There is no single formula for starting an ecommerce business. The process is pragmatic rather than theoretical.
Imagine you are driving a sports car along a curvy mountain road. As you speed along, your left foot depresses the clutch, and your right hand shifts the seven-speed manual transmission. Your right foot manages the accelerator and brake as you move in and out of each turn. Your left hand is on the steering wheel, following the road’s contours. Your eyes focus on what lies ahead, helping you to anticipate your next move.
In other words, you’re doing many things simultaneously.
So it is with launching an ecommerce company. If you search Google for “how to start an ecommerce business,” you would find many guides that describe a straightforward process, populated with simple steps such as pick a product, choose a domain name, get a logo, and open up your shop using our platform, software, or tool.
These guides are not necessarily wrong, but they may not be practical. In theory, you do need to pick a product, but in practice not just any product will do. Drop shipping a low-demand item you found on AliExpress is “picking a product,” but few consumers will likely buy it.
At the end of this guide, you will find a checklist of tasks to start an ecommerce business. But I’m going to address how to start a successful ecommerce business. Each section may inspire you to take further action, such as reading an article, studying a book, or examining a tool. The sections are not steps to be done in order, but rather concepts to consider. They are:
In 2004, W. Chan Kim and Renée Mauborgne, two college professors, released the book “Blue Ocean Strategy.” For them, the business world was divided into red oceans and blue oceans.
Blue Ocean Strategy
A red ocean is full of competition. The water is red because of all of the bloody fights taking place there. A blue ocean represents clear waters.
“Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand. It is about creating and capturing uncontested market space, thereby making the competition irrelevant. It is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players,” the authors say on their website.
The idea is that a business “sailing” in a blue ocean is likely to be more successful and more profitable than businesses in competitive red oceans. If you’re thinking about opening an ecommerce business, this is a critical concept.
Is the business you’re considering going to face significant competition? Have you solved a problem for consumers that is better than your existing providers?
Consider Uber, the ride-share software firm. Uber’s success is not from being a taxi or limousine service. Its success stems from a software tool that connects drivers and riders whilst securely managing the payment process.
Before Uber, you might find yourself in the back of a taxi at the airport waiting for the driver to run your payment card right there in the car. As a rider, you hoped that this unknown driver would not skim your card number for later use or, worse still, for sale on the dark web. Conversely, the driver doesn’t know who you are or if your card is stolen.
Uber solved this payment problem. It created a blue ocean.
Your ecommerce launch doesn’t need to be this dramatic. But you do need to offer something that helps consumers solve a problem or meet a need.
Consider, also, Balsam Hill. This ecommerce company’s primary product is a high-end artificial Christmas tree.
There was a problem in the market for Christmas trees. Artificial Christmas trees were easy-to-use, unlikely to catch fire, and a lot less messy. But artificial Christmas trees of old often looked ugly or cheap compared to a natural tree.
So Balsam Hill created an amazing artificial Christmas tree that offers a natural tree’s beauty and majesty and the benefits of an artificial one. Customers are happy to pay $1,000 or more for Balsam Hill’s products.
Balsam Hill’s customers pay $1,000 or more for a Christmas tree.
This is a common scenario for blue ocean businesses.
“We set out to quantify the impact of creating blue oceans on a company’s growth in both revenues and profits in a study of the business launches of 108 companies,” Kim and Mauborgne wrote in their book’s very first chapter.
“We found that 86 percent of the launches were line extensions, that is, incremental improvements within the red ocean of existing market space. Yet they accounted for only 62 percent of total revenues and a mere 39 percent of total profits. The remaining 14 percent of the launches were aimed at creating blue oceans. They generated 38 percent of total revenues and 61 percent of total profits.”
If you can create your ecommerce business in a blue ocean, you should earn more profit than trying to sell head-to-head against established competitors.
For example, it is probably not a good idea to try to start a drop-shipping business selling protein powders. You’d need to compete with big companies such as GNC and Bodybuilding.com as well as a legion of small sellers on Amazon. The only competitive advantage in that market is the price.
However, if you offered custom blended protein powders uniquely created for each customer, you might have a blue ocean. Who knows?
You can address the problem of finding a blue ocean market in several ways.
For example, try to find a gap in the market. Many successful Amazon sellers have done this. They analyzed consumer demand on Amazon using tools such as Jungle Scout to identify opportunities. Then they developed a product to fill that gap and make a profit.
You might also start with a consumer need. Maybe you’re a vegan, and you desire more fresh pasta that doesn’t have eggs in it. So, you start making vegan fettuccine and offering it for sale.
Finally, we have used the example of a “blue ocean” to encourage you to find a way to differentiate your planned ecommerce business. There are other thought models and analogies that can help you understand the importance of differentiation, including the idea of a unique selling proposition (e.g., selling dog food on a subscription), the product-market-fit concept (an appealing product for a strong market), or the simple slogan “differentiate or die.”
It is possible to pay about $39 a month for an ecommerce platform and $29 or less a month for a drop-shipping service such as Oberlo or Spocket. Thus you could start your ecommerce business for something like $68.
Some kids spend more on a lemonade stand, and they are more likely to make a profit.
It is going to take more than the cost of dinner to launch your ecommerce business. How much money you need varies based on the particulars of your planned company. But in my experience you will require between $5,000 and $50,000 or more.
The U.S. Small Business Administration recommends trying to estimate your start-up costs, which could include:
To this, an ecommerce startup might add:
Before you launch, research each of these expenses. Estimate one-time expenditures and recurring monthly fees. You’ll want enough cash to pay for everything for at least a few months.
You have options when it comes to raising money.
We’ve addressed crowdfunding many times. One entrepreneur shared her experiences at: “Building an Ecommerce Business, Part 14: Using Kickstarter.”
a. Find an investor. “Look for individual investors — sometimes called ‘angel investors’ — or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with startup companies.”
b. Share your business plan. “Investors will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.”
c. Go through due diligence review. “The investors will look at your company’s management team, market, products and services, corporate governance documents, and financial statements.”
d. Work out the terms. “If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions.”
e. Investment. “Once you agree on a term sheet, you can get the investment. Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally come in ’rounds.’ As the company meets milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.”
For additional funding ideas, check out:
A word to the wise here: Be realistic in your estimated expenses and your funding plans, but also undaunted.
Imagine it was your dream to open a business selling vintage apparel and art. You have a vision of a brick boutique in a hip neighborhood. And your imagined online store is amazing, too, with videos and a photo gallery for every item. When you ship an order, you put it in a custom black box emblazoned with a gold logo.
But when you estimate your expenses, you discover you need $150,000 to launch. Don’t give up. Start small.
What if you opened your business on eBay only? You wouldn’t need to lease a store or build a website. You could even forgo the branded packaging. You could get started with just a few thousand dollars invested in inventory. Later, you could grow the business to meet your dreams.
Beardbrand, a company that sells men’s grooming supplies, didn’t initially sell anything. Instead, it began as a YouTube channel. Co-founder Eric Bandholz, the host of Practical Ecommerce’s podcast, started by building an audience. His low-cost approach meant that when it was time to start selling beard oils, for example, his company didn’t have to be as dependent on paid advertising as a competitor might be. Other successful merchants have adopted similar strategies.
Before launching its ecommerce site, Beardbrand developed an audience on its YouTube channel around men’s grooming.
Yogi Berra, the famous baseball manager known for his witticisms, once said, “If you don’t know where you’re going, you’ll end up someplace else.”
He’s right. You might want an ecommerce business, but if you haven’t taken the time to think about it and to plan it, “you’ll end up someplace else.”
“Many people have business ideas over the course of their careers, but often, these ideas never come to fruition, or they get lost amidst our daily obligations,” wrote finance expert Sean Heberling in an article for Toptal, the freelance marketplace.
“Interestingly, studies support the notion that those who write business plans are far more likely to launch their companies. Data from the Panel Study of Entrepreneurial Dynamics, in fact, suggests that business planners were 2.5-times as likely to [launch a company]. The study, which surveyed more than 800 people across the United States who were in the process of starting businesses, therefore concluded that ‘writing a plan greatly increased the chances that a person would actually go into business.’”
Creating a business plan follows from differentiating your company and funding it. Thus composing a plan can help with those concepts, too.
You don’t necessarily need to follow a template, but your business plan should address these areas:
For more, see “6 Leading Ecommerce Businesses Explained.”
Consider visiting the Small Business Administration’s article on business plan composition.
And don’t get discouraged. Creating a business plan takes work, but it will contribute to your success.
In my experience, it’s a bad idea to source your products via a wholesale drop-shipping service. These companies can provide quick access to items to sell, but it will be extremely difficult to differentiate your brand and earn a profit. It’s not impossible, just unnecessarily difficult.
Instead, focus on what successful retail businesses have done for years: establish supply chain relationships. This could take a few forms.
In each case, do some leg work. Some suppliers will want cash up front. Others may require a business plan before extending credit.
So far I’ve described four concepts to help launch a successful ecommerce business. The concepts are interrelated to the overall business creation process — remember the car driving analogy from above?
Some tasks, however, need to be checked off a list, regardless of the business’s niche, products, or target customers.
Market research. It’s essential to understand the marketplace if you hope to create a blue ocean or a successful addition to a red ocean. Consider the following steps.
Legal responsibilities. Your new company will have some legal responsibilities regardless of the location, such as:
Establish your brand. You’ll need at least a few brand elements. These may include:
Select software. Your ecommerce business will need software to, at the very least, present your company’s products online.
This is not a small task. You could build something yourself (with the help of developers). Or you could use an established platform, which has the benefit, typically, of free customer support that’s often critical to new entrepreneurs. What about using marketplaces such as eBay, Amazon, or Walmart?
Regardless, here are some of the software services you may need. I’ve linked to Practical Ecommerce’s Vendor Directory, where appropriate.
You have reached the end of this practical guide to starting an ecommerce business. Hopefully it’s different than the other such guides in at least two ways.
First, I am not trying to sell you software or other services. I’m offering suggestions based on 20-plus years of industry experience.
Second, I’m not trying to make the act of starting a business seem easy. It is not. It will require you, the entrepreneur, to learn new things and put what you learn into practice.
It is time for you to take action. Start the business that could change your life.
SOURCE: Armando Roggio
VIA: Practical Ecommerce
