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Small Business Guide

AUGUST 4, 2000

TECHNOLOGY

Before You Take the B2B Plunge
Tips on how to size up the value of a small-business exchange


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When it comes to business-to-business Internet exchanges, size matters. These B2B exchanges, where wholesalers and retailers find each other online, are praised in Big Business circles for their ability to expand sales territories while cutting costs for all parties involved. However, the exchanges in question invariably involve monstrously large multinational corporations. Seldom has any consideration been given to the needs of small suppliers and buyers.

That's changing. Scores of small-business exchanges have begun cropping up in recent months to address narrowly focused markets. You can now find sites for fishmongers, bakers, and lumberyards. You name it, and there's likely a small B2B site operating or in the works.

So if you're a small buyer or supplier, should you participate in these exchanges? Thousands of entrepreneurs already are. But here are some factors to consider.

First, look at how much of an investment, if any, is needed. Most small-business exchanges offer free memberships for basic services but charge for extras. Costs for online storage space, technical consulting, and other services can make a difference to very small businesses. Some sites, such as C-Store Matrix, plan to charge buyers for using the exchange. This exchange foresees a charging convenience-store owners $50 a month (following a free promotional period).

Also, consider the technology needed. If you're a store owner, you'll likely want your business automated with scanners and inventory-management software before joining an exchange. Otherwise, the exchange's usefulness may be limited. Sellers wanting to put their catalogs online need to know how much it will cost to do so and whether the exchange is willing to provide any financial or technical assistance.

Second, look at the return you can expect on your investment: Most small-business exchanges don't offer much savings on products. Savings ostensibly come from automation -- say, the ability to submit bids online, rather than faxing, phoning, and filing. Buyers and sellers will each save some bucks -- advocates say up to 10%. But the true benefit likely will be increased sales because more buyers and sellers can be reached quickly.

Third, consider how the business relationships you have in place may be affected. If small-business exchanges become big enough, they'll force small-businesses to take a hard look at their distribution models. While some middlemen can be included in B2B exchanges, those that are not automated or not competitive will be cut out. Consider which ones you can afford to lose.

The bottom line? Small-business exchanges have potential. But for now, B2B exchanges can do little to make your small business a large one. After all, they're going through growing pains themselves.


By Kevin Ferguson

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