How to Start an Online Store Business PART-2

This is Part-2 of “How to Start an Online Store Business” series. If you would like to start from the beginning go to Part-1

What to sell and who to sell at your Online Store

One of the most important decisions that you need to make before starting your online store is about what to sell and who to sell.
Main goal of starting an online store business is to make money. (Hopefully this is your ultimate goal, unless you will be doing this for charity or you have money to burn and you are doing this for fun or education)

When you are finding answers to the questions listed below, always try to put yourself in your customer’s shoes. You will also notice that this is an iterative process. When you go step by step you may need to go back and validate some of your assumptions. For example you picked your market, your targeted buyers and then your product. You may later realize that there are not many wholesalers that you can buy these products from. Or they require certain permits or certification that you may not have. In this case you have to go back and make modifications and validate everything one more time.

Assuming that you are doing this to make money, here are the steps that you have to go through:
1. You need to pick a market and verify some of its conditions:
a. How big is this market? Sometimes picking a small market could be very profitable, assuming that in this small market you will get a relatively larger market share. Picking a big market also comes with difficulties. As you may guess you will have a lot of competition to deal with. Knowing the market size will help you later in guessing the addressable market size. You do not want to address the entire market. You need to identify your differentiation and targeted customer segment and product group which will reduce your addressable market. This is OK for starting a new business. It will create focus. You can now compete with the large online stores that are trying to address a bigger market to make big money. With this they will lose focus. This is what you need.
b. Is this a growing market or shrinking market? Growing market may mean that you have identified a relatively new segment and you want to take advantage of this. If this is an old market that is shrinking due to new trends, technologies or even cultural or legal changes; you may want to avoid it.
c. Is this market suitable for online selling? Some products are just not suitable for online selling. Customers may need to see it, touch it, hear it or test it. Some products may be vastly available in all neighborhoods that it is not worth to ship it individually from an online store. For example selling milk on the internet does not make any sense. For this; ask yourself if you would, your friends or your targeted customers would buy it online?
d. How is the competition on this market? You need to go online and search who is selling in this market. Are there thousands of them or very few. Moderate competition is always good. If you are the only one trying to sell something, you need to be very cautious. Unless what you found is so unique that no one ever thought about it, seeing no competition most likely means there is a major problem and you do not see it. It could be low profit, dominant players or no demand.
e. How does the threshold look like to sell to this market? Is it low enough that a high school kid with a family computer without any cash can do it? Or threshold is so big that it is very difficult to get in. For example it may require big capital, long sale cycles, technical skills or physical demonstrations etc. For this you have to realistically look at your background and fiscal and technical capabilities. Will my background help me to lower the threshold to get in to this market? If the answer is yes that is a big plus. Usually if you pick a market that you know and enjoy dealing with its products, you will more likely be successful. Try to pick a market that you do not have to deal with a hard and long learning curve. For example if you love cars and good with fixing them; selling car parts will be easier for you, instead of selling a new hot skin lotion.
f. What are the difficulties in this market? If you understand this clearly, it will help you to create your differentiation, so you will avoid being a me-too seller. In some cases me-too is acceptable where the market is growing and you are early in the game. Look at the market, research the existing sellers and try to identify the difficulties in buying that they do not address. This could be your differentiation. For example you want to sell tires for cars, but you know that after the buyer receives your cheap tires, he has to figure out how to install them and what to do with the old tires. You could come up with a sale strategy that you can establish affiliate relationship with certain smoke-test shops and offer coupons to these shops based on your customer zip code. With this you could even get certain sale commission from that store and also create a happy customer with a full solution to his problem. (This is just an example as you will guess it will be hard to get partnership with these local shops if they are in this business as well. You may be creative, you can ship the tires directly to the stores which does not want to deal with buying and selling but just want installation)
g. Differentiation: This is the most critical item in your business. It will help you to make it or break it. Pick some differentiation: be either cheapest, fastest shipping, most technical help providing, supporting after selling, 100% return policy, pay later.. Something that will separate you from the rest and add value to what you are selling.
For example if you want to sell tires, try to sell tires for old and classic cars that are hard to find in local stores.
Deciding on the differentiation once at the beginning is not good enough. After you compete your business model you have to come back and verify if this is still feasible or not. At the end you may find out that you can not be the cheapest because your volume is so low and you do not have an established business to deal directly with manufacturers to buy them cheap. Or you can not be the fastest shipper because you can not afford to build your own warehouse with large inventory to have full control over shipping time. You have to find something that adds value to your customers and something that big online stores can not afford to deal with, because it is a small customer segment for them. That is what you need to find.
Another important note about building your differentiation: Deciding on your differentiation does not mean that you have to implement it the first day that you turn your website on. You can plan it to implement it in 2-3 phases. Before you have this differentiation ready, you might focus on creating the business and the website as first priority. But remember ignoring or delaying the implementation of this differentiation will impact your success and being profitable in the long term.
2. You have to target your buyers on this market. After identifying your focus market, you have to figure out who to sell. You have to identify a group of customer that you can focus. This group could be teenagers, married woman, single men, low income, or high income families. Needs of each of these groups are different. When you pick your group, you better understand their shopping and buying decision behaviors. Focusing on this at the beginning will be important as you will optimize your product selection, web design themes and implementing your differentiation. For example if you decided to sell tires for classic and old cars, majority of your customers are going to be male and over 40 with above average income. Knowing this will help you in designing your web, deciding where to advertise and how to sell. If you pick a market for a customer group with age above 65, your online buying expectations are going to be very low. For this you may target the children of these people who will influence and help them to buy these on your store
3. You need to identify the products that will address the needs of this group of buyers and the market. Now you know your market and the differentiation that you aim and the customers that you target. Find products that address this focused segment only. Do not try to have a broad set of products that will make you lose your focus. You can always go wider and bigger later. Think and plan big, but start small and focused. This will also help you later when you are advertising to attract your customers to your site.
4. You have to make sure that you know enough about these products that you are planning to sell. You will not have enough time to learn later. When you are researching where to buy them, how to buy them, preparing your web site with the information that your customers need, you have to be knowledgeable enough to make right decisions.
5. Now it is a good time to make your revenue and profit estimates. You need to start with these estimates as you will be making many decisions that need this information. Be realistic. It is safe to assume that first few months after you start, you may not sell a single item. It is going to take some time before your search engine ratings improve and your buyers start to find you on the internet without spending money on advertising. It is going to take time for you to increase your inventory and designing and optimizing your web. At the beginning your profit margins are going to be very low. In fact you might have negative cash flow until your sales and margins improve. Make one year estimate divided in to quarters. Fist quarter zero sales and zero profit should be expected. Second quarter very low sales and very low profit, still not breaking even. Third and fourth quarter you should see modest increase. Second year should be your target for growth and profitability. This is time that your differentiation will help to achieve your initial goal.


To find out “where to get your products for your Online Store” go to Part-3. (coming soon)

If you would like to see how I implemened this plan you can go see it at my online store
Mustafa Minareci