I have been creating online businesses or working with others to start them since the late 1980s.
Some of them have been intentionally small, like my current consulting and publishing business that has been doing just fine for nearly eight years. The reasons why will be clear later in this article.
Others have been fairly large. One generated millions of dollars in profit. Another lost almost as much money. Both took place in a corporate environment, and both succeeded and failed for easily identifiable reasons.
I have seen many more online businesses fail than succeed. Successful online businesses often succeed for similar reasons, which is great news because a smart entrepreneur can learn from those patterns and increase the odds of making it work.
Unfortunately, failures often fail for their own common reasons, partly because many businesses will do the wrong thing even when advised against it.
The goal of this article is to lay out a mindset on starting an online business that with help with planning and strategy.
Let’s look at some important factors in making an online business a success or failure.
1) Be Open Minded and Flexible
The biggest successes start with people in charge who are open to new ideas from other people and are willing to try something new when given a good reason.
Digital media is changing so fast that flexibility and open mindedness are critical to long-term success.
They look on the lifespan of their business as a series of paths rather than one straight line. They move quickly when the environment changes.
On the flip side, failures often result from people who want to do things their way and who don’t listen to good advice.
They stick to an idea that doesn’t work rather than cutting their losses. Before they know it, they have committed too much money to a bad idea and struggle to survive. Most of them don’t survive for long.
2) Build Financial Security
The starting point of planning an online business is having the right attitude about ideas and what other people say. The next step is building personal financial security.
More than half of all small businesses fail within five years of starting up. One of the most important factors in failure is lack of capital. In other words, they run out of money or simply don’t make enough.
For a small online business with one or only a few employees, a few simple rules suffice:
- Avoid debt.
- Pay yourself the lowest salary possible.
- Sweat over every dime of expense — both business and personal.
- Let cash / profit build until the later part of the year, then invest some in the business and take out the rest to grow your own financial security.
- Work as many hours as necessary to reach your revenue targets.
- Don’t go on vacations or expect to work on vacations.
- Maximize tax benefits.
- If extra time is available, don’t hesitate to go after small projects, even if they are minimum wage. If you have five extra hours available, it’s better to make minimum wage than no wage at all.
One of the biggest reasons why I have done well with my own business is that I have been committed to the list above.
3) Maintain Low Expectations and High Hopes
One person I know was thoroughly convinced he was going to generate millions of dollars in revenue and profit from his new Web site within a matter of months.
I’ve heard that one too many times before.
For every Facebook, Google and Ebay, there are thousands of others that never even generated more than a few thousand dollars a year before fading away. The individual above was one of them.
The first priority is not making a million dollars. It is simply making enough to cover your salary and other hard expenses. Don’t plan on benefits. There usually aren’t any at this level, especially if you are bootstrapping (funding) a business with your own money.
One way to have low expectations and high hopes is by developing a budget with three revenue scenarios — low, medium and high. The low scenario should be just enough to survive. The high one should reflect strong growth. The medium may allow for a life outside of work.
4) Be Diversified
Let’s get real. The big successes on the Internet usually have just one major product, i.e., Google’s search engine. When they have more, it’s because they usually buy them.
Many more online businesses have multiple sources of revenue for the sake of flexibility and ensuring survival.
If one source fails, another can take its place. When a source becomes a hit, the business can spend less time on the other sources and more on the hit.
Do grocery stores sell only vegetables? Do clothing stores sell only jeans? Does Google make money only from text ads?
People are fully capable of juggling multiple priorities and multiple streams of income. Don’t risk it all on just one idea unless than idea is brilliant — and there is plenty of money to back it up.
5) Test Before Committing
Many failures are the result of overcommitment. The business threw too much into the idea without know if it would work.
A simple way to test an idea for a content-rich Web site is by building a blog at WordPress.com, which has free accounts and easy access to an audience. Likewise, test an e-commerce concept with a storefront at Ebay.
Many successful online entrepreneurs build multiple Web sites and flow their time and effort among them based on how well each one does. They take a small step with a new site to see the audience and advertising reaction. If it’s strong enough, they commit more resources to it. If the reaction is weak, they back away or kill it altogether.
6) Grow Incrementally
I have worked in online environments with growth rates well above 100 percent a year. They are great fun — unless they run out of control because expenses growth faster than revenue, the organization can’t hire people quickly enough, etc.
Many five-year plans for online are worthless because the environment is so unpredictable.
Set a target for growth over the coming 12 months that is reasonable and manageable. Avoid creating a goal that is desirable but has no factual basis. Use trend lines to predict near-term results.
One final tip:
Growth rates moderate over time as an online business matures. If the growth rate is 50 percent this year, it would be wise to build in a rate somewhat less for next year.
It is much more fun to beat expectations, even if they are low, than to fall way short of them when they are too high.
More information: https://www.sba.gov/content/start-online-business