If you've ever had an idea for a product or service that you think
could net you a fortune, you may well have considered setting up an
internet business with the aim of sitting back and watching the money
roll in. After all, in 2006, consumers spent £30.2bn on online goods and
services, according to IMRG, the industry body for global e-retailing.
Over the past 10 years, the growth of the internet has resulted in the
high-profile successes of many internet-related businesses. Just a few
weeks ago, for example, price comparison service Moneysupermarket.com
became the second-biggest internet float in the world since the dot.com
implosion, after that industry behemoth, Google.The internet has certainly revolutionized the way we live our lives,
and offers a place where individuals can compete with global
organisations. But just how easy is it to get started?
Your business plan
The starting point for any new venture is to create a business plan,
says Tony Cohen, the head of entrepreneurial business at Deloitte. "You need to know your target market, know your competition, attract
funding, secure good resources, build consumer loyalty – especially
blogger coverage – and forge alliances with strategic partners," he
says. "Preparation and research are key." Jeffrey Macklin from FDUK, a company that provides part-time finance
directors to start-up businesses, says the objective of the business
plan is to tell a simple yet compelling story that leaves the reader
wanting to meet the management team and find out more about the
proposition. "It should be as succinct and accessible as possible, and
around 20 pages at most," he says.
Finding a market
One of the most important elements of setting up an online business is finding out if there is a market for your idea."It's all about finding a niche," says William Berry, a self-made
internet millionaire. "Hampers, for example, are a niche of food
retailing, but there are already market leaders in this area, so you
either need to aim for a niche which doesn't already have a market
leader, or attempt to become even more niche – by offering Christmas
hampers, say. "
Financing
There are many different financing options available to aspiring
entrepreneurs. For many businesses, raising funds may involve several
sources. Bank finance in the form of a loan or overdraft is usually cheaper
than selling shares or equity in your business, says Macklin. But he
adds that equity investment is ideal for those businesses that do not
want to increase their level of borrowing, or are unable to provide the
necessary security. If you're considering equity investment, two options are so-called "
business angels" and venture capitalists. Business angels are wealthy
individuals who look to invest in growing companies wanting to raise
between £10,000 and £250,00. They will also offer contacts and advice.
Venture capitalists will only invest – usually a minimum of £2m – if
they can see a significant return in three years, say. For internet start-ups with a sound business proposition but without
the necessary security to obtain conventional lending, the Small Firms
Loan Guarantee is another option, according to Steve Jennings, director
of business banking at Alliance & Leicester Commercial Bank. He says
cash-flow analysis is vital. "A common error businesses make is to ask for too little financial
support in the hope of getting at least some of the funding they need,"
he says. "But this is potentially a recipe for disaster."
Your website
Websites will set you back varying amounts. "The cost is relative,"
says Berry. "While a basic one could cost as little as £500, a really
good one that dominates the market could cost up to £20,000." If building your own website is not an option, try searching for web
designers online, or ask friends and colleagues for recommendations,
says Nick James, a small-business consultant and the founder of
Nick-James.com, an online club for entrepreneurs. Keep the site clean
and simple: people will buy from you if they trust the site and can find
what they want. "Make sure you update your website's content constantly, as
innovation, imagination and invention are essential if you are going to
succeed in the longer term," he says. "Also make it easy for people to
get in touch: your business needs to present a human face."
Marketing
One area where internet businesses often fail is marketing, according to Lisa Richards, a partner at accountants Smith Cooper. "Too many people fall into the trap of developing their product or
service and then expecting orders to come racing in," Richards says.
"But with no 'shop window' through which to promote yourself, how are
potential customers going to find you?" Sites such as Google AdWords can be a cost-effective way of
advertising, she says. These operate on a "pay per click" basis, so you
only pay when someone clicks through to your website. James also recommends emailing your friends and family with details
of your site. "Look out for chatrooms and discussion forums, and let
people know you're there," he adds. "Network with others and get
referrals." You may want to get a company to do search engine optimization (SEO)
for you to ensure that you catch any potential customers searching for
your type of product on the likes of Yahoo! and Google. "But try to get
them to work on the results," says Berry. "SEO isn't that important if
you have spent money effectively on online ads. A lot of people try to
get to the top of search engines – and there can only be one."
Customer transactions
Make it fast and easy for customers to order, as a site with a
difficult sales process is likely to lose customers, says James. "Fulfil
every order as fast as you possibly can," he adds. Websites should be easy to navigate so users don't get frustrated and
leave without making a purchase. Security should also be a priority,
and potential customers should be assured their details will be kept
safe. "How you treat customers matters," says James. "Talk to them as often
as possible and help them to get to know you and build confidence in
you and the services you provide. Ask them what they want from you and
react to what they tell you."
Start small and have patience
Don't give up your day job too soon, as it will take time for your
internet venture to grow – and in the meantime there may not be much
incoming revenue. As a budding online entrepreneur, you'll need lots of
energy, enthusiasm, determination and passion; but you also need to be
realistic. "Success on the web is rare," warns Cohen. "While many
businesses are launched, few make a profit, and most will never see a
return on investment. That said, while starting up an internet business
can be one of the toughest things you ever do, it can also be the most
rewarding."
