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E-commerce companies should stay focused on more ROI

Monday, March 19, 2001

There's been a shakeout, a fallout and a devaluation all over the dot-com universe, but Gary Meehan refuses to give up his core beliefs: There is a New Economy. The Internet will deliver it. And it begins now.

That's not to say that Meehan, president of Canada in Vancouver, doesn't think there are changes in the way small and medium-sized enterprises need to work today.

And, with Onvia growing from six to 500 employees in the past four years to become the leading business-to-business e-marketplace for small-business buyers and sellers, his customers want to hear what he has to say.

"Our own product teams have become much more ROI [return on investment] focused," says Meehan, whose biggest block of clients is businesses with five or less employees.

"Not only are we talking about ROI a lot more in the high-tech sector, but we're trying to be a lot more accurate."

Onvia Inc. -- begun in Canada and now headquartered in Seattle, and the beneficiary of a $230-million initial public offering only a year ago -- sees a tightening market in which the tone among investors has shifted to: "You tell us where our return is."

Small companies, Meehan believes, can generate those returns by working on sustainable business models, making strategic alliances and listening closely to customers.

He's bullish on wanting almost all small businesses to get on the Internet, observing that only 9 per cent of Canadian small businesses buy on the Net, compared with 17 per cent in the United States. However, Meehan acknowledges that we've been through a period of unreality in the dot-com cosmos.

"Definitely, there were a lot of companies that were being funded and going public on the strength of business plans," he says. "It was all about this land grab -- 'There's only going to be two on-line pet stores!' "

Getting the fundamentals right, finding the right partners and showing leadership is the right way for SMEs (small and medium-sized enterprises), in his view. He still cautions that dragging too long on decisions is a liability and that companies can't always wait for 100 per cent of the information to be in hand. But if investors are becoming more tentative, small businesses have to have done their homework.

"For those who are looking for funding, the outlook is definitely scarier than it used to be," Meehan says. "You need to be a little more creative about where you're going to find your funding."

Capital from a so-called "angel," or love money, which most small-business owners know something about, is a bigger factor than people realize and probably is growing. Meehan's reading of current indexes tells him that:

Venture capital provides only 4 per cent of the capital needed for startups.

Only 2 per cent of business plans get funded by traditional venture-capital investors.

Corporate investors are getting more involved in incubation and "intrapreneurship" in smaller firms.

Players in private equity markets operate on scarce information with no transparency; demand has increased the need for intermediaries.

The public markets exist to measure mature companies on specific metrics, not startups.

Onvia conducts and buys a lot of research. Although not every small business can do that, each has access to the most informed sources of all -- their customers.

"A lot of times, if you just listen to your customers, they can really tell you how to lead," Meehan says. "With e-mail and the rest, customers are so much more communicative than they used to be. Your customers want you to be a leader."

Tips for SMEs

Gary Meehan gives some orientation points for SMEs in the New Economy:

Strategic alliances are critical: Sometimes with very unexpected sources, these can be critical for survival as the marketplace changes. Competition will lead growth: Live alone, die alone. According to U.S.-based Forrester Research Inc., 84 per cent of companies say that in 2001, partnerships will be the highest growth aspect of their business, far outpacing staff, technology, content and product offerings.

Sustainable business models are key: The irrational exuberance of the dot-com era is over and serious business on the Internet is now about to begin. The downfall of many dot-coms was that they moved ahead of customer adoption. Dot-com is not a dirty word. Net is the killer application when used as intended. The era of free stuff on the Web is coming to an end. The emerging model is pay to play. The hype is over -- a company cannot be built on branding alone. Results are key.

Business life cycles are shorter: according to Hewlett-Packard Co., a typical product life cycle today is six to 12 months; five years ago, the average product life cycle was three to five years. The business life cycles of New Economy companies are affected by increased competition from brick-and-mortar market conditions, shorter product life cycles, completely different customer expectations, strategic alliances, competition and customer loyalty measured in seconds rather than months.

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