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e-Business Fundamentals

Your online business is going to make a fortune!

Why should it?

Most SME (small to medium size enterprises) donít do proper business plans, and not surprisingly, few new businesses survive for more than a few years.

As the saying goes, ďfail to plan, plan to failĒ.

If the business you are contemplating is Internet based, then you need to go through the process of doing a proper business plan as is prudent for any new venture. But, because it will be Internet based, you need to be aware of areas that will be different from a bricks and mortar business.

Sure, you would expect an Internet based business to have lower overheads, but an Internet business has a few fish hooks in it that you donít get with a bricks and mortar business.

An example; if you are selling something in the retail market, what affect will websites like TradeMe and eBay have?

Anything that is sold in a retail bricks and mortar store, or for that matter on any e-commerce website, will be selling for significantly less on the online auction site TradeMe, sometimes at below wholesale prices. This will be for a number of reasons:

1. Direct importation by the reseller
2. Retailer dumping stock
3. Importer selling a similar product, but the quality may not be anything like the product being sold through a shop
4. Competition.

What affect will this have on your business? Obviously your margins are going to be affected unless you are selling a unique product of your own.

Letís go through the different parts of a business plan and highlight the differences an online business will need to contend with.

Sales and Gross Margin

As has been highlighted above, just because an Internet based business may have less overheads, are you going to achieve the same level of gross margin (sale price minus cost price) if someone can click on TradeMe for the same new item?

How are customers going to pay for your products? If online by credit card or the newer debit cards, you will need to open an account with an online company such as PayPal who have the e-commerce software that processes the payment on a secure server, for a fee of course. Opening the account is free, with no ongoing monthly or yearly account fees.

Competitors

Normally, you would be looking through the Yellow Pages or using Google to find out who is also in your line of business, and where they are located.
On the Internet, your competitors may be next door, in the next street, or across the World. The Internet has no boundaries, and customers are only one click away from going elsewhere. They are not limited by the physical distance of your nearest bricks and mortar competitor who may be in the next town, and therefore it probably isnít worth the trip to get a product or service a few dollars cheaper.
Many traditional bricks and mortar companies are starting to go online as well now because they realise increasing numbers of customers go online first to research the product or service they are planning on buying, before going to the store to make the purchase.

Product Supplies

Believe it or not, some distributors will not supply Internet based businesses because of pressure from their bricks and mortar customers. If they do deal with you, they charge higher prices, effectively excluding your business from the market by lowering your gross margin to unacceptable levels. This is why a lot of Internet businesses either import product or manufacture the product themselves.
A trap for young players when importing products, especially from Asian sources. Get samples first. Often electrical goods donít comply with local regulations even though the plug on the end is correct. Electrical products arenít checked for compliance at the border, itís open slather, and YOU will be held responsible if someone is killed by a product you have sold.

Distribution

As mentioned before, an Internet business has no boundaries. A bricks and mortar business generally has a local customer base unless they are selling very specialised products and/or are prepared to freight them around the country or overseas. If you are planning to sell delicate items such as glass vases, are you able to package them satisfactorily to avoid a high level of breakages? We have all seen the documentaries on the TV where the word ďfragileĒ on the package translates to ďcan be thrownĒ. It takes a lot of resources to package up fragile or large items for transportation.

Showroom

Bricks and mortar businesses have showrooms. Internet based businesses use a computer screen to sell products. Even when you explain that you are only a warehouse, customers will still ask to come and see the product, especially if it is expensive.
Wouldnít you?
Are you able to accommodate this type of customer, especially if your business is based in your spare bedroom? Note also that there are compliance regulations that need to be addressed if you want to set up part of your property as a shop.

Marketing and promotion

Just like any business, if people donít know you exist, be it in cyberspace or as a bricks and mortar business, obviously your business wonít survive. One advantage you have as an Internet based business is that you have other tools at your disposal for driving customers to your business. These include

  • Search engines
  • Online articles
  • Viral marketing
  • Online forums
  • Online advertising

You will still need to use conventional methods of promotion for your website such as articles in newspapers etc, but unlike material appearing in written form, it doesnít become rubbish wrapping the next day.

Final Words

All this before you have made one sale, but It could stop you throwing good money after a bad idea.
Once you are satisfied that your business venture will stand up to close scrutiny and with a thoroughly researched business plan, get a trusted mentor to review your concept. Don't expect your accountant, lawyer or anyone who isn't involved in Internet marketing to give you objective advice. They don't know the unique set of problems associated with this type of business.

As we are already running online businesses ourselves, we have made most of the mistakes that can be made. We didnít have mentors when we started, so it was a long slow process of learning by our mistakes. We want you to make this journey a lot quicker than we did by helping you avoid some of our mistakes.

After you have got to this point, and decided the business looks viable, you can then proceed to the next step of planning your website. For a business that is going to be Internet based, a near enough website isnít going to be good enough. As the mechanism that is going to generate the majority of your income, you now need to plan your website to the same level of detail as your business plan.

We have covered this more fully under website Fundamentals, but in summary the next phase of your website planning will be based on the two main objectives of a successful website, those being

  • High prominence (the website is easily found) and
  • Marketing effectiveness (your visitors will do what you want them to do)
You will include the following steps in your plan to produce such a website:
  • Identify the website objective
  • Create a plan or strategy that will compel your visitors to take the required action.
  • Choose the relevant SEO (search engine optimisation) elements
  • Answer the six questions asked by any potential customer of any business
  • Create appropriate persuasive sales copy
  • Submit a Sitemap to Google
  • Implement a measurement system to monitor the performance of your website.

Click here to proceed to our website Fundamentals page to start planning your new website.

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