Buy Buy Buy?

 

On June 3, 2003, PeopleSoft announced that it will buy J.D. Edwards. Three days later, Oracle put out a hostile bid to buy PeopleSoft. Since then, the tech world is abuzz with news, analysis and commentary about the two acquisition bids.

Forget about the ensuing debate. These events highlight the fact that hi-tech deal making and industry consolidation are coming back, which raises another interesting question: Are there opportunities in the Internet arena for small businesses and individual entrepreneurs?

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All That Could Be Invented Has Already Been Invented
It is an oft-repeated quote attributed to a 19th Century officer of the U.S. Patent Office, who went on to suggest that the patent office should be shut down. One report says that until then, about 500 patents were issued. By the end of WWI, more than 60,000 patents were issued and now the number would be easily in the millions. Talk about being wrong and shortsighted.

Today there are many people who are saying similar things about e-commerce and e-business. They may not be saying exactly the same thing, but they are definitely raising doubts about whether there are enough entrepreneurial opportunities within the Internet world.

The later half of 1990 saw "irrational exuberance." Just by attaching the e-commerce label to any business initiative, one was sure to win the approval of the stakeholders--whether they were upper management or the investors.

The post-Internet bubble climate has swung to the other side. It is witnessing "irrational ennui," in which the label e-business will quite likely kill a new business initiative. Recently, many corporate e-business teams with separate budgets have evaporated, and the anti-hype is so strong that if you come up with any business idea dealing with e-business/e-commerce, someone may ask you, "What cave were you living in these past few years?"

But both the irrational exuberance and the irrational ennui attitudes do not do justice to the business environment and opportunities. The current state of Internet entrepreneurship is such that it supports neither the doubts nor the anti-hype. So let's evaluate the current state and see it is from the perspective of prospects for entrepreneurial initiatives.

Scope Set
Off course the Internet is vast, so for this report we would need to define some scope.

The first is the distinction between big and small businesses. Entrepreneurship within these two is quite different. The disparity between the amount and types of resources available to the two is so great that talking about them as equal would not make any sense. So this report would talk about the small businesses or individual entrepreneurs that are usually "capital or finance challenged."

Second, for the sake of clarity and brevity, we would cover the opportunities under two dimensions--technology and applications.

Slowing Down of Growth Engine
The first dimension is the core or basic technologies. These are the engines that have been driving the growth of the Internet in different directions.

Typically, the development of such core technologies is driven by either a corporate commitment--like Sun's commitment toward Java--or by VC funding to an idea that was initially funded by angel investors.

Before the dot-com bust, the VC funding was easier to secure, hence there were many angel investors who were willing to put up the seed money for core technology ventures. There were 8,208 VC-backed deals in the year 2000, totaling more than $106 billion. By 2002, this number dropped to 3,028 deals and close to $21 billion.

This has affected the motivation level of angel investors who are so critical to the seed-financing stage of any core-technology venture. This is a negative development for the small businesses and individual entrepreneurs.

Three Feet From Gold
But it is not as bad as it looks. There are definitely certain ventures that depend upon a large amount on initial investment to get off the ground. But there are many other opportunities that do not require a large initial investment to get started.

Napoleon Hill, the author of age-old bestseller Think and Grow Rich once told a story about a man who found a goldmine in the West. He bought equipment and started mining. In the beginning, gold was easy to mine, but then the gold-vein stopped. In frustration, the guy sold the tools along with the mine to a junk dealer for almost nothing. Instead of abandoning the mine, the junk dealer decided to call an expert. The expert analyzed the land and pointed to an area that was a few feet off course. The new owner started to mine and found gold again three feet away from the spot where the original owner stopped mining. The mine became a big success.

That story could be applied to a number of Internet ideas that have been abandoned. These are like the mines that have been primed up and would yield gold within three feet. The question for you is to find these abandoned ventures.

Many businesses and investors are trying to recoup their investment in these failed ventures by selling the intellectual properties (IP) and other assets. Bankruptcies and auctions are good places where such IPs could be obtained very economically, in some cases less than $50 thousand for a technology that consumed few millions.

Recently, Divine Inc. of Chicago filed for bankruptcy. During the last two years, it had purchased a number of Internet businesses. These were sold off in an auction for a very small amount. In one case, the founder of a unit of Divine was able to buy back his original company for around $80,000, whereas Divine had paid millions for it just 18 months ago.

Another example is of a software company in North Carolina that spent a couple million dollars to develop data quality management software. Now the company is in bankruptcy court and its IP could be bought for less than $50,000.

A Niche Would Protect You from the Big Guys
The second dimension is application, which covers consumer, retail and business applications, or B2C/B2B applications. Since 2000, these segments have changed drastically. Many original B2C/B2B dot-com startups have either folded up or merged with bigger companies. Established big players are becoming bigger through consolidation as highlighted by the initial story of Oracle, PeopleSoft and J.D. Edwards.

So, intuitively one would say that opportunities in the applications arena are also not good for individual entrepreneurs.

However, on closer scrutiny, it does not look so. There are still a number of ways through which smaller players can not only create opportunities but could also beat the big guys.

There are two ways to succeed in the current e-commerce environment. You can use economies of scale like Amazon (and exploit your strengths to the hilt), or you can find a niche that will protect you from the big guys.

For smaller companies, using economies of scale is improbable, but they can surely find a niche and flourish.

A Michigan entrepreneur found such a niche creating a profitable business with a few million dollars in revenue. His company, ShopInPrivate.com, sells stuff that people are too embarrassed to purchase in a store--things like feminine health products, birth control items, hair removal items, etc. His company offers more than 1,500 such products and it claims that the products it offers are respectful and are not rude or crude.

Help Businesses Cut Costs
A recent survey by Accenture reported an appealing trend. It stated that the primary focus of 26 percent of businesses is to cut cost and the primary focus of 40 percent of businesses is to achieve an even balance between revenue growth and cost cutting. This means that the primary focus of 66 percent of businesses is to cut cost.

Whenever businesses want to cut costs, it opens up the gates of opportunity for resourceful entrepreneurs who can employ technology to develop applications to address these issues.

A similar circumstance happened in early '70s. Just like today, the need at that time was to cut costs and become competitive. Sandra Kurtzig saw the inefficiencies in the existing manufacturing and inventory systems and capitalized on the opportunities that it presented. She founded ASK Computer with $2,000 in 1972 and became the first millionaire of the SW industry, even before people came to know about Bill Gates and Steve Jobs.

Today's opportunities are in different areas like customer care and support, auto ID and Web services. One company, NetCustomer, combined technology, business development and offshore operations and built a profitable eCRM business. Started with the founder's savings, it has not only survived the dot-com bust but is also able to attract big companies as customers.

The current times are interesting for all business sectors. Internet and related technologies are no exception. However, entrepreneurship has always thrived in such circumstances. The challenges are still there. Businesses and consumer still face issues and problems. This means that the opportunity to excel and establish good business still exists.

Strategic and results-oriented, Sunil is an entrepreneurial consultant who founded a B2B ASP for the Building and Construction Industry. He is the CEO of Cerebral Works Inc., a strategic management and technology solutions firm. He publishes a business and marketing planning  e-newsletter. An avid mountain climber and runner, Sunil has climbed Mt. Kilimanjaro and various peaks in the Himalayas and finished the Detroit Marathon. He holds an MBA degree from the University of Michigan, Ann Arbor, and a BS in Electronics and an MS in Mathematics from the BITS, Pilani, India. He can be reached at (703) 395-9812 and at [email protected].