Over the years, we’ve been privileged to help with the launch of a large number of online businesses, big and small, and have been able to glean, from those launches, a few insights into the top ten things that one should think about when starting an online business. We’re distilling those into a brace of blog posts – here’s the first one for you to get your teeth into.
Know what you’re doing, and why you’re doing it
Just starting a business because you fancy it, because you’ve had enough of being an employee and want to prove yourself, or just because you think it’s a cool thing to do, are just some of the wrong reasons for starting a business. Do it because you’ve identified a gap in the marketplace, or you’re best placed to offer a good or service on better terms than anyone else has managed, or for some other concrete, objective, reason, not from a subjective need on your part. Whatever that objective reason is, be sure that you know that it’ll be hard – for every business that succeeds, there are dozens that fail, and you’ll have to work hard – and inevitably enjoy a little bit of luck – to ensure that yours is one of the ones which makes it.
Bear in mind that the easier you find it to start the business, the easier others will too – businesses with lower barriers to entry will be more open to competition, so you’ll find yourself at more of a risk that someone comes along and offers the same thing, at a lower price, thus adversely impacting your turnover.
Research your marketplaces
If you’re not looking to market a new product, but instead will be selling one or more existing products, then you need to be sure you know what you’re going up against. Research, as much as possible, who’s selling what, and at what prices. Where you’re planning on selling through channels outside your own website, such as Amazon or eBay, be sure to bear in mind the commissions or fees that those channels charge (and what they charge them on – whether on the net or gross price of the product, the shipping or (in the case of Amazon) pretty much everything!) and factor that into your calculations.
If you’re looking to sell a new product, then you won’t be able to look at what people are doing with precisely the same product, but can look at what they’re doing with similar products – use that research to make as accurate forecasts as possible when planning.
Know your customers
Hand in hand with knowing your competition goes knowing your customers. Research your likely target market, because that will impact on any number of areas of your business – what your branding should be, how your website should look and work, what your marketing methodology should be. If you don’t know who your customers are going to be, then you won’t know how to get in front of them, and if you do manage to get in front of them you won’t know how best to sell to them. Knowing your customers means that any money you spend on marketing will go further, and have more impact, than marketing in the blind.
Plan, plan, plan!
The benefits of an Excel spreadsheet cannot be understated. We’ve seen forecast spreadsheets ranging from one worksheet to forty. Start with a simple profit and loss and take it from there – only you will know how much detail to go into in your planning, but the general rule is that more is better than less.
Where possible, base your numbers on proven facts. Get quotes from suppliers (being sure, if you can, to see what bulk discounts are available so that you can make a calculated decision whether it’s better to outlay more up front to get a better price or not). Set out a list of all your likely costs and estimate them as far as possible – look at likely rental prices, and look up rates bills for similar properties to get an idea of what your major outgoings are going to be. Ask similar businesses what their levels of costs are – if you’re not going to be competing against them, most business owners won’t mind sharing some of their knowledge with you. Calculate your likely employee costs, remembering to take into account employer’s national insurance contributions (and the current £2000.00 NI holiday, if applicable). Be sure to bear in mind the impact of tax at the end of the day if you’re operating as a limited company.
All of this will build up into a picture of the likely finances that you’re going to experience – the more you can put into the planning at this stage, the better. If you need to go to a bank for financing, then being able to show that you have done your research, and that you take it seriously, will only ever work in your favour.
Hope for the best, plan for the worst
The one thing you can be sure of is that things won’t work out precisely as you expect. Some things may be better, some things may be worse. To help prepare you for every eventuality, take whatever forecasts you’ve got and stress test them as much as possible. Assume that sales are 10%, 20% or 30% less than you anticipate – what would the impact be on your cashflow? Then assume that costs are 10%, 20% or 30% more than you anticipate (any more than that, and you haven’t done your planning properly) – would you be able to manage? Combine scenarios – what would happen if sales were 10% less and costs were 20% more? As a precaution, consider investigating sources of finance and get them lined up to be called upon if needed, so that you know that you have a fallback position if things don’t work out as anticipated.
Keep your eyes on our blog for the second and final post in the series, which will be published early next week.