E-commerce:
For some businesses, the only way to go
Tobias Madden
Regional Economist
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Like many other people, Paul Buethe of St. Paul has started an electronic business. Unlike other electronic business owners, he does not have a computer. Total cost to start his business? Under $500.
According to Forrester Research Inc., U.S. on-line retail sales grew from $2.4 billion in 1997 to $7.8 billion in 1998. Start-up businesses have captured a share of these sales because electronic business technology has reduced the technical barriers to new entrants. Following are two examples of retail businesses that have benefited from lower barriers to entry due to the emergence of the Internet.
Miniature model kit industry
An example of lower barriers to entry is a relatively new entrant into the niche market of the detailed scale model kit industry-Roll Models Inc.
John and Mary Roll of Golden Valley, Minn., started Roll Models in September 1996. John, who works full time as a computer programmer, and Mary, who quit her CPA job to stay at home with their child, decided to start a home business. John's long-time hobby was building miniature models, and they decided that this was a natural business opportunity.
John attended trade shows to learn about the scale model kit industry, and discovered that there are hundreds of manufacturers that sell to numerous wholesalers, who then sell directly to retailers or by catalog to the model kit enthusiast. John knew that manufacturing miniature models would be capital-intensive and risky, and that the traditional retailing option of opening a brick and mortar store was also expensive. Traditional wholesalers need warehouse space, catalogs and a sales force.
To break ...