Starting an Online Business All-in-One For Dummies

Introduction

Online businesses have finally found a permanent foothold in today’s marketplace, leaving little doubt that the Internet is not only the conduit for a viable online business model, but is often a necessary tool for building, managing, and growing any type of business. Even traditional retailers are increasingly seeing their e-commerce sales eclipse in-store sales throughout the year, and especially during major shopping holidays, such as Black Friday.

We are excited about the potential that an online business holds and the fact that e-commerce and digital marketing are now thought of as necessary components of almost any business. Since beginning our own online endeavors, we have had the privilege of meeting and working with a variety of entrepreneurs — people who, much like you, share a dream of finding economic independence by running their own businesses. As you might have guessed, many of them found success on the Internet.

The Internet provides not only a legitimate resource for starting a business that will offer a steady source of income for your family, but also a nearly endless source of ideas and opportunities to market and grow your company. It can even give you the flexibility to work from home, the freedom to work part-time, or the ability to earn an additional source of income to help make your life more enjoyable. And maybe your online business could be the next Amazon, eBay, or Facebook! Almost anything is possible with the Internet, but the pursuit of success starts with a good idea, a solid business foundation, and an endless amount of determination and hard work.

In this book, we help get you started by sharing with you the knowledge and tools we’ve picked up along the way and by providing you with a few shortcuts to help further your own online endeavors.

About This Book

Much has changed since we wrote the first edition of this book in 2006, but much has stayed the same. Our number-one goal for the book — to cover the many ways you can start or expand a business by using the Internet — is still the same. Likewise, many of the basic principles for starting your online business are still tried-and-true methods. For this fifth edition, we took great care to update all the key information that has remained valid in the past few years. Our second goal for the book is to expose you, the reader, to new trends and tools that can be utilized by all types of businesses from nonprofit organizations to traditional retailers. We searched out many of the new opportunities that have recently evolved. For example, the rapidly growing use of mobile devices, including smartphones and tablets, has forever changed the way businesses must operate online.

It’s hard to believe that the first iPhone debuted in 2007, and mobile traffic was less than 1 percent of all Internet traffic. By contrast, in 2017, mobile traffic accounts for nearly 75 percent of all traffic! Mobility has affected almost every area of online businesses, from site design principles and shopping cart features to downloading mobile applications and making mobile payments. Mobile has also provided new ways to make money online, including mobile apps, which we delve into in this edition of the book.

Similarly, another change that continues to gain momentum and provide online business opportunities is social commerce. Social media networking sites, such as Twitter, Facebook, LinkedIn, Pinterest, Snapchat, and Instagram, are now staples for both promoting your business and making money. Industry giants such as Amazon pioneered the way in which online shoppers can make purchases directly through Twitter by using special hashtags, and even nonprofit organizations are realizing significant boosts in fundraising dollars thanks to the power of donations through social media. Powering all these platforms and online businesses is the use of content to help drive website traffic (customers). Google continues to emphasize the importance of quality content and rewards those online businesses that follow suit and produce with better search engine rankings. Knowing what type of content visitors want to see and understanding how to deliver it for the best results are now critical parts of managing and growing an online business. It may seem like a lot of information, but don’t worry! All these changes (and more!) are captured in this newest edition of our book.

The book also provides you with details regarding specific online business strategies and moneymaking opportunities but also covers basic offline information. It’s the stuff that every small-business owner needs to understand, such as how to apply standard accounting principles and keep up with the legal side of running a business.

Of course, using this book doesn’t guarantee that you will make a lot of money — or any money, for that matter. We provide you with just enough knowledge and inspiration to keep your online business dreams on track. Running a business is hard work and requires persistence, dedication, and perhaps an equal mix of patience and luck.

Foolish Assumptions

While we wrote this book, we assumed a few things about you:

You’re a smart, inquisitive person who is seeking information about running a business on the Internet.

You have an entrepreneurial spirit and are a bit of a risk taker — at least in the area of starting a business.

You may be looking for ways to use the Internet to build an existing bricks-and-mortar business or to increase online donations for a nonprofit organization.

You’re comfortable using computers and browsing the Internet.

You use e-mail regularly.

You’re willing to find out about new technologies.

You want to use websites and online technologies to build a brand.

You’re open to the idea of reaching out to others on the Internet using social media, such as Facebook, LinkedIn, Twitter, and Snapchat.

You want to use the Internet to make money.

You’ve bought items online and maybe even sold a few things.

Icons Used in This Book

Throughout the book, icons call attention to important details.

remember This friendly reminder serves up important information. Whenever you see this icon, know that this information is something worthwhile to keep in mind as you move forward.

technicalstuff You can usually understand an idea without having to know its behind-the scenes details. Even when we point them out with this icon, feel free to skip them and move on.

tip Check out this helpful hint. We picked up this information somewhere along the way.

warning Pay special attention when this icon appears. It could save you from making a fatal error — at least in your online business!

Beyond the Book

In addition to what you’re reading now, this book also comes with a free access-anywhere Cheat Sheet that gives you even more pointers on how to build a loyal online customer base and promote your business through social media. Also check out our list of web resources for online businesses as well as our handy checklist when launching your online business. To get this Cheat Sheet, simply go to www.dummies.com and search for "Starting an Online Business All-in-One For Dummies Cheat Sheet" in the Search box.

Where to Go from Here

You can start reading any section of the book that most interests you or that you think is helpful to you and your business. For example, if you’re starting a business for the first time, you might want to begin with Book 1. For those needing a boost in marketing or expanding an existing business, you probably want to go directly to the books that discuss those specific topics. However, you should at least browse through every section of this book.

Even if your e-commerce skills are more advanced, it never hurts to have a refresher course on some business basics. Considering that the Internet touches many different aspects of people’s lives, you never know what unexpected tidbits of information you might discover.

If you have questions or comments, you are welcome to share them with us on Twitter (http://www.twitter.com/ShannonBelew and www.twitter.com/JoelElad) or connect with us on LinkedIn.

Book 1

Start-Up Essentials

Contents at a Glance

Chapter 1: Starting from Scratch

What Are You Waiting For? Start Your Business Now!

Choosing Just the Right Business

Getting Started

Chapter 2: Turning Ideas into a Viable Internet Business

Thinking Like an Online Entrepreneur

Putting Your Business Idea Under the Microscope

Identifying Your Market and Target Customer

Competing to Win: Analyzing Your Competition

Chapter 3: Getting Real: Creating a Usable Business Plan

Understanding the Value of a Plan

Recognizing That the Parts of the Plan Make a Whole

Getting Help to Write the Plan

Using a Business Plan Today, Tomorrow, and Always

Chapter 4: Funding Your Online Business

Bootstrapping the Low-Cost, No-Cost Site

Finding the Perfect Investor

Checking Out Alternative Financing

Taking a Shortcut: Purchasing an Existing Site

Chapter 5: Creating Policies to Protect Your Website and Customers

Taking Care of Customers

Putting Policies in Place

Delivering On Your Promises

Chapter 6: Setting Up Shop: What You Need for Online Efficiency

A Floor Plan for Success

Must-Have Equipment

Tools for Your Desktop

Your Essential Software Toolkit

Connectivity: Today’s Internet Options and More

Chapter 1

Starting from Scratch

IN THIS CHAPTER

check Recognizing when the time is right

check Understanding the different types of online businesses

check Gathering your thoughts and getting started

It’s sometimes difficult to remember a time when we didn’t have instant online access to almost anything desired, from finding a phone number for a new business (no phone book necessary!) to buying a hard-to-find bottle of your favorite wine (even if it’s located in a vineyard across the country!). The Internet has replaced or supplemented trips to the library, grocery store, travel agency, utilities company, the video store … the list is almost endless. You name it; there’s little you cannot find or buy online. Behind each of these unique and convenient online retailers are entrepreneurs that started out just like you — with a good idea for an online business and the motivation to turn it into a reality.

Of course, it doesn’t hurt that everyone from consumers to investors now recognizes the legitimacy of online businesses. It was once considered risky to shop online. But an Internet-based business model has proven to be a worthwhile investment time and time again, with the same potential risks and rewards as any other type of business. Add to the mix that technology has also come a long way, and shopping online using everything from a desktop computer or laptop, to a tablet or a web-enabled mobile phone (smartphone) is as easy as ever. And individuals are not the only ones spending more on online transactions. Increasingly, businesses of all sizes are also buying products and services online. Those same companies are also spending money to advertise on the Internet and reach their customers through traditional websites and social media sites. All these interactions represent a business opportunity by which people earn a living on the Internet. Why shouldn’t one of those people be you?

Online revenues continue to grow — for all types of products and services in almost every industry. Even during challenging economic conditions, when traditional retail stores have struggled with growth, online retail sales continue to surge. More than 270 million consumers are expected to browse and buy online by the year 2020, generating $523 billion in online sales, according to the research and advisory firm, Forrester. U.S. companies selling services online to other businesses (B2B) are also seeing impressive growth. Companies adopting an online software as a service (SaaS) business model are experiencing two times the revenue growth and three times the customer growth, according to research from the management consulting firm, McKinsey and Company. Even social media sites are providing an avenue for making and increasing online sales, with revenue from social commerce reaching $14 billion in the United States and $30 billion worldwide, according to eMarketer, an independent market research company.

Speaking of worldwide sales, consider that North America represents only a small portion of potential online consumers. The international market is growing, with Europe accounting for more than 20 percent of Internet users and Asia accounting for close to half, according to Internet World Stats. Some European countries continue to have double-digit growth in online sales, according to Forrester. These statistics represent a substantial number of potential online shoppers. Isn’t it time you join this generation of online entrepreneurs and take advantage of these rapidly growing markets and start an online business? In this chapter, we describe the kinds of businesses that exist online, and motivate you to get started.

What Are You Waiting For? Start Your Business Now!

You might have dreamed for years about starting an online business. Or perhaps you woke up just yesterday with a brilliant idea. What are you waiting for? The truth is that the most difficult part of beginning a new endeavor is making the decision to do it. You can easily get bogged down with excuses for why your business won’t happen. To keep you motivated and on track, here’s a list of the top reasons to start an online business now:

You can gain financial freedom. One major incentive for owning any business is the potential for a better income. The Internet offers the opportunity to create your own wealth.

You have unlimited customer reach. No geographical boundaries exist when you run a business over the Internet. You can choose to sell your products or services in your community, in your own country, or to the entire world.

It’s affordable. You can now create a website inexpensively and sometimes for free. The cost to maintain your site, secure products, and cover related expenses is often relatively low. This low start-up cost is especially evident when you compare the start-up costs of an online business and a traditional bricks-and-mortar business (a physical building from which to sell retail merchandise).

Your schedule is flexible. Part time, full time, year round, or seasonal: Your schedule is up to you when you operate your virtual business. You can work in the wee hours of the night or in the middle of the day. An online business affords you the luxury of creating a schedule that works for you.

Novices are welcome. As the Internet has grown, e-commerce (or electronic commerce, a type of business activity conducted over the Internet, such as sales or advertising) applications have become increasingly simple to use. Although you benefit by having experience with your products or services, the process of offering those items for sale online is easy to understand. You can set up shop with little or no experience under your belt!

You can start quickly. From online auction sites such as eBay to storefronts powered by Amazon.com, the tools that can help get you started are readily available, essentially overnight. Many of these sites (such as Amazon) handle all the details for you — they set up the website infrastructure, manage the payment and shopping cart system, and even provide easy access to merchandise.

You can expand an existing business. If you already own a business, the Internet provides you with the most economical and most efficient way to expose your business to a huge new group of customers and increase sales.

No age barriers exist. You might be retired and itching for extra income, or perhaps you’re a teenager who’s only beginning to consider career opportunities. Online businesses provide economic opportunities for entrepreneurs of all ages.

A variety of ideas qualify. As proven time and again, the Internet supports a broad range of business concepts. Although some ideas are better suited to long-term success, almost all your ideas have potential.

Niche products hold unlimited potential. Thanks to the reach of the Internet, unique or custom products have a potentially lucrative home in e-commerce. These products may not generate a large enough demand in a local market to sustain an offline business, but can find a significant customer base through the broad reach of an online audience.

Everyone else is doing it. Okay, maybe your parents wouldn’t approve of using this logic. It’s certainly true, though: People around the world are finding success and more financial freedom by starting businesses online. It’s one leap you should be proud to take!

If you’re still hesitant, consider this bonus reason: The information you need to take your business online is right at your fingertips — literally. This book gives you most of what you need to get started. Whatever else you require, such as information about conducting business in your specific state or regulations for your specific industry, is on the Internet (put there by some other enterprising entrepreneur, no doubt). You have no more excuses!

Choosing Just the Right Business

After you decide to start your own online business, you should look at the different categories of online businesses from which you can choose. In this section, we conveniently provide those categories.

remember Not all online businesses will explode like Amazon, eBay, LinkedIn, or Facebook. But even if your business never grows into a megabrand, you need to plan for the long haul. You want your business to succeed and survive. Also, selecting the right type of online business is just as important. Losing interest or lacking an understanding of your chosen business area can hinder the growth of your new online business. Putting some thought into the type of online business you want to pursue pays off.

Creating online businesses for today and tomorrow

The secret to e-commerce success is to create a business that will stand the test of time. Sure, some people take advantage of relatively short-lived trends and make a mint (from Beanie Babies and NeoPets to MySpace and Napster, for example). The odds that you could create the same magnitude of buying hysteria with a product or service, however, are small. Instead, hundreds of thousands of entrepreneurs are quietly and steadily making a respectable living by using the Internet, and their ideas will find a market for many years. They’re not making millions of dollars a month, but they’re paying their bills and making a profit.

The widely used term online business can be used in different ways. It sometimes refers to a company that operates only over the Internet and has no other physical location from which to sell goods or services. It can refer to a traditional bricks-and-mortar business that also sells over the Internet. And we sometimes use it to reference a segment of revenues generated from the web for traditional businesses or organizations. In this book, an online business is any entity (or person) using the Internet, in whole or part, as a source of income for itself, its business, or its organization (such as a club or a nonprofit agency).

Finding a business that’s your type

You can pursue a variety of businesses to earn money online. Almost all types of income-generating opportunities fall into one of two categories:

Business to consumer (B2C): Customers are typically the individual consumers who make up the general public. They buy products or services designed for personal use.

Business to business (B2B): Customers are most likely other businesses. They might buy hospital equipment, steel by the ton, employee uniforms, or anything that would be used primarily by a company.

Crossover between the two categories can occur. Sometimes, either type of customer can use the products or services you offer, as is the case with office supplies. And with more businesses now shopping online, this crossover occurs frequently.

tip Knowing whether your primary customers are individuals or businesses helps you to create more effective marketing campaigns. Typically, these two groups buy from you for very different reasons. By marketing to each individual group, you can better target your advertising messages for increased sales. You may find that your primary customers require (or respond better to) one type of marketing and that your secondary customers require another type.

Within the two primary categories, you find the different types of businesses you can operate. Here are a few examples of the ways in which you can generate revenue online:

Online retail: When you have a bricks-and-mortar (or traditional retail) store and offer your products for sale online as well, you enter the world of online retailing. You’re responsible for hiring the resources and purchasing the tools needed to sell your wares over the Internet. One example of an online retailer is the Barnes & Noble bookstore — you can buy your books online or visit the bricks-and-mortar store. As mentioned, most traditional businesses now have some component of revenue that comes from online sales.

Pure e-commerce: E-commerce is a broad term used to describe the transaction of business via the Internet. E-commerce can also refer to any website where you sell merchandise but lack a physical location for customers to visit in person (bricks-and-mortar store). For years, the term commonly used for this type of online business has been an e-commerce storefront. (Offline, the retail industry uses this term to describe the outside of a building, which includes its signage, front door, and overall image.) As online businesses, and e-commerce, have matured, the term storefront isn’t used as often. Instead, you may hear someone simply refer to a business as an e-commerce site (regardless of how it’s structured) or online merchant. In this book, we continue to use storefront to refer to a one-stop shop for setting up an online presence to sell products. Etsy.com, Amazon Marketplace, and CafePress.com are examples of storefronts. These storefront sites provide you with a custom page that displays all your wares. Etsy.com allows you to customize the page from which you sell your handcrafted or vintage wares. Amazon allows you to set up a presence or page to sell your items through its broader website. Your page on CafePress.com has a structure that matches the overall CafePress.com site. Think of it as a flea market or one of those small kiosks you see in the mall — you get your very own little shopping area that you can customize, and visitors to your page see your merchandise and can learn a little about you if you choose to include personal information about yourself or your business.

We discuss e-commerce fundamentals, including simplified solutions for storefronts, in more detail in Book 8. For now, you need to know that good storefront providers offer the following:

Templates for your website: You don’t need to build a site from scratch. Many storefront providers offer wizards or HTML files that you can customize for your storefront.

Hosting options: Many storefront providers have a variety of options for you, some free and some for a fee. These options might include shopping cart systems, phone support for your storefront, and discounts on fees if you pay rent by the year rather than monthly.

A shopping cart solution: When selling items on your website, online customers need a place to hold items as they shop, and then complete the purchase process. This virtual shopping cart is actually a back-end solution that enables customers use to buy products from you.

Payment options (possibly): The capability to accept online payment (credit card or debit card) is an absolute must. But other options allow payment to be deferred or even allow financing of purchases.

Products (in some cases): Your preferred storefront solution may offer you everything but the kitchen sink, as the saying goes. Increasingly, you have the option to use a provider that also supplies the product. Your contribution is providing unique artwork or content (as with CafePress), or simply providing traffic, or customers (as with an Amazon storefront).

An auction (in some cases): The way your customers buy products is somewhat different when you auction items. Your customers can bid on the final purchase price, as opposed to buying at a price you set. (eBay, the daddy of all online auction sites, has become so popular, however, that it has blurred the lines among auction, storefront, and online retail. We discuss eBay in Book 8, Chapter 4.)

Service business: You don’t have to sell products to have an online business. From doing taxes to writing brochures, most professional services can be sold online, just like physical products. Web-based services or applications, also called software as a service (SaaS), is another type of service business and is often sold B2B.

Content site: Charging a fee for content and information products has become an accepted business model, provided the content has sufficient perceived value, whether informative, educational, or entertaining. And as a content site becomes more popular with visitors, options such as paid advertisements on the site can also generate income. The growing use of electronic readers (such as the Kindle and Nook) as well as Apple’s iPad is helping create more acceptance and demand for paid content of all types, from e-books to podcasts. Similarly, the popularity of YouTube and other social media sites is driving interest in video. When you consider types of content to offer for sale, include video as an option for your paid content offerings.

Social commerce: A growing online moneymaking opportunity is found in a category labeled social commerce. People are discovering ways to earn revenue from Facebook, Twitter, Pinterest, Instagram, LinkedIn, and other social sites (online venues that connect and engage consumers). Whether it’s selling games and apps through social media sites, opening an online boutique on Instagram, or boosting online sales of products and services through engagement in social networks, one thing is certain: Social commerce is a real opportunity for a viable online business.

E-commerce applications: If anything lends itself for sale over the Internet, it’s technology. E-commerce applications continue to provide lucrative growth for innovators. Think of e-commerce as any type of technology product that makes doing business online (and offline) easier. Inventory programs, shopping cart solutions, and payroll management software are all examples of innovations that fit nicely in this category.

tip In Book 4, we explain how to create a revenue model for your business; you can apply this model to any of the types of businesses in the preceding list.

As you can see, you have no shortage of opportunities to satisfy your urge to start a business. After you officially decide to take the plunge, you can narrow the field and get started.

Getting Started

Even after reading this entire chapter, you might still consider having an online business to be a dream — a vision for your future. You might want to take small steps, testing the water to see whether an online business is right for you, just as you dip your toe into a pool before diving in. At some point, though, you have to decide to go for it. To that end, this checklist describes what you need to do to begin wading into your own online business:

Make the decision to commit. Although you don’t have to quit your day job, you need to acknowledge that you’re ready to pursue your goal. Say aloud, I want to start an online business!

Set clear goals. Write down why you want this business and what you expect to gain from it. These goals can be related to financial objectives, lifestyle goals, or both. If you know what you’re looking for, you can also more easily choose the right business to meet your needs.

Talk with your family. After you commit to your idea and establish your goals, share your plan. If you’re married or living with a partner, talk about your vision for the future. After all, your dream for an online business affects that person’s life too. Discussing your plans with family is also a helpful step in making your business a reality.

Create an action timeline. Unlike the broad goals you set in the first item in this list, writing down specific action steps can help you realize tangible results. From researching business ideas to obtaining a business license, assign a targeted date of completion to further ensure that you make each step happen. (Figure 1-1 shows an example of an action timeline to use with your business.)

Identify a business. As we show you in the preceding section, you can choose from different types of businesses to operate online. Before going any further, however, you have to decide which business to pursue. Narrow your choices by thinking about what you enjoy doing or which specific qualifications you already possess. Consider your professional experience and your personal desires. You might even have a hobby that can be developed into a moneymaking business.

Develop your business idea. Define your idea and determine how you will turn it into a profitable online business. (Read Book 1, Chapter 2 when you’re ready to evaluate whether your idea is feasible.)

FIGURE 1-1: A timeline for starting your online business.

After you make it through this checklist, you’re ready to go to work and transform your dream into a legitimate business.

Chapter 2

Turning Ideas into a Viable Internet Business

IN THIS CHAPTER

check Training yourself to think like an online entrepreneur

check Evaluating your business idea’s chances for success

check Scrutinizing your future customers

check Picking apart your competitors

Congratulations! After you make the emotional commitment to get started, you have to shift gears and concentrate on the next set of actions that will make your Internet business a reality. From evaluating the potential success of your idea to identifying who will buy your products, in this chapter you gain the tools to help get your idea off the ground. In the process, you begin thinking like an online entrepreneur and find out how to start your business on the right track.

Thinking Like an Online Entrepreneur

Using the Internet to conduct business is similar in many ways to operating a traditional company. In fact, many traditional offline businesses now conduct part of their business online. Today, consumers research products and services online and expect to be able to buy products or services online, even from bricks-and-mortar stores. For those reasons, the lines between online and offline businesses are increasingly blurred.

Profitability (or how much money you make after subtracting your expenses), taxes, marketing, advertising, and customer feedback are other examples of factors that affect your business whether it’s online or offline. However, some exceptions set apart an online business, particularly in regard to how you deliver products and service your customers. Even the most experienced entrepreneur can get caught in the trap of forgetting those differences. Your attitude and how you approach the business as an online entrepreneur can make a huge difference in how successful you are online.

Adjusting your attitude slightly and viewing business from behind the lens of an online entrepreneur isn’t difficult. Doing so is simply a matter of recognizing that the Internet changes the way you can and should operate your online business.

When you think like an online entrepreneur, you

See the invisible storefront. Although the doors, walls, and even the salesclerk for your online business might be invisible, they definitely exist. In fact, every part of your web business leaves a distinct impression. Yet rarely do you hear or see the response to your storefront directly from customers. Consequently, and contrary to popular belief, a website demands your continual care and attention — adding products, fixing bugs, replying to e-mail, and more.

Understand who your customers are. Even if you don’t personally greet your online visitors, don’t be fooled: The Internet offers the unique opportunity to learn and understand almost everything about your customers. You can learn where else they shop, how much time they spend on your site, what products they’re interested in, how they prefer to shop (on a desktop computer or on a mobile device, for example), what triggers or offers they respond to best, where they live and work, how much they earn annually, and on what other websites and social media networks they spend their time. Online entrepreneurs collect and use this information regularly in an effort to increase sales and better serve their customers. (When you’re ready to meet your customer, turn to Book 6, where we explain the basics on how to get and use this wealth of customer information. We go into even more detail on understanding the online buyer’s journey in Book 11.)

Respond to fast and furious changes. The way people use the Internet to buy, sell, or search for products and services changes rapidly. Also, the rules for operating an online business as imposed by both the government and the business world in general are modified almost daily. Sustaining success online means that you must take the initiative to keep up with new trends, laws and regulations, safety and security concerns, technology, and even marketing and social media tools.

Speak the language. Communicating to your customers through a website can be challenging. Your buyers want and expect quick and easy access to information. Because attention spans are limited, content should always be relevant, easy to find, and to the point.

Communicate visually. Equally important to the words you choose are the images you incorporate into your site. Whether you use purchased stock photos or pictures that you take yourself, you want images to be crisp, clear, and relevant to the message you are communicating. In addition, product images should be the best quality possible.

remember As an entrepreneur, you must choose your words, images — and even music — carefully. Your site’s content, including the words and pictures you use on your web, will

Help sell your products or services to visitors.

Serve as interesting and useful content to share on social media, which is an important method of marketing your online business.

Play a big role in search engine optimization (SEO), or the way you can increase visits to your site by placing higher on the list of rankings by Internet search engines. (Yes, images, like words, are searchable and can help increase your rankings in search engines!)

Know when (or whether) to innovate. You might be able to develop a new or different method for doing business online, although it’s probably not necessary. Innovative tools already exist, and you can often find them on the Internet quickly and cheaply. You don’t need to reinvent the wheel — you just have to know how to find and apply the tools that are already out there.

Reap repeated rewards. Establishing multiple streams of revenue or maximizing a single source of revenue is a common practice online. For instance, you might have an outstanding information product for sale on your site. The same product can just as easily be sold on other websites in exchange for a small percentage of earnings. Or you can choose to add a product from another website to your site and pay that site a percentage of earnings. (To begin increasing your earnings, read about affiliate programs in Book 4.) Similarly, you may decide to sell cloud-based or web-based services to other businesses on a monthly basis. This software as a service (SaaS) online business model provides recurring revenue for your online business. (If this is your preferred route, we delve further into running a SaaS business in Book 10.)

Putting Your Business Idea Under the Microscope

Every successful business begins with that first idea. From fast-food restaurants to selling cosmetics from home, Ray Kroc first dreamed of hamburgers at McDonald’s and Mary Kay visualized selling makeup door to door. When the Internet first provided similar opportunities, Jeff Bezos visualized a way for consumers to buy everything from books to clothing and have it delivered straight to their doorsteps through Amazon. Your dream for an innovative new business is no exception — and the Internet has continued to make it easier than ever to launch a successful business. Maybe you have several unique concepts to choose from or are firmly set on a single one. Either way, how do you decide whether you should quit your day job and focus on your brilliant idea? You have to pick apart the idea, observe closely, and determine whether it merits a full-time (or part-time) business.

One question often asked is whether or not the idea has to be original. Innovative, never-before-broached ideas for an online business certainly exist. But being the first to have and implement an original idea is not a guarantee for success. Likewise, there may be exceptional opportunities for updating or modifying an existing business to an online format. Consider that Netflix became an online streaming version of bricks-and-mortar video rental stores. The video rental concept was not new, but Netflix took video rental online and eventually became part of the reason for the demise of the leading offline video rental giant, Blockbuster. Ultimately, your concept for the business, whether it’s a new idea or a twist on an existing idea, must be well thought out to increase your probability for success. This section describes the three methods you can use to decide whether your idea has potential.

Using informal research to verify your idea

The best place to begin gathering information is from sources closest to you. Be prepared to receive varying opinions — both positive and negative. Use this input as a general gauge of whether to continue reaching out to the next source of information. You and your idea are in the center, surrounded by three rings from which to collect input, as shown in Figure 2-1. If the ring closest to you provides mostly positive input, proceed to the next ring.

FIGURE 2-1: Using your close contacts and moving outward is a good method for gathering information.

Ring 1 consists of your friends, family, and coworkers. Ask them these questions:

Have you ever heard of this type of product or service?

Would you buy this product or service?

Do you think it’s a good idea?

What challenges do you think I will encounter?

What are the benefits?

Can you envision me selling this product or service? Why or why not?

In Ring 2, seek input from industry professionals, investors, other entrepreneurs, and organizations that offer support to small businesses. Ask questions similar to those listed for Ring 1. Because of the experience of the people in Ring 2, you should give more weight to their responses. Small-business support resources include the following:

Small Business Administration (SBA) (www.sba.gov): The SBA, a government-sponsored organization, helps small-business owners with loans, paperwork navigation, free seminars, and other services.

Small Business Development Center (SBDC) (www.sba.gov/sbdc): The SBDC is a partnership between the SBA and universities. Together, they provide support, mentoring, training, and educational services to both new and established small businesses. SBDCs are available through local branches, often located in a partnering university or Chamber of Commerce.

Chamber of Commerce (www.uschamber.com): From small towns to large cities, all local chambers help owners develop their small businesses.

SCORE (www.score.org): This network of retired executives matches small-business owners with business-exec retirees who volunteer their time to help small businesses develop and prosper.

In Ring 3 are your potential customers. Ask them these questions:

Would you use this product or service?

Have you used something similar?

How much would you be willing to pay?

How often would you use it?

Where would you normally go to buy this product or service?

Would you order it over the Internet?

If you find that you’re receiving a majority of positive feedback from sources in all three rings, you can consider your idea worthwhile. Or at least you have enough validation to continue to the next phase of your evaluation process. Later, you may want to return to this list of friends and customers and ask them to beta test, or try out an early version of your product or service before it is fully available to the general public.

Applying a SWOT analysis to your idea

Another popular method for determining the pros and cons of an idea is referred to as SWOT analysis. (SWOT is short for strengths, weaknesses, opportunities, and threats.) Companies use it for several reasons, including as a decision-making tool for product development. The simple process also lends itself to a more thorough investigation of your business idea. This section covers how you can put your idea to the SWOT test!

Create your own SWOT chart by following these steps:

On paper, draw a cross (or a box divided in half both horizontally and vertically) to create four quadrants, and label them as shown in Figure 2-2.

After you draw and label the chart, you can begin to fill in the details.

In each quadrant, write down the factors that influence or contribute to each of your four SWOT categories.

tip Strengths and weaknesses are considered internal factors that control or specifically contribute (good or bad) to the business concept. Opportunities and threats are external factors that are influenced to some extent by the environment or are otherwise outside of your control.

Analyze the information you filled in. Ask yourself the following questions to start developing your SWOT analysis:

Strengths

What advantages does the product or service offer?

Do I have expertise in this business or industry?

Can I get a patent to protect the idea?

Weaknesses

How much does developing the product cost?

Is getting suppliers difficult?

Am I learning a new industry from the ground up?

Opportunities

Does my idea take advantage of a new technology?

Is my product or service in demand?

Have changes in policies or regulations made my idea necessary?

Threats

Does my product or service have established competitors?

Do my competitors sell the product or service for less than I can?

Will changes in technology make my product obsolete?

tip Use the feedback you receive from your informal research (during the Three Rings exercise) as factors in your SWOT quadrants. Combining other people’s opinions with your own provides a more comprehensive — and useful — SWOT analysis.

After you fill in the categories of your first SWOT analysis, take a look at which quadrants contain the most factors or the most significant factors.

The listed strengths and opportunities indicate the advantage you might have in the marketplace. If you’re lucky, they outweigh your weaknesses and challenges. Perhaps you can now see what you must do to offset those disadvantages if you really want your idea to work.

FIGURE 2-2: Start your SWOT chart to help investigate your business idea.

Whatever the outcome of your analysis, you should have a better feel for the value of your business idea after viewing the completed SWOT analysis.

Creating a feasibility study to validate an idea

After your idea gains a nod of approval from friends and family and the SWOT analysis indicates that your product has merit, your idea must jump through one more hoop for complete validation. A feasibility study is a somewhat formal, written process that helps you determine whether your idea is realistic. The goal of the study is to provide you with final proof that your business concept is viable.

A feasibility study answers these basic questions:

Will the product or service work?

How much will it cost to start?

Can your idea make you money?

Is the business concept really worth your time and energy?

CHOOSING THE BEST IDEA FOR YOU

Perhaps you have no trouble dreaming up new ideas for a business. Instead, your challenge is deciding which one to pursue. Unlike the SWOT analysis or feasibility study, no established test determines which of your many pursuits is best suited for you. This decision is much more subjective and personal. When deciding which idea is best for you, consider the following questions. Use your answers to help gauge such things as how passionate you are about a particular idea or which ideas may be better suited for your current skills or lifestyle.

Does this idea interest you?

Does this product or service excite you?

Do you have experience with this product or service?

Does it require a large investment?

Do you have money readily available to fund the concept?

Will starting this business require you to alter your lifestyle?

Are you willing to change your lifestyle for this idea?

Does this business reflect your personal goals?

Does this idea reflect your professional goals?

Can you imagine owning this same business in 10 years?

A feasibility study kicks your analysis up a notch. It relies on in-depth research to provide more detailed answers to questions in five primary areas, as shown in Figure 2-3.

FIGURE 2-3: Answer these questions for your feasibility study.

Now you know how much information you have to gather in your feasibility study. As you answer all these questions, make sure that you back up those answers with detailed research. Then write your results in a one-page summary that discusses what you discovered. Your summary should answer all of the questions in each category and provide proof of whether you have a viable idea. After the validation process is complete, you can turn your attention to the next piece of the business success puzzle: potential customers.

Identifying Your Market and Target Customer

The terms target market and target customer are defined as the entities that buy your product or service. Although these phrases are sometimes used interchangeably, market is often used to describe a collection of individual target customers. The term buyer persona is also used as a way of providing a detailed description (or persona) of your typical customers. You most likely have several types of customers, each with a unique persona — and you mostly likely have several buyer personas that make up your target customers.

Classifying your customer

Knowing your target customer is an important advantage when you begin marketing. As we explain in earlier sections in this chapter, recognizing your primary customers lends credibility to your business concept. The more you know about your target customers, the more easily and cost-efficiently you can build your business and market to these folks.

How do you decide who this person is or who the groups of people are? You can create buyer personas by describing or segmenting your customers based on different traits or classifications. The two most common classifications are

Demographics: Age, income, gender, and occupation are examples of common factors used to describe your customers.

Psychographics: Music choices, hobbies, and other preferences make up this category. Usually, psychographics reflect lifestyle choices.

You can describe your customers in other terms as well, such as these categories:

Benefits: Describe why customers use your product or service. For example, customers might need it for medical purposes. Or they might receive a luxury benefit, where they don’t need the product or service but choose to invest in it for perceived benefits.

Geographic preferences: Point out where people live. The location can include a specific neighborhood, city, state, region, or even country. Customers can also be segmented according to home (or residential) locations versus business locations.

remember Technology has made it easy to target your customers by location. Knowing where your customers are in terms of geography can be a critical competitive advantage.

Use-based preferences: Specify how frequently customers want or need your product.

Typically, your target market includes customers described by a mixture of the terms and categories in this list, which you use to develop your buyer persona. For instance, if you sell trendy men’s clothing at discounted prices, one buyer persona for your target market might be described this way:

Male

Age 25 to 30

Professional

Owns home or rents high-end apartment, with a total annual household income of $50,000 or more

Lives in urban area or major metropolitan city

Buys clothing at least monthly and updates style seasonally to enhance appearance

remember Depending on what type of product you sell, your target market most likely includes a wider mix of customer types — not just one.

Going to the source

In the preceding section, we talk about the components of a market description. Where do you get the information to build this type of description, though? You can use any or all of the following methods to gather information for your customer profile:

Survey potential (or existing) customers. Conduct a focus group in which you interview a small group of likely customers. Or distribute a survey or registration form online to gather the data.

Observe competitors’ customers. Stake out your competitors by visiting them online. You can often discover exactly what competitors think about their own customers by reading through their sites. (This information is often readily available on competitors’ websites in sections labeled About Us or Company Information.) For competitors with retail locations, visit their stores and observe the customers and their habits in person.

Use published market research. To identify the types of customers most likely to buy your products, read about trends in reputable market reports. You can find much of the research for free online. Larger research firms charge a fee (which can range from several hundred dollars to several thousand dollars per report) for detailed reports. If this type of research interests you, start with companies such as Gartner (www.gartner.com), Forrester (https://go.forrester.com), or IDC (www.idc.com).

Use this information to pinpoint who your customer is.

Competing to Win: Analyzing Your Competition

If you’re serious about developing a successful online business, you need every advantage possible. That means getting to know not only who your customers are but also who else is after their business. Start by writing down a list of your top three to five competitors.

Keep this list on hand, and document basic information, such as

Website address

Physical address (if they have one) and number of locations

Annual sales (if publicly available)

Number of employees

Types of products or services offered (with full description)

Strengths and weaknesses

Copies of ads, flyers, and brochures

Special promotions (especially online offers)

Pricing information for products or services similar to yours

tip As a quick and easy way to keep up with your competition, visit their websites and sign up for their newsletters and other promotional offers by e-mail. You can also follow them on social media sites such as Facebook and Twitter.

Be sure to maintain a list of your secondary competitors, too. These companies don’t sell your exact products or services but come close enough to compete for your customers’ dollars.

Hooray! You completed your due diligence and have a fat file of information about your stiffest competition. What now? This kind of data does you no good when it just takes up space in a filing cabinet. Use it to your advantage.

Sift through your collected information again to refresh your memory (because you probably have lots of information), and then follow these steps:

Compare apples to oranges. Using the information you collect, compare both your strengths and weaknesses to that of the competition. (You can even do a complete SWOT analysis on each of your competitors!) This comparison identifies where you fit in the marketplace relative to other players in your area of interest.

Plan your marketing strategy. You have access to your competitors’ marketing material, so use it to define your own marketing strategy. Play up your company’s strengths in ads; advertise in markets that your competitors missed; and plan to educate your customers on the benefits that separate you from your competition.

Create a competitive pricing model. Maybe you discovered that you could beat a competitor’s price. Or perhaps your research shows that you must price lower to survive. Use a competitor’s pricing data to map out the best pricing model for your product or service.

Determine growth models and financial requirements. Suppose that a major competitor is ready to partner with a big distributor. Although you might not be able to compete immediately, this information helps you plan for growth. Use this knowledge to better understand your competitor’s growth and financial strategies, and then adjust yours accordingly.

remember The old cliché is still accurate: Knowledge is power. Don’t let good information go to waste. Use what you learn to differentiate yourself and win points with your customers.

Chapter 3

Getting Real: Creating a Usable Business Plan

IN THIS CHAPTER

check Understanding the purpose of a business plan

check Organizing the pieces of your dreams into tangible goals

check Determining when you need help and what to expect

check Getting long-term value from the plan you make today

One big complaint from entrepreneurs, especially those running small companies, is Why do I have to write a business plan? Quite honestly, you don’t. Some entrepreneurs who choose to forgo a business plan do just fine, but others struggle.

In this chapter, we tell you why having a business plan is a good idea and show you the benefits you can reap from not only having one but also reviewing and updating it regularly.

Understanding the Value of a Plan

Starting and managing a business without a business plan is, like it or not, the same as searching for a buried treasure without a map: Although you know that the gold is in the ground somewhere, you’re wasting an awful lot of time by randomly digging holes in the hope of eventually hitting the jackpot. Without a plan, the odds of success aren’t in your favor.

Why, then, do people resist using this tool? They resist it for two reasons:

Having a plan involves a great deal of work. Don’t despair: You can minimize the amount of work involved, which we get to momentarily.

They don’t understand the importance of having a plan.

To help you overcome your business plan angst, we provide these reasons for having a plan — you can decide whether to take another step without one:

You can more easily secure money. This goal is probably the most common reason for the creation of a business plan. If you decide to ask strangers to lend you money, whether those strangers are bankers or private investors, they want to see a plan. Lenders have a better chance of protecting (and recouping) their investments when a formal strategy documents your projected income and profits. Even if you’re counting on family members for a loan or are using your own funds, having a business plan confirms that you have thought about how to use the money wisely.

A plan creates a vision that gives you a well-defined goal. Coming up with a great idea and transitioning it into a viable business opportunity can be challenging. Having a written plan forces you to fully develop the long-term vision for your product or service. With those clearly defined goals in place, you stand a much better chance of accomplishing your vision.

A plan can provide timeless guidance. Done correctly, this document provides a concrete plan of operation for your business — not only during your start-up phase but also for three to five years down the road. Keep in mind that the plan might need occasional tweaking (as discussed at the end of this chapter). However, investing the time now to create a strong foundation ensures that you have a barometer to help you make decisions for managing your company.

Chances are that at least two of the three reasons on this list are valuable to you. Even if you don’t plan to attract investors, you’re already forming a picture about what your company looks like, and you’re setting goals to make sure that you get there. The only remaining step is to make your thoughts more permanent by writing them down in a business plan.

Recognizing That the Parts of the Plan Make a Whole

A traditional business plan is sectioned into seven or eight major parts. At first, that number of parts might seem a bit overwhelming. Consider, however, that most experts recommend keeping a finished business plan to fewer than 20 pages. (You can usually get by with many fewer pages.) When you break down that recommendation, each section becomes only 2 or 3 pages long, which translates to 5 or 6 paragraphs per page. It’s not so much after all.

remember Each part plays a critical role in your overall plan. Although each section can almost stand alone, the sections work together to present a complete picture, or vision, of your business. Don’t even think about omitting one of them.

tip Depending on your main purpose for having a business plan, you can develop sections with more diligence. For example, if you’re seeking outside funding, make sure that the financials section is as thorough and accurate as possible.

Before you start writing, get a sense of the scope of your plan by reading these brief descriptions of the basic parts you need to cover:

Executive summary: Although this part comes first in your plan, you typically write it last. This brief page does just what it says: It highlights the major points from each of the other parts of the plan. This page is usually the first one that investors and other advisors read, and how well it’s written can determine whether they turn the page or show you the door.

Business or product description: This section provides a detailed description of your overall business and your product or service. You should include a vision statement (or mission statement), which summarizes your goals for the business. When you describe your product or service, don’t forget to pinpoint what makes it a unique and viable contender in the marketplace.

Market analysis: Provide a thorough description of your target market. In this case, discuss both the overall industry in which you’re competing and the specific customers to whom you’re marketing. Don’t forget to include a description of any market research you conducted.

Competitive analysis: In much the same way as you describe your target market in the market analysis, in this section you provide an in-depth view of your competitors in that market. The more detail you can provide, the better, to show exactly how well you understand (and are prepared for dealing with) your competition. Address your competitors’ weaknesses and also state how you can counter their strengths.

tip Don’t double up on your work. Use information you gather during your SWOT analysis and feasibility study (see Chapter 2 of this minibook). Adapt the research and results of both to include in the market analysis and competitive analysis sections of your business plan.

Management team: Whether you’re flying solo on this operation or working with a team, highlight the expertise that you and your executives bring to the table. Include summaries of your key professional experience, educational and military background, additional certifications and completed training programs, and all other relevant accomplishments. Remember to include a copy of your full résumé.

Operations: Here’s where the rubber meets the road. Use this section to describe your marketing and operations strategies. Then detail how you plan to implement these strategies in your business. Think of the operations section as your chance to prove that you know how to convert innovative ideas into a successful business.

Financials: Start talking money. In this section, you include projections (or estimates) of how much money the business will earn and your expenses, or costs of doing business. This combination is typically referred to as a profit-and-loss (P&L) statement. For the first year, break down this information for each month. (This listing demonstrates how far you must proceed into your first year before you start making money and indicates where seasonal slow points might occur, with smaller amounts of income coming in.) After the first year, show your projections annually. (See Book 2 for complete descriptions of legal and accounting requirements.)

tip When you’re pursuing outside funding, try to be optimistic about your financial projections. Don’t be unrealistic, but don’t be too