Cyberposium 2000 - Killer Ideas for B2B E-Commerce: What Business Plan Should You be Writing Today?

By Kenneth Liss, Editor, HBS Working Knowledge

B2B is hot.

Once largely relegated to the background, while the consumer side got all the attention, business-to-business e-commerce has been discovered.

Discovered by the press. By investors. By eager entrepreneurs looking for the next big thing.

And by traditional businesses all too aware of the change taking place around them.

"There's a real fear of being left out," said Chip Hazard, general partner at the venture capital firm Greylock and a participant on the panel "Killer Ideas for B2B E-Commerce: What Business Plan Should You be Writing Today?," one of no less than four B2B panels at Cyberposium 2000.

"In the consumer world, this was a fear of being Amazoned. In the business-to-business world, there's a sense that there's a game of musical chairs going on, and I better make sure I'm part of the game and I'm sitting down when the music stops."

There's no question the B2B opportunity is big. "There isn't any marketing, merchandising, or consumer idea that can match what B2B can deliver in the next 24 months," said panelist John Thorbeck (HBS MBA '80), CEO of SupplyChainge.com, a supply chain implementation firm.

But if there's plenty of low-hanging B2B fruit ready to be picked, there are also lots of hands ready to grab at it.

"I went from getting one business-to-business plan a month to 10 a day," said Hazard (HBS MBA '94). "There's a huge influx of talent and capital and ideas into it, and that always makes me a little bit nervous."

There's also uncertainty about which areas of the B2B market hold the most promise. "This market has switched itself, probably has taken on three or four distinct directions in a year, each one, of course, being touted as the right one," said Rand Littlestone, who works on B2B, supply chain and e-procurement at IBM Global Services. "We don't know how this thing is going to end up."

So where will the winners come from? What areas should prospective B2B players focus on? What skills do they need to bring to the table? Where are the killer apps of B2B?

One thing that's clear, according to the panelists, is that current B2B models represent only the tip of the iceberg. Take some of the early adapters, like procurement catalogs going online. "A lot of those are getting attention today – the grainger.coms of the world," said David Nerrow (HBS MBA '95) of the VC firm CMGI@ventures. Procurement continues to drive growth in the B2B category, he said, but "it's a little fallacious to believe that that's where the real value comes."

The same is true of the large B2B exchanges, like Freemarkets, that have garnered a lot of attention. "The pure model of just matching buyers and sellers in a B2B exchange doesn't provide enough value long-term," said Greylock's Hazard. More interesting, he said, are the things that surround the traditional exchanges: logistics, payments, supply chain management.

"Either the exchanges need to be doing it themselves or they need to be working with other providers that will help them do that," said Hazard. "I think around those edges are some interesting startup opportunities."

"From a supply chain perspective," said Littlestone, "there s been lots and lots of effort on squeezing out inefficiencies within the enterprise in the last 10 years." But the real inefficiencies, he said, are in the processes between the enterprises. "And B2B is, by definition, inter-enterprise."

"I don't think there's enough we hear about process," agreed Thorbeck. "If you really focus on what the process is," he told prospective B2B-ers, "I think you've got a huge advantage."

But all the talk of process prompted the panel's moderator, HBS Professor Ananth Raman, to jump in with a challenge.

"We have 100 people in this room who are excited about dot.coms, and the four of you are taking a sexy, glamorous business and making it boring very quickly," said Raman. "The opportunities are in logistics and trucking?!! In payment processing?!!

"Do the electrons matter?," he asked. "Are the dot.coms just an excuse to do what we've done well for a long time? Or is there something different?"

"I think it's a combination of the two," replied Hazard. "From a career perspective, to the extent you're thinking about B2B, it is important to recognize that you'll be dealing with relatively mundane things. That's part of the gig you're getting yourself into.

"On the other hand, there's a lot of technology that's brought to bear on the problem; there's a lot of new business models that are being created; there's a lot of external relationships from a business development perspective.

"There's a chance to fundamentally change the way that business is being conducted from a buyer and seller perspective."

"These boring categories add up to huge numbers," said Thorbeck. "You're right Ananth. It's a little boring when you look at these pieces, but you don't change the supply line unless you go back to those pieces and work to integrate them into a comprehensive solution, and that revolution, I think, is just getting going. We're hardly past concepts into real delivery of return on investment."

So which concepts are going to succeed? What's going to get the attention of the B2B investors, and what's going to cause them to look the other way?

Originality is one factor. "The things that are not getting into the queue are the 10^th XYZ for obvious reasons," said Hazard. "In my ten plans I received yesterday, there were four that were some spin on, ‘We're going to fundamentally change the energy industry.' And those were preceded by the four that had come in the day before with the same plan.

"'Me-too' doesn't get very far."

Even more important, the panelists agreed, is domain expertise, or knowledge of the industry you're trying to change. "The things that get axed are those that have absolutely no credibility from a domain expertise perspective," said Nerrow. "That is 60% of the things I see."

"It's knowing the people, pitching the sales pitch, being part of the industry in a very deep way, that really galvanizes the attention of an investor."

The real challenge, said Hazard, is finding the right combination of domain expertise and Internet savvy in the people behind a business plan. "We see a lot of Internet people coming and saying, ‘Well, B2B's the next big wave, so let's go jump on it,' but they don't know anything about the industry they're going after," he said.

On the other hand, he said, there are a lot of people who "may understand a whole heck of a lot about whatever industry there is, but they have no concept of how to take a business from 0 people to 200 people in the course of 18 months, how to build the technology platform, how to create the buzz and the energy" that are necessary to ramp up and grow an Internet business.

"How do you marry those two cultures," asked Hazard, "to create a business that not only really understands what you're trying to do, but also has the buzz, the excitement, the technical savvy that one traditionally associates with an Internet company?"

Given the need for domain expertise, asked moderator Raman, are there opportunities in the B2B market for general managers of the kind that have traditionally emerged from HBS and other business schools? Or is it primarily a game that specialists will play?

"I think the training here is ideal for this atmosphere," said Thorbeck. "I think it's an ideal marketplace for someone who has a grasp of business elements from technology right through to business strategy."

A key skill that general managers bring, said Littlestone, is the ability to manage incredible change, and that ability is well-suited to the current state of B2B e-commerce.

"To maintain and to understand what your fundamental business objectives are, to keep, either written or in your head, what the assumptions are that you made as you developed a business structure and an organization, and then to be able to watch as those assumptions change in real time and to be able to change the structure that sits on top of that is an incredible challenge," he said.

"There is nothing that is being maintained constant. Until this market stabilizes, when and if it stabilizes, it's going to call for just incredible agility and flexibility. "

The really good news for those interested in this area, said Thorbeck, is that despite the crowds drawn to B2B, despite all the press, despite all the talk of those who've already gone in, there are still plenty of opportunities to be had.

"There's so much advertising [by B2B companies]," he said, "that if you believed it you would think that the problems are all solved.

"Don't be fooled by that advertising versus the delivery of real benefit in a lot of industries. The difference between what the advertising says and what the real success stories are should be reassuring to everybody in this room.

"Nothing is passing you by. There are going to be plenty of opportunities in terms of better solutions as well as implementation in B2B."