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August 12, 1998 Event
SOHOs: The Emergence of the Virtual Corporation Most define small office/home offices (SOHOs) as "companies with fewer than 20 employees or annual sales of less than $10 million." Size may not matter, however, because the distinction between SOHOs and larger businesses is increasingly fading. The accelerating adoption of the Internet and central server computing offers SO/HOs advantages previously enjoyed only by their larger cousins. Through transparent and seamless relationships with partners and suppliers, SOHOs and other small businesses are operating as virtual corporations and registering healthy gains in both demand generation and operating efficiencies. Internet enabled SOHOs have the ability to serve customers and conduct business without the geography and time constraints that oftentimes limit demand generation in the real world. In addition, SOHOs can carry less inventory to meet demand because products can be shipped directly from their suppliers to customers. Perhaps the biggest gain for SOHOs comes in the form of happier customers. This new breed of consumer can easily comparison-shop and custom-order personalized products. And they no longer have to worry about whether the local store has products in stock. SOHOs also gain cost efficiencies through better usage of money, people, and time. Companies that previously spent thousands to print and distribute brochures can reach a wider audience at a fraction of the cost through brochure-ware. Costly customer service call centers can be replaced or augmented by FAQs, moderated chats, e-mail help, and technical Web sites. Order processing and fulfillment, once two very separate processes, are merging. In the past, call centers took orders over the phone, performed manual entry of orders, and then shipped things themselves. Today, SOHOs use online order processing, electronic billing, and complete outsourcing of shipping to create lean, effective transaction processes. Although the rise of e-commerce offers tremendous opportunity to SOHOs, challenges remain. The first obstacle is rising above all of the noise to achieve distribution in an increasingly competitive economic landscape. Another hurdle is product differentiation. As geographical advantages continue to fade, differentiating low-margin, commodity goods may ultimately depend on customer experience. How can online businesses recreate the experience that customers feel when entering a physical store? While personalization may be critical, studies show that some customers desire human assistance when buying. SOHOs that provide the best combination of high tech and high touch are likely win the hearts, minds, and wallets of the future consumer.
The Mother of All Malls
The New World of Virtual Distribution
Key Learnings
VIRTUAL WORLD vs. THE PHYSICAL WORLD
We are moving towards a world of physical showrooms and virtual transactions. Physical retail outlets will transform into experience centers that facilitate offline social interactions and provide context for subsequent online shopping and buying.
Purchases will become largely a function of price and other hard product parameters which lend themselves to being communicated and compared/contrasted well online. In the real world, geography heavily influences supply and demand efficiency. In the online world, geography is based more on distribution and less on physical location.
SOHOs that exist both in the virtual and real world will have an advantage over solely Web-based businesses because of their ability to leverage existing customer bases and relationships.
SUCCESS AS A SOHO
SOHOs possess a competitive advantage in that they are lean and nimble; they can turn on a dime. Big companies have too much inertia to change quickly. Furthermore, SOHOs can outsource all ancillary services and focus solely on their core competencies. Yet SOHOs should not outsource customer service, because it is the one key differentiator from big business.
To succeed, SOHOs will require services that improve marketing, drive traffic to their brochure-ware, and increase collection rates. In addition, SOHOs will also have to do some work offline that has nothing to do with the Internet in order to maintain client relationships.
More than 50% of a SOHO's business comes from existing customers. The Internet's efficient and cost-effective method of communication engenders the cultivation of these customers. SOHO customers demand high quality information and low prices -- both of which are often facilitated by the Web.
THE FUTURE FOR SOHOs
A decent number of SOHO-fueled cottage industries will have the opportunity to evolve into multi-billion dollar industries; however, many of them will prefer to stay small or sell out in order to preserve their lifestyles.
Third party trust systems will emerge to aggregate knowledge regarding SOHOs. In order to separate the wheat from the chaff. They will rate the best businesses similar to how eBay's auction customers rate the people from whom they buy products.
QUOTE OF THE NIGHT
"You have to spend money to get revenue flowing in. You have to spend big or go home." -- Patrick Lin