Editor’s Note: We welcome Dale Traxler as our newest contributing editor. He’s a former owner of an ecommerce business — having purchased, grown and then sold Beaded Impressions, a family of jewelry-related sites. He’s now an advisor and consultant to small businesses.
Ten years ago, it was easier to succeed in ecommerce than today. If you had a product to sell, built a website, opened a merchant account, figured out how to get Google to see your website, and could ship the product, you could likely prosper. It was more of a “Ready, Fire, Aim” approach to a business strategy. If what you were doing worked, you kept doing it. If not, you made an adjustment or simply failed.
But in 2012, you must take a more logical approach to your business strategy. I call this “Think, Plan, Act.” There is virtually no such thing as a unique product in the market. There is a substitute product for everything and consumers can buy it from many different stores. There are likely many competitors in your market — including Amazon.com — with websites just as good as yours. Even if you hire smart marketing gurus, it’s difficult to influence your search rankings to get more traffic. Your shipping and inventory costs likely increase frequently, your employees want raises, you need to constantly reinvent your website and so forth. You need manage growth, profits, and keep customers, investors, and employees happy. In short, running an ecommerce business in 2012 is a complex endeavor.
Successful ecommerce business owners today understand their customers, how to reach them, and why they buy. These business owners know their value propositions, understand their financial and funding issues, develop and grow a strong infrastructure, and build an organization that is sustainable. The owners of the top businesses are also planning strategically to optimize their current operations and plan for future change and growth.
The really important part of developing a strategy is not necessarily the output. It’s the thinking that occurs as part of the process. Good thinking and planning will accelerate your growth, reduce risk, and build a more sustainable business.
Many small business owners associate business strategies with larger corporations. Many do not know what a business model is or why they would want to develop strategies around it. Other business owners build business models without even realizing it.
I view the strategic planning process as developing a blueprint for success. If you are building a new house, for example, you have a vision, get a design, build a model, develop a blueprint from that model, and then hire a contractor to build it. If you are building or expanding a business, you need to have a vision of what you want to do, build a model, develop the strategies and plans, and then execute the plan. The business model and strategies are the blueprint for success.
A business model describes how a business makes money. The model shows, in detail, the core elements of the business, including its purpose, customers, channels, products and services, infrastructure, organization, and profit model. It allows for modeling by changing variables. It is a powerful business tool.
Generating a business model is usually part of a strategic planning process. This process does not have to takes weeks and months. It can be done on a napkin over lunch, though there are many web tools and apps that help. The business model is a tool for you to use to develop good business strategies and plans.
There are many ways to describe a business model and almost as many books, but here is a simple conceptual diagram to help, courtesy of Vision to Action Management Consulting, a Colorado-based advisory firm.
At the core of the business model are the strategies. They tie the elements of the model together and identify key initiatives, resources, and actions needed to support it.
Strategies may also include plans for growth, product launches, funding, and exit — i.e., selling the business — plans. Strategies are developed for the day-to-day functions, such as marketing to target customers, hiring employees, and outsourcing functions to other firms.
More to Come
I’ll be exploring many aspects of ecommerce business strategies over the coming weeks. I’ll break down core areas of an ecommerce business and identify the questions you should be asking and answering. Then, I’ll look closely at how different strategies affect various situations. For example, if you decide on a “lowest price guarantee” strategy for your products, you better make sure you are also the “low cost producer” in the marketplace. Otherwise your profit model will be affected. If you decide to offer the widest selection of widgets in the marketplace, you will need money to buy the inventory and hire staff to support that strategy.
In the meantime, check out Business Model Canvas, a tool from Business Model Foundry, in Switzerland. It’s a handy template for creating your own ecommerce model.
You may also want to read “What’s a Startup? First Principals,” a blog post by Steve Blank, a serial entrepreneur and now an author and consultant, about business models, value propositions and their importance for startups.