the first

comprehensive discussions of the entrepreneurial strategies,

role of e com in entrepreneur initiative

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