Four ways to start an online business

Marketing guru Dan Kennedy once said: “the most dangerous number in business is ‘one’.” Having only one client, one supplier or one product leaves a business open to catastrophic failure if that factor should fail.

Four ways to start an online business

Imagine, for example, that you’ve set up a consultancy business, with one of your customers giving you enough work to stretch your company’s resources. All is well while the money is pouring in, but unless you find other customers, the relationship with your big client becomes a dependency.

Having said that, it’s equally easy to fall into the trap of having too many projects on the go at once, resulting in several half-thought-out ventures. In my own case, if a new business does take off, I close or sell the least profitable of my existing companies.

Magic number

Three is the magic number for me, because with three profitable businesses I get the variety, the opportunity for creativity, and the security of income I want without burning myself out. At least in theory…

Having done this several times now over the past decade, I’ve realised that all my successful businesses appear to fall into one of four categories. I’ve also noticed two important trends in customer behaviour over the past few years, as well as one commonly held belief that can only lead to disappointment.

Having only one client, one supplier or one product leaves a business open to catastrophic failure if that factor should fail

The first category of business is the “make something and sell it” type, and the trick here is to make sure you sell your product for more than it costs to produce and market. This may seem obvious, but ill-informed enthusiasm often leads people to ignore this. Sophisticated e-commerce platforms and low-cost marketing systems have lowered the barrier that once existed between businesses with innovative products and making their fortune.

This may sound trite, but it’s often better to choose a product that customers want rather than one they need, because most buying decisions are made emotionally rather than rationally. Your aim as an online shopkeeper is to encourage customers to want your products first, and then provide enough solid information to enable them to rationally justify their decision to themselves.

Think about the process of buying a house, for example. Most people go into it with a list of rational requirements, but their final choice is usually made emotionally – from a dozen houses on their shortlist, more often than not they’ll buy the one they feel best about, then find logical reasons for taking that decision.

The same principle can apply to smaller purchases. It’s difficult to justify a candle-making kit as an essential purchase; people buy them because they want to make candles – that is, it appeals on an emotional level. But to get them to actually pay for the product we have to provide solid justifications, which might include comparing the cost-per-candle with the price of quality candles in shops, or by pointing out how much cheaper our kits are than those of our competitors.

Emotional purchasing doesn’t apply to all products. I’m buying plastic end-caps at the moment, and the supplier quite wisely differentiates itself by its breadth of range and pricing. However, Component Force will be getting my business for another reason: believe it or not, it’s the only supplier I’ve found that will sell small quantities.

Okay, the unit price is ten times higher when buying 20 caps rather than 20,000, but I’ll pay that premium (or else order more than I otherwise would) if that’s the only way I can get them. This is the sort of innovation I like to see in online business.

Means over ends

Recently, I’ve noticed a trend towards selling the means for customers to make things rather than selling the end product itself. Companies such as Adobe and Microsoft have based their businesses on this approach for years, but it also presents an opportunity for smaller enterprises.

I’ve noticed a trend towards selling the means for customers to make things rather than selling the end product itself is an obvious example. By selling candle-making kits rather than candles, not only do we differentiate ourselves from most of the market, but we also tap into our customers’ desire to take control.

The average spend per customer is far higher than it would be if we sold candles, because they accept that buying a kit is more expensive than a single candle; the savings will come when they make them in quantity.

Even if you can’t see how to enable your customers to make the end product for themselves, you can still satisfy their desire for control over the purchase by offering customisations and options. For example, let’s say you sell gift hampers for dogs in your online shop.

Rather than offering a limited range of preconfigured hampers, you could offer customers the chance to mix their own by selecting from a range of components. Giving them this level of control means they’re more likely to end up with a product that meets their personal price/value sweet spot.

When it comes to their websites, most non-technical businesspeople don’t want to be given the tools to design it themselves. They want sufficient control over the design process, so they feel they’ll get what they want with minimum time or money spent.

One way web design companies can do this is by offering templates for the client to choose from or by providing multiple designs within an agreed fee.

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