I have to presume youíve passed the entrepreneurial self-evaluation test in a previous chapter if youíre reading this one. Either that or youíre a glutton for punishment. In either case, the funís only beginning. Even if you just want to start any old kind of e-commerce business, read on.
Hopefully, you have honestly determined that you, personally, have what it takes to try to start your own business. Since Iím writing about starting an online business, the next thing to do is to determine if the one you want to start, presuming you know what type business that is, will be a "sticky" business on the Web. "Sticky" is a term used by some to describe a Web site interesting enough to its visitors to induce them to not only spend some time there, but to return. Stickiness is a success barometer of sorts for an online business.
One of the great things about doing business on the Internet is that it has become so easy to get around and comparison shop a large number of sites in a short amount of time. The problem for a company contemplating starting an e-commerce site is that Web shoppers typically have the patience of a gnat and are notoriously fickle. You have only a few seconds to get a grip on their attention span and lure them deeper into your Web. If you get them once, that definitely does not mean they will ever find you again, nor have enough interest in your site, which must compete anew with all other distractions on the Internet each time your potential customer fires up their browser. The hyperlink of a competitor for their attention, at any given moment from log-on to consummation of the deal, may lure them away from your marketing trap.
I could spout lots of demographic information and other statistics about the virtual explosion of e-commerce. Needless to say, all of that would likely be out of date before this hit the presses. The bottom line is that e-commerce is in the billions already and the volume and diversity of it are continuing to expand rapidly. This environment appears conducive to starting almost any kind of e-commerce business. Weíve all heard stories of wild short-term success stories. These stories make it seem that all you have to do is come up with a novel domain name and then wait for the initial public offering to take you to business Valhalla. This IPO or "dotcom" fever has given some of us a false impression of the inevitability of success for any e-business start-up. This is probably a major reason so many are failing.
There is now even a web site devoted to failed web businesses. "The Place for Bouncing Back," http://www.startupfailures.com/ claims to be "the first community focused on supporting individuals that have recently gone through or are going through the experience of a startup failure. Our purpose is to take the stigma out of failing and help you recover quickly from the failure and get back in action."
The site has gotten some press, if for no other reason than that itís too good a new tidbit for business newspapers. Citing the recent dramatic reversal of fortune for many e-commerce business, The Wall Street Journal recognized the startupfailures.com site and labeled it timely in view of the collapse of companies, such as online music retailer, CDnow, Inc., which suffered an 80% drop in its stock from its once-hot IPO days. The site itself points to statistics, such as: "Of the companies that receive funding, 60 percent go bankrupt. The vast majority of start-ups will fail. And all those people need a home." The founder of this failure-based business is Nick Hall, who has apparently been involved in three failed start-ups, two of which he founded.
What many people forget is that knowing how to run a business is an essential part of starting and running an e-commerce business. There are many reasons any business may fail. One sure reason is attempting to sell a product or offer a service for which there is insufficient market. Another is lack of consumer acceptance of pricing necessary for you to receive a net profit for your investment of time and money. Many "great" ideas are simply too expensive for consumers by the time the market receives them. The United States Patent Office, for instance has many more unmarketed patents than patents which were ever seriously considered for commerce.
There are many basic "laws of nature" in business, just as there are physical laws in our world. We should respect the law of gravity, for instance when we are on the edge of a precipice. In business, we must keep in mind economies of scale, critical mass and the initial force required to overcome inertia, in order to obtain sufficient momentum to travel to the end of our business journey. While this may sound like NASA describing a space shuttle flight plan, it also describes some of the principles which apply in any business, including one started online.
One of the first steps in starting any kind of business is to determine if there is an unfulfilled need you have the ability and desire to fill. Starting an e-commerce business requires this same essential test, but many seem to forget this for some reason. Perhaps it's gold rush fever, or some unthoughtful feeling that the differences between e-businesses and others extend to this fundamental also. Nothing could be further from the truth.
The Internet can make a smaller niche business feasible, unfettered by many of the "bricks and mortar" expenses of conventional retail stores. There still must be customers who are not being served, or some shortage, greater expense, slower service, lack of personalization, or other such strategic opening into which you can drive your marketing wedge, to get your market share. If you are not already considering a specific Web-based business, you may still be simply trying to find a way to get on the apparent Web bandwagon. this means you may not have even decided if you want to sell a product or a service.
Product vs. Service
Naturally there are basic advantages to limiting your business to either the sale of products or the provision of services. You may find you have to start with one but end up having no choice except to provide both. Selling a product, for instance, may require furnishing at least some level of customer and product support, such as shipping and returns information. In providing a service, such as hosting an information database, you may find you can make more money off merchandising, such as by selling T-shirts or hats with your logo and slogan. You may provide downloadable software to enhance raw information sold online, or find a demand for other spin-off products.
Selling a service only may soon teach you the harsh lesson that there are only so many hours in the day, in which to furnish these services. This may mean you struggle to increase your hourly rate or to automate and systematize your fulfillment. In end, you will probably have to add service hours by adding people or do something else to escape the one person shopís financial plateau caused by the business law of the 24 x 7 work week.
Selling product does not have such a limitation. You can always increase the volume or number of products you sell without necessarily increasing the number of hours you must work. Products do have, however, there own rules of limitation. Products take up space and must be stored, at a price. They have a tendency to require cost for shipping, packaging, insurance, inventory taxes, and personnel (again) to look after them. Sometimes you ship them and they get broken or returned to you. Sometimes this is good, but usually this is bad for you.
There are companies springing up left and right which would love to take those aspects off your hands, but they too must make a profit. Their cost must be factored into your ultimate price to the end user. Their economy of scale may actually result in a lower end user price and these fulfillment services are becoming very popular in the face of stories like a major toy company which advertised heavily but had to send gift certificates for Christmas toys ordered and promised for delivery before Christmas eve.
Beware of the Successful Model
In looking for a business opportunity, donít over estimate your ability to pull off a huge success with a particular business concept, just because you can find examples of successful models already in existence. Not everyone has the patience or capital to build an Amazon.com site. Many of the most successful sites at present were and are driven by an existing "bricks and mortar" business, which already had a huge staff, infrastructure, such as employees, computer system, massive database of customer information, and substantial brand loyalty. The amount of "force" necessary to move the "rock" of inertia is entirely different for a new business such as Amazon.com, than it is for a barnesandnoble.com, a spin-off of an already successful long-term company with established customer base and existing infrastructure.
On the other hand, knowing there is another business out there, which is comparable to the one you are contemplating, should provide you not only with a sense of relief, but also fertile grounds for you to harvest, in terms of research as to how they got so successful. Using tools available for free on the Internet, you can try to reverse engineer how the target company became so successfully.
Here are some other factors to consider when choosing a business to start:
Is it one which you already understand completely, or will a substantial part of your start-up effort be devoted simply to trying to "learn the business?"
Is it one you would really love working in. Remember, you should have a "fire in the belly" about this venture and love getting up every morning to face the new challenge and opportunity each day brings. If you donít love your business, you are less likely to be as creative and energetic is pursuing it as you must to be successful in the face of todayís hyper-competitive marketplace.
Is it one which already has market research done or available, or is it so close to the "bleeding edge" that it has no precedent nor model? The later can obviously also be a hindrance to funding.
Can you define and find your prototypical customer? Remember, you must focus on what the customer wants and needs (unless you have a really, really good marketing plan).
Is your prospective business in an industry which is expanding or contracting? Check out sites such as http://cyberatlas.internet.com/; http://www.internetnews.com/; and http://beta.greenfield.com/, and literally hundreds of others which can get you started with free market statistics, analysis of trends, and demographics.
One of the difficulties in researching your potential online business is that if you pursue many traditional resources, the information is dated. The "Internet Time" concept is one which you must master, so online information may be your best bet. On the other hand, beware of unfamiliar sites which, in their rush to get online themselves with sufficient "content" to grab your attention, may have used old data or taken liberties with their assessment of trends. On the other hand, the Internet itself, with its increasingly powerful search engines and burgeoning data, may be the best resource for data to determine whether your prospective business can succeed online.
Millions of dollars have been spent on analysis of the minutia of e-commerce. As with traditional businesses, planning is almost everything. A little luck is nice too, but if you donít take advantage of the wealth of information already out there, any business plan you develop is likely to be flawed. I have a little piece of paper, from one of those witticisms you find inside fortune cookies, stuck under the glass on top of my desk at my office. It says: "Many people spend their lives trying to climb the ladder of success, only to find they have leaned it against the wrong wall." Donít get "tunnel vision" and forget to keep your perspective on the market place and your own demographics.
In many respects, online businesses and their customers, are unlike traditional models of commerce. Many trends are just emerging, however, and you should certainly take note of them. The average online shopper is probably in his late 30s to early 40s, depending on which survey you study. The median shopper is probably male, but women are coming on strong. The average shopper is probably better educated than non-online shoppers and makes a better income. A large percentage have their own Web site and are, of course, users of computers and all kinds of other electronics.
These demographics are changing rapidly, however. Women shoppers are rapidly increasing while the percentage of males is declining. This may be the most dramatic shift at present, as women start to take the lead in purchase of major household purchases online. The income and education level of the median online shopper is quickly sliding lower, but currently includes a high percentage of college graduates. Initially, older users were a minimal market and still are generally, but the change in online stock brokerages has probably been partially responsible for getting many senior users to spend more time online to manage their portfolios. They still appear not to be as willing to make a consumer product purchase as would a younger shopper, but their time surfing the Web is rising dramatically.
This would seem to indicate you should probably focus on starting to sell major household items to women in their 40s. Probably not a bad target. How about selling hearing aids online. Probably not the easiest target to hit for several reasons. I recently, however, read some material online about a gentleman who had written on the Zen of e-commerce. I took from the material that he was involved in selling caskets online, which one would think to be somewhat contrarian of Web demographics.
If startupfailures.com can make it online, not that it has or will, you can make it if you do your research and homework and plan carefully. The good news is that you can get started for much less money and, of course, reach a tremendously greater number of potential customers with an online business than with most traditional non-online ventures. The bad news is that this international marketplace has already gotten crowed and you must work ever harder to get noticed, a topic weíll cover in depth later.