An Internet Model That Works
The dot-coms may be dropping like flies, but the Internet is still an extremely effective sales tool -- especially for non-Internet businesses
We've heard a lot in recent years about new Internet-based business models, and I've been skeptical about most of them. I've long argued that the vast majority of people shouldn't start an Internet business except as an adjunct to an existing non-Internet business. (See " Bubble.com," April 1999.)
That said, there's no question that the Internet can be an enormously powerful sales tool for many traditional businesses. In fact, in some cases it can completely transform the role of the salesperson.
Take my friends Bobby and Helene Stone and their son, Steven, whom you may recall from previous articles. (See " How to Succeed in Business in Four Easy Steps," July 1995, and " The First Salesperson," December 1998.) They have a computer-supplies company, Data-Link Associates, which they operate out of Bobby and Helene's home on Long Island.
Bobby and Steven are the salespeople, and in the beginning they both went about their work the old-fashioned way: prospecting for customers over the phone, setting up appointments, making sales calls, and so on. Then, in 1997, the Stones got an offer of a free Web site and one month's free hosting, provided they'd agree to pay $25 a month for the service thereafter. They accepted the offer and posted their product list on the site. Within a few days they had enough new sales to cover the cost of the site for an entire year.
The Stones were happy to have the additional business, but they didn't really discover the selling potential of the Internet until the following year, when Bobby put up a new Web site (in addition to the original one) and began educating himself in the fine points of Web-based marketing. He focused most of his attention on the search engines, looking for techniques to attract customers to his site by getting it listed among the top choices for the products he wanted to sell. Thus, for example, he figured out how to make sure that Data-Link would come up first when somebody logged on to Google.com and searched for, say, DLT bar-code labels.
As Bobby and Steven improved their Internet selling skills, the company's sales took off, increasing 50% in 1998 and almost doubling -- to $1.4 million -- in 1999. Last year they increased again, to $1.5 million. Meanwhile, 95% to 98% of Data-Link's new business is coming from the Internet.
What's most interesting about all that is the effect that the Internet has had on Bobby and Steven as salespeople -- what they do, how they do it, and the consequences of their actions for their company. I can see at least six critical changes that have occurred as a direct result of their move to selling online.
More leverage with prospective customers. Instead of going out to find customers, Bobby and Steven now work on figuring out how to let customers find them. That change has important repercussions. For one thing, it fundamentally alters the relationship between the salesperson and the sales prospect. As the salesperson, you're no longer the one pestering prospects with phone calls; now you're the person answering their questions. That gives you a significant psychological advantage. You can close more sales as a result.
More time for selling. Bobby can hardly remember the last time he got in his car to go on a sales call. Steven hasn't done any cold calling in at least a year. I'm a great believer in the benefits of cold calling, but there's no question that it takes a lot of time. You can spend hours locating decision makers, setting up appointments, traveling to meetings, and so on. By cutting out all those activities, Bobby and Steven have more time to follow up on leads generated by the Web site -- answering queries, closing sales, writing up orders. There's also more time to study sales data and identify trends. Are certain products getting hot? Should the company run a special on something? Does the Web site need to be modified?
Cheaper, faster, easier access to customers. Data-Link's new customers are Internet users by definition, and so, it turns out, are most of the old ones. After putting up the Web site, the Stones discovered that a majority of their regulars liked using it, too. As a result, Bobby and Steven can reach almost their entire customer base faster and less expensively than before. They used to have to spend time and money sending out brochures, doing fax mailings, and trying to reach people by phone during office hours. Now customers can check the Web site to see what's in the brochure or to find out about specials. As for direct customer communication, Bobby and Steven can do a lot of it by E-mail at any hour of the day or night.
An expanded marketplace. Then, of course, there's the Internet's almost magical ability to remove geographical barriers. Before the Web site went up, Data-Link's market was pretty much limited to places within driving distance of the Stones' home. To get customers, after all, Bobby and Steven had to go see them. Not anymore. Data-Link now sells to customers as far away as Australia, South Africa, Singapore, and the United Arab Emirates.
A higher percentage of credit-card sales. For a small company there are no bigger headaches than the ones you get when you're trying to decide about extending credit to customers or when you have to send out and collect hundreds of little bills. It's almost always better for customers to pay by credit card, but it's hard to insist on that when you're signing them up through cold calling. A customer who seeks you out through the Internet is another story. Before Data-Link went online, about 1% of its sales were charged to credit cards. Now the figure is closer to 20%. As a result, last year Helene mailed out 250 fewer bills than she would have without expanded credit-card billing, and she had 250 fewer concerns about collecting.
A solution to the onetime-buyer problem. Although most businesses want a solid base of repeat customers, it's nice to have some single-purchase customers as well, if only because you don't have to offer them the discounts you give to your regular customers. The problem is that such onetime buyers are notoriously expensive to find and difficult to collect from. By getting customers through its Web site, Data-Link can find onetime buyers very cheaply, and it can deal with the collection issue either by insisting that those customers pay with a credit card or by waiting for the check to clear before shipping the order.
I could probably come up with other benefits that flow from Data-Link's move to Web-based selling, but you get the picture. The changes have clearly strengthened the company in just about every respect. And unlike the folks at, say, Amazon.com, the Stones have built their online business while maintaining average gross margins of 32%.
So what's the downside? Very simple: the situation probably won't last. Data-Link's Internet success depends largely on Bobby's ability to keep its name near the top of the search-engine listings. If he can't do that in the future, it would inevitably hurt sales. The company has no brand recognition, after all. I doubt that most new customers even remember its name (although some of them may have bookmarked its Web site).
On the other hand, all the customers are included in the Stones' database, which now has some 23,000 names. So if the Internet stops working for Data-Link, Bobby and Steven can always go back to selling the old-fashioned way.
That's another difference between Amazon and Data-Link. It's also a strong argument for making sure there's a solid non-Internet business behind your Web site.
Norm Brodsky is a veteran entrepreneur whose six businesses include a three-time Inc. 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available at www.inc.com/keyword/streetsmarts.
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NORM BRODSKY | Columnist
Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.