CHAPTER 1

INTRODUCTION
1.1

Background

1.2

Benefit of the Study

This study provides several contributions that are divided into several benefits, namely:

As an information / input to students especially for writers about current condition market
in industry e-commerce and strategy that should be applied when doing business, such as

marketing strategy and financial plan.

Business ideas in this business plan will create competition enliven community directory
in the world so that people will have many options when choose organization community

based on their interest.

This paper will help other students to write a business plan to use as a guide, especially in
the E Commerce business

1.3

Scope of the Study

This business plan uses three theories of business analysis to support the business ideas,

which are business Canvas, TOWS analysis, and five forces porter analysis.
This e-commerce targets any society who loves fashion and lifestyle by giving them
inspiration to fit with their needs.

1.4

Objective

The objectives from this business plan are:

To became intermediaries between individual to organization community

As input or feedback to the writers about this business idea that will be executed
As a guideline for writers or other student to creating a start-up business within the E-

Commerce business
To provide a better understanding to students, particularly the writers in term of the
creation of a business model

1.5

Business Idea

CHAPTER II

LITERATURE REVIEW
2.1

Definition of E-commerce
According to book Electronic Commerce 2012 Electronic commerce or abbreviated e-

commerce is the process of buying, selling, transferring, or exchanging products, services, and/or
information via computer networks, mostly the internet and intranets (Turban, E., King, D., Lee,
J., Liang, T.-, & Turban, D.,2012).
E-commerce (electronic commerce or EC) is the buying and selling of goods and
services, or the transmitting of funds or data, over an electronic network, primarily the Internet.
These business transactions occur either business-to-business, business-to-consumer, consumerto-consumer or consumer-to-business. The terms e-commerce and e-business are often used
interchangeably. The term e-tail is also sometimes used in reference to transactional processes
around online retail (Rouse, 2005).
Meanwhile Kalakota and Whinston define the E-Commerce from several perspectives,
namely:
1. From the perspective of communication, E-Commerce is the delivery of
information, products / services, or payments over the telephone network, or other
communication lines;
2. From the business process perspective, e-commerce is the application of
technology toward the automation of business transactions and work flow;
3. From the perspective of service, E-Commerce is a device used to reduce the cost
of the ordering and delivery of goods; and
4. From an online perspective, e-commerce provides the ability to sell and buy
products and information through the Internet and other online services network.
The entire definition described above basically has the same components that include
transaction (buyer, seller, goods, services and information), subjects and objects involved, and
the medium used (in this case is internet).
2.2

Business Model of E-commerce

Efraim et al. (2012) stated E-commerce can be classified in 9 business model. Those 9

business model are Business to Business (B2B), Business to Consumer (B2C), Business to

Business to Consumer (B2B2C), Consumer to Business (C2B), Intrabusiness EC, Business to

Employees (B2E), Consumer to Consumer (C2C), Collaborative Commerce, and E-Government.
2.2.1

Business to Business (B2B)

Business-to-business ecommerce sites, also known as B2B, give businesses the

opportunity sell products to other businesses online. Purveyors of products such as

computer systems and office supplies allow small business owners to make purchases
without having to visit a physical location. This can save them time and perhaps even
money, such as when they receive discounts for buying through a website.
2.2.2

Business to Consumer (B2C)

In this model, a consumer approaches website showing multiple business

organizations for a particular service. Consumer places an estimate of amount he/she

wants to spend for a particular service. For example, comparison of interest rates of
personal loan/ car loan provided by various banks via website. Business organization who
fulfills the consumer's requirement within specified budget approaches the customer and
provides its services.
2.2.3

Business to Business to Consumer (B2B2C)

In business to business to consumer (B2B2C) EC, a business provides some

product or services to a client business. The client business maintains its own customers,
who may be its own employees, to whom the product or service is provided.
2.2.4

Consumer to Business (C2B)

The consumer to business (C2B) category includes individuals who use the

internet to sell products or services to organizations and individuals who seek vendors to
bid on products or service customers.
2.2.5

Intra business EC
The intra business EC category includes all internal EC organizational activities

that involve the exchange goods, services, or information among various units and
individuals in that organization.

2.2.6

Business to Employee (B2E)

The business to employees (B2E) category is a subset of the intra business

category in which an organizations deliver services, information, or products to

individual employees.
2.2.7

Consumer to Consumer (C2C)

In the consumer to consumer (C2C) category consumers transact directly with

other consumer. The advertising of personal services over the internet and the online
selling of knowledge and expertise are other examples of C2C.
2.2.8

Collaborative Commerce
Efraim et al. (2012) explained collaborative commerce (c-commerce) is when

individuals or groups communicate or collaborate online, they may be engaged.

2.2.9

E-Government
In e-government EC, a government entity buys or provides goods, services, or

information from or to business (G2B) or from or to individual citizens (G2C). Besides

that, government can deal also with other government (G2G).
2.3

Revenue Model
Revenue is the most important thing to sustainability of business activity. The business

failed if the revenue streams is lower rather than cost stream. Turban et al. (2012) defined some
revenue models from e-commerce, which are Sales, Transactions fees, Subscription fees,
Advertising fees, Affiliate fees and Licensing fees.
2.3.1

Sales
The companies generate revenue from selling merchandise or services on their

websites. For example, Amazon.com sell products through their websites then customer
pay directly to Amazon.com.
2.3.2

Transaction Fees
A company receives a commission based on volume of transaction made. The

higher the value of the sale, the higher the total transaction fee. Alternatively, transaction
fees can be levied per transaction. For example E-Trade.com, when a seller sell the

product through E-Trade.com, as a intermediaries E-Trade.com will get some fees from
seller.
2.3.3

Subscription Fees
Web site that offers users content or services charges a subscription fee for

access to some or all of its offerings. For example, would be the access fee for
www.hbr.org, customer will get deeper insight about the business topics, analysis, and
complete data than free/trial account
2.3.4

Advertising Fees
Web site that offers content, services and/or products also provides a space for

advertisements and receives fees from advertisers. For example Kompas.com provide
some space to advertiser who interest to put their banner in there, then Kompas.com
charges cost for advertiser who displaying the ads banner in the website of Kompas.com.
2.3.5

Affiliate Fees
Sites that steer business to an affiliate receive a referral fee or percentage of the

revenue from any resulting sales. For example blanja.com has an affiliate program that
cooperate with others website to get the commission for every purchase in blanja.com if
the website succeed to refer their visitor and make transaction/s in blanja.com from their
website
2.3.6

Licensing Fees
Another revenue source is licensing fees. This revenue can be assessed as an

annual fee or a per usage fee. For example Linkedin, for use premium tools in that
website user should pay to Linkedin.com
2.4

Business Model Canvas

Based on Business Model Generation book written by Osterwalder, Pigneur and Tucci

(2005), In developing a new business, business model is a conceptual tool that describes the
business logic of a company or a business idea consisting of elements that connected each other.
Business model creation also shows the values that deliver to customers, organization structure,
channels, and partners who will make and delivering values to the customers to create profit for
the business.

Osterwalder and Pigneur (2010) stated there are 9 building blocks or element of business
model canvas, which are Customer Segments, Value Propositions, Channels, Customer
Relationship, Revenue streams, Key Resources, Key Activities, Key Partnership, and Cost
Structure. Below is the detail explanation about each block or indicator of the canvas.
2.5

TOWS Analysis
As part of the business planning process an analysis and assessment of the organizations

Threats, Opportunities, Weaknesses and Strengths (TOWS) should be undertaken. This can assist
management in indentifying the organizations distinctive competence, skills, culture and
resources (Rodney 2003).
According to Cadle, Paul, and Turner (2010), conclude that SWOT analysis compile the
results from the external and internal business environment analysis, by summarizing the key
issues the company can analyzing business situation and identifying potential strategies for the
future. Components definition of SWOT is:
STRENGTHS

WEAKNESSES

MAINTAINING THESE STRENGS

OVERCOMESING THESE
WEANESSES

What should do to maintain these

strengths?

What can do to overcome these

weaknesses?

OPPORTUNITIES

THREATS

TAKING ADVANTAGE OF THESE

OVERCOMING THESE THREATS

OPPORTUNITIES
What can do to overcome these threats?
What can do take advantage of these
opportunities?

Threats: Presenting potential problems for the organization. The external factors
that have the potential to harm the organization, for example a technological
development that could enable new competitors to enter the market, or economic
difficulties leading to a reduction in market demand.

Opportunities: Available to be grasped by the organization. The external factors

that present opportunities for success, for example social changes that increase
demand for the organizations services, or the development of technology to
provide new service delivery channels.

Weaknesses: Will undermine the development of the organization. The internal

negative aspects of the organization that will diminish the chances of success, for
example out-of-date equipment and systems, unskilled staff of poor management
information.

Strengths: Will aid the development of the organization. The internal positive
capabilities of the organization, for example good market reputation, motivated
staff, and financial resources.

2.6

Michael Porter Five Forces Analysis

Forces Governing Competetion in an Industry
T h re a t o f
S u b s titu te
P ro d u c ts o r
S e rv ic e s

B e rg a in in g
Po w e r o f
B u y e rs

B e rg a in in g
Po w e r o f
S u p p lie rs

R iv a lr y A m o n g
E x is tin g
C o m p e tito rs

T h re a t o f
New
E n tra n ts

This technique identify the industry where the company running the business and
examines the business pressure towards the company. According to Porter (cited in Cadle, Paul,
& Turner, 2010) conclude that external business environment can be analyzed by dividing the
potential sources of pressures within an industry into five categories, that is shown in the figure
above and the factors to consider in each case are explained below.
2.6.1

Industry Competitor
What is the competition level of the products and services in this industry? Is the

company in a good competitive status or it is a small and follower player? How many
competitors that holds the power in the industry.
2.6.2

New Entrants
Are there obstacles to entry, for example huge investment or knowledge? Does

financial support positively affect start up organization performance to offer their

products and services? What is the possibility for new entrants to enter the industry?
2.6.3

Substitutes
What is the availability status of the substitutes players? Does the company have

competitive advantage against the substitutes?

2.6.4

Buyers
How much the choice do buyers have? Can they move to others providers easily?

Do they have the power in the relationship or are they locked in to on provider?
2.6.5

Suppliers
How many suppliers are available? Is this a competitive situation where the

organization has choice suppliers? Do the suppliers have the power in the relationship
because they operate in an area of limited supply?

2.7

User Interface
In user interface of website need a strategy to provide information and easiness to user. Daam

Effective Visual Communication for Graphical User Interface (Marcus, A.) There are three
fundamental principles involved in the use of the visible language.

Organize: provide the user with a clear and consistent conceptual structure
Economize: do the most with the least amount of cues
Communicate: match the presentation to the capabilities of the user.

Meanwhile in the book Software for Use: A Practical Guide to the Models and Methods of
Usage Centered Design (Larry L. Constantine and Lucy AD Lockwood). 3 Principles of User
Interface Design is
Structure (organize)
Feedback (Communicate)
Simplicity (economize)
From those theories there are same points in term of how to build good user interface. The
first is user interface should be has good structure, it is mean everything in website should be
organize. Second, the website should be fulfilling simplicity criteria. Put useful tools for user and
remove all unnecessary elements of the design, content, and code. Last, the website should be
has two way process of reaching mutual understanding, in which participants not only exchange
(encode-decode) information, news, ideas and feelings but also create and share meaning. In
general, communication is a means of transfer information through website content to readers.
2.8

Financial Analysis
According to Douglas R. Emery, John D. Finnery, and John D. Stoew in corporate

financial management (2004), several variables or financial attributes that describe the value of a
business or a project are:
2.8.1

Start-up Capital
Start-up capital is an initial fund that needs to spend once the business is starting

to launch. This fund usually use for long term period, such as building, utilities, vehicles
and other things that use in a long term.
2.8.2

Operational Cost
Operational cost is a cost that needs to be paid in monthly basis like salary,

electricity, telephone bills and other costs that need to be paid monthly.

2.8.3

Break Event Point

Break-even point is a condition where a company not earn the profit, but also not

get loss. This condition happens when the profit is equal to zero or intersect each other.
(Mulyadi, 2001). Breakeven point describes the minimum sales volume that a company
should reach to avoid loss, but not earn the profit yet. Breakeven point analysis used to
help the company increasing the sales to earn sales volume above BEP to earn profit, and
avoid the possibility of the sales to get loss; sales volume below BEP. (Warindrani, 2006)
Formula BEP:
2.8.4

Cost
PriceVariable Cost

Financial Projection
Financial projection is a financial plan of a business to forecast the cost of create a

business and the revenue that possibly earned by a business. There will be much error in
financial calculation at the beginning, but with regular adjustment and time reveal, a
business will get logical numbers for its financial projection. Financial projection shows
the ability of a business to pay back the loan, and to make a business plan with budget
analysis.
Several elements that needed to construct a financial projection are:

Cash Flow Statement: Consists of sales projection, tax, interest, saving and other

incomes or expenses
Sales Projection: Consist of the revenue gained from selling product to customer with

adding value proposition.

Price projection: Consist of price scheme in promotion strategy.
Other costs projection: Consist of all total cost needed in projection calculation.
2.8.5

Feasibility Analysis
This analysis describe how the company can give any financial value. This tools

also explaining the business model works or not. The feasibility of a business can be
calculated by:
a. Net Present Value (NPV)

The net present value is determining which interest rate that involved with the present
value.
The formula of NPV is:

Where:
Principal: Initial investment
Payment: Yearly Cash Flow
Rate: Interest rate
i: Time
n: Period
Result discussion:
If NPV > 0: a business is feasible to conduct
If NPV< 0: a business is not feasible to conduct
If NPV = 0: a business is in BEP condition, where total revenue is equal to total cost in
present value.
b. Internal Rate of Return (IRR)
When the value of NPV from the cash flow has a zero value it is called the IRR. This
calculation is to measure that the project is beneficial or not.
The Formula of IRR:

Where:
Ra: Lower discount rate
Rb: Higher discount rate
NPVa: NPV at rate a
NPVb: NPV at rate b

IRR Result Discussion:

If IRR of a project or a business is more than the expected IRR then the project is
attractive to choose.
If IRR of a project or a business is less than the expected IRR then the project is less
attractive to choose.
c. Payback Period
This calculation is important to measure how long the business could pay off the
initial total investment of the business. The business has a very good performance if it
can create a short payback period. Besides it describe how feasible the business.
The Formula:

CHAPTER III
BUSINESS MODEL CANVAS