It's About Profit

July 27, 2004

A revenue dollar must run a formidable operating gauntlet before it can morph into a net profit dollar on the bottom line of a business's profit and loss statement. Even so, instead of focusing on operating efficiencies that can grease that gauntlet, the profit strategy-of-choice for many small business managers is to drive top-line sales. The reason is simple: Selling is fun. Operating-not so much.

But try as we might in this soft economy, it's been more than three years since most businesses have enjoyed any kind of consistent sales volume growth. And if you conducted a "man on the street" survey, you might have to talk to a few folks before you found anyone who could remember what a strong economy even looks like.

Compounding the flat-sales saga is one of the most dramatic challenges to face businesses of all sizes in the past ten years -- a lack of pricing power -- which is the inability of businesses to raise prices proportionally with increases in expenses. This phenomenon has been in evidence for some time, but its negative impact on the profitability of businesses large and small has only popped up on the radar for about the last three years.

So, with flat sales volume combining with struggling price levels to deliver a one-two punch to the solar plexus of our profit-and-loss statements, what's a small business manager got to do to squeeze out a profit? There is only one answer: Cut costs.

But in the world of small business, most owners will tell you their teams already have more hats to wear than heads to put them on, so don't talk to them about lay-offs. Plus their systems and infrastructure are already deployed to the max. If anything, they need more capability, not less.

Consequently, the only thing left for small business is to lower the cost of purchases, like raw materials, general consumables, and capital equipment, like computers, fixtures, and machines.

But haven't small business owners already been doing a good job of getting the best prices on these items? Well, maybe. Maybe not.

It hasn't always been easy for small businesses to find just the right item at a price that fits a lean-and-mean budget. With traditional vendor options, too often a cost-cutting small business either had to bust their budget, take a sub-par alternative, or do without.

Until very recently, purchasing options that allowed a business to get what they wanted at the price they wanted to pay had been largely the realm of big business because of their geographical reach and purchasing volume. With few exceptions, small volume meant small leverage in terms of both access to products and pricing discounts.

A Challenge Answered
So, what if a marketplace existed that helped small businesses cut costs and improve profits? And what if it allowed buyers and sellers of capital equipment, bulk lots of consumables, and specialty items to find each other regardless of where the two parties are located? What if...

...A growing machine shop in Sheboygan, Wisconsin could find a three-year-old lathe, with many years of service left, in Secaucus, New Jersey, but at less than half the price of a new one, and this "find" is the difference between meeting a customer's requirement and losing the business? Can you say, "Competitive advantage?"

...A Mobile, Alabama used machinery broker could almost immediately make his entire inventory available to millions of prospects with very little increase in his marketing budget? Sweet!

...An excited new restaurant owner in Boise, Idaho located a refurbished icemaker in Buffalo, Wyoming, and saved enough money to be able to upgrade her signage and marketing plan? Ka-chingggg!

Well, that marketplace actually does exist -- online.

Enter Online Marketplaces
There are several online marketplaces, but the best example of one that is designed for small business is eBayBusiness.com.

Small business owners have been buying and selling on eBay since this first-ever -- and still the largest -- cyber-marketplace was created in 1995. In fact, according to eBay Business General Manager, Jordan Glazier, "We've identified a couple hundred thousand entrepreneurs who actually make their living buying and selling at eBay.com."

After seven years of putting buyers and sellers together, Glazier said their research showed that, "Over half of eBay users were using our online auctions for some business purpose. It became apparent to us that the emerging fundamental small business challenge in the current economy was meeting specifications AND budget, and the dynamic pricing aspect of an online auction was emerging as a solution of choice."

Consequently, eBayBusiness.com was born in January 2003, with the expressed purpose of creating a business-to-business marketplace where small businesses can increase their purchasing options.

Mike Barbee, a Tucson, Arizona-based printer uses online marketplaces to re-supply his office with print and copy equipment supplies. According to Barbee, "I have used eBay to determine what the market will bear for specific products, and find out what the items I'm interested in are really worth."

And what about the risk of buying on an online marketplace from someone you haven't met? Barbee says, "The tremendous savings opportunities possible from an online auction far outweigh any risk."

There are many examples of how the Internet has benefited small business, but perhaps the best one is how the Internet has brought buyers and sellers together who otherwise would never have known each other existed. And nothing has facilitated that phenomenon better than online marketplaces.

You shouldn't abandon your traditional vendors. But incorporated with other procurement options, online marketplaces can help you conduct a more comprehensive search for items that fit your specification AND budget.

That means money can be saved, performance enhanced, and more sales dollars greased right through that operating gauntlet to the bottom line.

Write this on a rock... Online marketplaces may be the coolest thing to happen to small business since the Internet.