MODULE THREE: MANAGING AND GROWING THE VENTURE

Specific Objectives
Students should be able to:-
1. Identify the stages of a venture life cycle
2 Explain the business activity that occurs at each stage of the venture life cycle
3. Distinguish among the venture models
4. Discuss the value of strategic planning
5. Explain the growth stage

Venture Life Cycle

As humans go through a lifecycle from birth, business goes through a similar cycle. From the
conception of the business until it matures, the entrepreneur may encounter varying challenges as
it thrives on remaining competitive in the market. The venture life cycle demands entrepreneurs
to be innovative in the drive for competitive advantage to increase growth and market share.

Entrepreneurs are able to implement strategic plans applicable and beneficial to the business
from understanding the events taking place during the business cycles. The entrepreneur has the
opportunity to identify challenges and potential opportunities to develop the business in order to
remain competitive. As the business grows, goals and objectives will change during the months
and at different stages of the business.
Entrepreneurs must be aware of conditions which may affect the business growth. The stages of
the venture life cycle vary in different texts. However, the initial, growth and maturity process
stages remain the same.

Venture Life Cycles Stages

Hanks et al (1993) is the proponent of the life cycle approach and he describes the stages as:
(a) START-UPS – they are new and emerging small enterprises with simple
organizational structures. Small businesses focus on a single product or service targeted at a
defined niche market. The real challenge is to develop and strengthen their resources once they
start to grow.
(b) EXPANSION – the business venture is slightly older, larger, very centralized and
more formal than the start-up. Growth is viewed in terms of increased revenues, a stronger
management team, and dominance in the market.
© MATURITY – these businesses are much larger, more formal and better organized at
all levels of the venture. There is a measure of comfort with its successes and no strong
motivation significantly change the business’ status quo.
(d) DIVERSIFICATION – this business is established with departmental structures and
organization levels. There are specialized functions within the venture. An approach for a new
or better business offering is actively considered for growth and profitability. Creativity,
innovation and exploitation of opportunities are driving forces in a new business strategy.
(e) LIFESTYLE – these are businesses where the owners have decided to keep their
ventures small. These are mom-and-pop outfits or businesses operating in very small markets.

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 (f) CAPPED GROWTH – these businesses are larger and older. They have reached a
comfortable stage of existence. Once there are no major threats or changes to the external
environment, they are quite satisfied to remain in their present position.

There are other stages of the entrepreneurial venture life cycle and they are described for
relevance to the Caribbean environment. They are as follows:

(1) NEW VENTURE DEVELOPMENT - A new venture development is the beginning stage in
a life cycle of an enterprise. At this stage, the entrepreneur searches for ideas from
brainstorming, family, friends, competitors in deciding the type of venture.
The venture is the subject of evaluation before creation and implementation. Attention is also
focused on the areas of the mission and vision, resources, and strategies. The entrepreneur will
be involved in:
 Concept Testing takes place when the entrepreneur carries out activities to see whether or
not prospective consumers will accept the product in the market. This exercise could
save the business lots of dollars that would have otherwise been spent on a ‘not-needed’
or poorly positioned product or service.
Concept testing allows the entrepreneur to:
- identify segments of the market that the product or service appeals to.
- do an assessment that reveals how the competitor’s product features or positioning
appeals to the target segments compared to his or her business.
- think seriously about how the marketing mix (Product, Price, Place and Promotion) will
be developed
- ensure that the alluring features of the product are impressed on the minds of the target
market.
 Planning the Structure, Vision, Mission and Goals of the Organization
In this initial stage of the product life cycle, a venture team is needed. Advisors and
specialists will help the entrepreneur to work on getting the idea off the ground. The
vision, mission and goals of the organization will be set. These will act as a guiding
force throughout the lifetime of the business. However, the entrepreneur must be willing
to make needed adjustments as time goes by. The entrepreneur must also decide which
form of business unit it will undertake.
 Resourcing
The key resource that will be looked at is that of financing. The type of business unit that
is undertaken will dictate the choice of financing options, to a large extent. It should be
noted that the source of funding at this stage may be quite ‘humble’. Many capital
providers are not prepared to fund a business that is at this stage of development.
 Researching Potential Suppliers and Distribution Chain
The entrepreneur will research prospective suppliers and will also assess the various
channels that the product or service may go through to reach to the final consumer.

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The New Venture Development state requires a lot of creativity and there is a need for much
networking. During networking, the firm gains access to resources and services from other
businesses, that is may not be able to provide for itself.

(2) START-UP ACTIVITIES – this is the early stage in the life cycle of the business before
launching the venture. The entrepreneur may then decide to focus on a product or service within
a niche market. Building and strengthening resources are important at this stage as it is time to
launch the business. Furthermore, the entrepreneur will engage his or her attention in the
registration and incorporation of the business, management team selection, securing finance to
start up and commencement of operations or trading activities of the business.
The start-up activities stage requires time being spent on:
- making adjustments to your product offering based on the feedback that was received in
the first stage.
- marketing your product more extensively
- accessing additional capital
- ensuring that a diverse management team is put together and other key (highly-skilled)
personnel will be a consideration too.
- refining the business model and business plan

(3) VENTURE GROWTH STAGE – When the business is at the growth stage, it has been
around for a while and is able to make further adjustments to its products and services. It may
also reduce its prices as it enjoys economies of scale. Investors and creditors are more willing to
‘come on board’ as the business displays a good level of credibility, dependability and
attractability.
High profits and a strong capital base are features of the enterprise at this stage. The business
will now be able to comfortably pay dividends to its stockholders. The entrepreneur may
consider opening several branches and later begin franchising.
The entrepreneur will be face with new demands such as managing increased income, ensuring
that the firm maintains the competitive edge, managing the increased numbers of workers and
divisions etc. He or she must deploy a greater level of team approach as he or she loosens his or
her hold on various aspects of the enterprise. There is a greater assuming of responsibility
(shared responsibility) in the business as workers are allowed to innovate and everyone moves to
‘owning the process.’ It is not a mere delegation of authority and a separation from ownership
that exists. There may also be a need for additions to the management team as the organization
expands. A management information system is crucial and there is a need for an improved
accounting system.
The control systems in the organization must be tightened as the organization expands.
Competition will become more intense as more firms enter the industry. The firm must therefore
employ appropriate strategies and adjust them when necessary, so as to maintain the competitive
edge.
The entrepreneur must understand that in this stage, it is likely that shortfalls; difference between
expectation and actual, will occur as greater risks are taken. The business should prepare itself to

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adequately deal with these failures as they arise. Increasing the supervision of employees may
sometimes be necessary.
During the growth stage, the entrepreneur must ensure that the business is flexible. As the need
arises, the business must be able to adapt to changes that will keep it going. These changes may
necessitate and adjustment to the organizational structure, increase or decrease in the number of
employees, usage of more advanced technology etc.
High growth ventures entrepreneurial leadership. This is defined as the entrepreneur’s ability to
foresee, maintain flexibility, be strategic and mobilize his or her team to initiate changes that will
create a viable future for the organization.

The business is making revenue and covering its expenses. As customers increase, the business
increases its market share and may dominate the market.

(4) BUSINESS STABLIZATION- The business has matured, and profits are stable. Experience
from the prior stages contributes to a structured and sustainable venture over time.
The business stabilization stage, otherwise, the maturity stage, is usually the ‘longest
running’ stage of the business. The business capacity to increase slows significantly. Sales is
stabilized and there is brand loyalty to its products and services. The products or services that
are offered become more standardized and will hardly go through any further change.
At this stage the market conditions do impact the venture and sales have levelled off. There are
some problems in the areas of competition, decline in customer traffic and slowing of innovation.
The future of the business needs to be reassessed and new directions are advocated for an
upswing in the venture’s profitability.

(5) INNOVATION OR DECLINE – the admonition to ‘change or die’ is of utmost importance

to this stage of the life cycle. The business is affected by a continuous reduction in resources and
revenues that can be changed with new strategies and new inputs in all areas of business
activities.
Profits and sales are falling drastically. The business has two choices. It can either watch itself
rapidly until it has to shut its doors, innovate through a disruptive innovation or change its
structure (for example going public – IPO)

The entrepreneur may decide to implement diversification strategies and offer new products to
the market. These strategies will make the business more competitive thus increasing growth and
profitability. The entrepreneur or the management team will draw on resources and human
expertise in being more creative and innovative in its product offering.

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The Growth of the Venture
The firm may grow internally through the following methods:
 Increasing its market share as the competitors’ market share decreases
 Expanding the number of products or services
 Entering joint ventures
 The takeover of other businesses
 Engaging in mergers

Limitations of the Life Cycle Model

1. There are some businesses with very unique features. All the descriptions in the model may
not fit.
2. Firms may exit at any stage. Many firms do not even reach the growth stage.

VENTURE MODELS
A start-up company is not a typical small business. A start-up company is an enterprise that has
recently been started and which has high growth potential. Its aim is to be quite dominant in the
marketplace with its innovations. Market dominance is seen in the strength of a firm’s offerings
and the size of its market share as compared to its competitors.

Some Difference between Start-ups and Small Businesses

Small Businesses
Replicate to a large extent an existing model.
Examples include: a typical restaurant or
barber shop.
Growth is constrained
Financing comes from small loans from
families and agents
Benefits from technology
The small business owner has to manage all
or most aspects of the business
Start-Ups
Innovation is key. Something new is brought
to market
Growth oriented. Experiences fast growth.
Vision goes beyond the community level to
national, regional and international levels.
Financing comes from venture capitalists and
angel financing
Technologically based
The entrepreneur is free from managing the
business. He or she is free to innovate, to
seek investors and creditors and to help to
promote the business.

Moving from a one-person band to an orchestra. Most businesses start as a one-person band.
The owner plays all the instruments, some better than others, but all out of necessity.

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Like any musical ensemble, a small business includes many roles. In the beginning, the owners
are often the best at making or delivering the product or service. Since they have the most at
stake, they often assume a wide variety of roles, including sales, accounting, and much more.
Through a combination of skill, planning, talent, and perhaps luck, some businesses manage to
grow. This growth leads to new and changing roles in the business for everyone, including the
owner. Of all the roles an owner has in the business, perhaps the most important one is to be the
designer for the business.
Business ventures can move from one model to the next as they pursue growth and profits.
Some models to consider are as follows:
(a) Promising Start-ups – a start-up is a business venture that introduces a new, improved or
better valued product or service to the entrepreneur’s market of choice. The venture is primarily
positioned for fast growth. Other feature that are common include quick decision making, a flat
management structure and a lot of creativity at work. Results are evidenced by revenues, profits
or an overwhelming mass of users or customers. Their management teams are less experienced
than those found in venture-backed start-ups.

(b) Venture-backed Start- ups

Venture capitalists are individual investors in start-up ventures with high growth potential.
They finance the venture in exchange for an ownership share and they are anxious for the
business to go public or become a large enterprise. They also provide management and technical
skills to the venture. The opportunity to invest in the venture is done via a process that covers:
a. business plan submission for evaluation by the investor.
i
b. meeting with stakeholders
c. due diligence report by accountants
d. final terms of agreement and signing of documents
Venture capitalists back high-growth companies in their early years in exchange for equity in the
businesses. They may also provide loans in return for high rates of interest.

Start-ups who receive backing from venture capitalists, have their confidence built up, as they
understand that these persons or institutions have placed their ‘stamp of approval’ on their
businesses only because they have seen their great growth-potential. Venture capitalists look for
strong management teams, unique ideas and in general, attractability for future takeover by
external corporations, when deciding whether or not to invest.
The portion of the business that venture-backed start-ups have to give up, is usually large.
Sometimes, the venture capitalists gain majority shareholding and oust the original owners.
Venture capitalists are not willing to back start-ups forever. They see an opportunity, help to
build the business to certain stage and then look to ‘cash out’ on the business. They take
advantage of the expertise and networking facilities that are available until then.
A person from the venture capitalist team is sometimes required to sit on the board of the
corporation. The venture-backed start-up is not bound by obligations of repayment of capital
and interest payments unless that was the agreement. This gives the business more freedom to
grow.

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The downside to being backed by a venture capitalist is that the business will be under constant
scrutiny and there is a loss of autonomy.

© Corporate- supported start-ups

A corporate supported start-up model shows corporations helping start-ups to accelerate. The
corporation provides the right environment that aids the business on several levels. The forms
of provisions that are offered may include mentorship, capital, office space and other resources
such as technology.
Instead of seeing these start-ups as threats, corporations have taken these prospective multi-
million- and billion-dollar companies under their wings. These partnerships have given these
corporations new fuel. Corporations can test new technology through their collaborations and do
so without much cost and without putting their own entity’s core operations at risk.
Start-ups benefit the corporation’s knowledge of the market and their large accumulation of
experience. The established networks that are provided are extremely beneficial to their
sustenance.
These are companies that invest in start-ups or entrepreneurial enterprises with potential for high
growth. They are based on shared financial interests, strategies and objectives that produce
positive outcomes and significant results to the bottom line of the enterprise.

STRATEGIC PLANNING
It is common understanding that business start small. Eventually growth and profitability are
dictated by strategic planning and decision making by the entrepreneur and business owner. We
are given information from module two on the entrepreneur’s ideas opportunities and launching
the business venture. Central to the realization of the enterprise is visionary entrepreneurial
leadership combined with strong strategy that is well planned and implemented.
The key concept is strategic planning. The objective of strategic planning is to position the
business venture in a manner that affords its competitive advantage.

Michael Porter (1980) states that competitive advantage is the competitive edge a business has
over its rivals, based on its strengths or its distinctive competencies. This is not achieved by
happenstance, wishful thinking or the wave of a magic wand. The entrepreneur and business
owner must develop a strategic plan, as it is of value and critical importance to the venture.
Kuratko (2009) defined strategic planning as the formulation of long-range plans to effectively
manage opportunities and threats in a business, in light of its strengths and weaknesses. The
planning should include defining venture’s mission, specifying achievable objectives, developing
strategies and setting policy guidelines.

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Figure 3.1 illustrates the strategic planning process

The strategic planning process (Kirby 2003) consists of four steps:

1. The Premise Stage
Determining the nature of the venture. Is it a product or service?

2. Analysis Stage
Analyse opportunities available
Analyse the business capabilities
Identify distinctive competencies

3. Strategy Development Stage

Develop the business strategy
Develop supporting strategies

4. Implementation Stage
Assemble the necessary resources to launch the business
Establish controls
Initiate actions

The entrepreneur or small business owner can frame the management of the strategy from one to
two approaches. The venture can be viewed from the opportunity-driven approach and or the
resource-based approach (Kirby 2003). The opportunity-driven approach commences with an
in-depth scan of the external business environment, focusing on new opportunities that the
business might be able to exploit for profitability. The resource-based approach builds on the
venture’s core competencies and its powerful strategic capabilities.

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New businesses mainly have three generic strategies to choose from for their venture’s
competitive advantages. The strategies are:
1. Low-cost leadership strategy – this calls for the product or service to be cheaper than the
competition. This strategy is not the best suited for new businesses. It is hardly possible at start-
up stage to keep costs down or to reduce overheads. Coming cheaper on the market places
severe pressure on the business to maintain low-cost status.

2. Differentiation strategy – this is being different from the competition. The entrepreneur and
business owner has to create value-added factors to the product or service that are not offered by
the competitors.

3. Focus or niche strategy – the business is capable of serving a segment of the market – a small
group of customers. Again, the needs of the marketing public are not well served by
competitors, and this opens the door for the entrepreneur or small business owner to capture the
targeted sector.

Most new businesses are comfortable with the differentiation and or focus-niche strategies
because they impact positively on price determination and competition.
Kirby (2003) goes on to make the point that the venture, together with a well-planned strategy
dependent on core competencies, must also have a measure of flexibility in order to develop and
introduce new inputs as a quick response is made to changes in the external environment.

BENEFITS OF STRATEGIC PLANNING

Research shows that all entrepreneurial ventures in their planning process use entrepreneurs’
concept (vision) for ventures and put them into action and accrue benefits (Kuratko 2009). The
following are some of the benefits which may accrue from strategic planning:
 Better financial performance
 More efficient resources allocation
 Improved competitive edge
 Faster decision making and
 Strategic thinking (thinking that allows an entrepreneur to be intuitive and visionary
for the future).

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UNDERSTANDING THE GROWTH STAGE
Growing from early beginnings to a thriving enterprise is always the aspiration of the
entrepreneur and the small business owner. Growth takes place with right strategic planning and
right strategic decision making.
Harrison and Taylor (1996) identified FIVE key factors that stand out in the quest for business
growth. They are:
1. Competing on quality rather than on prices
2. Dominating a market niche
3. Keeping competition in the area of business strength
4. Conducting frequent product or service innovation
5. Exercising tight financial and operating controls

To comprehend the growth stages of a business, it is important to look at one of the best know
growth stage models. The Churchill and Lewis Five-Stage Model of Growth is presented in the
figure below

Each of the five stages and their characteristics are explained below.
Stage One – Conception / Existence
The company has a very simple organization with minimal systems and formal planning. The
owner is the business, and everything is managed by the leader. It should be noted that many
businesses actually fail to move from this stage of activity. Others move on to Stage 2.

Stage Two – Survival

The business has had a measure of success and is functional. However, the major intention is to
simply survive. It still has simple organization, minimal formal systems and some may even have
staff. Some businesses remain at this stage, others move on to Stage 3.

Stage Three – Profitability and Stabilization

The business venture has grown to a size where management is shared by owner and staff. Its
task is to maintain profits. A business presence with some degree of success is firmly in place.
Consensus and fulfilment of business objectives are uppermost in the minds of the management
team. Some attention is given to threats appearing in the external environment.

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Stage Four – Profitability and Growth
The business is stabilized, and the owner now consolidates the business and marshals the
resources for growth. The owner has a strong management team and specialized help to
maintain success and push for further growth and development. New initiatives for growth are
due for implementation.

Stage Five – Take-off

This is a crucial period in the growth stage of the business. The business has a fairly good
management component, and the main focus is how to finance the move forward. At this stage,
the owners may even have given over full responsibility to the management team.
A new life for the business venture is anticipated.

Step Six – Maturity

The business has the resources to remain profitable and one of the many objectives is to maintain
competitive advantages. This serves as a motivating factor to achieve business strength and
financial stability, shared ownership by management and staff, community goodwill and the
earning of other non-financial returns.

To achieve growth, a company should build on its strengths and core competencies. The
Product/ Market Mix developed by Igor Ansoff is a helpful tool used by businesses to evaluate
risks associated with a growth strategy. The Matrix has four options:
1. Staying with existing product or service and existing market and customers
2. Product development
3. Market development
4. Diversification
Figure 3.2 illustrates Ansoff’s Product / Market Matrix
The four options are explained below

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 (1) MARKET PENETRATION
Staying with existing product or service and existing market and customers
Within this option, there are possible courses of action an entrepreneur can take
which will allow him or her to focus on what the firm is doing more efficiently and,
in addition, cut costs. Some examples of courses of action an entrepreneur may
decide on are:
 exiting the business
 changing and developing the product or service or starting another business
 keeping the product or service in the market and changing the way it operates
 penetrating the existing market further by selling more of the same product or service
to its customers in the same market.

 PRODUCT / SERVICE DEVELOPMENT

This option, if chosen by an entrepreneur, has advantages such as the development of the
product. It is more cost effective to increase the volume of business with an existing
customer base than to embark on a drive for new clients. It may also be a push for new
products because new opportunities are ready to be exploited. Another reason for
product or service development is new innovative products or services which replacing or
being sold together with refurbished existing products.

 MARKET DEVELOPMENT
This is where entrepreneurs seek outside the existing markets. This move may include
new developed products, the altering of existing products, marketing mix or a change to
the product range. The choice of the new markets can be focused on a geographical
approach (new areas) or it may be international opportunities (exporting). For the choice
of exporting to a new market, the entrepreneur will have to look at factors such as
barriers or costs of entering and existing a foreign market.

(4) DIVERSIFICATION
In this option, firms may decide to sell new products into new markets to balance the risk.
There are two types of diversification: related and unrelated. Related diversification is an
advanced development of a product or service within the sector where the business
operates. There are three forms of activities:
 Backward vertical integration – the venture is now its own supplier of the basic new
materials, services or distribution
 Forward vertical integration – the business becomes its own retailer
 Horizontal integration – this is described as the entry into activities that are
complementary or competitive to the business venture’s present activities.

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Unrelated diversification can be described as the business’ venture into areas of operations that
have little or no relationship to its main business activities.
In terms of risk factors, the lowest risk is the area of market penetration. This is followed by
product or market development. Unrelated diversification carries the highest risk.

Mergers and acquisitions are business strategies used to achieve rapid growth. They
immediately open new markets, new customers, new markets and new services to the business
owner or entrepreneur. Buying out the competition is another view of the business strategy or it
can be related to building the overall strength of the business venture through new capabilities
like research and development.

VENTURE VALUATION
Specific Objectives: -
At the end of this lesson, students should be able to:
1. Explain the importance of venture valuation

2. Discuss methods used in venture valuation.

VENTURE VALUATION
Venture valuation is the process of determining the worth of a business. Valuation is a
subjective process as each business owner may have different ideas of what is ‘value.’ Although
there is not a single method of arriving at a figure, the entrepreneur should choose the one that
suits the reason for carrying out the valuation.

IMPORTANCE OF VENTURE VALUATION

Venture valuation provides an entrepreneur with a scorecard for periodic tracking of the
increases or decreases in value in a business. Periodic tracking of increases or decreases is
critical to the entrepreneur when exiting. The periodic tracking can give the entrepreneur an
accurate fair value of a business’s worth.

In finance, valuation analysis is required for many reasons including tax assessment, wills and
estates, divorce settlements, business analysis, and basic bookkeeping and accounting. Since the
value of goods and services fluctuates over time, valuations are as of a specific date similar to the
end of the accounting quarter or year. They may alternatively be mark-to-market estimates of the
current value of assets or liabilities as of this minute or this day for the purposes of managing
portfolios and associated financial risk (for example, within large financial firms including
investment banks and stockbrokers).

Some balance sheet items are much easier to value than others are. Publicly traded stocks and
bonds have prices that are quoted frequently and readily available. Other assets are harder to
value. For instance, private firms that have no frequently quoted price.

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Intangible business assets, like goodwill and intellectual property, are open to a wide range of
value interpretations. It is possible and conventional for financial professionals to make their
own estimates of the valuations of assets or liabilities of interest to them.

Their calculations are of various kinds including analyses of companies that focus on price-to-
book, price-to-earnings, price-to-cash-flow and present value calculations, and analyses of bonds
that focus on credit ratings, assessments of default risk, risk premia, and levels of real interest
rates.

All of these approaches may be thought of as creating estimates of value that compete for
credibility with the prevailing share or bond prices, where applicable, and may or may not result
in buying or selling by market participants.

Where the valuation is for the purpose of a merger or acquisition, the respective businesses make
further detailed financial information available, usually on the completion of a non-disclosure
agreement.

It is important to note that valuation requires judgment and assumptions:

• There are different circumstances and purposes to value an asset (e.g., distressed firm, tax
purposes, mergers and acquisitions, financial reporting). Such differences can lead to different
valuation methods or different interpretations of the method results
• All valuation models and methods have limitations (e.g., degree of complexity, relevance
of observations, mathematical form)

• Model inputs can vary significantly because of necessary judgment and differing assumptions

Users of valuations benefit when key information, assumptions, and limitations are disclosed to
them. Then they can weigh the degree of reliability of the result and make their decision.

REASONS FOR VENTURE VALUATION

(a) KNOW THE REAL VALUE OF THE VENTURE

After the analysis, entrepreneurs establish a value for the firm. Other factors to consider
when valuing a business are start-up costs, accuracy of projections and control factors.
There are psychological factors for determining value. These factors are valued at a price
earnings and sales ratios. Three main ingredients used for establishing entrepreneurial
valuation are cash, time, and risk. Cash plays an important role in valuation. It infers the
cash available, and cash generated in a business. Risk contributes to the determination of
value. It plays a considerable role in how investors size up the venture.

(b) BUYING OR SELLING A BUSINESS OR MAJOR ASSET

Asset sale or an entity sale allows for the selling of businesses, and the transferring of
their assets. In an asset sale, the entity sells its tangible and intangible assets to the buyer,
while the entity’s owners retain equity in the entity. On the other hand, in an entity sale,

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 the seller transfers his or her equity to the buyer, who acquires the entity with all of its
assets.
Where the business is a sole proprietorship, the sale by default will be a sale of assets,
because there is no entity apart from the owner. Where the entity is a partnership, LLC or
corporation, the buyer and seller will generally have some choice over the selling process
of the business.

Structuring a business sale or a sale of assets or as an entity sale depends on a number of

factors, regardless of what the buyer is willing to accept.
Other crucial factors that will weigh on both the buyer’s and seller’s choice will be
(1) the existence of outstanding liabilities; and

(2) the disparate tax effects that would result from the sale of assets when compared
with the sale of the business entity.

The tax implications are especially important where the seller’s business is a C Corporation
because a sale of assets might result in double taxation. Where the business is converting from an
investor-owned or closely held C Corporation to an employee-owned business, the incentive to
sell the business’ equity to the employees is increased.
Unfortunately, tax and liability considerations often put seller and buyer against one another.
For tax purposes, typically, the seller would prefer to transfer equity, while the buyer would
prefer to buy a pool of assets. Moreover, where both parties have agreed to an asset sale, the
parties’ interests often conflict as to how the sales price should be allocated across assets.

© RAISING GROWTH CAPITAL

In order to raise capital through the issue of shares (IPO or otherwise), a valuation must be
carried out so that the investor will be aware of his or her percentage stockholding in the
corporation.
Growth capital (also called expansion capital and growth equity) is a type of private equity
investment. Usually, a minority investment, in relatively mature companies that are looking
for capital to expand or restructure operations, enter new markets or finance a significant
acquisition without a change of control of the business. Companies that seek growth capital
often do so to finance a transformational event in their lifecycle.

These companies are likely to be more mature than venture capital funded companies,
able to generate revenue and operating profits but unable to generate sufficient cash to fund
major expansions, acquisitions or other investments.

Due to the lack of scale, these companies generally can find few alternative conduits to
secure capital for growth. Thus, access to growth equity can be critical to pursue necessary
facility expansion, sales and marketing initiatives, equipment purchases, and new product
development.

Growth capital can also facilitate the restructuring of a company's balance sheet,
particularly to reduce the amount of debt the company has on its balance sheet. Although

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 growth capital often structured as preferred equity, certain investors will use various hybrid
securities that include a contractual return (i.e., interest payments) in addition to an
ownership interest in the company. Often, companies that seek growth capital investments
are not good candidates to borrow additional debt, either because of the stability of the
company's earnings or because of its existing debt levels.

(d) ESTABLISHING AN EMPLOYEE STOCK OPTION (ESOP) PLAN

What is an ESOP?
An Employee Stock Options Plan (ESOP) is an allocation of shares that will be granted
to employees in the future in the form of stock options. When employees are allowed to
participate in stock ownership, a valuation of the business is necessary. The business
needs to ascertain the value of its stock each year, so that the appropriate price may be
listed.

Why Issue Options to Employees?

• Attract Talent: options can be used to attract top recruits, particularly engineers,
product managers and other technical team members
• Retain Employees: options vest over several years, creating strong incentives for
employees to remain employees
• Align Incentives: by making employees equity owners, options align incentives with the
long-term goals of the company
• Reward Value Creation: options reward tangible contributions that increase corporate
valuation by giving employees a slice of that value
• Encourage Long-term Thinking: options typically pay off only in a liquidity event or
exit and thus push employees to build the company for long-term success

When employees are allowed to participate in stock valuation ownership, a valuation of the
business is necessary. The business needs to ascertain the value of its stock each year, so that the
appropriate price may be listed.

(e) TAX MANAGEMENT (OBLIGATIONS)

Tax Management must have the sound foundation of a properly valued venture. The
entrepreneur will certainly not want to know that the business is overvalued and therefore is
being overtaxed in any way. Persons who have inherited property will have to pay taxes. An
overvalued property would mean overstated burdensome payments.
The law stipulates that businesses must pay income tax on revenues, if any, after deducting the
expense of operation such as the cost of inventory, rent, insurance premiums, salaries, and
utilities. Additionally, businesses must file tax returns and pay taxes to the government.
Some businesses may be required to collect taxes on behalf of government such as General
Consumption Tax (GCT) based on the value of goods or services sold. In these cases, it is clear
that the money does not belong to the business owner as he or she is only a collection agent and
must turn over the money to the government.

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Other taxes that a business collect and pay over to the government are income taxes, National
Housing Trust (NHT), National Insurance Scheme (NIS) and Education Tax (Ed.tax) deducted
from the salaries and wages of workers. These funds technically belong to the employee and are
being transmitted to the government on the workers’ behalf. Failure to pay income tax and other
taxes may result in penalties and interest being added to the taxes due.
In the case of businesses that underreport income or refuse to pay taxes, the principals/ owners
may be the subject of criminal prosecution as well.

The type of business operated determines the formula used to calculate the tax contribution that
should be paid.

The three types of businesses are as follows:

(i) Sole Traders business - the owner and the business is treated as one entity, so the
owner is required to pay the Unincorporated Business Tax
(ii) Partnership business – the business itself is not taxed, but, under the Personal Income
Tax system, the individual partners are required to pay taxes.
(iii) Corporation – shareholders of corporations are taxed as the business itself taxed as a
separate entity. Shareholders are taxed according to the personal income tax rates,
whereas the corporation is required to pay 33 1/3% of its gross profits yearly.

(f)WHEN STRUCTURING A BUY, SELL OR JOINT VENTURE AGREEMENT WITH

STOCKHOLDERS
The proper valuation of the business is of paramount importance when attracting partners for
joint venture agreements. It is also required when there are purchases or sales as they related to
mergers and acquisitions. The negotiation process will be better.

(g) WHEN ATTEMPTING TO BUYOUT A PARTNER OR SHAREHOLDER

When members of a business are being sort bought out, whether due to retirement or in the case
of a death, agreement on price is easier at when there is evidence of a professionally done
valuation.

(h) TO TRACK THE INCREASE OR DECREASE IN THE VALUE OF A BUSINESS

The entrepreneur uses valuation figures to track whether the business has gained or lost value
and by how much. These figures will inform the strategic planning process.

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VENTURE VALUATION METHODS
The purpose of valuation is analyzing the profit equation. It is part of the due diligence process
that is required for parties to carefully consider the risks and returns of the business venture.
These methods are examined by the entrepreneur after analysing the checklist for strengths and
weaknesses.

There are several methods available for valuing entrepreneurial ventures. We will focus on the
three principal methods. These are as follows:

1. Book Value
this a common method of valuing a business’s net worth. Net worth is the difference
between total assets and total liabilities (which include adjustments for inflation and
depreciation). The valuations of assets are based on the value of assets (including goodwill,
patents, and other intangibles) listed in the books or financial statements.
Therefore we see:
Book Value of Assets – Liabilities = Venture Valuation

Uses
This method is used when
(a) the business has assets that ate of significant value and
(b) the long term revenue-earning ability of the business is low
Asset valuation must take into consideration the value of the intangible assets such as
goodwill. Goodwill is that amount that is in excess of the net assets figure, when the
business is being valued perhaps for the purpose of sale. It is the ‘good reputation’ that the
business has built up over a period that can be seen in its reputable suppliers, ideal location,
loyal customers, culture of excellent customer service etc. However, due to the fact that
goodwill is not normally held on the books, the entrepreneur may encounter difficulties
putting a price of it. Asset valuation must be derived after depreciation is accounted for.
Depreciation is a non-cash item. It represents the part of the value of the fixed assets that
has been used up as a result of factors such as wear and tear, obsolescence and passage of
time.
Due to the fact that the figures on the books for assets are historical, they may be very far
from that of current market values. Theis limits the use of the Book Value Method in the
proper valuation of the venture. The book value method, therefore, gives way for a variant,
the liquidation value method. In this method, the business is not treated as a going
concern. Assets are taken at the value that they will ‘cash in’ for if they were to be sold
now.

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2. Multiple Earnings (Earnings and Price Earnings Ratio)
These earnings are based on the value derived from the earnings generated by the venture.
This method is commonly used for valuing public corporations.
The valuation is determined by dividing the market price of the common stock by the
earnings per share (EPS).
The price earnings method is similar to the discounted future earnings method. It is also
called Profit Multiplier. The adjusted profit is multiplied by a selected profit multiple,
usually a figure from 2 to 6. Price represents the value of the business while earnings
signify the profits. It tells the buyer how long it will take the business to recoup its initial
investment.
The Multiplier should be based on factors that put the business in a better or worse light.
For instance:
Good Influencers
* the firm is ‘carrying’ products or services with a strong brand
* there is a strong management team
* key specialists exist in the firm
* there is a strong customer base
Action to be taken: Set a high multiplier
Bad Influencers
* the firm is experiencing a declining market share
* the business possesses products that are similar to the competitors’ products
Action to be taken: Set a low multiplier

3. Discounted Cash Flow (DCF) or Discounted Future Earnings Method (DEM)

This method is considered the best because it determines the firm’s time value. The idea or
concept of use is that, when discounting the firm’s cash flow, the dollars earned in the
future (based on projections) are worthless than dollars earned today (due to the loss of
purchasing power).
The method takes the estimated cash flow for a predetermined number of years and
discounts these amounts back to the present using an appropriate discount rate.
Using the discounted future earnings method, a firm will determine its projected cash flows
for a set number of future years based perhaps on its record of past earnings and its growth
possibilities. It will also estimate the terminal value of the business before sale. A
discounting factor (discount rate) is used to give the present value of the flows (what the
future flows would be worth today). This factor is based on the weighted average cost of
capital or the risk premium added to the risk-free interest rate. It is used in cases where
inflation is a variable that the economy must contend with. The earnings plus the terminal
value when discounted, will give value of the venture.
The discounted future earnings method is used when the entrepreneur believes that the
worth of the business lies in its ability to produce income. After all, that is the main
motivation of businesses.

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4. Comparables (Market Value Approach)
Using comparables approach, the entrepreneur examines the valuations of businesses that
have been recently sold so as to use the figures as a benchmark.
Use
The comparables method should be used when a good number of businesses that are
similar* to the venture can be compared and information on those sales is easily accessible.
Similar means that the firms are in the same industry as the business in question and they
have similar size, growth potential and profit potential. Asset to sales ratio and gearing
ratio are also considerations.

Other Considerations
Due to the importance and critical nature of venture valuation, it is recommended that the
entrepreneur hires a professional appraiser to carry out the process. It is also recommended
that regular valuations be carried out.

The Personnel who are involved in the valuation process include:

- appraiser
- accountants
- lawyers

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Each method is described and key points of each are presented in Table 4.2 below
Table 4.2: Methods For Venture Valuation
Method Description / Explanation
Book value (known as Tangible book value is:
balance sheet method) Set by the business’s balance
sheet
Reflects net worth of the firm
Total assets less total liabilities
(adjusted for intangible assets)
Multiple earnings Net income capitalized using a
price/earnings (P/E) ratio
Discounted future Attempts to establish future
earnings (discounted earning power in current dollars.
cash flow) Projects future earnings (five
years)
Calculates present value using a
discounted rate
Based on projected timing of
future income
Notes / Key Points
Some assets also
appreciate or depreciate
substantially; thus, it is not
an accurate valuation
Capitalization rates vary as
to firm’s growth; thus,
estimated or P/E used must
be taken from similar
publicly traded
corporation.
Calculation is based on the
premise that cash flow is
the most important factor.
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ELECTRONIC COMMERCE (E-COMMERCE)
i

Objectives:-
Students will be able to:
1. Define the term electronic commerce or (e-commerce)
2. List the types of E-Commerce
3. Explain the advantages and disadvantages of e-commerce
4. Identify approaches to E-commerce
5. Identify the elements to consider before launching into E-Commerce
6. Assess the outline of potential of a venture
7. Discuss the benefits of selling via the Internet
8. Outline some of the Myths about E-Commerce
9. Identify strategies for E-commerce success

Electronic Commerce (E-Commerce)

Electronic commerce, or e-commerce, is defined as the interaction of buyers and sellers via the
use of the internet for the purpose of exchange. E-commerce covers the process from the purchase
decision to receipt of the goods. It also includes placing the order for the product and making online
payment before receiving them. E-commerce and internet marketing are closely connected, as the
former is influenced by the latter.
The Internet acts as an enabling environment for completing business transactions. This allows
e-commerce to be a favourable tool for entrepreneurs to leapfrog the development of their businesses
and grow them beyond local markets.
E-commerce creates interdependencies between entrepreneurial venture and your suppliers and
customers. The stronger these linkages are, the more likely a business is to create a competitive
advantage and grow while taking advantage of new outside markets.
Can you at this time imagine a world without the internet? Probably not, since using the World
Wide Web has become commonplace in most, if not all, of our lives. Through it, we all at some point
in time use the internet for various reasons. Some people may do research via Google, some use it for
communication by sending e-mails, for socialisation (for example, Facebook) and some use it for
shopping (for example, Amazon). The truth is that whatever we use the internet for, it has had a
significant impact on all our lives.

Furthermore, E-commerce is a transaction of buying or selling online. Electronic commerce draws on

technologies such as mobile commerce, electronic funds transfer, supply chain management, Internet
marketing, online transaction processing, electronic data interchange (EDI), inventory management
systems, and automated data collection systems.

Website Contents
 Home page – the home page is the first page that the user of the website will see. Therefore,
ensure that it makes a good lasting impression.
 About US – the about us page introduces you and your business.
 Products and Services – this can be on one page or more. The products and services of the
business are presented to viewers. Ensure that the physical features of the products are clearly
 shown. The picture must be attractive. It must arouse the interest of the prospective buyers.
Descriptions must be clearly presented using good style. Short videos that demonstrate how the
products are to be used, can be added.
 Contact Us – this page will contain the contact information of the business. This should
include an email address, company phone numbers and a link to any of the social media
networks that your business uses.
 Testimonials – this is a very important page. Prospective buyers are drawn to products and
services that persons recommend. It is even more advantageous when some are from notable
persons in society. Testimonials will speak volumes about the superior quality of your
business.
E-Commerce Website vs. Informational Website
An Informational Website provides information about your business. It will give details of the
nature of the business and its products and services and other information that may be considered as
crucial. However, users will have to visit the physical location of the business to carry out the
actual transaction. An E-Commerce website will provide the above information. However, it goes
beyond that. It allows the customer to carry out all aspects of the business transaction on-line,
including making payments.
The E-Commerce websites may include sites such as auction sites and retails stores. Two popular
ones are eBay and Amazon.
Classification of E-Commerce Business
1. Business to Consumer E-Commerce(B2C E-Commerce ) – this domain is used to sell or
market a firm’s products or services to consumers. This is probably the most used domain,
especially with big events such as ‘Black Friday’ and ‘Cyber Monday’.

2. Consumer to Business E-Commerce (C2B E-Commerce) – consumers can interact with

businesses using this domain. They can use it to ascertain information, view products, make
requests, ask questions, and make suggestions to the companies.

3. Business to Business E-Commerce (B2B E-Commerce) – businesses sell to businesses. Firms

can use this domain to view products in, say, online catalogues. It can be used to gather or
provide information on products or potential products.

4. Consumer to Consumer E-Commerce (C2C E-Commerce) – this domain can be used to view
referrals and testimonials about a product or service. Consumers can sell products to other
consumers through auctions.

5. Intra-business or intraorganizational commerce – these are situations where employees in

organizations transact business among themselves and between departments.

6. Mobile Commerce (m-commerce) – this is the latest form of e-commerce which is facilitated
over a wireless environment, such as using smartphones or tablets to access the Internet.

Advantages of E-Commerce
 1. E-commerce provides the sellers with a global reach. They remove the barrier of place
(geography). Now sellers and buyers can meet in the virtual world, without the hindrance of
location.

2. Electronic commerce will substantially lower the transaction costs. It eliminates many fixed
costs of maintaining brick and mortar shops. This allows the companies to enjoy a much higher
margin of profit.

3. Speed and flexibility – the Internet allow the venture to improve its response time to customers
at the time of their choosing, thus increasing the level of flexibility to serve them. Customers do
not need to come to or visit a physical store to buy the products.

4. Less emphasis on size or space – An Internet establishment usually requires less physical
infrastructure to launch an operation as the majority of the transactions can be done in a virtual
space. The customers are focused on the quality of the products rather than the size of the
company.

5. High volume/customer reach – The Internet can facilitate high volumes of customer demand,
hence the venture is able to interface with a larger market share over expanded geographical
locations.

6. Lower distribution cost – company can interface with a larger market share at a lower cost than
a brick and mortar establishment. Reduce combined warehousing, logistics, and freight costs.

7. It provides quick delivery of goods with very little effort on part of the
customer. Customer complaints are also addressed quickly. It also saves time, energy and effort
for both the consumers and the company.

8. One other great advantage is the convenience it offers. A customer can shop 24×7. The website
is functional at all times, it does not have working hours like a shop.

9. Electronic commerce also allows the customer and the business to be in touch directly, without
any intermediaries. This allows for quick communication and transactions. It also gives a
valuable personal touch.

Disadvantages of E-Commerce

1. The start-up costs of the e-commerce portal are very high. The setup of the hardware and the
software, the training cost of employees, the constant maintenance and upkeep are all quite
expensive.

2. Although it may seem like a sure thing, the e-commerce industry has a high risk of failure. Many
companies riding the dot-com wave of the 2000s have failed miserably. The high risk of failure
remains even today.
3. At times, e-commerce can feel impersonal. So, it lacks the warmth of an interpersonal
relationship which is important for many brands and products. This lack of a personal touch can
be a disadvantage for many types of services and products like interior designing or the jewellery
business.

4. Security is another area of concern. Only recently, we have witnessed many security breaches
where the information of the customers was stolen. Credit card theft, identity theft etc. remain
big concerns with the customers.

5. Fulfilment problems. Even after the order is placed there can be problems with shipping,
delivery, mix-ups etc. This leaves the customers unhappy and dissatisfied.

6. Lack of widespread access to internet

Other than the issue of high internet costs, many Caribbean countries are still behind in terms of
internet coverage. This is especially true for rural areas. A number of areas in most Caribbean
countries are still without broadband internet. It must be noted, however, that some countries
have been making strides in this direction, but it will still take some time before full coverage is
achieved, if ever.
7. Economic conditions
Most Caribbean countries would fall somewhere between low to lower-middle development,
while others have managed to break the lower-middle barrier to upper-middle development.
Regardless of this, though, a number of regional countries are still grappling with the effects of
the economic recession that took place in the latter part of the first decade of this century. A
number of firms have had to close their doors, while others are struggling to stay afloat. Not
many firms have the resources to invest in the required internet and computer technology that
would enable them to partake in
e-commerce.

8. Delivery speed and timeliness

An excellent postal service and/or courier service are musts in the field of e-commerce. People
buying products online will want to know that the items will be delivered in a timely and
hassle-free manner. While there is a growth in courier services in the Caribbean, it is still
sometimes expensive to transport goods. Delivery is further hampered by inefficiencies in some
of our postal systems where there are long delays and sometimes even loss of mail.
E-Commerce and Growing the Venture
The e-commerce model is fast becoming advantageous for both entrepreneurs and consumers in
today’s high-speed electronic age. For many entrepreneurs, e-commerce is becoming more and more
dominant as a strategy and, for some, the only person the only option as businesses become more
interested in expanding their operations online.

The Internet and Its Impact on Venture Development

The internet can offer many benefits to the entrepreneur who is set on a path of developing his or her
business but it also come with its challenges. Four ways in which it impacts the venture are as follows:
 Allows for speed and flexibility
With just the right level of technology, the speed at which information moves via the internet is
incredible. Almost as soon as the sender hits the ‘send’ key, the receiver can gain access.
Transactions are created every second as millions of persons across the world are able to view
the products and services of businesses (located locally and across borders), select those that
they wish to buy and make payments, all on-line.
Features such as Video Chat and Voice-Over-Internet-Protocol (VOIP) have made the local
landline telephone service less multiple users. The fairly new craze of social networks such as
Facebook, Twitter, Instagram, YouTube, WhatsApp and Snapchat, are all functional via an
internet connection. They are key instruments for networking purposes and businesses are now
capitalizing on them. Some of their offerings include the facilitation of regular updates,
conversations, advertisements, feedback by way of the ‘comments’ box, customers’ reviews and
mobility.
The contents of particular websites can be varied to meet different types of users and different
market segments all at the same time. The customer enjoys self-service and feels special as
there is one to one marketing. Persons ‘on the go’ do not have to be ‘stuck’ behind a desktop
surfing the internet in order to find items or services that they need. Technology is available for
websites to be accessed using the smart phone. Shoppers can be in transit and be carrying out
transactions.
The way of doing business has evolved over the years and in recent times, it has been doing so
at a rapid rate. So, we can look out for more and more changes to come, all with the aim of
making doing business, easier and smarter.

 Gives less emphasis on size or space

The internet has caused the world to become one large global village, with various media of
connectivity, making the requirement of a physical location for business a thing of the past. It
has no time and space limitations nor acknowledges geographical divide. It provides a virtual
space where buyers and sellers all over the world engage in trade.
Thousands of employees, aided by the internet, work from in areas such as marketing and sales
and care collecting huge pay cheques. A business can access human resource talent from across
the globe. Additionally, E-businesses are in operation 24 hours per day and 7 days per week,
even when the entrepreneur is occupied with his or her personal activities. A venture that has
just started as a on-line business can be just as ‘ahead of the game’ as another one that has been
in existence for two years and has a steady market. With a good plan and the right technology,
 ‘from the get go’ they can reach large numbers.
E- businesses incur lower overhead costs than those with physical locations. They do not have
to pay expenses such as rent and utility bills and their labour cost is much lower than that of
‘brick and mortar’ businesses. As a consequence, more profits can be gained.

Online businesses can carry a wide line of products as their space is virtual rather than physical.
Space seems in exhaustible. Storage space is unnecessary. The business makes its orders
directly from vendors and delivery is made thereafter. Arrivals can take place within 24 hours.

 Enables high volumes of sales

The internet captures the attention of millions of buyers as the physical dividing lines between
countries are removed. A well-positioned E-Business has the potential to sell high volumes of
products and services every single day. It is ideal for products that do not need salesmen to
explain their features in person and for prospective buyers to try them out before sales, as in
case of the purchase of luxury cars. The vendor must ensure that the rate of ‘returns’ is at a
minimal.

 Restricts the entrepreneur to a low profit margin on each sale

A low margin product is one which is priced close to its cost. Firms that carry such products
benefit from a high turnover rate. They ensure that their prices are competitive by selling at low
prices but make up any shortfall by selling in large quantities, benefitting from economies of
scale through mass production. Many products that are sold via the internet are those with low
margins. The products and services which have a higher margin require more handling and ‘try
outs’ than others.

APPROACHES TO E-COMMERCE

The following four approaches to e-commerce are common among Caribbean entrepreneurs who have
online businesses.

1. ONLINE SHOPPING MALLS

The first approach allows for real-time e-commerce to take place. In this case, the entrepreneur
establishes the Internet merchant facility with their bank., integrates the payment gateway, and uses
either a shopping cart or order form for information capture. In most circumstances, it is easier and
more cost effective for the merchant to charge in United States dollars only. From a security point of
view, the advantage of using a payment gateway means that the entrepreneur reduces their level of risk
as customer’s details (name, address, credit card number) are not captured by the payment gateway
provider only. Also, the transfer of the customer’s details from the merchant’s website to payment
gateway is secure (encrypted) and cannot be easily intercepted.
Advantages

 A wide variety of items such as clothing, household appliances and electronic items can
be sold. There is really no limit as to the type of goods. Customers can view items
according to sizes, brands, prices, ‘on sale’ etc. and can look at reviews which can assist
with purchases.
 The websites are usually ‘user friendly’. Consumers are expected to follow simple
instructions, whether they are viewing items, making selections or completing
payments.
 Customers eliminate travelling costs.
 There is an absence of the experience of a crowdy mall even though for the average
mall, there may be thousands of shoppers from all over the world. There are no long
lines and problem of too few and other times slow cashiers.
 There is no time limit. For all those persons who need to spend a whole lot of time
inspecting goods, comparing prices and facilitating the opinions of shopping pals there
is no pressure. Persons can shop any time, from nay place and in any apparel. In fact,
they do not even need to get out of bed. The shopping mall is brought to you.
 Even though goods may be bought from various stores, only one credit card checking
out transaction is necessary.
 Customers benefit from the availability of discount coupons, rebates and other sales
promotion tactics.
 Many persons can testify to the fact that sometimes when they visit a store, they end up
buying items that hey do not really need. Online shopping reduces impulsive buying
because consumers can easily search directly for what they want, without having to
view all the other types of items in the stores.

Disadvantages
 Retailers have less control over their brand image and customer satisfaction. They have
to rely on the providers of the Online Shopping Mall.
 It is not possible for the shopper to touch, feel and ‘try out’ or ‘try on’ the product
before purchase.

2. INTERNET SERVICE PROVIDERS

Internet Service Providers (ISP’s) are companies that provide internet service for both domestic and
commercial activities. Everything such as videos, pictures, char rooms etc. that we access on our desk
top computers, smart phones, laptops etc, are made possible through Internet Service Providers (ISPs).
They also provide other services such as internet transit, web hosting and domain name registration.
Many internet service providers partner with online payment systems to facilitate millions of
transactions daily.

Another approach is where the entrepreneur uses a third-party hosted solution such as PayPal, which
looks after some or all of the key components of e-commerce. PayPal is currently the largest online
payment handler in the world and has been so for quite some time. The advantage is the ease with
which the entrepreneur can charge the customer in different currencies without having to establish
dedicated currency bank accounts.

3. VIRTUAL COMMUNITIES

A virtual community is an online community where both vendors and consumers work together to
achieve the satisfaction of the needs of each other. Customers want the benefits that they can derive
from good quality products. Vendors are in search of growing profits that will come when they satisfy
the needs of customers. Internet providers, host companies, payment facilitators and web designers are
just a few of the many entities in the vertical community.

Store-Front Services
The exterior of any commercial entity should be designed in such a way that is gives the business a
competitive edge. It is the first means of attraction that will pull customers into your store and
therefore should be designed by a professional. A store front in a virtual business serves a similar
purpose and more. It is called a website or a virtual store front. Store front vendors provide retailers
with a website that does the following:
- display the products of the retailers
- enable the ordering of goods
- allow billing and online payments
- manage inventory
Users acquire an account by paying a one-time set up fee and then subsequently, monthly or yearly fees
are paid. One drawback to the hiring of a store-front service is that there are limited gateway payment
options for the merchants. Also, they would have to pay more than websites with higher than expected
traffic. Credit card information is routed from a shopping cart web page to the payment gateway where
it is encrypted for delivery. Payment gateway verifies each customer’s billing information, verifies
customer’s funds and approves requests; allowing the stores to issue a confirmation number and then
allows payment. Some gateway options
include: PayPal, Stripe, Simplify, Commerce Google Wallet, Skrill, Payoneer and Dwolla. PayPal is
very common
Social networking services are the most prominent type of virtual community. They are either a
website or software platform that focuses on creating and maintaining relationships. Facebook, Twitter,
and Myspace are all virtual communities.

4. PRIVATE INITIATIVE
Hiring an expert to customize a website for the venture - So you have decided on the product
or service that your firm will be offering to the target market. It is time to hire a reputable
 website designer to take your business to the next level. Websites and social media are
effective marketing tools that will expose your business to the world at large. Do not settle for
the free construct of websites. You aim must be to have the website professionally and
accurately done, putting the business, at least, on par with the strongest competitors. The fact
is, a well designed and constructed website can bring more business to your firm. The initial
cost can be very high, however, in the long run the benefits will outweigh cost. You may seek
advice from clients or other businesses with excellent websites on where to find website
designers with required level of expertise.
Building a site in-house – building an in-house website vast amount of resources and teamwork.
A highly trained staff is required. Some of the experts who are needed include:
 Website Architect – interviews customers and other stakeholders so as to understand
their needs. He or she then uses his or her project management skills and knowledge of
web strategy to detail all that he or she believes is required.
 Website Designer – creates a design with the right colour scheme, font, layout and other
aesthetics.
 Website Developer – there is a front-end and back-end. Front-end development
involves taking the design and coding it. The back-end development involves the
functionality of the site. It looks at the range of things that the customer can do with the
site. For instance, E-Commerce cates are connected to the online payment feature.

The following factors should be taken into consideration when setting up the website:

 Accessibility
 Visual Appeal
 Security
 Speed
 Integration (Website and Social Media)
 Functionality

ELEMENTS TO CONSIDER BEFORE LAUNCHING INTO E-COMMERCE

The elements to consider before launching into e-commerce are as follows:

(1) Network potential - e-commerce amplifies the entrepreneur’s potential to increase strategic
networking. An entrepreneur’s ability to exploit the interconnectivity and the opportunities it
creates to transform and strengthen relationships with suppliers, customers and other
stakeholders is crucial to the success of the venture. The entrepreneur must choose a medium
that is far reaching, attracting the intended persons and gaining the required information. The
enterprise must exploit the opportunities that are available from the interconnectivity of the
Web, in order to satisfy its customers, vendors and suppliers.

(2) Integration into overall strategy — e-commerce success requires an entrepreneur to develop a
plan for integrating the web into the overall strategy of the venture. Integration of web into
overall strategy provides the platform through which trade of goods or services can be done
more efficiently and effectively.
The business should ensure that there is provision in its plan for a website to be professionally
 designed. It must also see to the maintenance of the site. A poorly manage website will not add
any value to the business. Actually, it would help to lessen the business’ value. The plan
should also address other strategies would be employed using website, including brand name
creation and management, marketing, sales and customer service.

(3) Importance of Lasting relationships with customers — A business without clients is no

business at all. A business with too few clients is not really doing good business at all. A
steady flow of customers must be a part of the equation in order for the business to succeed.
The enterprise must place great value on its relationship with its customers and these
relationships, after they have been established, must be maintained.
It may cost of a lot of money to attract customers to your online business.
The business’ website must be managed in such a way that the changing needs of the customers
are satisfied. Providing the core benefits of the product is key but if customer service is poor
and the customer is unable to easily navigate their way throughout your stie, then the customer
will simply take his or her business somewhere else. Your online business must:
- provide a product that customers will gravitate to. It should be a high-potential product.
- Fulfil all that is advertised on the website. Do not engage in misleading advertising so as
to attract customers to your business. You will suffer in the long run when word gets
around that the products are not good.
- Make the online shopping experience a pleasant one for customers. This can be made
possible with professionally done websites and excellent platforms.
- Provide excellent customer service. Promptly answer queries, bring fast redress to
problems and in general be courteous. Ensure that the person or persons who manage the
website are professional and knowledgeable of the business and its products and services.
- Examine your competitors’ offerings and be deliberate in providing better products and
services at competitive prices.
- Provide short videos that help your customers to use your products well.
- Enjoys sales promotion tactics such as the offering of discounts and freebies.

(4) On-going Investment of resources — the entrepreneur must ensure that adequate plans are in
place to ensure the establishment of an effective website. This will mean that the business
would have to make on-going investments in the form of time, money, energy and talent.
The global community is dynamic. Executives around the world are investing millions as they
strategize to make their products the number one choice. They know that a service or product
can only remain competitive if the needs of consumers are being met. Businesses must invest
in resources what that will keep their websites relevant. The training of personnel who will
maintain the website, must take place. The appropriate capital equipment, services and
software must be sourced from reputable suppliers and on-going improvements should be made
for the effort to be a sustainable one.

(5) Data mining is the process of searching through large volume of data to identify meaningful
and useful data. It is a systematic way of extracting information from data.
 Some uses of Data Mining
- Product Search
Users of a website can put in key words in response to a search prompt. However, thousands of
a particular item may be made available for viewing. Such information is definitely too vast to
go through. Data mining allows for the information to be ‘narrowed’ through the use of ‘user
click-through rates’ that focus on popularity to access specific information. Click-through rate
speaks to the number of persons who were exposed to an advertisement who went ahead and
clicked on the hyperlink that took them to the website.

- Product Recommendation
Data mining enables the choices of users who had similar needs to be viewed. This saves the
user from spending long hours carrying out searches.

- Fraud Detection
Data mining picks up irregularities in the system. For instance, it might enable the detection of
a user who is trying to purchase goods with a stolen credit card.
- Business Intelligence
Data Mining allows the carrying out of analysis and computations so that business can generate
needed information from the vast data collection.

Disadvantages of Data Mining

Privacy is a sore issue. Customers’ provide data are collected which can be used by individuals in
an unethical way, leading to serious problems. Sometimes large businesses are targeted by hackers
who steal customers’ and employees’ data. There is also the risk of identity theft and credit card
theft.

ACCESSING THE ONLINE POTENTIAL OF THE VENTURE

The website helps you leverage web services for streamlining data transfer to and from your
organisation. There are myriad reasons for - How a website can be useful and why you should bring
your business online? Some of them are, briefly, mentioned below:
a. Appeal to Customers – the entrepreneur needs to understand the level of appeal his or her
product offering has. A thorough knowledge of the target market should help in this regard. The
business must be aware of the needs of the target market as they relate to all the components of the
marketing mix (product, place, price, and promotion) and carry out tests to see if these needs are being
fulfilled by its online business model.
A research can be done to find out how often people browse the web for the products of your
competitors. Consider how you can ‘cut into’ their share of the market. Conduct surveys to get
feedback from your customers and potential customers on your products.
In research times, social media has proven to be an excellent way of connecting customers and
businesses. A business must know which social media tool is being used most by its customers as this
can provide an opportunity for networking. It must be prepared to build and maintain relationships;
sharing valuable information that will create a good image of its brand. A high level of professionalism
and integrity must be demonstrated.
Below are some tips that you will find helpful.
- create a profile about yourself. Provide essential information on who you are and the type of
business you are engaged in.
- inform potential customers about how your business can take care of their needs.
- demonstrate expertise and knowledge using blogs, forums and groups to facilitate discussions
and maintain interaction with online audiences.
- maintain credibility throughout your interactions. This will help to build customer loyalty.
- people should be able to find you easily so always leave a link to your website./
- update your profile regularly and try to respond to customers promptly.

b. Target Market – one of the best decisions on entrepreneur can make is to clearly define his
or her target market. This begins with the highlighting of the benefits that may be derived as a result of
using the business’ products. The persons who would best benefit from them will then be identified. A
market research usually provides answers as to the way forward. Results from this research can prove
to be invaluable and help the business to gain the confidence that is needed to attract potential
customers.
The following activities may be carried out to increase the online audience of the business:
- determine who you are targeting and identify where they can be found.
- use social networking sites such as Facebook, Twitter and LinkedIn to connect to potential
customers. Ensure that your use the ones that are commonly used by them.
- use an online advertising network (ad network) such as Google AdWords.
- use blogs to write about matters of interest to customers. Use key words and topics that are
likely to stimulate discussions and propel them to comment on your blog.
- Encourage customers to provide testimonials on the use of the product. This will provide
evidence that your brand is exceptional.
- be creative and have a mindset to upgrade your product with the aim to satisfy the needs
of customers.

c. Distribution cost – the distribution cost will influence the final price of the product and will
have a direct impact on sales. Many online products attract shipping and handling costs. A shipping
and handling costs is the amount that is charged to purchase and transport a good to a particular
location. If the cost is too high, sales will be negatively affected. If the cost is too low, the profit
margin of the business will be reduced. The entrepreneur must ensure that the cost that is set based on
facts.
d. Costs and Benefits of the Online Venture – the benefits of the online business must
outweigh the costs in order for it to be feasible. The entrepreneur must do an assessment of both
variables. The cost of the online business will include the costs of purchasing a domain name, hosting,
designing and maintaining the website amongst others. There are costs that are incurred by ‘brick and
mortar’ businesses that will not be found in the online business. These include the costs of middlemen
and various utilities.
The entity is exposed to more competition on-line which can negatively affect sales. The business can
be inflexible for items such as clothes and shoes because customers are not allowed to fit items before
purchasing them. Also, shoppers need to be alert due to the presence of the lack of credibility of some
businesses and the inevitable frauds and hacking.
Let us look at some of the benefits:
 The business is never closed. The customers enjoy access for twenty-four hours every day.
 There are costs that are incurred in physical businesses that are absent from the online
businesses.
 Paperwork is reduced.
 The business can compete with larger businesses immediately after its launch. There is no
discrimination regarding the access of a big vs. small business. Size does not really matter
much.
 Less warehouse space is required.
 Communication between the firm and its customers is greatly enhanced.
 The business can be managed from anywhere in the world.
 The number of customers who prefer to engage in online shopping rather than visit a crowded
mall is growing rapidly. The is rapidly increases the profit potential of online businesses.
 Customers find it more convenient to shop on-line.
 There is a greater access to a wider variety of products.
 Products are cheaper because they are sold directly from the producer, eliminating the cost of
middlemen.
 It easier to compare prices on-line rather than tyring to do so at the physical locations. On-line,
the prices of products that are provided by suppliers throughout the world can be compared.
 There is a reduction in ‘compulsive shopping’. Some consumers are attracted to the online
business as a result of this.

How To Gain Your Website

 You can hire professional web designer to design and build your website. This may be an
expensive option but you will see its worth when many customers are attracted to it and you
receive positive feedback regarding how it has met their needs.
 You can code your own website. However, you will still need to purchase the required software
and spend time learning how to use it.
 You may access a free website builder. This is an easy and quick way. It will be coded and so
you only have to add the content and the graphics. However, you will have to pay hosting
costs.

THE BENEFITS OF A WEBSITE IN SELLING THROUGH THE INTERNET

(i) Capacity to enhance customer service
The level of customer service that is offered to customers can stimulate the growth of a business’
clientele. There must be the careful planning and implementation of a professionally designed
website with just the right graphics to captivate the interest of customers.
Entrepreneurs often make the mistake of focusing on the product and the information that they want
 to convey to customers and prospective customers. There must be a two-way communication.
Customers must be allowed to provide the feedback on the experiences that they have as a result of
using the products and services of the business. By simply designing the website in such a way that
allows them to leave comments and providing them with a prompt response to each, is engaging
and leaves the customers feeling special. Complaints must be addressed immediately. This means
that the business must constantly monitor the website.
Some online stores provide or link to supplemental product, such as instructions, safety procedures,
demonstrations, or manufacturer specifications. Some provide background information, advice, or
how-to guides designed to help consumers decide which product to buy. Some stores even allow
customers to comment or rate their items. There are also dedicated review sites that host user
reviews for different products. Reviews and even some blogs give customers the option of shopping
for cheaper purchases from all over the world without having to depend on local retailers. In a
conventional retail store, clerks are generally available to answer questions.
Some online stores have real-time chat features, but most rely on e-mails or phone calls to handle
customer questions. Even if an online store is open 24 hours a day, seven days a week, the customer
service team may only be available during regular business hours.
A simple online survey can be conducted that requires yes or no answers that will reveal the level
of customer satisfaction and inform the strategies of the business. Blogs and chat rooms can be
utilized. Email also encourages quick dialogue between the customer and the business. Emails can
be retrieved via smart phones. The business may use social media networks such as Facebook,
Twitter, YouTube, and Instagram to connect with customers. It must keep customers abreast of
new information that will positively influence their buying decisions. There are online tools that
can help the business to keep track of your customers and their comments. The business should
make use of them.

(ii) Interactive communication

Websites have the ability to keep customers engaged every minute of the day. In the physical business,
this is not so. There are opening and closing hours that must be adhered to and opportunities for
interacting with store personnel are limited.
Again, the entrepreneur must recognize the ability of the website to be used to engage in two-way
communication. This feature must be utilized to its fullest. Some features that can be included in the
website design are:
- Blog icons that allow users to share their opinions
- ‘Ask us’ icons that allow the user to ask questions
- Report problems icons
- Chat rooms
- Bulletin boards
- Rapid response sales links to customers that allow customers to order and track their
products through each stage of the manufacturing and distribution process
- Online lectures
- Digital customization of product specification
- Command buttons such as ‘add to cart’ and ‘view more’ enable easy navigation and
save time.
 (iii) Lower cost of doing business; ability to grow faster
E-Commerce has to overcome geographical limitations. If you have a physical store, you are
limited by the geographical area that you can service. With an e-commerce website, the whole
world is your playground. Additionally, the advent of
m-commerce, i.e., e-commerce on mobile devices, has dissolved every remaining limitation of
geography.
The internet has allowed many businesses to realize their dreams. They are able to do more with
less. The use of the website reduces and, in some cases, eliminates some common overhead costs
such as indirect labour cost, rent, order processing costs, documentation cost, mail preparation cost,
telephone charges, data entry costs, overtime pay and supervisory expenses. The traditional means
of advertising using the television, radio, magazines and billboards that have proven to be
increasingly expensive when compared with the cost of using the internet for such purpose, have
now taken a ‘back seat.’
The internet has the capacity to reach the global community at an extremely fast rate and at a very
low cost. Originally, computers were attached to a modem and used a narrowband connection
which transferred data slowly. Now there is broadband, and millions of transactions can take place
daily over the internet. There is also a permanent connection with prevents the holding up of the
phone. Users, through their ISP had a dial up service which engaged the phone line with person
were on the internet.
Websites make businesses visible and easily accessible. The opportunities for increased market
share and larger profits are limitless. Not only will the savings boost profit but the profit can be
used to further expand the business. The entrepreneur may also choose to invest in other business
ventures.

(iv) Track sales results

Websites are now equipped to enable the entrepreneur to track sales of the business. The customer
relationship management system (CRM) is one platform that will make this happen. There are also
analytic solutions that will enable the entrepreneur to know the number of repeat customers.
Many people make the mistake of only tracking small pieces of information. Or tracking everything but
only looking at a small part of the data. Data is your friend, and you need to understand what the
different metrics available to you are actually measures of if you want to have any clue what effect
your work is actually having. Most important, of course, when looking at the conversion rate, is the
volume of sales. Some people only look at that number. But other numbers can tell you about how
useful your site is throughout the shopping process. The percentage of repeat visitors tells you
something, about whether you are engaging visitors early in the purchasing process and bringing them
back for the sale. A high bounce rate indicates pages that are failing to deliver on their promises. Add
to cart rates, cart abandonment rates, login vs. registration vs. abandonment rates, product removal
(from cart) rates - all of these will identify areas of your checkout and purchase process that are
underperforming or improving.

(v) Ability to spot new business opportunities.

Websites can help the entrepreneur to identify new business opportunities. Current customers and
other users usually give leads as to their changing needs and also what is trending. The business should
deliberately engage users in meaningful constant communication that will allow it to detect changes in
the market. The websites of key competitors should also be monitored. Any loophole found may just
be ‘a wind of opportunity’ for the business.

MYTHS ABOUT E-COMMERCE

We live in a digital world, where the internet, smart devices, and digital tools are widely used. The
market, like always, is evolving and rapidly adapting to the newest trends. A lot of entrepreneurs prefer
starting an online business rather than an offline one. There is even a new big niche floating around:
“how to make money online.” It is one of the most popular niches nowadays, along with the weight
loss niches. Because there are so many “gurus” that are teaching how one can have online business
success, there are lots of myths that new entrepreneurs take as facts and truths.
Online business success is harder than you could probably imagine. Besides the huge effort, one has to
make in order to succeed; there are also a thousand variables and setbacks around the way. Good
choices and a lot of commitment until the end of the project are essential! As new online entrepreneurs
do not know what to expect, we have gathered a list of ten myth-breakers explanations.

MYTH 1: SETTING UP THE SITE IS EASY AND INEXPENSIVE – Once the entrepreneur
understands the technology or engages a person who understands the technology, setting up an
e-commerce site can be easy. However, consideration must be given to local telecommunications
infrastructure. The cost to setting up the site varies based on the complexity of the site.

MYTH 2: CUSTOMERS WILL FLOCK TO MY SITE - Most entrepreneurs believe that, once they set
up an e-commerce site, customers will come to the site in abundance. This is not true as customers still
need to be made aware of the website through some means of marketing.

MYTH 3: MAKING MONEY IS EASY – Until customers are made aware of the website and start
using it, sales are not going to take place. Therefore, making money through the website is still very
independent on how the website is marketed and how easy it is to navigate and make purchases. It
does not matter how much money you spend on advertising and marketing. If your website does not
serve the customer, you lose.

MYTH 4: PRIVACY IS NOT AN IMPORTANT ISSUE – One of the biggest challenges with websites
now is privacy. Privacy issues highlighted in most policies deal with storing information, repurposing,
provision to third parties, and displaying of information pertaining to oneself via Internet.

MYTH 5: TECHNOLOGY IS THE MOST IMPORTANT ELEMENT – Technology is believed to be

the most important element in e-commerce as it allows businesses to be more efficient. Technology
also makes life easier for everyone. However, the human aspect is overlooked with online transactions.
The leadership of the entrepreneur and the perception of trust and integrity of the business are quite
important to the potential customer.
MYTH 6: CUSTOMER SERVICE IS NOT AS IMPORTANT AS IN A TRADITIONAL RETAIL
STORE – With the emergence of new online customer service channels, the desire for high
expectations being met and ever-changing needs to consumers have made it especially challenging for
businesses to provide a consistent and exceptional online customer service experience. This service
must match or exceed the traditional retail store service.

MYTH 7: DO NOT NEED A STRATEGY ONLY A WEBSITE – Most entrepreneurs who develop
sites that are not in-keeping with the overall business strategy find themselves missing out on the
opportunity. Since the site is not a standalone package, it has to be incorporated into the overall vision
of the business.

MYTH 8: YOU CAN START YOUR BUSINESS WITH A FEW DOLLARS - Have you ever read
about the “free methods” of starting a business? If you check out Google results, you will find dozens
of articles pretending to teach you the right ways of starting a business for free. Let me tell you from
the start: there is no such thing as a free online business start-up. There are indeed a lot of online
websites building services, free domains, or maybe even free hosting. The last thing you want to do is
to set the foundation of your future business with low-quality resources. Usually, free resources are just
a small part of what it is required in order to succeed. The best advice would be to save up some dollars
and establish a budget for your business. Depending on what you want to start, you can find good
solutions and go for cheaper (but paid) options.

MYTH 9: SOCIAL MEDIA PROMOTION IS CHEAP AND EASY

You may have heard people saying that social media is a great way to promote your business. That, in
fact, is a true statement. What crosses the boundaries of truth is the fact that getting targeted traffic
through social media is extremely cheap and easy. Nope, it is not easy. In fact, in order to organise a
successful social media campaign, you have to go through a lot of testing and optimizing. You will lose
money, and it won’t be easy. When you start your online business journey, you got to have the right
expectations.

MYTH 10: ONLINE BUSINESS SUCCESS IS EASIER THAN THE OFFLINE ONE
You can often start an online business with less financial resources than it would otherwise be required
for starting an offline one. Everything happens on the web, and you will only have to deal with online
tools and communication. When I first got into internet marketing (or the online business activity),
everyone promised me an overnight success. E-books, webinars, articles, and so many other resources
claim that they hold the formula to quick success. I soon found out that that’s a big lie meant to make
me spend more money on training material.

STRATEGIES FOR E-COMMERCE SUCCESS:

(1) Engage in data mining – with the regional development of computer technology which allows
access to a wide range of information, the need for sorting complex data with the aim of
identifying the most relevant information is critical to the success of an
E-Commerce site. Information held in a database is mine; specific elements are summarized
 and analysed, and new information is derived.
Data mining enables the entrepreneurs to access information about industry trends and
consumer behaviour as it relates to their businesses. This allows them to improve their products
and services, increase the level of customer loyalty and improve profitability.
Some specific uses are:
(a) enables the analysis of the types and frequency of purchases
(b) the marketer is able to see what persons are buying, how many or much and how often.
(c) allows the entrepreneur to create ‘winning’ products and services as the demographics and
psychographics of current and past customers are analysed.
(d) enables the marketer to see which times of the month or year are best for each type of sales
promotion activity.
(e ) helps the business to properly manage inventory.
(f) informs the entrepreneur on price setting
(g) allows for better customer segmentation. This allows the marketer to improve his or her
marketing strategies as so to attract the target market.
(h) enables anomaly detection.

(2) Focus on market needs - it is important to focus on the needs of the market only.
These needs should be properly identified and addressed because of the competition in this
method of doing business. Consumers make quick decisions on the net because of the time and
energy spent in decision making has a cost to the consumer.

(3) Develop a community- an online community must be developed with those some goals in
mind. If the entrepreneur can use content marketing to attract and maintain customers on the
website, then he or she will ahead of the game. Customers who share similar interests will
connect and share. They are drawn by the social element of the marketing plan. This creates
brand loyalty, which is key that allows the entrepreneur to unlock the door to prosperity. Chat
rooms, blogs, customer polls, product ratings and reviews, guest books and message boards are
all tools that can enable the kind of traffic that leads to community building.
The ability to develop and maintain a strong customer base is the success factor in any
commercial venture. In Ecommerce, this can be done at a very minimal by making use of the
numerous social networking facilities available on the internet.

(4) Develop an online marketing plan – a marketing plan is just as essential for the ‘brick and
mortar’ store, as it is for the online store. A marketing plan will begin with realistic goals and
objectives and if the plan is properly done, those components will give the business direction;
allowing it to measure its achievement rate as it progresses. An effective marketing plan will
also allow the marketer to adequately define its target market so that a unique set of strategies
can be developed to attract and retain it. Social media is a good online tool to make great use
of. Remember, on-line, you are competing with far more competitors and you must find a way
to stand out amongst the lot.
(5) Attract customers by giving freebies – giving freebies is undoubtedly one way to attract
customers to an e-commerce site. Giving freebies is an act of goodwill that makes customers
and prospective customers happy. Freebies may take the form of the free samples of a product
or an online or e-mail newsletter with a link to the enterprise’s website. Visitors are drawn to
the site by the ‘free’ goods and then end up buying more of that good or other goods. This act
not only tangibly allows for the sharing of first-hand knowledge about the business’ offerings
on the website, but it is very effective in getting the attention of a large group of prospective
customers. This will result in increased sales and a boost in revenue.
Complimentary tokens, useful advice on product use and availability that can help to cut cost
for the customer can be very helpful.

(6) Make creative use of e-mail – electronic mail is one of the most used online tools, by both the
young and old. So why not make use of it for e-commerce? It is a cheap means of advertising
that attracts traffic to your website. Persons are directed to the business’ website through direct
links in the e-mails. E-mails utilize creativity through the use of colourful photos and graphics.
They allow for information to be conveyed in a more interesting manner. The entrepreneur
must assure prospective customers that their e-mail addresses will not be given out for illicit
use. The business should also get permission from the prospective customers to connect
through this medium. This will help to prevent messages from ending up in spam.

(7) Ensure Credibility – there are too many online sites that lack credibility. The internet has
become an invaluable tool for scammers, human traffickers and quite a number of other evil
doers. Households are becoming more aware of this and many are shunning the user of the
internet for any activity that requires personal information. Legitimate online businesses have a
great task of assuring prospective customers of their genuineness.
As business work towards creating a bond with customers by maintaining a strong social media
presence and by regularly updating websites, they increasingly gain the trust of customers.
There is now a growing market for technology that had been said to guarantee users’ security of
personal data including passwords and credit card details. Many customers assess the measures
that are taken by an enterprise to mitigate the risks associated with identity and credit card
information thefts to decide if it is safe to conduct business. The business must take all the
necessary steps to assure customers of its credibility, if it wishes to ‘stay in the game.’
Other Ways of Building Trust
- use brand names that prospective customers know or can come to know and trust.
- join online privacy seal programs
- include pictures of the physical store, if any. Also provide information about the directors,
the business’ history etc. on the website, in an attempt to be transparent.

Some Features of Illegitimate Online Businesses

- incorrect spelling
- typographical errors
- absence of sources of information
- poor presentation
 - free websites
- lack of fairness and objectivity in information provided
- incredible information
- dead links on the site

(8) Strategic alliances in E-commerce – do not afraid to form alliances with other businesses. This
connection may allow the entrepreneur to benefit from the website traffic of others. If a
business that sells ladies’ handbags provides website links to a business that sells women’s
clothing, on its website, and the women’s clothing store does the same, they would benefit from
each other’s traffic, as the goods are complementary. Being knowledgeable of one’s industry
and the related of linkage industries is advantageous.
Also, the entity should become a part of trade associations that are related to its industry, this
will allow for much networking.
It is beneficial for sellers to network and exchange volatile information about pricing and
product type and quality among each other; this can be very cost effective.

(9) Promote site on and offline – an e-commerce business is only as effective as the desire or need
that is created for the product or service that is being offered. To ensure that product
information is communicated to the public, the entrepreneur must raise awareness both on-line
and off-line. Online promotion of a site may include the sue of video tutorials or product
demos, blogging or give-ways on social media sites. Although digital advertising appeals to
millions globally, the disadvantage is that it does not communicate the reality of the product to
prospective users, as well as offline promotional methods such as samples do. Tangible
representations of the product can be kept or consumed leaving a lasting memory. Putting the
company’s URL and name and contact information on all business items such as bags,
brochures vans etc. will make the business more visible and traffic will be drawn to the website.
Both methods are needed for a more effective and balanced marketing.
For customer satisfaction, it is important to ensure customer has online and offline access. In the
absence of this, customers could quickly switch to computer sites and this could have devastating
effects on sales and customer base.