Starting Your Own E-Business: Part 1 — The Plan

By James Maguire | Posted October 03, 2005

Congratulations — you're thinking of starting an online business. You certainly know how to spot a growth area when you see one. The rest of the economy might be shaky, but e-commerce enjoys rosy predictions for years to come. More and more people are spending more and more money online every year.

Of course, if it were that easy, everyone would start an online business. Well, actually, it seems like everyone is starting an e-business. Hordes of new online stores spring up every week. Retired grade school teachers start them, and people who use to sell shoes for a living start them. Experienced, well-financed business types launch them, and people who have no idea what they're doing launch them.

And why not? The start-up cost is relatively low, you can run a lot of online businesses from home, and there's gold in them thar' hills.

But, in truth, it's not simple to succeed as an online merchant (which is different from just setting up a site). As one e-commerce expert noted, there are more dollars being spent online all the time, but the amount of competition for those dollars is growing even faster. At this point, it's tough out there.

But don't lose heart. There are a lot of people making money online who don't have degrees from the Wharton School of Business (Donald Trump's alma mater). Plenty of cyber-merchants are flying by the seat of their pants, and doing pretty well in the process.

You can be one of them, if you've got some dollars to invest, are ready to work hard, and — this part gets tricky — are willing to put some serious thought into it. Let's start with the serious thought required before you open for business.

The Two Parts
Roughly speaking, starting an online business is divided into two parts: the hard part and the easy part.

The easy part is assembling your basic business structure. You'll need to choose your software platform, set up a credit card account, develop a marketing plan and figure out a few more nuts-and-bolts details. Oh sure, there's a lot of homework involved here — and plenty of cash outlay — but all told, this part's not rocket science.

The hard part is developing your e-business plan. That requires awareness and understanding of what it means to do business online, and an inventive strategy. Developing a sound business plan is not only critical; it's the do-or-die step in starting your online store.

'But wait,' you say, 'I already have my business plan — I'm just looking for a little help in building my site, and I'm rarin' to go.'

Well, hang on. You may think you have your online merchant plan — and you might. But before you assemble your basic business structure, you have one precious opportunity to really think things through — now.

More e-businesses have failed because of a faulty underlying concept than because of problems with software or hosting issues. Remember the Internet boom of the late '90s? Those businesses had full tech staffs and fat marketing budgets, but a lot of them went belly up because their business plan was no better than the Titanic's plans for dealing with icebergs.

"The biggest favor you do yourself in the beginning is to take time to really think about what you're doing — make deliberate decisions," says Jeff Binder, CEO of Saffron Rouge and an expert in starting online businesses.

"Am I going to be niche retailer? Am I going to be a mass-market retailer?" In short, "how am I going to make money?"

"Your business model could be such that you don't make anything on the products you sell — but you make money by selling ads on your site. Or, you can practically give away your product, but make all your money on your grotesquely expensive shipping fees. Or, your shipping is free all the time, but your product costs are higher," says Binder.

Whatever the case, before you launch YourBusiness.com, make sure you've considered the following:

What's Really Different?
Is there anything that really distinguishes your site from similar online merchants? If you're merely going to sell widgets like the 14 other well-established widget sites do, your 'me-too' approach will limit your success. Find some way to set yourself apart so that people shop with you instead of with your competition.

Case in point: GatorPack sells packing supplies — nothing unique there. But two things keep customers coming back: the site's design is as simple and efficient as possible — customers order right from the front page (no digging). And, the site focuses like a laser beam on filling orders the same day they get them. GatorPack sets itself apart by making the shopping experience incredibly easy and fast.

Here's the reason originality is so important in your e-business plan: You can set up a dry-cleaning business in your neighborhood, and it doesn't have to be any different from the dry-cleaning business across town. No imagination, but no problem — because nobody's going to drive across town to get their clothes dry-cleaned.

But online, all businesses are right next to each other. Click your mouse and you're there. So simply setting up the exact same online business that someone set up in 2002 is going to be an uphill climb. They're established in the search engines, and you're not.

Setting up an online business takes a little more originality, some kind of twist, that setting up a real-world store doesn't.

What's the Competition?
Scope out potential competitors' sites — now is the time to spot the chinks in their armor. What are they missing? What customer need do they fail to serve, that you can cater to and gain an advantage? Pretend you're a customer. What do you wish was different about their online store?

Case in point: Before she launched PaperMojo, which sells decorative handmade paper, Shelley Gardner-Alley checked out similar sites. She learned two things: most do not have a broad selection, and many do not have attractive sites. So she incorporated both these features into her business plan — she was ready to one-up her competitors before her first day of business.

To find out how much traffic your competitor receives, you can use the Alexa service. This tool doesn't give absolute numbers of visitors, but it provides a relative ranking number.

Who are Your Customers?
The people who spend money at your site are the most beautiful people in the world — you want to know everything about them. (In fact you better share their interests, otherwise you'll never bond with them enough to be successful.) With all your customers' desires in mind, make your site the center of their world. Beginning with the front page, make it clear that you exist for their special needs.

Case in point: AnglersVice is a fly-fishing site started by an ex-stockbroker who's following his life-long passion for fly-fishing. He not only sells the gear, he offers scads of information about fly-fishing, including "The Angler," an online magazine about the sport. He posts photos of happy fisherman near the top of his front page. He knows his customers, and he uses that knowledge to sell to them.

What Sells Online
As e-commerce enters its second decade, certain patterns have emerged about what sells well on the Internet. The product you sell might not be in this mold, but if not, you'll need a good rationale for going outside the norm.

Hot online sellers:

It's Niche
If you're Wal-Mart, you don't have to be niche, because you have the deep pockets to carry everything. But if you're mom and pop, you better pick one product and sell it better, faster, cheaper and more creatively than anyone else.

Selling women's clothing isn't a niche, but "women's vintage clothing" is (although it's a crowded one). Even more niche, sell only vintage evening gowns — sell nothing but vintage evening gowns — and have a better selection and more product tips than anyone else.

Along this same line, personalized items are good — something you customize for each customer, or anything that is rare and difficult to find. Or, something that isn't available in your customers' local areas (like fine French perfumes or hand-painted porcelain dolls) that you can access easily.

It's Convenient
Busy shoppers are willing to pay more if you simplify their lives (and online shoppers are still more affluent than their offline counterparts). It's a hassle to drive to the store to buy it — but if you sell it hassle-free online, you've got yourself a customer.

For example, the owner of CoffeeCakes.com sells her coffee cakes and gift baskets at above grocery-store prices. Owner Sherry Comes knows that her customers are people who don't care about saving three bucks — but they want a gift basket sent quickly and reliably. CoffeeCakes — using a highly efficient fulfillment —system, does a brisk business.

It's a Good Deal
Okay, this contradicts the "it's convenient" point above, but there are many types of online shoppers. In short, people want it cheap — and the Internet makes comparing prices as easy as click-click-click. With the help of comparison shopping sites like Shopzilla and Nextag, and other tools like Dealio's shopping comparison toolbar, people compare prices day and night.

This hunger for a cheaper price could benefit a mom-and-pop operation: in some cases, a small merchant who operates with a skinnier margin can undercut a big player with a fat infrastructure to maintain. (But there's always someone who's willing to undercut that small merchant) How low are you willing to go?

It's Small and Easily Shipped
There's a reason that books and CDs were the first big sellers on the Net — you can mail them easily. (That's also the reason it's hard to open a new book or CD site — it's a saturated market.) People get very excited by low shipping charges.

    Of course there are now plenty of exceptions to this — Overstock.com sells queen-sized bed frames. You might find a less-crowded market by selling larger items.

    Speaking of Overstock…(and the difficulty of online business)
    By the way, Overstock's shipping charge for that full-sized, wooden bed frame, which it sells for $330, is $2.95. So that's essentially free shipping for an item that is already competitively priced.

    No, this is not an ad for Overstock, but a warning before you start your online business: You'll be competing with merchants who have huge marketing budgets — Overstock runs TV ads, for goodness sakes — and have rock bottom prices.

    In short, there's no way to compete in this environment without a cogent and inventive business plan. It's rough out there.

    Two More Key Points Before You Begin

    Talk to people: This one's a freebie, but it's all-important: get as much advice as you can. Call business owners. Pester people. Look under rocks. Find out why people failed doing the same thing you plan to do. Don't go into this blindly: good information can save you tens of thousands of dollars.

    Do the math! Before making your final decisions about your e-business strategy, sit down with a calculator. Make a list of all your upfront, one-time start-up costs and all your fixed, monthly costs. Make sure you include a hefty line item for your marketing budget and another hefty line for unexpected expenses, which will occur every month.

    With these numbers in mind, how many widgets do you need to sell at what price every month to turn a profit? Is it realistic that you can sell that many?

    And, given that you're not going to sell that many in your first month, how many months can you operate on a money-losing basis before you need to fold your tent?

    Do all these calculations and you'll have a single number. This is the dollar figure you'll need to start your online business. Of course, if the thing goes belly up, this is also the dollar figure you've flushed down the tubes.

    It's important to do this math ahead of time, because it lets you look at the number in the cold light of day, before you take the plunge.

    Some people don't figure out the math beforehand, and they get a few thousand dollars in, and they realize, "Hey, I'll need x-amount of thousands of dollars more to do this!?" It's only then that they realize they can't afford it, and by then they're in the middle of a deep river.

    Take a good look at the initial investment amount. Are you willing to risk it?

    Boldly Going Forth
    Okay, so you've got your plan. It's an e-business that fills a very real need, and it's at least a little bit different from the other 14 major players in the space.

    You know what it will cost, and you're willing to spend it. Let's start the building process.

    stop by tomorrow for Starting Your Own Online Business, Part 2: Choosing a Software Platform.

    Adapted from ECommerce-Guide.com, part of Internet.com's Small Business Channel.

    Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!


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