It’s an alarming statistic: Something like half of all startup businesses fail within the first five years after being created. 25% of them don’t even last out the first year. This means that if you are trying to create a small online business, you run a very real risk of going bust very, very quickly and taking a lot of money with you in the process.
Now I cannot promise you that building your business will happen if you follow these rules. The fact is that new businesses fail for a large variety of different reasons. However, these are some of the most common problems that new businesses face and if you can deal with these issues, you have a better than average chance of actually creating a successful business. Here’s what you need to know:
Find Out about the Competition
First and foremost, find out about your competition. Now I know this sounds like obvious advice but it’s not entirely obvious advice. You see, it’s not just about finding out if there is too much competition. Obviously, if every guy and his brother is selling TV sets online at razor thin margins or even losing money just hoping to undercut the competition, trying to do the same as they’re doing is going to be an uphill battle.
However, at the same time, if there is zero competition for your product or service, you need to ask yourself a very simple question: Is there a market for my product? After all, if there’s a market for something you want to sell, odds are good someone else thought of it before you did.
There are of course exceptions to this rule. A good example is the smartphone. Prior to the introduction of Apple’s iPhone, we really didn’t have anything on the market quite like it. Yes, there were Internet connected phones and yes, there were phones you could add apps to (Symbian was a popular OS prior to iOS and Android coming on the market). However, these kinds of phones simply didn’t do everything that an iPhone could do.
However, even in the case of the iPhone, there were phones that did offer some of the features that Apple was offering. It’s not like they were completely out there, creating a totally new category. They knew there was some market for phones that could connect to the web and they knew there was some kind of market for phones that could download apps. They simply took the concept to the next level.
However, if there is nothing even remotely like what you want to sell, you need to think twice and three times about why that is. Are you truly the first person to think of this idea or is it just that nobody would want to buy such a service or product to begin with? If you find yourself in this situation, see if there is any analog to what you want to create which might be considered like the precursor to the smartphone the way Apple did before they created the iPhone. Don’t just jump in and say, there must be a market because this idea is great.
Of course, if you happen to have developed a Star Trek transporter or warp drive then by all means – you can rest assured that you’ll find a market for your products even though no real competition exists for them. However, those will generally be the exceptions that prove the rule.
Have a Business Plan
This is another one of those things that sounds really obvious but which too many people either ignore or don’t do correctly. When I say have a business plan I actually am referring to two separate things. First and foremost, you need a formal business plan (which is outside the scope of what I’m writing about here – you can find numerous resources online for how to write these) for investors and for obtaining loans.
Formal business plans include market analysis, specific advertising plans and specific projected growth patterns. Mind you, these are all vital statistics and they should be prepared. However, when I say that you need a business plan in this context, I mean something much less formal but just as vital to your business’ long term growth.
I mean that you need to have in mind a specific trajectory for how your business will grow. The reason I say this is because the barrier to entry for an online business is very, very low. Even if you don’t know how to build a website on your own, the average middle class person can easily afford to have a custom site built since they can be done for as little as a few hundred dollars to at most a few thousand, depending on the specific s of what you need done.
Thus many people assume they don’t need a formal business plan since they won’t be looking for loans and investors, at least not at first. However, even if you are one those people who intends to finance your new business all out of your own pocket, a less formal business plan is still vital. It is still important to know what the competition looks like (as above).
You also need to have a clear idea of where you’ll be spending your (likely very limited) advertising budget and whom you intend to work with for your SEO efforts (hint: we’re pretty good at that). You should have a clear plan on how you intend to service your customers if demand gets to be too high (for example, if you sell homemade cookies from home and suddenly get 1,000 orders in a day because some high profile blog wrote about you, how will you handle all those orders?).
These are details that you should have worked out before you start. Mind you, it may be as simple as making specific limits. For example, with our cookie business above, you might figure out how many cookies you can realistically bake in a given day and then set a specific number of “in stock” cookies to be sold so that you are not overwhelmed all of a sudden. If you see that your “in stock” numbers sell out too quickly each day then you might consider hiring help.
Similarly, you can usually set specific spending limits on the amount of money you spend for advertising. AdWords for example allows you to set a monthly budget so that you don’t suddenly end up with a gigantic bill for the month that you can’t afford.
Speaking of Not Being able to Afford Things
Another thing that often sinks new business is (believe it or not) growing too quickly. Whether you are a one person shop or someone with more people working for you, you’ll often find that you need to add new staff rapidly if you become popular. This creates two problems. First, you have to be able to pay your staff even if your customers take up to 90 days to pay you for the work that gets done.
Second and more importantly, hiring and training staff takes a great deal of time. You need to have a plan for how you can rapidly add staff to your company without the need to sacrifice your standards (thus losing customers).
A third issue which is less of an issue today (at least for online businesses) is the problem of needing to rapidly scale your equipment. Start a popular website and you may quickly find that your webhost shuts you down because your “unlimited” account is using too many resources.
Fortunately, it’s easy to contend with this problem – you need to simply upgrade to metered service or even just use a service like Amazon S3 to scale to higher growth rates. Just make sure that the revenue stream is enough to cover scaling. Nothing is worse than having a very popular website which makes no money and costs a fortune to keep online..
Have Positive People in Your Corner
I started this blog post with a sad fact and sadly, I need to offer you another one: Most people will be jealous of you for starting your own business. So much so that they’ll discourage you from doing so and will even try to tear you down and tell you that your ideas are bad and that you should just get yourself a “real” job.
Mind you, they won’t necessarily say this openly to you. Instead, they’ll often couch their jealousy in endearing terms as if they “care” for you and are really concerned for your welfare. They may not even realize themselves that their constant criticism, which is mostly about their own feelings are not in fact helpful at all.
While it is important to get feedback from people who will give you useful advice on how to make your business better, you should stay away from the naysayers who insist that the only thing you should do is get a “real” job. These people will wear you down and make it that much harder to stay focused and become the success you want to be.
Again however, it is also vitally important to have people who can offer real, constructive criticism. The difference basically being, you need someone who will suggest a better way to run your business effectively as opposed to the person who will simply tell you that it’s hopeless and you should give up.
That Being Said…
That having been said, it’s also important to know when it’s time to throw in the towel. I’ve written about this before but it’s still useful advice. Don’t rush to quit because your business wasn’t successful at first. You will likely need to tweak it and tweak it some more. However, if you’ve been trying for years and still can’t seem to gain any traction with your new business (which by now isn’t so new anymore), it may be time to try something else.
You Need to Love Your Job
I get annoyed when I see people on the Warrior Forum telling you about the latest and greatest business idea that’s sweeping the world and which you need to get involved with now. Sure, it’s often useful to know what the trends are but the fact is that this is a long slog. It takes a very long time to build a successful business and it’s not going to be an overnight thing. Thus, you need to love what you work in.
This means that even though writing about septic tanks might actually make a lot of money, if you find it ungodly boring to the point where you feel like you want to tear your hair out if you ever hear the words septic and tank in a sentence, you are in the wrong business. You need to be able to run a business that you have an interest in because there will be many times when you feel like you want to throw in the towel. However, if you love what you do, you’ll be more likely to stick it out.
Do Be a Critic, But Not Too Much
As an entrepreneur, you will find that you don’t necessarily have a boss to report to and as such, it’s often easy to lose sight of the problems in what you are doing for your business. Thus, you need to learn to be self-critical and ask yourself honestly whether or not what you are creating is something that your customers are likely to want to purchase.
Don’t just think that you would like it so it must be useful. Honestly ask yourself – if I were spending money on a product or service, is this one that I’d be willing to buy? If the answer is yes then great, if not then you need to think some more about how to make your product or service appeal to the masses.
On the other hand, it is equally possible to be overly critical of yourself and to simply self-sabotage you efforts to build a business. Or as a friend of mine once said regarding successful book authors, they all have one thing in common: They finished writing their books (authors, especially of first books/novels are notorious for endlessly tweaking and never feeling their work is good enough, but at a certain point, you need to accept that you are done and send your baby out into the world to sink or swim).