After spending time in the SmallbusinessComputing.com Forums, I found that starting an e-commerce site is a pretty hot topic. I also noticed a very common thread in your posts a need to reevaluate after having started the business.
By profession I am a business planner of 20 years. I've been involved with many startup ventures ranging from manufacturing, wholesale, retail and service firms both brick-and-mortar and online projects. Regardless of the nature of the business, the planning process hasn't changed. This very universal format involves three basic elements marketing, operations and finances.
Back in the late 90s, I remember reading an Inc Magazine article about the Inc 500 a list of the nation's fastest growing, privately held companies indicating that only about half of the companies listed that year had started the venture with a business plan. At first, I thought that, as a business planner, my career could end up on the endangered species list. I quickly realized, however, that if these entrepreneurs had developed a business plan in the first place, they would have saved both money and time, made fewer mistakes and become successful sooner rather than later.
For those of you thinking about setting up shop on the Internet, I strongly suggest that you plan your venture before you open that e-door and consider the three basic subjects essential to the planning process.
Marketing: Study Success
The expression "nothing sells like success" fits nicely in this section, because, trite as it may be, it's true. Before you do anything, take a good look at the companies you'll be competing against, people who are selling or promoting the same products or services that you plan to sell. Now find the successful ones, and study what they do. The basic premise is to emulate your competitors' success and avoid their failures.
You need to learn what makes some competitors successful while others just fade away. Ask yourself the following questions:
- What versions and types of these products are selling?
- Who do they sell to?
- Where do they selling the product?
- How much do they charge?
- How do they promote the product?
Look at your most successful competitor's Web sites. Close observation will tell you what's popular, the prices they command and common on-site promotion activities. Pay very close attention to the layout, content, color schemes, shopping cart formats and navigation the sites' use. Taking the time to learn what your successful competition is doing will save you money and aggravation. There is nothing wrong in copying the way successful competitors do business.
The next phase is a bit tougher. Finding out who your competition's customers are and how they drive those customers to the site requires legwork. You'll find a ton of market research data on the Internet some of it junk, some of it free for the taking. Other studies will cost you a fee. In the end, if you just can't find enough relevant data, contract a reliable source to find, compile and analyze that data. The data will help you with three critical goals: develop advertising and promotional strategies, figure out the cost of those strategies and determine sales projections (revenue).
Operations: Balance Your Needs
Two of the most common mistakes made during a startup is either spending too much money or not spending enough. So consider the following ways to use your limited resources effectively:
- One of the greatest advantages of an online company? No storefront operation. So don't buy expensive furniture and accessories. Allocate that money to buying the hardware, software, peripherals and ASP services that will help run your Web site efficiently.
- Don't buy a year's worth of office supplies. Office Depot, Staples and Office Max provide one-to-two-day delivery for free if you spend (in most cases) $50 or more.
- Contract outside services, whenever possible, instead of hiring employees. You save on benefits costs, not to mention the worker's and unemployment compensations.
- Don't purchase more than 500 business cards at the outset. Many things can change in that first four-to six-months, such as logos, color schemes, phone and fax numbers.
- Wait before you develop hardcopy brochures. Let the evolution of your startup period pass. And limit the production of brochures to what you need for your face-to-face contacts and networking at trade shows, conventions and trade associations.
Consider the following before purchasing hardware, software, peripherals and ASP services:
Remember, when comparing and buying these products or services you are the customer. Expect the vendor to give you the very best "bang for the buck."
Finances: Flowing In and Out
I'm not going to give a lesson on financial analysis. That's a matter requiring more space than this column allows. Suffice it to say, if you did your homework in the marketing and operational planning, then you'll be able to determine the following:
- Sales Projections This is the most difficult part of the planning process. If you have no sales history it becomes even more important to conservatively project your sales. Good market research vastly improves your projections.
- Advertising Budget Again, your market research should help you develop a strategy for advertising and promoting the company name and Web site. Research the costs of conducting good SEO, and time each element of your strategy to occur at the right moment. Don't do it all at once. You need constant exposure. With increasing sales comes more opportunity to increase that exposure.
- Start-up Costs The costs of purchasing assets (software, hardware, office furniture, books, supplies, etc.). Remember! Buy only what you need. You can purchase additional or better items when your sales increase.
- Operating Overhead Costs that exist whether you're selling or not. For example, bills for Web hosting, domain name renewal, computer maintenance, salaries; benefits, utilities, supplies and more still have to be paid.
Develop your financial projections to include balance sheets, profit and loss and cash-flow statements. You may not know much about these spreadsheets, but take the time to learn what they are, how they work and how they can help you eliminate errors and hopefully prosper.
So there you have it. Plan your e-commerce site to include all the facets of the venture. Doing your homework before opening the doors will definitely result in fewer mistakes, more money to work with and the greater likelihood of success. And do remember that success is not necessarily measured by total sales, but by net profit. You may make a lot of money in sales, but controlling expenses will determine what you take home at the end of the day.
Steve Windhaus is principal of Windhaus Associates, a business plan consulting firm serving small, existing and startup ventures throughout the United States and overseas. His clients range from technology-based firms in software development, e-commerce and telecommunications to retailers of ATVs and watercraft and a variety of service firms. Steve is a published author who also conducts training in business plan development and participates as a judge in business plan competitions.
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