A Practical Guide to Starting an Ecommerce Business

There’s not one formula for starting an ecommerce business. The practice is pragmatic rather than theoretical.

Imagine you’re driving a sports car along a curvy mountain road. As you speed along, your left foot depresses the clutch, and your right hand changes the seven-speed manual transmission. Your right foot handles the accelerator and brake as you move in and out of every turn. Your left hand is on the steering wheel, after the road’s contours. Your eyes focus on what lies ahead, assisting you to anticipate your next move.

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To put it differently, you are doing lots of things simultaneously.

So it’s with launching an ecommerce business. If you search Google for”how to start an ecommerce company,” you’d discover many guides which describe a straightforward procedure, populated with simple steps like pick a product, pick a domain name, get a logo, and start up your store using our platform, applications, or tool.

These guides aren’t necessarily incorrect, but they might not be practical. In theory, you do have to decide on a product, but in practice not only any product will do. Drop shipping a low-demand thing you discovered on AliExpress is”choosing a product,” but few customers will probably buy it.

At the end of the guide, you’ll discover a listing of tasks to begin an ecommerce business. But I will address how to start a successful ecommerce enterprise. Each section may motivate you to take additional action, like reading an article, analyzing a book, or analyzing a tool. The sections aren’t steps to be carried out in sequence, but rather concepts to take into account. They are:

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  • Solve a Problem
  • Arrange Funding
  • Create a Strategy
  • Source Products
  • Checklist of Tasks
  • Take Action
  • Further Reading

Solve a Problem

In 2004, W. Chan Kim and Renée Mauborgne, two college professors, published the publication”Blue Ocean Strategy.” For them, the company world was split into red oceans and blue oceans.

Blue Ocean Strategy

A red ocean is filled with competition. The water is red due to all the bloody fights occurring there. A blue sea represents clear waters.

“Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to start up a new market area and make new demand. It’s all about capturing and creating uncontested market space, thereby making the competition irrelevant. It’s based on the view that market boundaries and business structure aren’t a given and can be researched from the beliefs and actions of industry players,” the writers say on their site.

The point is that a company”sailing” in a blue sea is very likely to be more successful and more profitable than companies in aggressive red oceans. If you’re considering opening an ecommerce company, this is a vital idea.

Is the business you are contemplating going to face substantial competition? Have you solved a problem for customers that is much better than your present providers?

Consider Uber, the ride-share software company. Uber’s success isn’t out of being a taxi or limo services. Its success stems from a software tool which connects passengers and drivers whilst safely handling the payment procedure.

Before Uber, you may end up in the back of a cab at the airport waiting for the driver to conduct your payment card right there in the car. As a driver, you expected that this unknown driver wouldn’t skim your card number for later use or, worse still, available on the dark net. Conversely, the driver does not know who you are or if your card is stolen.

Uber solved this payment issue. It created a blue ocean.

Your ecommerce launching doesn’t have to be this dramatic. However, you do have to offer something which helps consumers solve a problem or fulfill a need.

Consider, too, Balsam Hill. This ecommerce firm’s primary product is a luxury artificial Christmas tree.

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There was a difficulty in the marketplace for Christmas trees. Artificial Christmas trees were easy-to-use, unlikely to catch fire, and a whole lot less messy. But artificial Christmas trees of old often looked cheap or ugly in comparison to a pure tree.

So Balsam Hill made an remarkable artificial Christmas tree that delivers a pure tree’s beauty and majesty and the advantages of an artificial one. Clients are happy to pay $1,000 or more for Balsam Hill’s products.

Balsam Hill’s clients pay $1,000 or more to get a Christmas tree.

This is a frequent situation for blue sea businesses.

“We set out to measure the effects of creating blue waters on a organization’s growth in both revenues and profits in a study of the company launches of 108 businesses,” Kim and Mauborgne wrote in their book’s first chapter.

“We found that 86 percent of those launches were line extensions, in other words, incremental improvements inside the red sea of current market space. Yet they accounted for just 62 percent of total earnings and a mere 39 percent of total profits. The remaining 14 percent of those launches were aimed at creating blue oceans. They created 38 percent of overall revenues and 61 percent of total earnings”

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If it is possible to make your ecommerce company in a blue sea, you need to earn more profit than attempting to market head-to-head against established competitors.

By way of example, it’s most likely not a great idea to attempt and initiate a drop-shipping company selling protein powders. You’d want to compete with large companies like GNC and Bodybuilding.com in addition to a legion of small sellers on Amazon. The only competitive advantage in that market is the price.

However, in the event you offered custom mixed protein powders uniquely created for each client, you may have a blue sea. Who knows?

You can cover the problem of locating a blue sea market in a number of ways.

By way of instance, try to discover a gap in the marketplace. Many successful Amazon sellers have done this. They examined consumer need on Amazon using tools like Jungle Scout to recognize opportunities. They then developed a product to fill that gap and turn a profit.

You may also begin with a customer need. Perhaps you’re a vegan, and you want fresh pasta which does not have eggs in it. Thus, you begin making vegan fettuccine and offering it for sale.

Finally, we’ve used the illustration of a”blue ocean” to encourage you to find a way to distinguish your intended ecommerce enterprise. You can find other thought models and analogies that may help you recognize the importance of differentiation, including the concept of a unique selling proposition (e.g., selling dog food on a subscription), the product-market-fit concept (an appealing product for a solid market), or the simple motto”differentiate or die.”

Arrange Funding

It’s possible to pay about $39 per month to get an ecommerce platform and $29 or less per month to get a drop-shipping service such as Oberlo or Spocket. Thus you could begin your ecommerce company for something like $68.

Some children spend more on a skillet, and they’re more likely to generate a profit.

It’s going to require over the cost of dinner to launch your ecommerce business. Just how much cash you need varies dependent on the specifics of your intended company. But in my experience you will require between $5,000 and $50,000 or more.

The U.S. Small Business Administration recommends attempting to estimate your startup costs, which could include:

  • Office area,
  • Equipment and supplies,
  • Communications,
  • Utilities,
  • Licenses and permits,
  • Insurance,
  • Lawyer and accountant,
  • Inventory,
  • Employee wages,
  • Marketing and promotion,
  • Market research,
  • Website development.

For this, an ecommerce startup may add:

  • Packaging,
  • Fulfillment and warehousing services,
  • Returns,
  • Program.

Before you start, research all these expenses. Estimate one-time expenditures and recurring monthly charges. You will want enough cash to cover everything for at least a couple of months.

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You have choices when it comes to raising money.

  • You can just save it up. No doubt you would really like to start your ecommerce company now and create sales immediately. You might have been expecting that this manual included a five-minute strategy to do that. However, no such plan exists. If you finance the startup yourself, you might have to save patiently. Consider automatically depositing some of every paycheck into a savings account to begin your company in a couple of years.
  • You can secure loans. If you borrow money to start your business, you maintain full control and possession, however you’ll have to pay attention, and you’re going to need to convince a banker your organization is viable. The SBA does facilitate loans, so you might choose to schedule an appointment with your local Service Corps of Retired Executives (SCORE) office in the SBA. The volunteers there can provide you advice both on your enterprise and how to look for a loan.
  • You could try crowdfunding. Modern crowdfunding takes a couple of forms, but oftentimes, you’re not selling shares in your upcoming business, rather folks are financing your company in exchange for gifts or merchandise. STRØM CITY electric bicycles, as an example, increased more than $2 million using its 2018 Indiegogo project, which effectively was a pre-order program wherein individuals could finance the company in exchange for a bicycle when the company started manufacturing.

We have addressed crowdfunding many times. 1 entrepreneur shared her adventures at:”Building an Ecommerce Business, Part 14: Using Kickstarter.”

  • You could find investors. In this scenario, you’d convince individuals or companies to invest in your startup in exchange for a share of possession and, frequently, an active part in the company. The SBA explained five steps for doing so:

a. Find an investor. “Search for individual investors — sometimes called’angel investors’ — or venture capital companies. Make certain to do enough background analysis to understand whether the investor is reputable and has experience working with startup companies.”

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B. Share your business strategy. “Investors will review your business plan to be certain it matches their investing criteria. Most investment funds focus on a business, geographic area, or stage of company growth.”

C. Proceed through due diligence review. “The investors will examine your organization’s management team, market, products and solutions, corporate governance documents, and financial statements.”

D. Work out the conditions. “If they would like to invest, the next step is to agree on a term sheet which explains the terms and conditions.”

e. Investment. “Once you agree on a term sheet, you can find the investment. After a venture fund has invested, it gets actively involved in the business. Venture funds normally come in’rounds’ As the business meets milestones, additional rounds of funding are made accessible, with adjustments in price as the company executes its strategy.”

For extra funding ideas, check out:

A word to the wise here: Be realistic in your projected expenses and your financing plans, but also undaunted.

Imagine it was your dream to start a business selling classic apparel and artwork. You’ve got a vision of a brick boutique in a stylish neighborhood. And your imagined online shop is amazing, too, with movies and a photo gallery for each and every item. When you send an order, you place it in a custom black box emblazoned with a gold logo.

However, when you estimate your costs, you find you need $150,000 to start. Don’t quit. Start small.

What if you started your company on eBay only? You wouldn’t have to rent a shop or build a site. You may even forgo the branded packaging. You could begin with only a few thousand dollars invested in stock. Afterwards, you can grow the company to satisfy your dreams.

Beardbrand, a business which sells men’s grooming supplies, did not initially sell anything. Instead, it started as a YouTube channel. Co-founder Eric Bandholz, the sponsor of Practical Ecommerce’s podcast, began by building an audience. His low-cost approach meant when it was time to begin selling beard oils, by way of instance, his company did not need to be dependent on paid advertising for a competitor may be. Other successful merchants have embraced similar strategies.

Before launching its ecommerce website, Beardbrand developed an audience on its own YouTube channel around men’s grooming.

Develop a Strategy

Yogi Berra, the famous baseball manager known for his witticisms, once said,”If you do not know where you are going, you’ll wind up somewhere else.”

He’s right. You may want to have an ecommerce company, but if you have not taken the time to consider it and to plan it,”you will wind up somewhere else.”

“Many individuals have business ideas over the course of their careers, but often, these ideas never come to fruition, or they get lost amidst our daily duties,” wrote fund expert Sean Heberling in a post for Toptal, the freelance marketplace.

“Interestingly, studies support the notion that people who write business plans are a lot more likely to start their businesses. Data from the Panel Study of Entrepreneurial Dynamics, actually, indicates that business planners were 2.5-times as likely to [launch a business ]. The study, which surveyed over 800 people across america that were in the process of starting companies, therefore concluded that’writing a strategy greatly improved the odds that someone would really go into business. ”’

Developing a business plan follows from differentiating your business and funding it. Thus composing a strategy can assist with those notions, too.

You do not necessarily have to follow a template, but your business plan should address these areas:

  • A description of your organization. Sum up in a short paragraph what the business does, how it makes money, and what distinguishes it from the competition.
  • A market evaluation. This isn’t as technical as it may sound. Simply state what you know about the market for the products that you would sell. The research should demonstrate that you understand your competition and why you could succeed . If you are planning to make a blue sea, the analysis should explain how and why.
  • A customer recognition. Describe the problem your company would resolve or the need it would meet. Describe your organization’s customers and the way it would acquire and serve them.
  • A financial projection. This section must convince an external party — think loan officer, investor, or even provider — that your company is viable. Include projected income statements, balance sheets, and cash flow statements. If you are unsure of these records, hire an accountant.
  • A business model. There are approximately six ecommerce business models, including four which might apply to you: (I) business-to-consumer, which also has direct-to-consumer; (ii) business-to-business; (iii) business-to-government; and (iv) consumer-to-consumer. Nuances for each comprise subscription services and curated purchasing.

For more, see”6 Best Ecommerce Firms Described .”

  • A description of revenue channels. Are you going to sell on eBay at first and include a site later? Are you going to sell via the Amazon market? Invest the time to understand how every station works, its advantages, and how your company could compete.
  • A promotion strategy. You need to be able to articulate how your company will bring in customers. Are you going to build an audience like Beardbrand, or can you rely on pay-per-click advertisements? How much could it cost? How are you going to measure marketing success?
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Consider visiting the Small Business Administration’s article on business plan composition.

And do not get discouraged. Developing a business plan takes work, but it is going to result in your success.

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Source Products

In my experience, it is a terrible idea to supply your products by means of a wholesale drop-shipping support. These companies can provide fast access to things to sell, but it is going to be extremely hard to distinguish your brand and make a profit. It is not impossible, just unnecessarily tricky.

Instead, concentrate on what successful retail companies have done for many years: establish supply chain relationships. This may take a few forms.

  • Buy straight from manufacturers. If you would like to sell Nike shoes and apparel, you could have the ability to purchase from Nike. If you wish to market Carhartt, you might have the ability to purchase directly from Carhartt. Those businesses will probably have minimum order requirements, but it’s possible.
  • Purchase from distributors. If Hasbro, by way of instance, will not sell to your organization directly, find a distributor that will sell you Hasbro products.
  • Manufacturer your own products. If you would like to sell handmade furniture, then you can build your own stock on your own workshop. There are numerous products that you can create yourself, such as digital products like software, ebooks, and similar.
  • Utilize a contract manufacturer. This is a favourite one of direct-to-consumer sellers. A lot of companies manufacture a product for your organization, which becomes the brand.
  • Buy bulk or used products. You can discover excellent used items to sell, like on eBay or classified advertising websites.

In each instance, do some leg work. Some providers will need cash up front. Others may want a business plan before extending credit.

List of Tasks

Up to now I have described four theories to help establish a successful ecommerce business. The concepts are interrelated to the total business creation process — remember the automobile driving analogy from above?

Some jobs, however, have to be checked off a list, irrespective of the business’s market, products, or target clients.

Market research. It’s crucial to comprehend the marketplace if you aspire to make a blue ocean or a successful addition to a red ocean. Consider the following measures.

  • Estimate demand. Will people or other companies buy your products?
  • Total available market and discuss. How many people or companies could theoretically purchase your service or product? What percent use your competitors?
  • Timing. Is currently the best time to begin your business? Are your potential clients going through a recession? Have they changed their buying habits?
  • Price. Could you market your goods or services for a profitable price? Why or why not?

Legal responsibilities. Your new business will have some legal obligations Whatever the location, for example:

  • Register your company name.
  • Establish trademarks, if necessary.
  • Get a federal tax identification number.
  • Register with appropriate national or state agencies.

Establish your brand. You will want at least a couple brand elements. These may include:

  • A symbol.
  • Fonts and Colours.
  • A domain name.
  • Graphic design components.
  • Packaging.

Select software. Your ecommerce company will require software to, at the very least, present your company’s products on the web.

This isn’t a small job. You can build something yourself (with the support of developers). Or you might use a proven platform, which has the advantage, typically, of free customer service that is often vital to new entrepreneurs. What about using marketplaces like eBay, Amazon, or Walmart?

Regardless, here are a few of the software services that you might need. I have connected to Practical Ecommerce’s Vendor Directory, where appropriate.

Take Action

You’ve reached the end of the practical guide to starting an ecommerce business. Hopefully it is different than the other such guides in at least two ways.

First, I’m not trying to sell you software or other services. I am offering suggestions based on 20-plus years of business expertise.

Second, I am not trying to make the act of starting a business look easy. It’s not. It will require you, the entrepreneur, to learn new things and put what you learn into practice.

It’s time to take action. Begin the business that could change your life.

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