Business Start Ups

The rapid growth of electronic commerce has attracted many entrepreneurs seeking quick and easy profits.  But although startup costs are relatively low and launching an e-business is within the reach of almost anyone,  profits can be elusive.  Careful advance planning can help your business reach its full potential.  Maybe you already have an offline retail business and hope to sell your products online as well - the additional cost is relatively  low, and it definitely makes sense to take advantage of this new sales channel.  On the other hand, you may want to start an entirely new business and sell your products only on the Web - in other words, an "e-tail" business.  In that case you will avoid the high costs of opening up a bricks-and-mortar store, but will have to build and promote your website carefully to generate enough sales.  The key to success for any small to medium business is finding a target market and succeeding within that niche.   This article will take you through the stages of planning and building an e-commerce business, meaning a business intended to sell products online.  Many steps of the process are the same as for an offline business, but selling via the Web introduces special considerations.   I will discuss choice of products, development of a business concept, startup costs and funding, finances, creating a business plan, building a website, and marketing.  At the end of the article I've included some helpful online resources.
 

THE PRODUCTS

Your first challenge will be to decide what to sell. Any retail venture begins with products, and its success depends on marketing those products to the people who want them. While some online retailers have large inventories, others sell only one.  Whatever the size of your product line, you will need to give serious thought to the suitability of selling your products on the Web.  Currently books, music, computer software and hardware, apparel, and toys are selling well online.  That doesn't mean other products couldn't do well also, but to successfully sell your products from an online store you will need to consider the following factors:

1) The product itself

One of the biggest challenges is accurately and appealingly depicting your products on a website. For instance, selling an original perfume on a website would be difficult because customers wouldn't be able to smell the scent - the most important feature of the product.  Likewise, most consumers are reluctant to buy shoes unless they've tried them on first.  Selling artwork can be difficult because the limitations of browsers and monitors make it hard to portray the colors and details accurately. Radios would be a tough sell on the Web because customers really want to experience the sound firsthand. Low- to moderately-priced items like books and CD's are easier to sell on the Web than high-priced items like gold jewelry. To some extent this is because e-commerce is relatively new and consumers still feel tentative about purchasing online. Also, the more expensive the product, the more customers will want to "kick the tires" before they buy.  If you are offering a quality or luxury item for sale, your website will have to convey the exceptional value to consumers.

2) Guarantees and Return Policies

Fostering consumer confidence is a key to e-tailing success.  Customers want to know what options they have if purchases don't meet their expectations.  For instance, clothing purchased online might not fit correctly or might not feel and look the way the customer hoped.  If you sell clothing, are you willing to accept returns and exchanges with no questions asked?  Selling products that tend to be exchanged or returned will cost you in both time and money, but you will need to stand behind the quality of your products if you want to win customers.

3) Shipping Costs

When you sell on the Web all your products have to be shipped to the purchaser.  High shipping costs can potentially drive up your  prices or erode your profits.  Let's say you are selling a Venetian glass paperweight priced at $15.00.  Because of the item's weight and the need for careful packing, it costs you $5.00 to ship it. If you make your customers pay for shipping you are now asking them to buy a $20.00 paperweight, and that price may seem unreasonable.  If on the the other hand you decide to pay the shipping yourself, your profit margin is now reduced by $5.00.  At the other extreme, software is an ideal product to sell on the Web because consumers can purchase and download it directly from the website, with no shipping charges whatsoever. 

4) Item Availability

Where else can your products be purchased?  Let's take the example of craft kits.  I personally have three large craft stores within a few miles of my home.  They each have a large selection and I can drive to them quickly and get what I need immediately.  So why would I purchase my craft items from an online store instead?  I probably wouldn't, unless you offered me a better price, an even wider selection, or a unique product that is not available elsewhere.  Remember, your customer always has alternatives - you'll have to stay aware of what those other options are.

5) Supply Considerations

Before you open your virtual store make sure you will be able to fill the orders you receive.  If you already sell the items offline, can you make or acquire enough extra inventory to meet the additional demand?  If you are selling online exclusively and your sales skyrocket, can you step up production to meet the demand?  Nothing undermines a customer relationship faster than a botched order, and you rarely get a second chance.  Make sure you're equipped to deliver on your promises and estimate delivery times pretty accurately. 
 

THE  BUSINESS CONCEPT 

Once you've selected your products, the next step is to think through your business concept.  The outcome of this process should be a short "Mission Statement", a sentence or two describing what your business is all about - what you sell, to whom, how you sell it, and how you distinguish yourself from your online and offline competitors.  Your Mission Statement is small but mighty.  It can take some time to think through, but this forethought will lay the foundation for your business to succeed.  I believe that even the smallest business needs a Mission Statement to help them keep their focus. If you have any employees, share it with them - maybe even post it on your office wall.  It states "This is who we are, and this is what we do."  You shouldn't hesitate to change your Mission Statement as your business grows and you learn from experience, but always have one.  As you develop brochures, sales letters, flyers, press releases, or network with other businesspeople, your Mission Statement will form the basis of all your communications.
 

STARTUP COSTS AND FUNDING

Next it's time to turn your thoughts to funding your venture and making sure you have enough startup capital.  Obviously, how much you need will depend on what you want to do.  If you already sell your products offline and have an existing website, you might only need to add a shopping cart and secure processing to your site.  However, if you are starting from scratch, you will need to buy starting inventory, create an e-commerce website and find an ISP host, set up a merchant account, and promote your new site like crazy to draw visitors.  You might need a more powerful computer, faster Internet connection, second phone line, scanner, digital camera, fax machine, and printer to handle the demands of running a Web-based business. You'll probably need professional accounting, graphics, and word processing software if you don't already have them. You'll need business cards and brochures, and possibly postcards, car decals, and magazine, newspaper, or radio advertising to help you get the word out.  If you don't have another source of income to cover your living expenses, add those to your startup costs, keeping in mind it can easily take six months to a year to become profitable  List the items and their anticipated costs and you will know what how much start up capital you need.  Basically you want to have enough money on hand to keep your business - and yourself - financially solvent until you start to make a profit.

At this point you may be wondering whether you should seek a loan from relatives, friends, or even strangers.   Don't rush out in search of venture capital or take out a second mortgage on your home - in most cases, you can "bootstrap" your own business without    financial help from others.  However, if your startup costs are unusually high and you really need an infusion of cash to launch your business, make sure you understand and can live with the terms of the loan.  Venture capitalists usually want to have some input into business decisions and expect a return on thier investment within a given time frame.  The return on their investment will usually take precedence over your own profits. Ask yourself whether you can start out with the funds you have and reinvest your profits to grow the business. Starting small and building on your successes is a sound strategy for online businesses. 
FINANCES

The bottom line for any business is earning a profit.  Hopefully you will enjoy the work, find it fulfilling, and help your customers by solving their problems and meeting their needs - but ultimately every business venture must earn a profit to continue to exist.  Profit is the money that's left after you pay your expenses.  Develop a budget and enter all your anticipated expenses for each month.  As you conduct business, replace your estimates with actual expenditures so you can make your projections more accurate over time.  Some of your expenses will be "fixed", meaning they stay the same regardless of how much you sell, and others will be "variable", meaning they will vary with the quantity of items sold.  The cost of hosting your site is a fixed expense - you'll most likely pay your ISP the same amount every month whether you sell ten items or a thousand.  Your credit card transaction fees are a variable expense, meaning you will be charged some percentage of each sale you make.  Take both kinds of expenses into account and calculate them accordingly.

You'll also need to know what your profit margins are (the selling price minus your cost, including your administrative expenses).  If your profit margins are small, you're going to need to sell in volume to make a profit.  Also stay on top of your "cash flow" - money coming in versus money going out.  If you are owed several thousand dollars by customers but don't have enough cash on hand to buy inventory to fulfill new orders, you will experience a "cash flow crisis".  Bear in mind that some businesses are seasonal and take that into account.  You might make 30%-80% of your sales during the Christmas/Hanukah season, with the rest of your sales distributed over the rest of the year.  Late summer is typically a very slow period for retailers.  Consider seasonality to avoid any cash flow disasters.

Setting up an efficient and easy-to-use accounting system right from the start will save you considerable time and aggravation down the line.  Beyond planning and profitability, you need to track your earnings and expenses for tax purposes.  Even if you already have an accounting system set up for an offline business, make sure you modify it to accommodate your online business.  It makes sense to track profits from online and offline sales separately, if you have both, so you can gauge the profitability of each. 
 

THE BUSINESS PLAN

If you're seeking venture capital, your investors will almost certainly insist on a formal business plan.  They want to know you've given careful thought to your products, your market, your competitive position, promotion, the management team, and overall profitability.  But even if you don't court investors, you need to have a plan.  It doesn't have to be long and formal, but I do recommend you go through the planning process before you open your virtual doors.  At the very least, develop your Mission Statement, calculate your startup costs, project your cash flows, and research your online and offline competition.  Also create a Marketing Plan both for launching your business and ongoing promotion.  Obviously you won't have all the information you want and need in the beginning, and will have to have to base your projections on some assumptions, but make the numbers as realistic as possible. The world of e-commerce changes rapidly so you'll need to keep abreast of buying trends, new competitors, and new opportunities, and update your plan accordingly. 
 

CREATING YOUR WEBSITE

If you were an offline retailer, you would go to a lot of trouble to build or rent a store, fill it with the appropriate fixtures, stock it with merchandise, and give your storefront "eye appeal".  Your online store is no different!  In this case your website is your storefront.  Your first page is like a shop window - it needs to quickly convey what you sell and invite the customer to come in and shop.  Visitors should find your site easy to navigate and easy to understand - and most importantly, it should be easy to find and buy any items that catch their eye. The overall "look and feel" of the site should be consistent with your business, products, and target market (refer back to your Mission Statement). It should be upbeat and visually appealing, but don't go overboard with graphics - keep the focus on the products themselves.  If you have an extensive inventory, provide a search feature so customers find an item based on one or more features, or at least provide a "store directory" to help them navigate your site. 

In a bricks-and-mortar store, customers can wander the aisles, browse your inventory, and see, touch, and even smell the products.  On a website, they can only view a picture and read a description.  Make sure your pictures and descriptions do a good job of selling your products - they're all you've got!  If at all possiblel provide pictures of all your products - clear, accurate, and attractive pictures that make your products look appealing.  Even the most attractive website design and graphics won't compensate for the lack of product photos.  For items like tools and appliances it helps to show the product in actual use.  For apparel try to show items being worn by real people, and a size chart might save you some returns. 

Integrate an electronic "shopping cart" into your website to keep track of items ordered, add tax and shipping, and calculate the order  totals.  Shopping carts can either be purchased outright or paid for monthly as a part of website hosting, and prices range from free to many thousands of dollars.  If you have a small online shop with few products, you can set up your online store yourself using a "browser-based" shopping cart and templates at little or no cost beyond your time.  If you want a high-end shopping cart to integrate with your accounting and inventory systems, be prepared for sticker shock - but it might be money well spent because of the time it will save you. If possible, give yourself some "growing room" so you won't have to set up a whole new storefront when your sales increase. 

If shipping charges are additional, list your prices as "$XX.00 plus shipping" to avoid an unpleasant surprise at your virtual checkout counter. Your order form should give shipping information (expected delivery time and your return/warrantly policy). Accepting credit cards is a standard practice among e-tailers - accepting online credit card purchases can increase your sales by 50% to 80% over having customers print and mail a form.  You can get your own merchant account, if you don't have one, and either process payments manually yourself or have them processed automatically through an online service.  If you don't want to obtain your own merchant account, there are website hosts who will process payments for you in return for a percentage of the sale. But remember, not everyone will have or want to use a credit card to pay for their purchases.  For those people, provide the option of printing out the order form (after it's automatically filled in and totalled by your shopping cart) and sending it with a check or money order. 

You'll have to decide whether you are willing to accept orders from foreign countries.  If so, it's helpful to add a currency converter and foreign shipping charges to your website.  Shipping to foreign countries can get expensive, plus paperwork can be a burden, but if you choose to ship overseas you will have a "global business", literally, and have access to more markets.  If you do welcome foreign orders, indicate that on your website and consider having parts of your website tranlated into several languages (Spanish, French, and Japanese seem to be the most popular).  If you use those languages in your graphics as well as text, your site will be even more inviting to global customers.  If you don't wish to accept orders from outside your own country, state this policy tactfully on your website. 

Build your customers' confidence in the integrity of your business. Protect their privacy by not sharing/renting your mailing list without permission, and tell them so. Use secure transaction processing for credit card orders to protect their personal information (SSL is the most widely used protocol).  State your return policy on your website and abide by it.  Respond promptly and courteously to customer inquiries.  If possible, offer  assistance from a live human with a reasonable response time.  Online shopping is a relatively new phenomenon, and unfortunately scams, schemes, and fly-by-night outfits flourish on the Web.  Make it clear that your business is legitimate and you are here to stay. 

Should you build your website yourself or pay a professional?  That depends - on your talents, time, and competing priorities. Building your own website has definitely gotten easier.  If you already know HTML (or are willing to learn it) and have a flair for writing and a good eye for graphic design, you might give it a try - but chances are you will need a professional's help with some aspects of the site if it's going to look professional.  Web designers are knowledgable about the issues I've discussed above and have a range of skills including creating graphics and using them to advantage, writing website content that sells, and the finer points of HTML. He or she may also know programming  languages such as Perl, Java, and Javascript which can add dynamic features and extra functionality to a website.  Creating a website that works well, looks good, and sells your products is probably one of the best investments you can make.

Your website isn't complete until you add the "keywords" and write the "description" to be used by search engines to index your site.  Ask yourself what words Net surfers are likely to enter when they search for a site like yours.  Then try to work the same words into your title, headings, graphics, and throughout the text on your opening page and throughout your site.  Having meaningful and relevant content on the first page of your website will improve your chances of achieving a favorable search engine placement.  Having other sites linking to yours will help your chances with some of the major search engines, also.
 

MARKETING

Many people mistakenly think "marketing" refers only to making the sale.  In reality, there are "Four P's" of marketing
- Product, Pricing, Placement (or distribution), and Promotion - all of which contribute to successful selling. Promotion  is an ongoing activity throughout the entire life of a business.  You will need to make a constant effort to promote your business to potential customers and build and preserve your company's reputation.  It must be done on an ongoing basis -  consistently and persistently.  Don't be too quick to give up on a marketing technique, since they all take time to pay off in increased sales.  However, do try another tack if something isn't working out as well as you'd hoped.  Don't be afraid to experiment with "guerrilla marketing" - novel and original ideas are perfect for promoting e-businesses.  Think it through, give it a try, and evaluate the results - but do some marketing at all times.  No matter how good your product and how attractive the price, it won't sell if people don't know about it!

Once your website is ready, launch your business with some well-placed press releases.  Announce your new venture in local newspapers, trade magazines, and/or specialized publications.  An email or snail mail campaign, ezine ads, flyers, postcards, brochures, car decals, t-shirts, and promotional items will also get the word out.  Sponsoring a contest will get people's attention and give them a reason to visit your site; once they do, give them a reason to come back.  Offering a free online newsletter or ezine will remind them to visit your site often. Make sure the content on your site and in your emails has real value - does it inform, educate, enlighten, inspire, or entertain?  People receive a huge volume of email these days, make sure yours are worth reading.

Submit your website URL to all the major search engines and any specialized directories which are relevant to your business.   Yahoo generates more hits than any other search engine/directory, so take the time to submit your URL to them properly.  Monitor your search engine placements over time. If you're unhappy with your ranking, rethink your keywords, description, and/or the website itself and resubmit your site.  You might also want to use search engine optimization software to help you improve your rankings.  If you don't want to depend on the mysterious process of search engine indexing, you can pay a service like Goto.com to list your URL; the cost varies by keywords but is usually affordable.

Banner ads are an inexpensive and popular way to promote websites, but they have become so commonplace their effectiveness has diminished.  I recommend limiting the number of banner ads you place on your site.  They can too easily become "clutter" on your page.  Particularly if you have several animated banners on your opening page, the look can be distracting and overwhelming and visitors may have a hard time telling what your business is all about.  A tasteful banner or two are acceptable if  they contribute to the credibility and image of your site.  Likewise, swapping banners with another entrepreneur who has a related but non-competing business costs you nothing and can generate more traffic for both of you - a win-win situation.  Paid banners on other websites might bring you new customers, but "click through rates" are typically low.  Banner ads with an attention-getting message and "click here" feature are more effective than those without. 

Don't rely on search engines and banner ads alone to bring customers to your site.  You should promote your business both online and offline if you hope to generate enough traffic to your site.  While this might take a lot of time, effort, and ingenuity, it doesn't necessarily cost a lot of money.  Give serious thought to who your customers are and how to reach them effectively.  "Targeted" marketing is always more productive than the "shotgun approach".  Most marketing efforts take time to bring results, so plan carefully and then give your plan a chance to work.  Don't overlook the power of word-of-mouth to bring you new customers - ask your satisfied customers to "tell a friend". 

One of your best marketing techniques is building a good relationship with your customers.  Offering exceptional customer service will help you keep your customers - and it's much easier to get repeat business from existing customers than to win over a new customer.  Obviously, in order to grow your business you will need to do both, but in your enthusiasm to get new business, don't neglect your loyal clientele.  Let them know you appreciate their business and ask how you can serve them better.  Answer emails promptly and, ideally, in person (autoresponders are a great tool for giving customers more information, but when they have a question they much prefer to hear from a human being!). Thank those who give you any kind of feedback, including the ones who lodge complaints or point out shortcomings - they are giving you valuable information you can use to improve your business.
 

For more information, check out these resources:

http://www.quicken.com/small_business/   Quicken's small business guide includes tips on marketing, purchasing, taxes, researching your industry, and more.

http://wdvl.internet.com/WDVL/  The Web Developer's Virtual Library offers guidance on all aspects of website development, including design, coding, and scripting.

http://www.emarketer.com/ The eMarketer site provides e-commerce reports, statistics, and news.

http://sellitontheweb.com  Sell It on the Web is a source of free e-commerce books and reports, step-by-step guides, and an informative free newsletter on online marketing.
 
 

Jane McLain lives near Boston, Massachusetts and offers website design, custom graphics, content development, online storefront setup, and business consulting.