E-commerce: Starting Out – A model of success

By Siàƒ¢n Green

“A lot of people want to be first to market; I think it’s better to be best to market,” says Utilyx CEO Chris King of his philosophy towards internet B2B. And it is a philosophy that others could be wise to follow, for Utilyx, a business-to-business utilities marketplace set up only last year, has already captured a 20 per cent market share.

But Utilyx is both first and the best in its market by virtue of being – at least in the UK – the only company of its kind. In the harsh world of the dot.com, this fact has undoubtedly helped it to grow, and has enabled it to succeed where others have failed.

Indeed, these have been difficult months for internet start-ups. March 2000 saw billions of dollars wiped off the value of those that had floated, and since then many dot.coms, albeit mainly in the B2C market, have folded. Investors and venture capitalists are now more cautious with their money and demand a more rigorous dot.com business model.

Founded in February 2000 by King and his business partner Scott Bradley, Utilyx’s aim was to build an e-marketplace that would simplify the process of utility procurement for industrial and commercial consumers. In the UK, this sector spends approximately à‚£20 billion ($31 billion) per annum on electricity, gas, water and telecommunications, and King saw an opportunity for easing an inherently complex and time-consuming process.

Utility buyers must search across an extremely large number of suppliers and examine in detail each quote they receive in order to carry out an effective procurement exercise. They must also manage and monitor utility usage and accurately audit their bills.

Utilyx streamlines the whole ‘utilities lifecycle’ process for buyers, providing market intelligence, negotiation and procurement software, platforms for monitoring and managing usage and a facility for suppliers to bill their customers on-line, all through a single portal.

Utilyx charges a subscription fee, and suppliers are also charged a percentage of the transaction, which can be less than 0.1 per cent on large transactions. Since the site was launched in mid-2000, Utilyx has seen over à‚£30 million of business transacted over its site, and around 2500 of the UK’s 10 000 industrial and commercial utility buyers have registered. According to King, nearly all of the UK’s major energy suppliers have carried out transactions through its site.

King and Bradley began working on the Utilyx business model in October 1999, and launched the site ten months later in August 2000. This is actually quite a long turnaround time in terms of web development, considering that some people have set up websites in less than three months. “The process was quite a long one but in the business-to-business space, you need to spend a long time thinking about what it is you are going to be delivering to the customer,” says King.

Knowing your customers is crucial to success, says King, and this means not just having an in-depth knowledge of the market you plan to serve, but also consulting with potential customers on a regular basis. Utilyx achieved this through a combination of market research with MORI, and also focus groups, where utility buyers were questioned about the challenges and issues facing them in the procurement process, and what they thought about the Utilyx concept.

“We did some MORI research to understand the greater community of customers. We interviewed 500 commercial and industrial buyers of energy, and employed an external development company to take our findings from this and the focus groups that we had done and create an interface for our clients,” said King.

“We did focus groups before we launched and we did focus groups after we launched to refine our business model and ensure that any rough edges were taken off as quickly as possible.

“But I was surprised that we were one of the few companies doing this. Companies like Procter & Gamble and Coca-Cola not only understand their clients, but also continually go back to the marketplace to see how their clients have changed. If you don’t understand your customer then you don’t understand the business process that you’re trying to address and you’ll end up with a business model that won’t do anything.”

A focused approach

Utilyx has just completed another round of focus groups with utility buyers. “We learn a lot from those about our buyers and their reaction to Utilyx,” said King. “It’s not something that we’ll ever stop doing.”

Utilyx aims to simplify the utility procurement process for major energy users
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In addition, Utilyx built a team of experts around its business – energy consultants Ilex and software company Advantage – and struck a deal with five major utility buyers to user-test the software and methodology all the way through the development process.

All this, says King, enabled them to validate the business model – a crucial process for establishing a business. “We were building something that we knew was going to be very powerful when it was launched.”

But this thorough validation process is not standard across the e-business community, and according to King, this is the reason why so many dot.coms have failed. “There are countless businesses out there that haven’t been validated. There is also an issue around domain expertise,’ said King.

“A lot of these companies are started up by people who have not been in the industry for very long. If you’re addressing an industry sector and you don’t have a deep understanding of it, then you really are going to struggle – not only in the delivery of your business model, but you’re also going to struggle in getting credibility because the people at the helm of your company won’t have credibility in the industry.

Chris King: People are key to the success of the business
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“You’ve not used credibility to build your business model and you’ve not got credibility when you’ve delivered it.”

Another mistake that some B2B start-ups have made is that they thought they could launch their business ‘on the cheap’. With 10 000 buyers spending à‚£20 billion per year, UK utilities is a high value sector. So when companies procure and manage energy and telecomms, they want it done properly, says King. “You have to deliver a high value proposition to them. If you spend $50 million on energy, you’re not going to use a website that you don’t trust.”

Funding the venture

Hence financing was an important issue for King and Bradley, who were able to raise just under $5 million to fund their venture. When seeking financing, the two felt that they had a strong management team, a powerful business model and a well thought out execution, so they approached ‘angel’ investors and high net worth individuals rather than venture capitalists.

However, finding financing was not an easy task. King believes that there needs to be a better mechanism for companies to find the right investors; there are many venture capitalists and investors out there, but many are interested in a certain type of sector or model so the search can be quite hard. “Once you’ve found the person who believes in you, you’re done,” said King. “But finding them is difficult.”

Utilyx is now about to seek further funding to finance its expansion plans. It is looking to raise $20 million from institutional investors or high net worth individuals.

The company is planning to expand its e-marketplace into mainland Europe – and perhaps even further afield – as the energy markets open. The company is also looking at expanding vertically into telecomms, which at present it does not cover. It is currently examining Spain, the Netherlands, Scandinavia, Italy and Germany as potential targets, and hopes to be operating in two of those countries within the year.

Utilyx’s approach to this expansion is softly-softly. King sees no need to expand rapidly across Europe, and will follow its existing buyers, many of whom operate internationally. King also feels that outpacing its customers would be a mistake. “If your customer is not ready to go there, then don’t do it. We are working with our customers to deliver what they want on a global basis,” said King. “Our expansion will be built around technology rather than opening up offices around Europe. We can deliver energy procurement from a UK base.”

Utilyx’s success will undoubtedly continue across Europe, especially in the absence of direct competition. “We have been hugely successful in capturing market share, so we’ve proved not just to ourselves but to market participants that we can do this well,” said King.

And key to this success? “People, people, people,” says King. “You can hack code but you need damn good people to hack good code; you can understand the market at a very generic level, but you have to get right deep down and dirty with this stuff to get it right and to deliver.”

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