Reflections 69200.1: Starting an online business

Starting an online business can be daunting. There are many things to consider. What skills do I have that earn money while helping others? Should I sell products or services? Should my company be formed as a Limited Liability Company or a Corporation? What tax advantages are there depending on the business entity? There are numerous questions that should be answered prior to clicking the “Build my website” button. Fortunately, there are tools available to help guide one along the way.

There are two wonderful video’s that help every person fulfill their dreams of running their own business. Both video’s are from Guy Kawasaki from a presentation at Standford University titled, “Make Meaning in Your Company” and “Don’t Write a Mission Statement, Write a Mantra.” Performing these two exercises will help one set the foundation for a wonderful entrepreneurial journey. Next, one needs to brainstorm ideas that support one’s meaning and mantra.

There is a wonderful article that will help brainstorm business ideas. The article is found at BizThoughts. This article helps start one out by utilizing various brainstorming methods that will help one come up with business ideas. Personal favorites are “The Problem & Solution,” “The Market-First” and “The Personal Strengths” methods. Look over the various methods by clicking the blue link in this paragraph.

After completion of the brainstorming method, there is speculation whether to choose a product(s) (includes service(s)) prior to choosing the business model vs. to choose a business model prior to choosing product(s) on the web. Fortunately, one has the opportunity to either first choose a product(s) or choose a business model. Regardless of the choice, One must perform a simple market analysis to determine the market space one’s product(s) would better perform. Is there an easy way to perform a market analysis?

The answer is a resounding, Yes! One method is to analyze the keywords used to identify your product. For instance, using Google Adwords, if one compared the market competition between chess and snowboards, one would find (at the time of this article) that there are 75% more searches for chess related products than for snowboards. Not to mention, snowboards fall in a high competition market vs. chess, which is a low competition market. Therefore, one needs to determine the costs of entering their product into a high or low competition market. Nevertheless, one needs to carve out a market niche that will separate themselves from the competition.

With this in mind, a business model has nine basic online categories. One is not limited to choosing only one. They could choose a combination of several models into one complete package. They are briefly defined as follows:

• Advertising: The web advertising model is an extension of the traditional media broadcast model. The advertising model works best when the volume of viewer traffic is large or highly specialized.
• Affiliate: the affiliate model provides purchase opportunities wherever people may be surfing. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites.
• Brokerage: Brokers are market makers: they bring buyers and sellers together and facilitate transactions.
• Community: The viability of the community model is based on user loyalty. Users have a high investment in both time and emotion. Revenue can be based on the sale of ancillary products and services or voluntary contributions, or revenue may be tied to contextual advertising and subscriptions for premium services
• Infomediary: Data about consumers and their consumption habits are valuable, especially when that information is carefully analyzed and used to target marketing campaigns. Independently collected data about producers and their products are useful to consumers when considering a purchase
• Manufacturer (Direct): The manufacturer or “direct model”, it is predicated on the power of the web to allow a manufacturer (i.e., a company that creates a product or service) to reach buyers directly and thereby compress the distribution channel.
• Merchant: The viability of the community model is based on user loyalty. Users have a high investment in both time and emotion. Revenue can be based on the sale of ancillary products and services or voluntary contributions, or revenue may be tied to contextual advertising and subscriptions for premium services
• Subscription: Users are charged a periodic — daily, monthly or annual — fee to subscribe to a service.
• Utility: The utility or “on-demand” model is based on metering usage, or a “pay as you go” approach.

Please share your thoughts, experiences, and lessons learned when starting an online business.

Author: Matthew Beckwith