Ecommerce - Survival Of The Fittest
By Peter Stahl

The Internet has created more millionaires than any other industry throughout times. Business owners, employees and stockholders as well as the whole economy have been riding on a huge wave of fortune and success. However, we are now moving into the second phase of the digital revolution where venture capitalists are closing the golden doors and many Internet companies are going to have to change course to stay in business. Many ecommerce companies will have to find a less-crowded market sector, adding new businesses to boost revenues, consolidate or in any other way reshape their business model. Like any other mature industry, the Internet will need to evolve through a Darwinian "survivor of the fittest" process.

To survive the online shakeout Internet companies must differentiate themselves by providing useful content, business solutions, entertainment, value-added products, leading edge technology, superior service and creative marketing. This is very costly and exclusively Web based businesses will have some rough times ahead of them as they strive to compete against established publishers, retailers and manufactures. We have seen the same phenomenon in many other industries. At the beginning of the century America had over fifty car manufacturers -- today we have two. The hard-disk and computer industry experienced the same shakeout and the Internet industry is destined to go down the same path.

Although the majority of e-business owners don't want to think that the shakeout will affect them, most smart and successful entrepreneurs plan the future for their business and their exit strategy, not because business advisors tell them to, but because they understand that it increases their chances for survival.

There are several things that you can do to control the process and maximize the value of your business before the great shakeout reaches your front door. Follow these suggestions and you will not only pump up the value of your Internet business - you will have more fun running it.

Timing:
The value of any business is relative to the market demand for that business and the profits it generates. Choosing when to sell your business can be the most important factor in getting the best price. Often owners will come to us when sales are down, much after the company reached its zenith. This might cost you millions of dollars.

Financials:
Optimize profits, a $1,000 increase in your net income can mean a $5,000 to $10,000 increase in selling price. That is why it is extremely important to sell your company while its earnings potential is at its greatest. Maximize net worth, clean up your balance sheet and be careful of taking on any new debt. Postpone major purchases that will not pay for themselves for years, unless necessary to maintain the business. Finally, keep good records. Good records make for easy and fast transactions, which tend to produce the highest price for the seller.

Keep a high profile:
It doesn't help your value if no one knows who you are. Get active and get well known by industry consultants, associations, vendors and competitors. Image is often more important than reality.

Personnel:
Shore up weaknesses in your organization, hire key managers and give them responsibilities. A business that is not solely relying on its founder for its existence is much more valuable to a buyer. A strong programmer, hot shot web-designer or a super inventive marketing manager might also be the key to upping the value of your business. If things have been rough lately and your idea is brilliant and your team is solid, you might have to ask the toughest question of all. Maybe you are better at starting a company than you are running one. It might be time to hand over your business to professional management.

Growth vs. profits:
In general, rapid growth is more important than big profits. Buyers and investors know that high growth usually leads to high profits eventually. However, the Internet industry has been too caught up in the land grab, spending millions in creating and promoting their sites, resulting in huge losses. What will be relevant for all ecommerce companies in the near future is cash flow and running a tight ship. Investors and buyers wants to see a clear plan of how your company will turn profitable within a reasonable time…not just sometime in the distant future.

Consolidate:
Strengthen your power within your niche. The Internet industry consists of many small companies. If possible, buy up weaker players and eliminate the competition. Market share is important and having a controlling share even in a small niche market can contribute to a big valuation of your company.

Innovate and lead:
Build on any technical or creative advantage you have over the competition. Your technical expertise and your customer base might be more valuable than the actual products or services you sell.

Think globally:
Most Internet companies haven't thought much about the global market, let alone about actually launching a global operation with mirror sites in international markets. While every ecommerce website can make its offerings globally accessible, very few sites know how to serve foreign customers well. If your ecommerce business isn't yet global, you're missing a big opportunity and potentially millions of dollars in revenue from foreign markets.

Promote and get traffic:
Besides getting people to type in their credit card numbers, the biggest problem is to get people to look at your web site. This is mostly done the old-fashioned way by advertising all over the place. Ecommerce companies spend on average $82 on promotion per customer. But lately, companies are realizing that spending whatever it takes to attract customers to the Web isn't smart business. Web based businesses have to cut the burn rate through less expensive creative marketing. One way is marketing partnerships, which might mean that you have to give up equity. Hollywood.com offered a 30 percent equity stake to CBS in exchange for $5 million in cash and seven years of promotion valued at $100 million. Another way to differentiate yourself is to use "Star Power." Nothing increases perceived value more than having your business associated with a celebrity or famous person.

Get them to come back:
Less than 50 percent of Web site visitors come back a second time. Give people a compelling reason to come back to your site and they will. Trust, privacy, identity, and security are the intangible commodities that have become top issues surrounding the growth of ecommerce. Companies need to differentiate themselves through service and customer interactions. A stock brokerage site might offer a real-time window where investors can talk to experts or other investors. Improved access to hot information and news groups on the subject. State-of-the-art shopping-cart that is safe and easy to handle. The options are almost endless.

The Internet is evolving faster than almost any new medium in history. You need to take a fresh look at your business and come to understand that it is just like any other asset that you own -- it has a value that changes with the market. It is important for owners to be in control of the process and plan the optimum time to realize the highest value for their Internet business. The fact is, those who strategize when to sell their company and who to sell their company to, often do much better at maximizing its value. If you follow the simple practices I have outlined here, there is a good chance of cashing in handsomely when you sell -- whenever you choose.