Smoke and Mirrors

>> Separating hype from reality is key to picking an e-business vendor.

David Scholtz recalls hearing about a start-up that had secured its first round of funding and selected an e-business vendor. The vendor proposed the right technologies, but it lacked experience in working with them and lost precious time in trial and error. As a result, the start-up's product was three months late. That bump delayed the second round of funding and shook investor confidence. Money began to dry up, and the start-up company eventually folded.

"The vendor partner was learning along the way and making mistakes, and the company paid the price for it," says Scholtz, CEO and founder of Corp. in San Francisco. Scholtz has fared better with his e-business vendors than the ill-fated start-up, but he knows the dangers. When you deal with an e-business vendor, he warns, "you're putting your business in their hands."

New e-business vendors are popping up faster than mushrooms after a rain (the e-commerce segment of our Emerging Companies list contains 18 of the hottest up-and-coming companies), and each promises to turn your company into an e-business player overnight. But while some can improve the health of your company, others are poison. How can you tell the portobellos from the toadstools in this strange new world?

The Right Perspective

First of all, you need the right perspective, says Tom Bugnitz, managing director of The e-Business Forum and president of consulting firm The Beta Group, both in St. Louis. "People say, 'How do I make my business an e-business?' not, 'What is it that I'm going to be doing for my customers in a couple years, and how will e-business enable that?' " he says.

In addition to customer issues, you need to consider how much change and uncertainty your company can handle. You need to know whether you're going to be a benchmarker or an innovator. A benchmarker asks, "Who's good in my sector, and how can I copy them?" explains John Jordan, director for e-commerce research at Cap Gemini Ernst & Young in Cambridge, Mass. He favors the innovator mentality, which breaks from the pack. But that's a hard road, he says, "because you have to go someplace no one has been before."

Don't make the mistake of thinking of e-business as an easy way out of problems with your supply chain or other corporate processes, says Jeff Hemmer, vice president of customer supply chain at Lyondell Chemical Co. in Houston. Lyondell is completing an e-business project with Houston-based, one of Computerworld's Emerging Companies winners, to improve connectivity and integration with remote inventory locations. "Often, people look for vendors to fix their problems, but they won't," he says. "If you have a fundamental problem, you fix it first."

Having an e-business strategy is a long way from just putting up a Web site, says Philip Anderson, director of the Glassmeyer/ McNamee Center for Digital Strategies at the Tuck School of Business at Dartmouth College in Hanover, N.H. "If you end up just webifying the current way you do business, you're better off doing nothing," he says. Instead, he explains, think about what you're really trying to accomplish.

Melanie Mason, vice president of marketing at CenterBeam Inc., a technology service provider in Santa Clara, Calif., considered how her company viewed its business in relation to the Internet, how its customers and prospects were using the Internet and what its Web site should do for customers. Then she took the conversation to key stakeholders throughout the company and built an e-business strategy with a short-term goal of creating a number of internally and externally focused Web sites and a long-term goal of using them to establish and nurture customer communities.

Keep It Simple

Your strategy can be simple, says Anderson. But before you even begin to discuss your plans with vendors, you must know how your company will alter the dimensions of your industry in your favor in the next one to three years. You may, for example, plan to deliver a level of convenience the industry has never seen. You may plan to make it easier to do business than anyone else in the industry or take huge amounts of risk out of doing business in your space. Whatever your strategy, he says, "if you don't have one, you're not ready to sit down with anybody."

View vendor selection as a business issue, not a technology issue, Bugnitz says. "You're not choosing a technology vendor," he says. "You're choosing somebody who's going to be implementing a very significant part of your business strategy."

To prepare for that, find a systems integrator that can give you a crash course on the nuts and bolts of e-business, says Anderson. Then use the integrator as an adviser during your vendor selection. "You need a personal shopper who can walk you through the landscape, through the alternatives, who knows who's credible as a company," Bugnitz says. "You want to be able to say, 'This sounds neat. Who else can do that?' "

Scholtz, who is working with e-business site developer Groundswell Inc. in San Francisco, also an Emerging Companies winner, adds that someone on your company's team should "absolutely" have experience on the vendor side of the business. "I came from that side, so I knew the questions to ask and the things to look for," he says.

Ask Questions

Ask prospective vendors the traditional questions - look at their financials and interview past customers. Look for proof that the vendor can support the specific technology it's proposing and the scale of the project. Ask for commitments of specific people to work on the job, examine their resumes and interview the key people, looking for both knowledge and a cultural fit.

Beyond that, Hemmer says, look at how fast the vendor itself is retooling for new opportunities. "That shows their adaptability and flexibility," he says.

Determine how well the corporate cultures, strategies, work habits and relationships align. "It's not about technology; it's about business," Hemmer says. "This sounds touchy-feely, but these things are so hard to do. If you don't have [compatibility] up front, you'll have a lot of problems."

Mason says some vendors have hidden agendas that can take on a life of their own as a project moves ahead. She suggests that you look at previous work done by the vendor to see how the initial strategy compares with the product that was delivered. To the extent that the two differ, the vendor may have been steering the project without the customer's knowledge of it.

Rick Ehrensaft, director of marketing at distribution services firm Pentacon Inc. in Houston, was planning a complex, Web-based, just-in-time product delivery system. He asked vendor candidates if they were prepared not just to build the project but also to implement it, handling pieces such as establishing supplier and customer connections. "We didn't want to be experts in this," says Ehrensaft.

Bugnitz takes managing a project a step further. "What's their commitment to helping me adjust after we get things up and running?" he says. "What are they going to do to hold my hand beyond the time we've implemented? Can they really help me take that next step?"

In fact, Anderson says, the best e-business vendors are willing to be outsourcing partners. "They will run it," he says. "The vendors who can provide outsourced solutions are going to be the big winners among all these firms."

Don't say, "Brief us on what your software does," Anderson says. Instead, tell the vendor what you're attempting to do and then ask what's the best way to accomplish it. Only then should you ask how the vendor's software fits into the picture.

"You can assume they all overpromise and underdeliver," says David Bergen, CIO at in San Francisco, who used a transitional e-business vendor to get his business-to-business auto industry exchange on its feet while building his own Web development team.

To discern between hype and reality, Hemmer says he talks to as many people at as many levels of the vendor firm as he can. "I see if I'm getting the same answers from everybody," he says.

Hemmer says he sees a red flag if a vendor is slow to produce customers to talk to, and he balks at a proposal based on a solution that isn't quite finished.

"Look carefully at that demo, and figure out if it's smoke and mirrors or [if] it's really there," he advises.

Scholtz says to take note if you don't meet key project staff during the sales pitch. "If the vendor professes to have the ideal project lead to match your project, then I would like to have that person involved in the early discussions," he says.

Anderson says you need an honest sense of where your company fits in the vendor's big picture and whether it can guarantee who will be working with you. "It's a mistake to think you're working with Firm X," he says. "You're working with People A, B and C."

Leaping the Pits

Customers agree that e-business projects come with some unique pitfalls. One of the biggest is dueling agendas. "These [vendors] are not hurting for business, and they take you on because of what you offer them," says Mason.

She found that her vendor was much more intrigued by her long-term goal than her less sexy short-term priorities. "We had a short-term need to get our Web site up and running, but they really wanted to do what was cool to them," she recalls. "There were hiccups in the beginning around this."

"The key is to understand what you really want to do and not get sucked into what they want to do," says Lyondell's Hemmer. "You have to lead them; don't let them lead you."

Because so many e-commerce vendors are new businesses, you have to be convinced that your vendor will survive, says Hemmer. Even so, with the world changing at Internet speed, you don't want to get into a long-term contract. "If they don't evolve fast enough, they could be obsolete next year," he explains.

Keep your options open by making the initial term very short, he advises. Then renegotiate. "Even if I have to pay more up front, I'll sacrifice that for flexibility," Hemmer says.

Problems arise when the customer abdicates responsibility because it's easier to let the vendor decide, Bugnitz says. Then, when the project is finished, it doesn't look the way the user thought it would.

Similarly, some customers allow a vendor to use technology that doesn't align well with existing technology. "It can happen if you think of e-commerce as an isolated, separate piece," Bugnitz says.

In both cases, the mistake is in failing to realize that e-business is an integral part of the entire business.

Words to the Wise

Although working with and emerging e-commerce vendor brings a new set of challenges, there are areas where you can leverage the relationship. "For many younger companies, one big account legitimates them," says Anderson. If your company is large enough to play the role of that key reference customer, "they will move heaven and earth to please you," he explains.

But if you're a midsize company, he adds, all bets are off. "If there's a crunch on a project for Boeing, you're not going to be in the front seat of the movie theater," Anderson says.

With that in mind, he agrees that modular projects with short deadlines are the way to go. "If you take on a big project of eight to 10 months' duration, you're asking to be screwed," he says.

This strategy dovetails with what Mason says is the most important lesson she has learned about e-business.

"No one firm can do it all," she says. "Some are good at one thing and some at another. You don't want to force-fit them. Be smart about it, and use the companies for what they're best at."

Ten Questions to Answer Before Signing an E-Commerce Vendor

1. Is your company a benchmarker or an innovator at heart?

2. What are your customers' needs and how will electronic business address them?

3. What is your e-commerce strategy?

4. Are people throughout the company ready to change the way they work to make your Web-based business a reality?

5. Will the e-commerce venture be one large project or will you start small and build incrementally?

6. Will you look for one vendor or several best-of-breed partners?

7. Are you expecting an e-commerce vendor to fix problems with your business processes?

8. By what criteria will you judge vendor candidates?

9. Do you have a good enough feel for the nuts and bolts of online business to hold your own among vendors and not get lost in the complexity?

10. Does your team include someone with a vendor background?

Copyright © 2000 IDG Communications, Inc.

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