A problem for small businesses acting entrepreneurially through extending their business onto the web is that they often lose their primary value-added proposition: the personal focus on the customer. As a result, the entrepreneur is left searching for ways to differentiate him/herself. Unfortunately, entrepreneurship literature, based on sound theoretical principles, has not been forthcoming with solutions to this problem. This paper addresses both of these issues by providing to entrepreneurs a guide with which they may gain a competitive advantage while engaging in e-commerce. We blend theoretical perspectives from the resource-based view of the firm with elements of transaction cost economics to better understand entrepreneurial e-commerce initiatives. Furthermore, we discuss and develop theory suggesting that trust is central to entrepreneurial survival and competitive success when engaging in e-commerce.
According to a report published by the US Small Business Administration, 35 percent of small businesses are selling online and are developing "imaginative ways to conduct e-business" (Pratt, 2002, p. ii). Pratt's research suggests that e-commerce may be an effective way for small businesses and entrepreneurs to reach new customers, increase sales, and be more competitive in the marketplace. With the great changes for business that the Internet has created, it is not surprising that some entrepreneurial firms have not found the Internet to be a friendly operating environment. In fact, it has been estimated that over 95 percent of all dot.coms are doomed to fail (Useem, 2000). The demise of such firms as Boo.com, HealthShop.com, or ToyTime.com offer direct evidence that entrepreneurial e-commerce projects face certain and tremendous obstacles. During times of change, it would be comforting if academics or practitioners could turn to theory for guidance, as theory can help make our world more predictable and help us determine why failures occur (Christensen & Raynor, 2003). Unfortunately, concerns about the lack of theory-based research have plagued entrepreneurial research (Zahra & Dess, 2001) and much of the work on entrepreneurial e-commerce has been anecdotal in nature. As a result, scholars and practitioners have few theoretical mechanisms with which to understand or predict entrepreneurial e-commerce outcomes. This is particularly troubling given the large failure rate of entrepreneurial e-commerce launches.
In response to the scant theory on entrepreneurial e-commerce coupled with the tremendous failure rate associated with these initiatives, we develop and advance theory built on the resource-based view of the firm and transaction cost economics to better understand and predict the entrepreneurial e-commerce phenomenon. This theory-driven approach provides a foundation that affords us the opportunity to make prescriptive recommendations to entrepreneurs that would allow them to more fully exploit their e-commerce potential with consumers and, as a result, make e-commerce strategy a critical component to achieve competitive advantage in the market. This work adds value to the entrepreneur as these firms often lose one of the major value-added tenets of their business- personal focus on the customer- as they venture onto the web. The strategies and tactics suggested can help them regain these advantages.
THE RESOURCE-BASED VIEW OF THE FIRM
The resource-based view (RBV) of the firm holds that it is a firm's resources, obtained by the acquisition or building of unique capabilities, that creates inter-firm heterogeneity and thus is responsible for performance differences (Barney, 1991; Rumelt, 1984; Wernerfelt, 1984). According to this perspective, resources must be valuable, rare, costly to imitate, and non-substitutable to contribute to competitive advantage (Barney, 2001). Resources can be classified as financial, …