ROLE OF

E-COMMERCE IN
ENTREPRENEURSHIP INITIATIVE

Introduction
The rise of the World Wide Web and electronic commerce has created one of the most
challenging environments for entrepreneurship in recent history. Market needs and the
technology required to meet those needs can change even while the product or service is still
being developed (Iansiti and MacCormak, 1997). This framework demands that founders of
organizations strive for "relentless innovation," leading their firms through the continual infusion
of new ideas, and emphasizing constant innovation, experimentation, and rapid change (Cohen
and Jordan, 1999).
The environment of e-commerce enables entrepreneurs to rapidly try new approaches, quickly
share successes and failures, and monitor what is new and useful (Oliva, 1998). E-commerce
permits managers to become quicker in how they gather, synthesize, utilize, and disseminate
information. Those who are willing to experiment with new product and service offerings will be
positioned to compete most effectively (Hodgetts, Luthans, and Slocum, 1999). The extent to
which entrepreneurs capitalize on the conditions presented by e-commerce and engage in
experimentation and innovation is of major interest in contemporary research.
Because of the demand for innovative organizational behaviour present in e-business, this is an
important domain in which to study entrepreneurship. However, because it is so recent, very
little is known about the role attributes or innovative activities of entrepreneurs in Internet
organizations. What enables emerging organizations to achieve effective performance? What are
the opportunities and constraints in operating within this environment? These and many others
questions are arising as the field of Internet entrepreneurship grows and develops. The answers
will inform the development of the growing research base in this area and will facilitate the
subsequent comparison of key variables and relationships found in firms engaging in ecommerce with those in traditional brick and mortar firms.
This paper presents the emergent practices and processes of e-commerce entrepreneurship,
explores the key challenges facing the new ventures, and offers a research agenda to guide future
work in this area. The paper draws on recent research findings and focuses on founders and
organizations whose activities encompass the Internet, conducting multiple transactions on the
Web, rather than on organizations that use the Web only for customer advertising and
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information gathering purposes. It is the premise of this paper that the first major step in
developing a model of e-commerce entrepreneurship is to examine the processes and behaviors
found within the ventures. The examination is conducted along several dimensions and
contributes to our understanding of the nature, opportunities, challenges, and future directions of
the entrepreneurial firms.

This paper addresses the following areas of e-commerce entrepreneurship:

What does the entrepreneurial landscape for e-commerce look like, and what are some

recent trends in Internet entrepreneurship?

What are the values and strategic orientations of Internet entrepreneurs (netpreneurs)?

What focus does innovation take within these firms?

What specific human resource practices are critical to the success of these firms?

What are the most important entrepreneurial skills needed in Internet entrepreneurship

start-ups?

What are the key challenges facing netpreneurs?

What are the implications for entrepreneurship education?

What are some recommendations for future research and entrepreneurship development

in e-commerce entrepreneurship?

The Entrepreneurial Landscape: Emergent Trends in E-Commerce Entrepreneurship

Entrepreneurship has always been a vibrant force in the economy and at the forefront of
adaptation and growth of new markets. The 20th century has been described as the "century of
the entrepreneur" (Bangs and Pinson, 1999). The entrepreneurial landscape continues to be
transformed; as the 21st Century unfolds, a new form of entrepreneurship is taking shape. With
the rapid acceleration and availability of technology, electronic commerce is changing the nature
of business.
Electronic commerce experienced dynamic and rapid growth in the late 1990s. By the end of
2000, it was estimated that there were 407.1 million Web users World Wide. In the United States
and Canada alone consumers spent more than $45 billion shopping online in the year 2000, while
Net-commerce (both B2B and B2C) accounted for more than $657 billion worldwide ($488.7
billion in the United States). Total Worldwide Net commerce -- both B2B and B2C is expected
to hit $6.8 trillion in 2004 (Forrester Research, 2001). By some estimates, annual online sales
will reach $200 billion by 2004 and will exceed $1trillion a year within 10 years (Birnbaum,
2000). It is projected that, by 2003, 40 million U.S. households will shop on the Web, and
revenues will approach $108 billion (Forrester Research, 1999). These statistics reflect the
increasing number of ventures that will be launched on the Internet.
With the rapid acceleration and availability of technology, electronic commerce is shaping an
evolution in organizational processes and practices. New forms of arranging work can be seen,
such as collapsing boundaries between firms, suppliers, customers, and competitors. New and
expanding markets are creating increased competition and greater consumer choice (Morino,
1999). This phenomenon will play an increasingly important role in emerging organizations.
Prospective entrepreneurs who wish to capitalize on this trend will need to identify the factors
necessary to successfully found and sustain this type of business. Effective e-businesses will
seek out and act upon the demands of the market, differentiating themselves through customer
management, relationship marketing, and community building (Shannon, 1999). In order to meet
many of their financial and operating goals and objectives, many e-businesses are engaging in a
variety of corporate initiatives that emphasize new market penetration, mergers and acquisitions,
mass customization, and technology and process improvements (Drucker, 1997; Hitt, 1998).
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In order to achieve many of these initiatives and goals, many e-businesses have had to find
innovative ways to increase levels of efficiency, lower costs, and improve technological
processes throughout the entire organization. In addition, the companies and their management
teams have had to formulate strategies that are flexible to allow for continual redesign and
reconfiguration of an organization as it grows and matures. Figure 1 illustrates how changes in
technology/information and globalization factor into the new competitive landscape.
The issues faced by e-commerce firms as they move through the various stages of the
organizational life cycle include the following:

Strategy and Technology Development

Resource Assembling
Standardization of Systems/Controls
Organizational Structure/Design
Management Style and Roles
Human Resource Development
Evaluation of Results
Reward Allocation

All of these issues play a critical role within each of the stages of growth of the e-business (i.e.,
inception, survival, growth, expansion, and maturity). On a broader level, however, e-commerce
firms must also deal with outside pressures and forces that may influence how they grow and
refine their competitive positions in their respective markets. These forces include governmental,
legal, socio/economic, technological, and environmental issues that could have an impact on the
performance and survival of the e-commerce firms.
Netpreneurs will need to build organizations that have several dimensions paramount for
effective performance (Morino, 1999). According to Morino, these are: speed (advances in
computing and globalization have changed stakeholders' expectations about the pace of change);
adaptability (the business must be much more flexible and able to identify and respond to
changes in technology, competition, and buyer patterns); multidisciplinary and collaborative
efforts (integrating such diverse disciplines as technology, services, and graphics). The
boundaries where the enterprise starts and ends will become blurred, as Extranets connect
vendors and information networks of capabilities (Cohen and Jordan, 1999).

Netpreneurship: The Key Values and Strategic Orientations of Internet Entrepreneurs

The rise of the World Wide Web and electronic commerce has created one of the most
challenging environments for product and service development in recent history. Market needs
and the technology required to meet those needs can change even while the product or service is
still being developed (Iansiti and MacCormak, 1997). This framework demands that netpreneurs
strive for "relentless innovation," leading their firms through the continual infusion of new ideas
(Cohen and Jordan, 1999). A new set of core business values appears to distinguish Internet
entrepreneurial teams from other entrepreneurial teams. These values are constant innovation,
experimentation, and rapid change. Such an orientation is similar to what Miller and Blais (1992)
characterize as maverick behaviors, with firms adopting innovative modes based on their
competencies, competitive situations, or managerial preferences. The environment of ecommerce enables firms to rapidly try new approaches, quickly share successes and failures, and
monitor what is new and useful (Oliva, 1998).
As founders of Internet ventures attempt to meet the opportunities and demands of this new
economy, a set of entrepreneurial orientations and behaviors will emerge that can begin to
characterize the nature and process of e-commerce ventures. These are introduced in the
following section.

Strategic Posture of Internet Entrepreneurs

The ability of entrepreneurs to be proactive in their orientation has been described as a critical
dimension of entrepreneurship. It includes the propensity to act on perceived market
opportunities and enter into new or existing markets (Lumpkin and Dess, 1996). Miller and
Friesen (1983) first characterized the entrepreneurially oriented firm as one that innovated and
fully exploited environmental opportunities while repressing environmental threats. Researchers
have since identified two key dimensions that underlie an entrepreneurial strategic posture
(Covin and Covin, 1990; Slevin and Covin, 1995) or an entrepreneurial strategy-making mode
(Dess, Lumpkin, and Covin, 1997). The two dimensions are the competitive aggressiveness
entrepreneurs display as they pursue new opportunities, innovation, and experimentation, and the
proactivity that leads to their being the first mover among their competitors. An entrepreneurial
strategic posture emphasizes a value for innovation. Page (1997) characterized such a posture as
the identification or recognition of opportunity and its proactive pursuit.
Interestingly, even though new ventures are often the result of entrepreneurs recognizing
strategic opportunities within turbulent environments and capitalizing upon them (Cooper, Folta
and Woo, 1995; Palich and Bagby, 1995), research has suggested that entrepreneurs are less
successful in identifying and pursuing new opportunities beyond the start-up phase (Meyer and
Dean, 1990). A significant challenge for young technology ventures is entrepreneurs ability to
recognize a highly competitive environment and proactively change their strategic orientation to
survive and grow (Page, 1997).
Research findings in this area have been mixed: Miles, Arnold, and Thompson (1993) found that
the degree of perceived environmental hostility was negatively correlated with the CEOs
entrepreneurial orientation. Other studies point to the positive relationships between hostility and
entrepreneurial posture. For example, Smart and Vertinsky (1984) described an entrepreneurial
posture as a function of the entrepreneurial personality and that it is deliberately adopted as a
strategic response to an uncertain environment. Covin and Slevin (1989) introduced the
possibility of positive financial benefits tied to the adoption of an entrepreneurial posture in a
hostile environment.

The role of strategy in the Internet start-up is evolving as the contrast between traditional
planning in organizations and the demand for flexible, responsive experimentation in electronic
commerce is increasingly evident. Kanter (2001) describes strategy in Internet firms as
improvisational theater, in which the performances of many troupes accumulate to take the
organization in a new direction Entrepreneurs perceive strategy it as emerging and revealed
through action; the action itself shows the goal. Thus, the primary mode of strategic operation in
these ventures is sense-and-respond, as opposed to the traditional make-and-sell (Bradley and
Nolan, 1998). This orientation enables entrepreneurs to move at Internet speed; consequently, the
traditional strategic plan is one on which these entrepreneurs can no longer rely.

The strategic orientation of Internet entrepreneurs includes behaviors such as experimentation,

going to the customer, and building the customer into the venture as an actor (Oliver, 2000).
This is similar to Kanters metaphor of strategy as improvisational theater, in which the
audience (or customers) interacts with the venture and influences its outcomes. Further,
strategy tends to flow through the organization in all directions, rather than from the top down as
it has conventionally moved.

Opportunity Recognition Behaviors of Internet Entrepreneurs

In a recent study (Kickul and Gundry, 2000a) we measured the relationship between the
entrepreneurial posture of Internet business owners who operate within a highly uncertain
environment (i.e., their rapid response to change, value for innovation, and development of interfirm alliances) and their opportunity recognition behaviors. Further, we investigated whether this
relationship influences the technological innovations implemented by Internet entrepreneurs.
(See Figure 2.)
Our study found that the strategic orientations of rapidly responding to change as well as placing
value on innovation were linked to externally oriented opportunity search behaviors. According
to Koshiur (1997), netpreneurs must be continually prepared to make changes within the
infrastructure of their businesses to meet and prepare for future opportunities and technological
advancements. In addition, flexibility further allows the business to be a successful player in the
virtual value chain converting the raw information into new services and products in the
information world (Koshiur, 1997, p. 103).
The current electronic marketplace requires new innovative models that deal with firm
organization, production, and overall market institutions (Choi, Stahl, and Whinston, 1997;
Lange, 1999). Indeed, as others have suggested (Cohen and Jordan, 1999; Oliva, 1998), Internet
firms that emphasize innovation and rapid response to change are best positioned for success in
this new form of entrepreneurship.
Developing relationships with other firms was also shown to be a determining factor associated
with externally oriented opportunity search behaviors. A promising application for netpreneurs
and their firms in electronic commerce is to use Web technology for business-to-business
interactions (Choi, Stahl, and Whinston, 1997; Shannon, 1999). Contracting with other
organizations allows the netpreneur to have a more decentralized, non-hierarchical organization
that may foster the recognition and implementation of opportunities associated with new
product/service ideas and solutions (Morino, 1999). Moreover, having inter-firm relationships
that are fluid may also be necessary for uncovering opportunities related to the marketing and
distribution of information about the value of the firms products and services.

Finally, our study also found that Internet firms engaged in opportunity search behaviors that are
externally focused had implemented technological innovations dealing with new information
technology, and new computer technology, as well as new methods of advertising. Our results
suggest that Internet entrepreneurs tend to rely on network activity (Singh, et al., 1999) to enable
them to capitalize on opportunities and to reach technological innovations for their businesses
and for the marketplace. Given the rapid pace of technology and business, Davis and Meyer
(1998) have asserted that there is a greater need for entrepreneurs to be connected with their
suppliers, customers, and business partners. This need for connectivity forces Internet-based
organizations to e-evaluate the intangible benefits of the company's technology infrastructure and
its product/service offerings. It is expected that, as more Internet entrepreneurships are
established and identified, research attention will grow and focus on additional strategies and
behaviors of this pioneering group.

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The Focus of Innovative Behavior in E-Commerce Entrepreneurship

Drucker (1998) described four areas of innovative opportunities that exist within a company or
industry, including unexpected occurrences, incongruities, process needs, and industry, and
market changes. Even though these innovative opportunities may be present to Internet
entrepreneurial teams, there may be additional areas such firms may identify for potential
innovative actions.
This emphasis on innovation and change will be oriented not only to the outcomes of these
organizations (e.g., products, services, and new markets) but also to the structure and work
arrangements of the ventures themselves. Oliva (1998) has noted that a successful Internet study
needs to be designed to assess the following research questions: To what extent have these
entrepreneurs been engaged in innovations? What is the direction (type) of these business
innovations?
In another study, (Kickul and Gundry, 2000b) we examined the type and direction of innovative
actions incorporated by Internet entrepreneurs in their businesses. Six distinct innovative
behaviors displayed by netpreneurs were uncovered, ranging from continuous product/service
improvements to managing human resources. These innovations varied to the extent that they
were considered and implemented into the operations and business of the Internet firm.
Improving products/services, seeking alternative markets and opportunities, and incorporating
additional marketing strategies were the critical factors associated with initiating innovation and
change. According to Koshiur (1997), netpreneurs must be continually prepared to make
innovations and changes within the infrastructure of their businesses to meet and prepare for
future opportunities and market/industry advancements.

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Moreover, creative behavior and flexibility further allows a business to be a successful player in
the virtual value chain converting the raw information into new services and products in the
information world (Koshiur, 1997, p. 103). The current electronic marketplace will require new
innovative models that deal with firm organization, production, and overall market institutions
(Choi, Stahl, and Whinston, 1997; Lange, 1999). Indeed, as others have suggested (Cohen and
Jordan, 1999; Oliva, 1998), Internet firms that emphasize innovation and rapid response to
change are best positioned for success in this new form of entrepreneurship.
Although our study examined the various types of innovations engaged in by Internet
entrepreneurs, future researchers should investigate how these innovations are related to the
firms strategic focus and orientation. More work should test the strategic requirements for
successful Internet enterprise developments that have been proposed in the literature, including:
How do the strategic orientations of first-to-market, first-follower, competitive aggressiveness,
and rapid response to change predict innovative behavior? Does the enactment of innovative
marketing behaviors, for example, give competitive advantage to a firm? What types (direction)
of innovative actions seem to matter most to a firms ability to respond rapidly to change?
In view of the rapid pace of technology and business, Davis and Meyer (1998) have asserted that
there is a greater need for entrepreneurs to be connected with their suppliers, customers, and
business partners. This need for connectivity forces an Internet-based organization to re-evaluate
the intangible benefits of the company's product/service offerings. Internally, a firm will also
periodically need to reorganize its organizational structure so that it can react to market forces
and adapt appropriately. It is expected that as more Internet entrepreneurships are established and
identified, research attention will grow and focus on additional strategies and tactics of this
pioneering group.
Many of the entrepreneurs in our sample reported innovative behaviors that can be characterized
as growth extending, as they adapt to market conditions and negotiate a position for their
ventures in the rapidly expanding e-commerce environment. Of further research interest is
determining the degree to which entrepreneurs eventually increase their growth-enabling
behaviors as a means to sustain performance. What role, for example, do recruiting or training
play in the development of technological innovations (a growth-extending behavior)? More
research is needed to ascertain the behavioral supports found in firms.
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Additionally, more researchers should investigate how Internet entrepreneurs form and develop
strategic relationships and alliances with other organizations. How are partnerships formed and
dissolved to meet clearly defined business goals and imperatives? As discussed by Hartman,
Sifonis, and Kador (2000), Internet firms that are able to define their core competencies and
work side by side with complementary partners will be able to exploit many of the opportunities
existing in the marketplace. Moreover, those firms that are able to continuously improve their
businesses and competencies as well as their alliance structure will also have an advantage when
meeting the next new opportunity (Choi, Stahl, and Whinston, 1997; Griffith and Palmer, 1999;
Shannon, 1999).
Contracting with other organizations allows the netpreneur to have a more decentralized, nonhierarchical organization that may foster the implementation of new product/service ideas and
solutions (Morino, 1999). Kelley and Rice (1999) found that the rate of alliance and interfirm
formation was directly related to the rate of new product introductions in new firms. Moreover,
having interfirm relationships that are fluid may also be necessary for the marketing and
distribution of information about the value of the firms products and services. Alternative
methods of marketing found in the electronic marketplace that depend on business-to-business
cooperation and communication include: soliciting and exchanging Web links, soliciting listings
from search services, and endorsing and reviewing products/services on news groups.
More work should also be done to examine the strength of the association between the Internet
firms and their suppliers, value-added resellers (VARs), and customers in determining
organizational effectiveness and performance. Value-chain migration (Hartman, Sifonis, and
Kador, 2000) is one strategy that integrates the supply-chain and customer-facing systems into a
single, integrated process. Innovations and improvements are made in the ordering,
configuration, and manufacturing processes to bring real-time data, knowledge, and information
to multiple partners along the value chain. This increased connectivity may allow Internet
entrepreneurs to become responsive and flexible to meeting each customers particular needs and
demands (Neese, 2000).
Even though our study was able to uncover multiple dimensions of innovative actions in Internet
firms, future researchers should examine the effects of these ideas and solutions on several nonquantitative factors related to organizational effectiveness and performance. McGrath,
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Venkataraman, and MacMillan (1992) emphasize three such factors: enhancing the value of the
firm, creating worth for customers, and insulating the firm from its competitors. By using this set
of criteria to evaluate innovations, researchers would be able to make a more complete
assessment of an Internet entrepreneurs innovations and solutions from an immediate and/or
long-term perspective. For example, although the financial benefits of implementing new
methods of advertising or promoting a product or service on the Internet may not be readily
visible, such innovations may give the business a sustainable competitive advantage in building
brand loyalty and customer satisfaction. Over a period of time, the innovations may lead to
positive financial rewards and benefits for all stakeholders involved in the Internet firm.
As more entrepreneurs enter the arena of electronic commerce, research is also needed to
examine how they effectively design and integrate new business processes and practices.
Although researchers have made important first steps in identifying dimensions of innovative
behavior associated with and found inside Internet firms, more work should concentrate on how
innovations relate to changes in organizational training and development, channel management,
and client and customer relationships. These are all particularly relevant, given that the expanded
description of electronic commerce includes on-line information technology and communication
that is used to enhance customer service and support (Choi, Stahl, and Whinston, 1997; Koshiur,
1997). Keeney (1999) has outlined several areas of customers concerns and values that can be
used by an entrepreneur to design and grow Internet ventures.
In order to build and grow an entrepreneurial organization around e-commerce strategies and
initiatives, an entrepreneur needs to consider several factors. As shown in Figure 3,
entrepreneurial firms should use the opportunities and possibilities of the Internet, Intranets and
Extranets to transform their core e-business processes. As noted earlier, such opportunities
fundamentally change the way a firm does business. Company owners should not only be very
open to changing core processes but also have a vision of how such a transformation will
improve their businesses. Building upon existing systems and applications, e-businesses should
also build new and improved applications and systems quickly and easily, in response to the
ever-changing market and customer demands. Moreover, e-commerce organizations should
establish a hardware infrastructure that can grow easily with the business. They also need to
understand how to manage a network computing environment and how to keep it secure. Finally,
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e-commerce firms need to take a strategic approach in order to leverage their knowledge and
information over time. Ultimately, they should be able to capitalize on the information and
experience they already have and quickly apply new intelligence and knowledge.
Moving Toward New Entrepreneurial Roles
The explosive commercial growth of the Internet presents both new opportunities and challenges
to entrepreneurs in how they formulate, develop, and implement innovations into their
businesses. As Drucker (1998) has asserted, innovation is the specific function of
entrepreneurship. Moreover, distinctive innovative behaviors appear to characterize the emerging
group of Internet entrepreneurs when they are compared with owners of ventures not fully
dedicated to electronic commerce. What sets netpreneurs apart is not that they are different
from other entrepreneurs but that they are operating in a universe of transforming change. As
pioneers of the new networked society, they are both defining and learning new ways of doing
business (Morino, 1999, p. 1). Because of the rapid acceleration of technology, it is becoming
more critical that Internet entrepreneurs have the ability to respond quickly to changes by
bringing revolutionary new ideas into their businesses and the electronic marketplace.
In this way, they are creating new patterns of entrepreneurial behavior and performance. The
results uncovered in this research represent one of the first empirical investigations into the
processes associated with e-business founders. This study attempts to increase our understanding
of the phenomena surrounding the formation and growth of these businesses and has focused on
the distinctive innovative actions of a group of these entrepreneurs. Exploring the direction of
such behavior should facilitate the development of new entrepreneurial models for predicting the
successful identification and exploitation of e-commerce opportunities.
Whether the managerial emphasis on innovation and change results not only in the creation of
new products, services, or markets but also in the nurturing and establishment of innovative
internal and external relationships is the focus of another recent study (Kickul and Gundry, in
press) on the impact of top management team functional diversity and creative processes on the
assessment of new e-commerce opportunities for the organization. Further, the study investigates
the relationship between opportunity assessment and innovative organizational practices.

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The results uncovered in our research represent one of the first empirical investigations into the
managerial roles and processes associated with e-commerce firms. As a first and foundational
step to increasing our understanding of managerial practices in e-commerce organizations, we
examined CEOs perceptions surrounding key firm behaviors that foster innovation. The
emphasis of recent work by Iansiti and MacCormak (1997), Hodgetts, Luthans, and Slocum,
(1999), and Shannon (1999) has been on the significant roles of adaptation, innovation,
experimentation, and change in the environments of e-commerce organizations. The necessity of
realigning managerial roles and practices so that these organizations can take advantage of
emerging opportunities has been proposed. Accordingly, our study attempted to measure
empirically some of the managerial processes that stimulate innovation. If, as scholars have
suggested, e-commerce firms must innovate to survive, we have begun to explore the
prerequisites and primary influences on this critical set of actions. The results of our study yield
information that will be useful in guiding future research addressing key factors present among
these top management teams, including comparative studies between e-commerce and
traditional, brick-and-mortar organizations. Exploring the new managerial roles and practices,
such as the development of innovative relationships with suppliers, customers, competitors, and
employees of these businesses, will facilitate the construction of new models to predict success
factors for managing e-commerce organizations.

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Managing Relationships in E-Commerce Firms: Emergent Practices and Needs

A recent study by Inmomentum, Inc., an organization that researches the best practices of
Internet economy businesses, reported that companies that helped their employees feel connected
to their vision and values were growing at a rate of 141%, compared with a 10% growth rate for
companies that did not do this well. This emphasis on the development of internal relationships
in the e-commerce firm is an interesting one to watch as entrepreneurs continually search to
recruit and retain top talent for their ventures. However, the reality is that, in the early part of
2001, there were more than 200 CEO searches under way in Silicon Valley. Further, 300 CEOs
had been in their positions for less than one year. Developing and delivering a clear vision and
connecting it to company values is a very great challenge.
Internet entrepreneurs ability to harness the richness in breadth of perspective made available to
them by functionally diverse team members is a key component of innovative actions. But a
further step is needed to make the creative exploration useful in the form of actionable ideas and
opportunities. Our research has shown that effective opportunity assessment has a mediating
effect on the interaction of diversity and managerial creativity, facilitating the formation of
external and internal organizational relationships as well as the introduction of new products and
services. Thus, such an assessment enables managers to form strategic alliances necessary to
achieve market growth and to develop methods to attract and retain the top talent so in demand
by Internet organizations. Exploring the direction of such behavior contributes to our
understanding of the changing roles, challenges, and opportunities confronting managers in ecommerce firms.
The development of innovative internal management relationships was operationalized in our
(Kickul and Gundry, in press) study as finding unusual and creative ways to recruit, retain, and
reward employees. These are emerging as one of the most significant entrepreneurial challenges
of the information age. The predominance of knowledge workers has shifted the balance of
traditional organizational resources of equipment, capital, and people. Although historically
production workers have been replaced with technology, leading to strong productivity gains, the
same scale of substitution is not possible in knowledge-based organizations, as pointed out by
Pottruck and Pearce (2000). Those authors concluded that the most critical parts of the human
resource in an organization cannot be synthesized, and those are the creative brain, imagination,
17

and spirit that fuel the information economy. Some of the new managerial practices of the CEOs
in our sampled firms included unusual methods of retaining top talent in their organizations, as
shown in these responses:
We are more than an employees paycheck. The firm is committed to the belief that it shares a
large part of the responsibility for the overall well-being of a given employee, and this spiritual
belief alone is what helps us keep our best employees. They see us putting their welfare at a
higher priority than the numbers on the quarterly profit reports, and they wind up sticking around
when the going gets rough for a while.

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A guarantee that their voice will always be heard in decision-making.

Our arrangements permit a literal network of top level, talented and proven services and
professionals to morph to suit the problematic demands of new clients. The organization is
truly a team, with me as leader but without any hierarchical or concomitant structure. Only via
affiliate resourcing can this be accomplished in the information sector where trust is paramount
and content is everything in terms of both branding and perceived reliability.
One CEO represented the feelings of many in his expression of frustration in response to the
challenge of attracting and retaining employees:
Whatever we do it is not enough, as the competitive arena in this location makes success for us
extremely difficult.
This scenario undoubtedly contributes to the necessity of taking innovative steps to meet the
organizations internal strategic goals. Ester Dyson, one of the foremost thinkers on the
implications of the Internet for business and for society as a whole has said: The limitation on
the application of technology will never be ideas or capital. It will be finding enough people who
are trained and excited about taking the ideas of the technologist and making them real in the
world (Dyson, 1997, p. 69).
We also found that CEOs engaged in forming innovative external relationships with their key
constituents, including suppliers, customers, and competitors. This increased connectivity may
allow e-commerce organizations to become responsive and flexible in meeting each customers
particular needs and demands (Neese, 2000). Contracting with other organizations also allows
the e-commerce firm to have a more decentralized, non-hierarchical organization that may foster
the implementation of new product/service ideas and solutions (Morino, 1999). Kelley and Rice
(1999) found that the rate of alliance and inter-firm formation was directly related to the rate of
new product introductions in new firms. Having inter-firm relationships that are fluid may also
be necessary in the marketing and distribution of information about the value of a firms
products and services. The nature of these relationships is described by the following responses
of CEOs in our study:

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We use what others would call competitors a lot. We have no competition, just resources we
have not used yet!
We rely upon strategic partners around the globe. They are the keys to our success.

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Entrepreneurial Skill Requirements for Internet Firms

Some of the most important competencies that entrepreneurs must have to survive and thrive in
the new Internet economy are discussed in this section. Above and beyond the skill repertoire
needed by all entrepreneurs, for Internet entrepreneurs the ability to think creatively and to
relentlessly innovate, as we have seen in previous sections, is paramount. The field is moving
from an acceptance of good ideas to a need for truly unique ideas or business concepts.
Leadership ability is essential, and this includes visioning and setting clear direction. Acting
quickly involves creating economies of structure, such as the use of Intranets to get information
out to employees rapidly so they can make decisions. This is one example of how entrepreneurs
are using technology to stimulate communication and action in their organizations.

Key Challenges for E-Commerce Entrepreneurs

There are many challenges confronting these entrepreneurs, and perhaps the economic downturn
of recent months has created an even greater set of difficulties to overcome in this arena. One
challenge is the slowed spending and decrease in the availability of outside capital to fund and
grow a firm. There will be rigorous examination of future business models, and it is likely that
entrepreneurs may turn to models that emphasize unique business processes and concepts.
Numerous legislative challenges affect entrepreneurs, including taxation of goods and services
sold over the Internet, fraud and identity theft, introduction of new domain names (e.g..biz and
.auto), international management of the Internet, and others. (cite SBA paper here). A significant
challenge for owners of young technology ventures is their ability to recognize a highly
competitive environment and proactively change their strategic orientation to survive and grow
(Page, 1997). It is estimated that nearly three out of every four e-business ventures will fail
because of lack of technological understanding and poor business planning (Steensma, 2000).
Research findings in this area have been mixed. Miles, Arnold, and Thompson (1993) found that
the degree of perceived environmental hostility was negatively correlated with a CEOs
entrepreneurial orientation. Other studies point to the positive relationships between hostility and
entrepreneurial posture. For example, Smart and Vertinsky (1984) described an entrepreneurial
posture as a function of the entrepreneurial personality and said that it is deliberately adopted as
a strategic response to an uncertain environment.
21

Implications for Entrepreneurship Education: Transforming Business Innovations into

Entrepreneurial Opportunities
The challenge for universities with entrepreneurship programs, therefore, is to design a
curriculum that is both comprehensive and integrative in order to facilitate the learning needs of
the students involved in launching and developing an e-business. (See Figure 5.) Within each
particular stage of the e-business life cycle, attention must be given to how entrepreneurs can use
information as they encounter each relevant issue. By focusing only on new venture creation
aspects of the e-business and those issues seen within that stage, the entrepreneur captures one
component of the process but neglects those specific areas of management and development that
are salient in the later stages of growth (e.g., increasing value of the e-business, staffing and
retention, and management succession). Each student brings to an entrepreneurship program a
rich array of experiences, models, and theories to make sense of their world and observations,
values, and practices nurtured by their past work environments. The challenge for educators is to
integrate different learning methods that capitalize on the opportunity to bring real business
issues into the classroom, thus assisting entrepreneurs in all stages of growth and development of
their e-commerce ventures. Just as future entrepreneurs must find creative ways to sustain their
competitive edge through the introduction of new products/service, new processes, and new
growth methods of redesigning their organizations, universities and educators must also find
alternative means of acting entrepreneurially to survive in the 21st Century.
New approaches to the instruction and delivery of entrepreneurship courses should be
incorporated into a e-commerce program. There is a need to move toward more unconventional,
experienced-based teaching, and evaluation methods. Traditional paradigms may not be
applicable when the focus of the learning is to broaden horizons and perceptions of e-commerce
entrepreneurship. The new approaches to instruction in e-commerce-based courses should
emphasize both deductive and inductive learning, as well as co-participation in knowledge
creation.

22

Both Deductive and Inductive Learning

In order to produce lasting skill learning, many educators contend that both deductive and
inductive learning should be emphasized (Bigelow, 1998). Deductive learning occurs when a
student applies what others know. It does not in and of itself, however, change entrepreneurial
skills and behaviors. With inductive learning, students do not necessarily emulate others'
solutions but rather identify entrepreneurial issues in a new and complex situation, set objectives,
develop an action plan, and assess results of their decisions. Emphasis on inductive learning,
gives students the opportunity not only to apply what they have learned but also to formulate
creative and innovative solutions that are unique to the problem/issue faced by a netpreneur. The
form of a student's behavior is generated internally, thus allowing learners to become more selfprompting in situations. By emphasizing more inductive learning within the entrepreneurship
curriculum, educators are preparing their students for the ambiguities and transformations that
occur as they improve their own e-commerce organizations.

23

Co-participation in Knowledge Creation

Within a learning perspective framework, there is co-participation in the knowledge created
whereby the student and teacher have interchangeable roles. The traditional hierarchical
relationship between the instructor and student is altered. Essentially, the instructor's role is to
act as a facilitator or a coach in the learning process. The instructors function is to guide the
students while understanding the different methods by which students learn. The instructor
creates an environment that allows the students to apply prior knowledge of theory and principles
while developing commitment to the exercise and experiencing a sense of personal
accomplishment or failure for the results obtained. Instead of the instructors relying on formal
didactic teaching methods, students actively participate in a variety of entrepreneurial field
projects, group discussions, and simulations. Students gain an awareness and knowledge of the
intricacies, complexities, and amount of effort required in managing a growing e-business. They
also acquire some of the relevant skills and abilities essential to solving management problems
that are not necessarily encountered with new e-commerce ventures. Allowing the students to coparticipate in creating knowledge can also fulfill many of the psychological needs of
entrepreneurship students who, under conditions of complexity and ambiguity, have the
capability of arriving at creative and innovative solutions to e-business problems and
opportunities.

24

An Agenda for Future Research in E-Commerce Entrepreneurship

As more organizations enter the arena of electronic commerce, future research is needed to
examine how these firms effectively design and integrate new business processes and practices.
Although we believe that we have made an important first step in identifying dimensions of
innovative behavior associated with and found inside e-commerce firms, more work should
concentrate on how these innovations relate to changes in organizational training and
development, channel management, and client and customer relationships. These are all
particularly relevant, given that the expanded description of electronic commerce includes online information technology and communication that is used to enhance customer service and
support (Choi, Stahl, and Whinston, 1997; Koshiur, 1997). We have attempted to set out the
foundation of a research agenda for e-commerce entrepreneurship. Much empirical research on
important questions is needed to build our knowledge base in this rapidly growing sector of the
economy in general and entrepreneurship in particular..

25

Are creative entrepreneurial practices transferable across organizational environments?

Amabile (1998) and others have identified specific management practices that support creative
environments in traditional (brick-and-mortar) organizations that may be useful to managers in ecommerce firms. Comparative studies would be useful for an understanding of the requirements
within each environment.
What other entrepreneurial behaviors are associated with successful innovation in Internet
firms?
In addition to creativity and opportunity assessment, do decision-making, allocating resources, or
risk-taking influence innovation processes?
What specific human resource practices are critical to the success of these firms?
One CEO noted The HR practices of the traditional company simply are not applicable in the
Internet environment. Another said, We stress the intangibles of the working environment and
keep pay competitive. Clearly, more research is warranted to uncover the strategies that work in
this evolving form of business.

What degree of entrepreneurial proactivity is demanded in e-commerce organizations?

Many of the CEOs in our study affirmed the need to stay ahead of the customer, as evidenced by
the following response: We must get in front of our clients in both technology and the way in
which we leverage that technology. You need to know your customer and his needs better than
he knows them himself!
Work has been conducted on the role of entrepreneurial proactivity and its relationship to new
venture creation and other outcomes (Bateman and Crant, 1993; Becherer and Maurer, 1999).
This may prove an interesting variable to investigate in Internet organizations, where it has not
been previously studied.

26

How do Internet entrepreneurs sustain the external relationships on which they focus?
Our study disclosed the importance of networks, partners, and other key stakeholders in the
development of the Internet firms innovative capabilities. How do these relationships evolve
and how are they sustained over time or the life cycle of the organization? Here is the view of
one CEO, who echoed the words of others in the sample:
We are strong believers in the Japanese concept of Keiretsu. We have a cadre of long-term
suppliers that we value. When we are in a hurry, they give us priority. When there is a problem,
they always make it right. We understand their abilities, limitations, and quirks and do things to
make their jobs much simpler and easier. Most of all, we LISTEN to them and they listen to us.
What types of innovative entrepreneurial behaviors and actions are most important to ecommerce organizations?
Previous research cited in this paper has reported these findings from respondents:
The need to shift from services to products and services, launching new product lines that have
never been done before.
This is a business that changes daily, it cannot be structured.
We are always dealing with moving targets. The challenge is to adapt quickly.
More research is needed to determine whether, in fact, hyper-innovative practices are required
in these organizations that go beyond what would be considered in traditional firms to be novel,
different, and change embracing.

How do Internet entrepreneurs form and develop strategic relationships and alliances with
other organizations?
That is, how are partnerships formed and dissolved to meet clearly defined business goals and
imperatives? As discussed by Hartman, Sifonis, and Kador (2000), Internet firms that are able to
define their core competencies and work side by side with complementary partners will be able
27

to exploit many of the opportunities existing in the marketplace. Moreover, those firms that are
able to continuously improve their businesses and competencies as well as their alliance structure
will also be at an advantage when meeting the next new opportunity (Choi, Stahl, and Whinston,
1997; Griffith and Palmer, 1999; Shannon, 1999).

What degree of strength characterizes the association between the Internet firms and their
suppliers, value-added resellers (VARs), and customers in recognizing new opportunities?
Value-chain migration (Hartman, Sifonis, and Kador, 2000) is one strategy that integrates the
supply-chain and customer-facing systems into a single, integrated process. Innovations and
improvements are made in the ordering, configuration, and manufacturing processes to bring
real-time data, knowledge, and information to multiple partners along the value chain. This
increased connectivity may allow Internet entrepreneurs to become responsive and flexible when
meeting each customers particular needs and demands (Neese, 2000).

What non-quantitative factors can be used predict entrepreneurial effectiveness and

performance in Internet firms?
Even though our study was able to uncover various innovations by Internet firms, future research
should examine the effects of these ideas and solutions on several non-quantitative factors
related to organizational effectiveness and performance. McGrath, Venkataraman, and
MacMillan (1992) emphasize three such factors: enhancing the value of the firm, creating worth
for customers, and insulating the firm from its competition. By using this set of criteria to
evaluate innovations, researchers should be able to capture a more complete assessment of an
Internet entrepreneurs innovations and solutions from an immediate and/or long-term
perspective. For example, even though the financial benefits of implementing new methods of
advertising or promoting a product or service on the Internet may not be readily observable, such
innovations may give the business a sustainable competitive advantage in building brand loyalty
and customer satisfaction. Over a period of time, the innovations may lead to positive financial
rewards and benefits for all stakeholders involved in the Internet firm.
28

How do these entrepreneurs effectively design and integrate new business processes and
practices?
Although we believe that we have made an important first step in identifying dimensions of
innovative behavior associated with and found inside Internet firms, more work should
concentrate on how these innovations relate to changes in organizational training and
development, channel management, and client and customer relationships. These are all
particularly relevant, given that the expanded description of electronic commerce includes online information technology and communication that is used to enhance customer service and
support (Choi, Stahl, and Whinston, 1997; Koshiur, 1997). Keeney (1999) has outlined several
areas of customers concerns and values that can be used by entrepreneurs to design and grow
their Internet businesses. By implementing objectives that are centered on customers concerns
related to using the Internet (e.g., maximizing product information, access to information, and
convenience, as well as minimizing cost and time spent), entrepreneurs can begin to meet the
values and demands of current and potential customers.

How do entrepreneurs evaluate their technological infrastructure and competencies in

order to meet their e-commerce strategies and initiatives?

Future researchers should investigate how Internet entrepreneurs incorporate developments in

core and emerging technologies, such as electronic data interchange (EDI), databases, data
communications, and security-related technologies. Many of these developments may prove to
be important factors in the long-term growth and profitability of the business. Selection and
integration of the correct technology for any e-commerce business employs capital and
organizational efficiency and serves as a foundation for building the business (Davis and Meyer,
1998; Weintraut and Davis, 1999).

29

Impact of e-commerce on entrepreneurs and small businesses: opportunities,

challenges, and strategies.
The Internet and the World Wide Web (WWW) are revolutionizing the way organizations are
functioning around the world. The Web is used by organizations in a myriad of ways, some of
which include collaborating, communicating information, obtaining information, providing
information, and sharing information. One application of the Web that is grabbing headlines in
virtually every media is Internet commerce or Electronic Commerce (e-commerce). Ecommerce--the marketing, promotion, buying and selling of goods and services over the Internet
is experiencing unprecedented growth (Williams, 1999). In the past 2 or 3 years, e-commerce
growth has been astonishing and is expected to continue at a similar rate over the next four years.

Small business use of the Internet (e-commerce and other applications) has increased from 10
percent in 1996 to about 75 percent today; this use is expected to increase to 85 percent by 2002
(Song, 2000). However, currently, only 28 percent of small companies sell goods and services
online (Maxwell, 2000). If one looks at businesses with fewer than 10 employees, one sees a
slightly different picture. In 1999, about 15 percent of these 7.5 million small businesses in the
U.S. conducted e-commerce (Business Week e.biz, 1999). This number is expected to increase to
20 percent by the year 2001. Although these statistics provide evidence that smaller
organizations are now conducting e-commerce activities, large companies still account for the
majority of e-commerce activity in the U.S. These statistics also fail to tell us whether or not
selling

online

is

better

method

for

small

business.

Over the past few years, a decrease in the prices for software and hosting services has reduced
the barriers to entry in the online environment. Even the smallest of businesses can now have a
presence on the web and conduct commerce. Selling online, however, is not without its perils.
Blindly diving headfirst into the Internet without a complete understanding of technical,
managerial, and competitive challenges may result in stressed operations or bankruptcy.

A question, then, arises: should small businesses and potential entrepreneurs embrace the
Internet? The answer to this question lies in how well a business understands e-commerce
opportunities in its environment and implements strategies to take advantage of these
30

opportunities. This paper will examine the opportunities that are available for small businesses
and entrepreneurs on the Internet, identify the challenges they are likely to encounter, and
suggest strategies they can develop and implement to take advantage of e-commerce
opportunities.

OPPORTUNITIES

E-commerce takes a number of forms: business-to-consumer (B2C), business-to-business (B2B),

e-procurement, and e-marketplace. According to Forrester Research (2000), the U.S. share of
global B2B e-commerce sales will grow to approximately $3 trillion by 2004, while B2C ecommerce sales will account for $184.5 billion (see Table 1). E-commerce is growing much
faster in the B2B sector compared to B2C and is largely dominated by larger companies. By the
year 2002, 85 percent of small businesses are expected to conduct business via the WWW.

Retailing or "e-tailing" is the most typical B2C activity. New ventures or small businesses can
use the Internet to either start a new retailing or service business, enhance an ongoing business or
provide hardware, software, or services that allow other businesses to integrate the Internet into
their business model. A small business selling from a traditional store, called "bricks and mortar"
may see the opportunity to increase market share by creating a Web page and selling on the
Internet.
While there are many large Internet service providers (ISP), such as America Online (AOL),
there are also many small businesses that provide this service. According to a report by Williams
(2000), most of the 7,100 ISPs in 2000 have fewer than 12 employees; the number of ISPs is
expected to reach 10,000 in the next 2 to 3 years; and the U.S. ISP market generated an estimate
of $15 billion in receipts in 1998. The number of small businesses that provide Internet services
have experienced tremendous growth because of the increase in demand for Internet access.
Many of them are finding opportunities in providing additional hardware, software and service
opportunities as they see the opportunity to host and design web sites for Internet businesses.
They

are

also

providing

consulting

services

for

those

new

businesses.

One of the major opportunities for entrepreneurs and small business in the future will be in the
31

area of B2B. According to Boston Consulting Group, by 2003, more than 65 percent of all B2B
e-commerce purchases will be made by six sectors: retail trade, motor vehicles, shipping,
industrial manufactured equipment, and the government. This will provide ample opportunities
for

entrepreneurs

and

small

businesses

to

find

niches

in

this

market.

B2B e-commerce is primarily concerned with increasing the efficiency of businesses through the
use of Internet technology. It helps companies find buyers for specialized goods and services,
time-sensitive goods, second-hand goods, and excess inventory. Small businesses can benefit
from B2B e-commerce through the formation of coalitions that negotiate for better prices.

Sellers of goods and services can benefit through the reduction of costs associated with finding
new customers. Other advantages of B2B e-commerce include improved service and retaining
customer loyalty. B2B e-commerce also provides small companies an alternative to traditional
EDI networks in doing business with large companies (buyers) who are increasingly forcing all
of

their

suppliers

to

trade

electronically.

Marketplaces have recently become an Internet application for business-to-business procurement

using an auction mechanism where businesses that supply an industry bid for the opportunity to
sell their goods. A number of general sites such as Commerce One and Ariba have pioneered this
activity, but now individual marketplaces for specific industries have grown, developed by
companies

within

these

industries.

For entrepreneurs interested in software development, it is important that software be integrated

with other software that the clients use. This can also be a barrier to entry if programming skills
and intimate knowledge of the programming in other software packages is not available.

One of the primary reasons for the wide influx of new online ventures is the low barrier to entry.
You can start an Internet business for as little as a few hundred dollars. In addition, companies
like BigStep.com, eCongo.com, Earthlink.com, Tripod.com, and Freemerchant.com offer free
online services to setup a business with access to online catalogs, credit card processing, and
order-tracking services. However, entrepreneurs and small businesses must use caution because
some companies require long-term agreements that would eventually lead to extra expenses for
32

added services and expensive support for technical problems. Microsoft, Intel, Intuit also offers
inexpensive sites. These trends have accelerated the migration of entrepreneurs and small
businesses

towards

conducting

commerce

on

the

Web.

There are several advantages to having an Internet presence. For example, statistics show that the
Internet is increasingly becoming global (Forrester, 2000). Furthermore, having an Internet
presence allows a company to remain open seven days a week, 24 hours a day. You can also
build your business in a phased approach. Additionally, in many cases the consumer will not be
able to tell the difference between a small versus a big business, thus limiting your liability of
smallness. You can be a one-person operation that competes with a 500-employee firm.

Small businesses can use the Internet to expand their markets, improve efficiencies, attract and
retain customers, and exploit new e-Business opportunities (Oracle, 1999). Other opportunities
include customer service, technical support, data retrieval, public and investor relations, security
and payment issues, cutting costs, and obtaining advice/information. Existing businesses have
the opportunity to adopt e-commerce early and build an infrastructure that dramatically reduces
the costs of doing business while improving relationships with buyers and suppliers. Through ecommerce efficiencies, they have the ability to reduce the costs of billing, payment, customer
service, distribution/ fulfillment costs, reduce supply chain management, procurement, and
expense

management

costs.

Small businesses have the advantage of using the Internet to build relationships with suppliers
who before gave them little recognition. With the Internet, small businesses have the ability to
gather information and goods much quicker, reducing inventory and thus reduce costs. The use
of customer service through the Internet can also assist a company through product descriptions,
technical support, and order status information online. This frees up a company's customer
service staff to handle more complicated matters. For example, Internet sites like Realestate.com
have allowed consumers to reduce the time to purchase a home by 75 percent by providing
information

on

purchasing

homes.

One of the key opportunities of the Internet lies within the value chain. Companies have the
opportunity to cut out the middleman or become a middleman. For example, the traditional value
33

chain flows from the manufacturer, wholesaler/distributor, retailer, and consumer. With the
advent of the Internet, entrepreneurs and small businesses have the opportunity to develop
relationships with the manufacturers and sell directly to the consumer without having control of
the

products.

An example of an intermediary can be seen through an entrepreneur that developed a web site
called www.avengers.com. The Avengers is an old television series from the 1960s. The site
contains a plethora of information about the series and also has merchandise for sale that
includes copies of the old shows. When you go to purchase some of the videos, it sends you
directly to Amazon.com. If the person purchases the video from Amazon.com, the company
receives

percentage

of

the

sale.

Other opportunities on the Internet include companies whose business models are standard
online storefronts (e.g., amazon.com), transaction brokers (e.g., e*trade), content providers (e.g.,
espn.com), auction sites (e.g., eBay), software development companies (e.g., ariba.com), startup
consulting companies (e.g., exodus.com), and hosting services (e.g., sitehosting.net).

Small businesses can learn from some of the most innovative companies that have successfully
used the Internet: Dell Computer, Sun Microsystems, and Cisco Systems. Dell Computer has
become the ideal example for B2B e-commerce. They set up premier pages with over 5000 U.S.
companies that allow businesses to order quickly with few errors. The pages are especially
designed for each company, connected into their Intranet, and allow the employees to order
directly

online.

The Internet provides for improved customer service at a lower incremental cost. This is
important since we are moving from a product driven to service driven (supplier versus demand)
economy. The Internet also provides new distribution channels and new ways of exchanging
information. According to Porter (1999), supply chain management will be more cost effective
as a result of the Internet. However, the basics of business (e.g., design, technology, and
manufacturing) will not be altered. Porter states that the industries where the Internet is likely to
be transformational are industries that provide the service or basic information (e.g.,
stockbrokerages, auctions, or providing digital goods). Table 2 summarizes some of the
34

opportunities

of

Internet/WWW

for

small

businesses

and

entrepreneurs.

CHALLENGES AND STRATEGIES

Small businesses have been slower than big businesses to embrace e-commerce. Although small
businesses and entrepreneurs use of Internet is increasing, they will face a number of challenges
as they start using Internet/WWW for e-commerce. Further global expansion of e-commerce will
create new challenges for small businesses and entrepreneurs. This section examines both
challenges and the strategies that small businesses and entrepreneurs can utilize to take
advantage

of

e-commerce.

The B2C market is currently in its shakeout stage and is a low margin, high capital business that
will take until 2003 to be profitable. Over the past few years, B2C companies have skyrocketed
in value, however the recent downturn in the Internet sector has seen many companies lose 50
percent or more of their value. Investors are putting pressure on these firms to produce profits. In
the past, these firms were valued by their sales, now investors are demanding that these firms
produce

net

profits

along

with

strong

revenue

model.

As a result of these activities, money raised by B2C companies has dipped 23 percent to $1.4
billion in the first quarter 2000 from the fourth quarter of 1999. During the first quarter of 2000,
only 5 percent of venture capital funding went to e-Commerce startups, down from 12 percent in
the

previous

quarter

(Donahue

&

Girard,

2000).

An increasing number of B2C companies are withering away due to an increase in the number of
competitors (Oracle, 2000). This effect has been particularly felt in retail industries such as toy
stores, computer sellers, and office supplies. Survival projections for several of the dot.com
retailers look bleak (Forester Research, 2000). Clothing retailer boo.com recently liquidated their
company

after

burning

$100

million

in

six

months.

The low barriers to entry and increase in competition will have an increasingly negative effect on
entrepreneurs and small business owners' ability to survive within the B2C area. Both traditional
35

and virtual companies' weaknesses have been amplified. Consumers have gained power in the
distribution channel by demanding and receiving the lowest prices available. Consumers can
achieve this through information intermediaries like CompareNet.com who have information on
prices and vendors for over 100,000 consumer products. According to John Hagel of McKinsey
& Co., "Consumer infomediaries can save an average client household the tidy sum of $1,100 a
year by searching for the best deals on its behalf. The reduction in transaction costs will give
more power to the buyer." It is estimated that these infomediaries will grow from $290 million in
revenues

in

1998

to

$20

billion

in

2002

(Hof,

1999).

There has been a tremendous surge in the number of B2B companies or exchanges, however
most of these businesses are nothing more than meeting places. Hence, it is likely that current
projections of large-scale bankruptcies among B2B companies will also become true due to the
lack of value-added services for the trading partners. These services typically include integrating
back end systems, providing industry specific content, and assisting in the development of RFP's.
Horizontal exchanges (e.g., Freemarkets) that provide trading services for several industries are
faced with the additional burden of providing compelling content for their customers.

In a sense, the pressure is on for small businesses because they have to eventually participate in
buyer initiated exchanges. This is especially the case for small businesses that are tier two or tier
three suppliers for large companies like General Motors. In an effort to rationalize and streamline
their supply chain, larger companies are insisting their suppliers upgrade their IT systems to a
level of sophistication that is on par with the organization. Larger companies want suppliers to
deliver goods in a shorter period of time in a cost-effective manner. This requires not only
sharing demand forecasting and inventory information but also exchanging information that is in
compatible formats. It is also essential that transaction details be easily integrated with back end
systems. For example, suppliers are likely to insist that order information should directly be
pushed into their order processing systems, rather than retype all the information. On the other
hand, large organizations would prefer that supplier initiated information be fed seamlessly into
their internal ERP or legacy systems.

For small businesses that have not yet established formal relationships with large company's
36

supply bases, there is also the question of whether to become affiliated with horizontal versus
vertical exchanges. It is likely that eventually small businesses will have to participate in several
of these exchanges. Typically, several of these exchanges require registration fees, subscription
fees, and maybe even transaction fees. Hence, it is important for small businesses to perform a
cost

benefit

analysis

before

joining

an

exchange.

Technical Challenges

Once a small business or entrepreneur has decided to conduct business on the Internet, their next
strategic decision is to decide how to host their web site. These businesses have three options:
host their own web site; host their site with a web hosting service provider; and host their site
with a portal such as Yahoo or GeoCities. For a small monthly fee, portals like Yahoo will help
any small business develop its site, perform payment processing and tax calculations, maintain
the site, and collect site statistics. While this really reduces the development effort, it also
reduces the flexibility. Most portals will not let merchants have a virtual domain name. So
instead of www.merchantname.com, the address will be store.yahoo.com/merchantname. Also,
these portal-based storefronts do not necessarily grow with the business and could get tedious,
expensive, and cumbersome when the order volume increases. Since portals like Yahoo host
several other storefronts, the download time for potential customers could be very high.
Increasing the growth rate will eventually require a site that is more reliable. Finally, if the site
requirements grow beyond the capability of a portal-based host, it is impossible to transfer the
site contents into a standard format. This is because portals like Yahoo do not allow one to
convert site contents developed in their storefront into any recognizable format such as HTML.

Another alternative to portal-based hosting is buying a server. There are downfalls to this
strategy as well. For instance, the business might not be able to make decisions about hardware,
operating systems, and application servers. This also requires considerable knowledge in
installation and setup of a web server. Server connection fees can be prohibitive. The merchant
typically will need at least a 64 Kbps connection line to the Internet backbone. This entails line
installation

costs

as

well

as

any

other

costs

for

network

routing

equipment

37

In most cases it is best to start with a web-hosting provider where the business is not concerned
with hosting issues but at the same time has a certain degree of flexibility. However, selecting a
web-hosting provider requires careful consideration of several issues: length of the contract, disk
space offered per account, ability to run CGI (Common Gateway Interface) and other scripts,
conduct secure transactions, e-mail management, availability of access logs, instant credit card
validation, connection speed of the web host with the internet backbone, server redundancy in
case of traffic spikes, adaptive pricing plans which correspond to scalable requirements,
throughput--the number of http requests that a particular web server can handle, and the response
time

for

the

server

to

handle

page

request.

Hosting the site with a web-hosting provider might require the business to incur initial
development time, cost, and effort. However, with the advent of easy to use tools, this task has
become considerably easier. At the most basic level, a typical e-commerce infrastructure for a
small business or entrepreneur consists of a web storefront for buyers to browse the site and a
payment

gateway

to

collect

credit

card

payments.

In order to perform these functions, several software components are required. First, storefront
content development tools such as HomeSite, FrontPage, and PageMill are useful for developing
site content and also include features such as creating customer survey collection forms. Second,
database connectivity tools such as ColdFusion, ASP, and VisualInterDev are useful for creating
database driven applications. Database connectivity is crucial because the web catalog should be
consistent with the actual inventory database. Third, setting up a payment gateway requires an
HTML based form that collects customer credit card and shipping information. This information
is then encrypted using Secure Socket Layer (SSL) and sent to a third party provider (such as
First Data), which then forwards the information to the customer's credit card issuing bank. After
authorization and a deduction of transaction fees, the net amount is credited to the merchant's
account. Typically, payment-processing software like QuickCommerce take care of some of the
above functions. It is also important for the merchant to get authentication from a certification
authority such as Verisign. Ancillary tools are useful for functions such as tax calculations (e.g.,
Taxware), site traffic analysis (WebAnalyzer), diagnostics (LinkSleuth), chat sessions (Ichat),
live

help

(Humanclick),

and

e-mail

management

(eGain).
38

Another challenge is to maintain the business 24 hours a day, seven days a week. This requires
staffing for customer service as well as technical problem troubleshooting such as site upgrades,
hosting failures (server crash), and environmental failures (power outages). Sites also need to be
constantly re-evaluated for stress testing (how well they handle peak traffic), page download
times, link validation, and usability. It is also important to evaluate how many high margin
transactions occur on the site. Small businesses and entrepreneurs with low margin items should
consider offline authorization or authorization on a batch basis as opposed to real time credit
card authorization. This is because third party payment processors such as First Data as well as
the customer's issuing bank charge fees for processing every credit card transaction on a real
time

basis.

Security is one of the most important aspects of web site operations. Typical attacks include
hacking into the site for credit card numbers or even denial of service. Part of the reluctance on
the part of customers to buy on-line is their perception that their credit card and other
information is not secure. Hence, entrepreneurs and small businesses need to assure their
customers

that

they

take

adequate

security

precautions.

It is also important to have contingency plans in the event of an attack. The consequences of not
having adequate mechanisms and a contingency plan can be severe. The inability to thwart
security related attacks on the site would be unnerving to consumers. The direct effect of this is
an immediate drastic reduction in market share because the site is now branded with an image
that credit card and other private information is not secure. While contingency plans do not really
alter the damage, they can be more useful in that they can be used to reinforce the impression of
a secure site.

Business Challenges

When developing a web site, small businesses and entrepreneurs must make sure that they create
an attractive site with a sense of community. Building one-to-one relationships and a quick
delivery of quality products will be keys to success. Customize your site for clients and receive
39

e-mail to get feedback about the site. If you are selling products, have a virtual catalogue that
includes pictures on the site. To save space and decrease the download time, place pictures in
small thumbnails. Give the consumer the opportunity to hit a thumbnail to see the big picture.

One of the keys to having a successful online business is brand name recognition. With a lack of
brand name recognition, customer perceptions may lead to a lack of trust. Customers may be
reluctant to purchase online, especially give out credit card information for fear of hackers. To
overcome this objection companies are attempting to create a strong brand name through heavy
advertising. As competition increases on the Internet, companies will be increasingly forced to
develop their brand name on the Internet and the traditional marketplace. Some strategies that
companies have been using are creating gimmicks such as free shipping or offering free items to
entice customers to purchase items from their site. The problem with these gimmicks is that they
do

not

lead

to

company's

sustainable

competitive

advantage.

Innovative marketing is also a key to success. Some of the more common approaches include:
reciprocal links with complementary sites, banner advertising, retailer-search engine portal
alliances, prospect fees for visitors who complete some action, and affiliate programs with other
merchants. Given the click through rates of 2 percent and then further prospect conversion rates
of 3 to 4 percent, it is not only important to attract new customers, but also devise strategies to
increase purchases as well as strategies to retain existing loyal customers. These strategies
include: personalizing content and promotions, placing complimentary items beside core
products, attractive and functional design, and building a loyal user community with chat rooms
and discussion threads. For example, online grocery sites can be personalized for specific tastes
and

preferences

such

as

health

conscious

groups

or

international

foods.

For sites that feature several product categories and brands, a big issue is usability. Navigation
through 10 to 12 screens might result in a frustrating experience for the customer. Instead, it
might make more sense to create personal shopping lists that are based on usual purchases. Yet
another way companies can enhance their competitiveness is through the reduction of problems
related to logistics (e.g., late delivery) and poor inventory management (e.g., out of stock). More
recently, companies have found innovative ways of providing customer service on the web.
Having links with answers to frequently asked questions is an innovative tool being used by
40

companies.

The Internet has also created new challenges for companies that have traditionally fulfilled the
role of middlemen; i.e. bringing buyers and sellers together (for example insurance agents).
Companies that have been operating with physical storefronts have had to devise new strategies
to compete successfully. This includes the ability to leverage their offline activities with their
online operations. For example, Williams-Sonoma, a bridal registry, allows couples to register
online while gift buyers can use kiosks located at various places in their physical storefronts to
access

an

updated

database

of

gifts

bought.

It is also very important to understand the people who visit your site and which products they
purchase. It would be worth investing in site evaluation tools such as SiteAnalyzer to identify
typical customer profiles. These tools also provide information related to revenue by page or by
product and also revenue by the incoming referral url address. This will help the merchant to
evaluate the effectiveness of his banner advertising strategies. Other strategies include
developing strategic alliances with other net companies and exchange banners on their sites,
hosting

chat

Other

room

or

discussion

group,

or

advertising

on

other

sites.

Challenges

Entrepreneurs and small businesses also need to realize the scarcity of human capital. The U.S.
economy is at its lowest level of unemployment in 30 years. Competition for the brightest
workers has skyrocketed, resulting in high salaries and a lack of employee loyalty. However,
with the recent downturn within the Internet sector, many companies are laying off employees to
reduce their costs.

Other challenges include the theft of intellectual material on the Internet. It is essential to protect
your site through copyrights and patents. Also make sure that the web designers make your site
reliable. Users will also need to be assured that any information given out over the Internet will
be used for internal use only and customer service must be in place. Finally, other concerns
include the lack of a predictable legal environment, concerns that the government will overtax
41

the Internet, and uncertainty about the Internet's performance, reliability, privacy, and security
(Margherio,

Henry,

Cooke,

Montes

&

Hughes,

1998).

The companies that succeed will take the time to understand the context of the industry in which
they operate, rather than focusing on the technology. It is imperative that they understand the
industry's distribution channel. If a company can find the fastest and cheapest way of performing
theses

activities,

they

will

be

in

strong

competitive

position.

Entrepreneurs and small businesses that are interested in doing business online should seek
assistance through their local Electronic Commerce Resource Center (ECRC) (www.ecrc.ctc.
com). There are over 50 centers located throughout the U.S. ECRCs offer free or low-cost
training, seminars, technical support and outreach in a variety of e-commerce areas. Most of their
classes are free and include areas like "Marketing Your Goods and Services Using the Internet,"
"Web Page Creation Using HTML," and "Using the Internet for Business-Related Electronic
Commerce."

Finally, be aware that running a business on the Internet takes a lot of knowledge about both
technology and business. It is best to outsource as much as possible. Overall, you will have to do
a good job in all of the various aspects of running a web business in order to be successful. You
must

also

move

quickly

to

satisfy

the

customer's

needs.

Despite the enormous number of new ventures taking advantage of opportunities on the Internet,
no one clear path or business model has been identified as a winner. Different models have
worked for different organizations. Having a unique technology or brilliant management does
not guarantee profitability. Being a first mover also does not guarantee success.

42

CONCLUSION
The explosive commercial growth of the Internet presents both new opportunities and challenges
to entrepreneurs in how they formulate, develop, and implement innovations in their businesses.
The issues, challenges, and future directions presented in this paper represent one of the first
comprehensive discussions of the entrepreneurial strategies, values, and behaviors that describe
the internal and external processes of emerging e-commerce firms. Although much work
remains, it is our hope that future researchers will continue to examine how entrepreneurs build,
realign, and grow their organizations within a marketplace that demands speed, agility, and
constant innovation. Exploring these new entrepreneurial roles and practices, such as the
development of innovative relationships with suppliers, customers, competitors, and employees
of these businesses, will facilitate the construction of new models to predict success factors in ecommerce organizations.
Entrepreneurs and small businesses are faced with many opportunities to take advantage of the
growth of the Internet, however they need to create some sort of sustainable competitive
advantage. Porter (1999) asserts that in five years the Internet will be much less prominent. His
rationale is that the newness of the industry will have worn off and the Internet will be part of
most companies' infrastructure. Furthermore, Porter states that people with Internet expertise are
going to be perceived as less valuable and will get paid less in the future. Henry Blodget, a
leading Internet analyst, recently stated that out of over 400 public B2C companies, only 10-15
will be profitable over the next five years. Furthermore, one-third of these companies will
consolidate

over

the

next

two

years

(Swartz,

2000).

Findings from various research published indicates that the e-commerce is growing at such a
rapid rate that ample opportunities will exist for entrepreneurs and small businesses in the near
future. While we feel that there is always room for new innovative ideas and products on the
B2C side of e-commerce, we feel that the low barriers to entry and increasing level of
competition (e.g., Wal-Mart) will drive prices and profits down, making it increasingly difficult
to survive.

43

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