Winston Churchill, a man never stuck for a weighty word or two on any subject, once said this about private enterprise: “Some regard [it]…as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is – the strong horse that pulls the whole cart.”
And Churchill was right, as most all who spend their working lives in small or medium-sized enterprises (SME) certainly understand. Even political candidates sound like they comprehend this concept while on the campaign trail, though that knowledge seem to evaporate once elected.
In a world where $50 billion mergers between American and German telecommunicators (or automakers or whatever) are almost weekly news, the world of small business is too often overlooked. It should be catered to, in the view of Internet-based columnist Kathy Foley (and many others), because small firms are the majority of both employers and business consumers.
In the U.S. alone, 25 million small businesses make up 99.7 percent of all employers, according to the Small Business Administration. Small companies issue paychecks to 52 percent of the private workforce and create two of every three new jobs. They record 47 percent of all sales in this country and make up 96 percent of U.S. exporters.
And SMEs are huge buyers of goods and services themselves, with increasing amounts of their purchases taking place via the Internet.
AMI-Partners, a New Yor- based consultancy, calculated that small businesses spent $2 billion on products and services via the Internet in 1998. Last year, that figure rose to $25 billion and by 2001 the forecasters believe it will be $118 billion.
The number of business that were selling their own products and services online also increased from 40,000 in 1998 to 600,000 last year.
The business-to-business (B2B) market will be expanding explosively with more than $6 trillion in online trade expected by 2005, according to research from Jupiter Communications Inc. That would be 42 percent of the total B2B product (non-service) spending by then.
Since Jupiter’s research indicates that this year’s Internet B2B trade is only 3 percent of the total non-services market, such an increase means online volume would have to grow 20-fold over the next five years to meet this prediction.
A huge opportunity exists now for your small business if you’re willing to stop chasing the consumer sales (B2C) mirage and focus on B2B commerce. A study this spring by Meta Group noted that larger companies (those with over $100 million in revenue) are spending far more on consumer initiatives than on developing B2B infrastructures and marketing. If you decide to play in that field you’d better be quick on your feet or risk being squashed by a giant.
Seventy-seven percent of the big companies surveyed said they are spending the bulk of their money on online marketing, while 69 percent spend heavily on customer service and 65 percent put cash into selling directly online.
Interestingly, a Dun & Bradstreet study suggests that small businesses owned and operated by women or minorities are more likely to have Internet access, are more likely to buy and sell online and are more likely to conduct business research online.
This dramatically illustrates benefits of the Internet as an alternative business channel. Women and minorities no longer have to struggle in an old-style business atmosphere dominated by white males. That digital divide is getting narrower by the day.
An Arthur Andersen study reveals that SMEs are also becoming an increasingly viable choice for workers as they employ more staff and are able to offer higher pay and benefits.
Unfortunately small firms still find it difficult to gain access to venture capital and there is an absence of projects aiding innovation in SMEs and allowing them to participate in R&D programs. These obstacles to growth must be removed if small and medium-sized firms are to fulfill their role as the true drivers of the new economy.
So where does all this place your small- or medium-sized enterprise? Is your marketplace a part of the consumer world or is it primarily business-oriented? Are you among the 15 percent of small companies who do not yet have Internet access or among the 20 percent already selling online?
Currently, the direct channel—a model of one seller to many buyers—dominates 92 percent of the Internet B2B marketplace. By 2005, more than a third of online B2B trade volume will be conducted via a net market (many buyers and many sellers) or through a coalition market made up of a consortium of buyers or sellers.
Early adopters have already made their investments, says Melissa Shore, senior analyst for Jupiter Communications.
“Over the next several years, businesses will face an array of new opportunities to improve and expand their sales and procurement processes,” she says. “They must invest now even though the payoff will take some time.”
By Jeff Rounce, Business Examiner staff