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

How to Start an Online Store Business PART-1

When I had decided to learn and experience the joy and challenges of setting up an online store, with my Engineering and Marketing background, I conducted some research on this subject.
With this research I was trying to find answers to the following questions:

How and where to host our website?
How to get a domain name?
How to design the website?
How and where to get the shopping cart solution?
How should I set the business model?
How can I take advantage of Drop Ship business model?
Which Drop Ship vendors are the best ones?
How to set up a legal company and which one I should pick? (LLC, Corp etc.)
How to get our federal tax ID?
How to get State tax ID and sale permit?
How to advertise our web site?
What should we sell?
What would be our differentiation from the existing web sites?
How do we price our items?
How do we optimize our web site for search engines?
How do we measure our success?
What are the tax implications? Can we take advantage of this with our own tax situation?
How to open a business account and manage it online?
How to get credit card, Google-checkout, Paypal (merchant) accounts to accept payments on my web site ?
How to monitor and analyze our web site activities?
How to optimize our web site for Search Engines
How to attract traffic to our web site and what kind of marketing tools are available for this?


During this period we have learned so much about this topic.
Now our site is up and running and we are advertising and bringing traffic to our new website.

I decided to share what I have learned so far to help the people thinking about setting up a new online business and learn more from people that will comment on this subject.

I want to see if anyone is interested in this topic so I can spend more time to document my experience showing step by step approach to each decision and making logical decisions based on pro and cons you face on each step. (leave some comments)


Now I will list the things that I found necessary to start this journey:

You can do all of the things that are needed to setup your online store just by yourself, without leaving home (Except maybe getting a business account at a bank. Some big banks need to see you in the branch office to be able to open an account)

Setting your expectations right is important:

How much effort is needed?
For the first week, expect to spend at least 5-6 hours a day. (If you want to achieve the results in a time frame that I have listed below)
After the 2nd week, 2-3 hours a day will be sufficient
After 2 months, depending on the traffic and sales, you may need to spend 1-2 hours a day and 2-3 hours on weekends to update your products web site etc.

How much money I will spend?
If you pick a quality web hosting company with good Shopping Cart solution you will need to spend $200-$300 for starter and expect to pay approximately $50-$60 monthly after that. (This will include domain name registration etc)
To be able to set up a legal company, get your Federal Tax ID, State Tax ID, Sale Permit, you may need to spend somewhere between $400 - $900. (This will include legal fees, application fees etc)
When you start to advertise your store you may need to spend ~$1 for a click to bring a relevant customer to your site, and expect your convergence rate to be about %5; meaning you can sell something to about 5% of your customers who will come to your site. You may need to do this to establish a customer base and start to get higher ranking on search engines. (This may continue 6 months to a year). This also means that, for each sale you will be spending approximately $20 on marketing. If you are selling low priced items cost of the good will increase and you need to watch your margins.

How soon I can see some results?
From the day that you decide to start an online retail business to setting up the web site up and running with products, it will take approximately a week. (Assuming spending few hours a day)
Second week, you can get your company established legally with Federal Tax ID and add more products in to your store.
Third week, you can start to find your web site using major search engines. That will be the official existence on the internet.
Fourth week, you can get your business bank accounts and credit card merchant accounts established and ready to accept credit cards on your online store.
Fifth week you can see the traffic increasing to your website, as a result of your marketing efforts.
Do not expect to sell any expensive items and start to make money at least for two months.

If you are convinced that your expectations are under control, now you can move..

First Thing first: Before you start to do anything you need to get organized. By doing this upfront, you will save so much time and you will work much more effectively as you will be dealing with so many things.

Here are the immediate things that you will need:

a. A computer and a relatively fast internet access (DSL, Cable etc) Later you might need a printer, scanner, a phone service (such as cheap VoIP Phone service from Vonage, as some accounts will not accept cell phone numbers) and an actual fax machine or a fax service (such as e-Fax)
b. Back up system (either local or internet based, such as Carbonite)
c. Open a HISTORY document and record everything you have done in a chronological order with dates and relevant information. (could be a new tab in Microsoft Excel)
d. Open a TO-DO-LIST document to keep your to-do lists with due dates and priorities. (could be a new tab in Microsoft Excel)
e. Open an ACCOUNTS document to keep all your new accounts, its web address, your login IDs, passwords, which credit card you used. (could be a new tab in Microsoft Excel)
f. Open an EXPENSES document to record all your expenses. Try to use a single credit card to charge for these expenses. (could be a new tab in Microsoft Excel)
g. In your hard disk create a directory structure that is organized for Finance, Legal, Marketing, Web Design, Products etc. Do the same for creating Favorite Directories in your Browser as you will be collecting so many web addresses to make decisions, revisits etc
h. Create a new e-mail account just for your new company (gmail will be the best as you will need some many Google accounts for many free and paid services.) (It does not have to be carrying your company name on this email account)


Now you are ready to move. Here are the things you need to do in a chronological order: (for each item I will provide detailed explanation in following chapters)

1. Decide what to sell and who to sell and estimate your targeted revenue and profit
2. Check your soon-to-be competitors on the internet to have an idea on the current trends, products and web designs
3. Based on what you see out there, decide on your differentiation

For step1-3 you can check more details at Part-2
4. Decide on where to get your products (distributors, drop ship suppliers)
5. Decide how to ship your products (Fulfillment houses or drop ship vendors)
6. Decide for the domain name of your web site and Register your domain name with available services (such as Register.com)
7. Consult your tax advisor or decide on how to pay tax on this company. You may think about hiring others to help you later or even bring your spouse in to the company to take advantage of some tax benefits.
8. Establish your company legally. It can be an LLC or Corporation. (It can be owned by only you or together with other partners or wife) Request for Federal Tax ID, State Tax ID and State and local Sale Permit (You can do it without leaving your home with online services such as Legalzoom )

9. Create a logo for your company. You will need this soon in jpg and jif format. You can use Microsoft PowerPoint or Adobe Photoshop) (you can download Adobe Photoshop for a trial for 30 days to try to learn and create your logo in the process. You may need this later to create and modify your product and web page pictures) There are also online services to help you to create professional logos (such as LogoMaker.com, Cooltext.com or LogoWorks)
www.logoworks.com

10. Decide on a Web and e-mail Hosting Company (such as Volusion.com)
11. Decide on a Shopping Cart Solution (such as Volusion.com )
12. Sign up for free Drop Ship services if your products need to be shipped to customers (not electronically downloaded) (with services such as Doba.com, WorldwideBrands or Dropshipaccess.com provides)

13. After this you need to prepare your return policy for your products. Later this need to be posted on your web site to get approval from your Merchant Company to give you credit card access
14. Before you have your Business Account and Tax ID, you can start to create Paypal and Google Checkout accounts that you can use later to accept payments before you have MasterCard and VISA merchant accounts
15. While you are waiting for your company to establish legally, you can start to get the product lists from the distributors and set up your web site at the web hosting company. All big services give you 2 weeks to 4 weeks trial period to do these.
16. As soon as you receive the Tax ID and the State documents, you can open a Business Bank Account and apply for a business credit card and a check book)
17. Once you have a business account, you can apply for Merchant accounts (such as SkipJack.com) to be able to accept Master Card, Visa, Amex on your web site
18. During this light period you can start to use QuickBooks Pro (to keep your finance in control) This will be a tool that can connect to your many account such as Banks, Merchant Accounts, Shopping Cart and Web hosting companies and download activities. It will also help you with tax preparation.
19. Now you have your website legally exists and hosted. Next big step is to start working on marketing your web site. Otherwise no one will know about your great products and services.
20. First think is to register your web site name with some search engines starting with Google, Yahoo and MSN live search.
21. During this period you will be adding more products to your web site and improve the look and functionality.
22. Also start to work on Search Engine Optimization (SEO) of your web site for better ranking at search engines and your customers to find you easily
23. Now is the right time to start to try Advertisement such as Google Adwords, Google Base and Yahoo Search Marketing, Yahoo Site Explorer

24. As the traffic starts to come to your web site, you need to use Traffic Analyzing tools such as Google Analytics
25. As you feel more comfortable with your web, you may start to improve the design with more powerful tools such as Adobe Dreamweaver for web design (you can download it free for 30 days)
Adobe Dreamweaver Developer Toolbox

26. You can also buy and download more professional web site pictures online (such as corbis.com)
27. Now is the time to set up your customer support tools, v-mail, emails, online blogs, reviews etc.
28. After this, it is an ongoing iterative process, to analyze your business, web site design, Search Engine Capabilities, Marketing budget and ROI (Return on investment) and Finance to make adjustments.
29. Also you need to constantly research for new products, price changes, and discontinued products and make changes, additions and deletions.

More details are coming…. Stay tuned for the following topics..

My selection process and experience on:

• Deciding on Business Model


• Web Hosting Company that I picked. (Volusion)


• Shopping Cart Solution (Volusion)


• Legal Work that I took help from (Legal Zoom)


• Drop Ship Companies that that I picked (Doba)


• Advertisement Companies (Google and Yahoo)


• Web Design Tools (Adobe)


• Analyses Tools for Web (Google)


• Merchant Accounts - to accept credit card (SkipJack, Paypal, Google)


• Business Bank accounts and Finance SW interoperability

HERE ARE SOME FREE VIDEOS ABOUT WHOLE SALE AND DROP SHIPPING

If you are looking for a Web + database Application, Caspio could be your answer, check it out...

Mustafa Minareci