Brendan R.

Shannon
EMBA XX - Executive Entrepreneurship - Dr. De Noble
Internal Entrepreneurship at Dow Chemical
June 24, 2010

Background:

In 2000, Dow Chemical, a multinational corporation comprised of eight business groups,

was experiencing a decrease in sales turnover compared to figures from the mid-90s. As the

company explored various avenues to increase sales in turnover, they focused on a variety of

initiatives within stagnant divisions. The subject of this case is an entrepreneurial venture which

focused on increasing sales turnover within the corporation's Epoxy Products and Intermediates

("EP&I”) business group.

The EP&I line of business is a highly capital intensive, high profit margin, B2B segment.

The top 20% of customers generate 80% of the division's revenues. EP&I is structured to deliver

the product through two key avenues. First, the aforementioned top accounts are supplied directly

and serviced by experienced sales representatives (Customer Account Executives ("CAEs")).

Second, the product is distributed to smaller customers using local distributors who service wide

geographic areas (usually entire countries). In 1998 EP&I launched a new centralized customer

service center (Epicenter) that services accounts by providing access to technical assistance and

account management.

The Proposal, e-epoxy.com:

Ian Telford, an 18-year Dow veteran with significant experience in chemical sales, proposed

using the rapidly growing Internet as an opportunity to reduce overhead and drive sales volume.

According to Telford, the sales model EP&I used at that time ignored a significant segment of the

market. Telford noticed that while key customers were serviced by CAEs and midrange clients had

access to the Epicenter, there was room to grow sales by focusing on lower volume, lower margin

customers. The core concept focused on using the Internet to reduce the significant overhead

associated with servicing larger, high-volume accounts. The venture aimed to use a rigid rule-based

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 Brendan R. Shannon
EMBA XX - Executive Entrepreneurship - Dr. De Noble
Internal Entrepreneurship at Dow Chemical
June 24, 2010

system to ensure that the new business generated by e-epoxy.com would meet the low overhead

projections of the business model. Specifically set pricing, quantity minimums and terms would be

fixed to facilitate a higher volume of simpler transactions.

The prospects for the proposed line of business were good; however, they are associated

with some key risks. Most importantly, with the top 20% of customers driving 80% of current

profits, care must be taken not to alienate existing high-margin customers when implementing this

new venture aimed at smaller clients. Specifically, using the Internet for sales requires publicizing

pricing. While larger customers are, of course, loosely aware of their competitors’ pricing based on

intercompany staffing movement, published pricing provides a contemporaneous benchmark with

which to measure their contracts. One aspect that could be improved in Telford’s plan is to analyze

the extent to which Dow may benefit from expanding the model to include midrange clients who

were previously serviced only at the Epicenter.

A key element that increased the potential of this venture is the growth of the Internet as a B2B

and B2C business tool. It was highly evident by 2000 that the Internet could no longer be ignored or

dismissed as a fad. Many industries were being completely revamped due to Internet supply chain

management, funds transfer and transaction processing. As key competitors launched online ventures,

the costs of trailing the market grew exponentially. The greatest potential for the venture to fail came

from internal stationary inertia. Simply put, the compensation of existing executives and sales

representatives was commission and profit based. A revamp in pricing and delivery structure could

highlight the extent to which employees' short-term self-interest might conflict with long-term

organizational success. Stated another way, the compensation structure existing at that time might

have caused employees to be overly risk adverse.

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Brendan R. Shannon
EMBA XX - Executive Entrepreneurship - Dr. De Noble
Internal Entrepreneurship at Dow Chemical
June 24, 2010

Structural issues and selling the idea:

As is the case with many businesses adapting their structure to the new potential of e-

commerce, the proposed e-epoxy.com venture did not fit under Dow's corporate umbrella. The

newly created venture did not fit neatly into any particular place on the corporation's organizational

chart and Telfer proposed to introduce a radically different way for customers to interact with the

company. The delivery process change for lower end customers had obvious long term potential to

change relationships with mid and top range customers as well. However, it is important to

examine whether Dow's structure at that time and its corporate umbrella would facilitate future

success in the EP&I group. Focusing too heavily on the status quo can cause the market to leave

even the greatest companies behind. In this case, if the innovative succeeded, it would

expand/change the Company's corporate umbrella; if it failed, the short-term anomaly would have a

manageable impact on the company's future.

Especially considering a longer-term perspective, the e-epoxy.com venture was a wise

investment for Dow. The proposed, "think big, start smart, scale fast" strategy offered the benefit of

experimenting within a new market segment with low risk. While the concept is radically different

from what was the existing sales/delivery model, the proposed venture allowed Dow to develop an

internet sales platform with a relatively small investment.

It is clear that Telford utilized some unique strategies in selling the e-epoxy.com idea within

Dow. His tactics included internal guerilla marketing via fabricated emails and a spoof FT.com

article which were designed to create hype surrounding an upcoming Biz TV announcement, which

was also a spoof. How do you know when you have crossed the line? There are a million potential

answers to that question, but one very important person, Verrnaak, EP&I's business VP, was

"annoyed" by the video stunt. Telford's stir-things-up strategy went too far because he used so

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Brendan R. Shannon
EMBA XX - Executive Entrepreneurship - Dr. De Noble
Internal Entrepreneurship at Dow Chemical
June 24, 2010

many unconventional tactics together. One of the aforementioned stunts, perhaps a toned down

version of the video, could have generated the same buzz without generating the corresponding

negative feedback.

After receiving approval and a budget of $1 million, e-epoxy.com experienced a setback

when two key EP&I executives who had originally approved the project were replaced. The

project's budget was suspended until further notice. The second time around, Telford used more

conventional strategies, one being a passionate presentation to win over fellow managers, the IS

group and Cook (Vermaak's replacement). Cook facilitated a meeting during which Telford used

the “fire in his belly" to convince the Group's president to fund the venture. The push for final

approval highlighted two key takeaways for Telford: (1) use conventional presentation tactics and

enthusiasm as key tools for selling internal entrepreneurial ventures; and (2) involve key decision

makers early, and proceed quickly after gaining approval to avoid encountering future hang-ups.

Use of entrepreneurial talent:

Despite the scarcity of entrepreneurial talents such as Telford's, e-epoxy.com was definitely

an effective use of Telford as a resource. It is difficult to generate change in large corporations with

long-established methods of doing business. Without the passion of entrepreneurs and risk-takers

such as Telford, business as usual can become a cancer. This can be especially true in corporations

such as Dow, where senior management tends to be promoted from traditionally non-

entrepreneurial fields such as chemical engineering. Telford used his drive and enthusiasm to

champion a project that allowed the EP&I division to keep pace with the changes caused by the

Internet marketplace.

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Brendan R. Shannon
EMBA XX - Executive Entrepreneurship - Dr. De Noble
Internal Entrepreneurship at Dow Chemical
June 24, 2010

Key executive roles:

A change in senior leadership during Telford's e-epoxy.com venture had a significant impact

on the project’s course. Henry Vermaak, Business Group President for EP&I had a large role in the

early success of the project. As Telford's direct supervisor at the project’s inception, he gave the

initial authorization for Telford to develop the business plan that eventually became e-epoxy.com.

As would be expected, Vermaak initially described himself as a "concerned supporter"; however, he

was willing to take the risk of providing a $100,000 budget for the project's early development.

In May of 2000,Vermaak retired and was replaced by Phil Cook. After assuming his new

role, the project gained approval based largely on his efforts. His recognition of Telford's drive and

enthusiasm were key in his support of the project. Most notably, Cook organized a key meeting

among managers that reinitiated the enthusiasm surrounding the project and was also instrumental

in Telford gaining access to Bob Wood, Thermoset Business Group President, who had final

authority to approve the project. When making his decision whether to support Telford’s concept,

Wood was most concerned with determining whether Telford had, "fire in his belly." Fortunately

Telford's enthusiasm and drive to see the project succeed were self-evident.

Philippe de Fitte served as commercial director for EP&I’s Europe division before leaving in

2000. De Fitte was enthusiastic about e-epoxy.com and had a history of championing internal

technology-based solutions at Dow. He was responsible for founding EP&I's Commercial Interface

Initiative (CCI) which used technology to streamline the way the division interacted with and

serviced its customers.

In summary, the chief effect of the leadership change was a setback in the project’s progress

while Telford fostered confidence among new decision makers. The common thread among all four

leaders was their belief in Telford over the project itself based on his enthusiasm.

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