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First why should someone buy your e-business when as we’ve already discussed, there are few barriers to entry in e-commerce. It could be as easy and beneficial to copy your e-business model and become your competitor; steal your market share rather than buy it?
The second factor relates to longevity; traditional valuation approaches will use current earnings and an expectation of future earnings to value your e-business. How long term are your cash flows? Given low barriers to entry and more un-controllable factors such as search engine ranking, how long can profits realistically remain at their current level? The answer is no one knows for sure, but if you subscribe to notion that competitive advantage is totally unsustainable in e-business a good answer would be “not very long at all”.
Considering these two factors will help you appreciate that whatever your Business may be valued at using traditional valuation methods – you may find it difficult to achieve anything like valuation price when you try to sell it.
9. Don’t buy an e-business “off shelf”. At least one person does not want it – why not?
It’s very tempting to believe that buying an off shelf e-business is quick route into e-commerce. After all, if website development has been done, that’s expensive part taken care of, so all you need to do is run business to start to make money - right?
My view is a little different. If something is for sale then at least one other person does not want it? Obviously there are lots of genuine reasons why an e-commerce operation might be for sale such as retirement, new business interests, lack of time etc, but equally these reasons can be given to simply disguise fact that e-business is not performing or is unsustainable in long term.
Also consider if development of website was indeed most expensive part of Business taken care of? For many years a concept known as open source has existed in programming world. This means that code may be used as is, modified, and redistributed (subject to few constraints). This concept also exists on Internet, and many developers have built powerful applications that can be yours to use and modify for free! For example, you could decide to buy an auction website, that looks similar to ebays hugely successful site, assuming development must have cost thousands - but you would be wrong. The auction application is actually available as open source and is called Every Auction. One final point before we move on. Fancy web applications without users are totally pointless. Buying an off shelf application, even one that has actually cost money to develop, is of little use if there is no incumbent user base. The majority of these applications have not been implemented in production, are not in search engines, have no user base and there is no awareness of application. Even where e-business application does not already exist or there are no dominant players, marketing and building user base yourself will undoubtedly become most expensive part of your e-business operation.
10. Establish a budget to build your site then add at least 30% more to build an adequate administration interface.
This is possibly most crucial part of your e-business, and almost always overlooked. An effective back office could mean difference between your business survival or failure, and without doubt it will reduce your operating costs, as well as make your business manageable.
Building an online shop to take an order is easy, but where do you go from there. Unless you pay attention to your back office administration functions you will find your Customers contacting you by phone and/or email to ascertain anything from if product is in stock, to if their payment was received and processed, to when they might expect delivery. Remember customer contact is an overhead in any business, and this sort of contact adds no value in e-business.
If your back office functions are not robust you might also miss opportunities to obtain repeat sales from your Customers; are you maintaining a mailing list to keep your customers informed about new products?
Finally your back office systems could assist with financial management of your e-business, from producing sales receipts, to sales reports, your e-commerce site should be providing you with business information about transactions that are made through it.
Oliver Phillips runs the web development company eantics Ltd and as a qualified Accountant, has built intranet financial systems for an FTSE quoted UK PLC. His e-commerce operations have twice reached the finals of the UK e-commerce Awards; his Company’s latest venture, ‘PFS France’ has just launched.