E-Commerce Business Plans / Business Models

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E-Commerce Business Plans / Business Models

• Tony Stanco
• Director, SEAS Council of Entrepreneurial Tech
  Transfer and Commercialization
• www.seas.gwu.edu/cet2c
• Stanco_at_gwu.edu

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What is a business model?

• First thing to do is create a business model that
  will likely result in producing more cash than it
  will consume
• Easier part
• Actually building the model in the world to make
  it actually happen is the harder part
• Like any engineering project very doable with the
  right education and understanding

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What is a business model?

• A business model is a representation of all the
  crucial activities of a business
• It describes what the business is about and how
  it will work
• It takes all the necessary inputs into account
• Customers, suppliers, employees, existing company
  landscape (e.g, competitors and potential
  partners)
• And creates a net money making machine

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What is a business model?

• It's all about the money
• Even if you are not a so-called capitalist or
  businessman it is all about the money
• It is simple Your company-machine will sieze up
  (go out of business) if you don't have at least
  as much money on hand each month as it consumes
  each and every month

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What is a business model?

• Only 2 ways to bring money in
• Customers
• Investors
• Customers are key
• Only way to become sustainable
• i.e., long-term, more money in than out

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What is a business model?

• Investors only put money in because expect lots
  and lots of customers at some point
• Investors put in short term money in expectation
  of customer sales later
• Cover cash shortfall before the customers come
  with enough of their money

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What is a business model?

• The basic agreement with investors is this you
  and the investor both have to agree that there
  will be lots of customers at some point (a big
  market)
• AND you can't do it without them, because you
  have a short term cash shortfall that you can't
  cover yourself or with the cash from customers at
  that point

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What is a business model?

• Therefore, you can't execute your business model
  in the real world and it fails before you begin
• So, you bring in investors to give your business
  model a chance in the real world
• You only do this because you have to
• Investors know this and therefore take a big
  piece of the company

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What is a business model?

• If you can build your model without outside
  money, you do it
• If you can't, you need to redo the model or just
  accept the investor bargain (assuming they are
  interested in your company)
• Most times, you re-work the model, so that it
  works without being so ambitous and therefore
  without needing outside money

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Business Plan

• What is a Business Plan?
• the document that describes, in qualative and
  quantative terms, the coherent model of how the
  firm will become sustainable, i.e., Make more
  money than it consumes

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Reasons to Write One

• It puts all the pieces together in a way that
  makes sense
• Work out the logical inconsistencies in your
  model as best you can before you start
• Business Plans are reiterative
• You do you best, then after you start your
  business, you re-work it every 3-6 months because
  you find out things that you didn't know before

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Reasons to Write One

• Also, you use the business model document (aka
  the business plan) to explain your business model
  to outside parties
• Potential partners
• Potential key suppliers
• Potential key executive employees
• Potential investors (VC/angel investors)

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Reasons to Write One

• The more logistically consistent your model is,
  the more likely outsiders will think you can do
  it
• If they see inconsistencies or things that don't
  make sense to them, they will think it will not
  work and won't want to be involved
• The larger the opportunity (how much money it
  will make that can be shared with everyone), the
  more likely they will be interested in being part
  of the company

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How long?

• Full Business Plan
• Make it as short as possible, but covering all
  the major parts needed to show the model will
  work
• Seldom more than 20 pages
• Have a 2-5page executive summary
• Have a 1-page teaser
• Have an elevator pitch

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How long?

• You need to have the full business plan done for
  yourself (and any core partners) so you know your
  model holds together
• It may take many drafts to work out the kinks

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How long?

• When you are ready to start selling the business
  model to others (employees, other partners,
  investors)
• Start in reverse order
• Start selling with Elevator Pitch
• If interested, send the 1-pager
• If still interested, send the exec summary and
  full business plan
• At this point, if they like the exec summary,
  they may read the full plan and buy into it

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What should it contain?

• Management Team
• Market Opportunity
• Product/Service
• Competition
• Distribution, Sales and Promotion
• Financials (the numbers)

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Mangement

• Management makes company happen
• The most important part of the model
• Explain in a believable way why this group of
  people can successfully build the model
• Show relevant experience to the opportunity being
  pursued
• Skills and abilities, motivations and commitment

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Market

• Who are the customers/buyers?
• Crucial question if trying to create sustainable
  business (i.e. More money in than out) because
  customers are the only sustainable stream of
  money in
• What are you offering customers that they will
  part with their hard earned money
• Growing or shrinking market?

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Product/Service

• What are your key product/service?
• What are the reasons customers will buy them
• What are the benefits your products/services
  offer?
• Pain-killer or vitamin
• Relationship of selling price to your costs to
  make (i.e., gross margin other costs besides
  direct costs)
• Delivery issues
• After-sales issues

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Sales and Promotion

• How do you get product/services to customer
• Choice of sales channels analyze based on cost,
  relationships with channel partners, and
  competitive pressure
• Promoting product/service
• Cost of letting customers know about what you
  offer
• Motivating the salespeople

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Competition

• Who is the competition? Why will they let you get
  the customers?
• What are their strengths and weaknesses?
• Why can't or won't they copy your business model
  if it is so good?
• How can you stop them?
• Competition is big reason companies fail, when
  there is a big market potential

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Financials

• Putting it all together in dollar terms
• Business model is for a machine (with all its
  parts) that produces more money than it consumes
• The financials reduce the narrative model to a
  quantative model to show the model can, in fact,
  produce net cash over time

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Financials

• Income Statement
• Balance Sheet
• Cash Flow Statement
• Spreadsheet of monthly cash-in/cash-out for a few
  years
• Need to show more money in than out
• Show how will cover any cash shortfalls
• Need investors to make it work or to redo entire
  model?

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Cash Flow Statement

• Cash flow is key
• Focuses consistency and coherency of plan by
  looking at cash-in/cash-out
• Shows a record of cash available at different
  points in time
• It shows not only how much you might need but
  also when you will need
• Usually monitored monthly

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Making good projections

• Cant avoid forecasting errors no forecast is
  perfect
• Adjust model with new information as you start
  building the company and get feedback
• Can avoid inconsistency errors, however
• Incomplete or logical flaws easy to correct
• talking to outside parties, usually gets these
  exposed before you start

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E-Commerce Business Plans / Business Models

• Tony Stanco
• Director, SEAS Council of Entrepreneurial Tech
  Transfer and Commercialization
• www.seas.gwu.edu/cet2c
• Stanco_at_gwu.edu