Starting an e-business: A Beginner's Guide

By David Hurst, PHP/MySQL Developer, Part-owner of Higher Sites Limited

Starting an e-business (i.e. a business based entirely upon a website) is not as simple as many people think. The notion that you can come up with an idea, create the website and then sit back and count the cash is, in my experience, pervasive, and yet nothing could be further from the truth. Here are some helpful hints from a guy with 10 years’ experience in building commercial websites…

The Idea
So, you have a good idea? Are you sure it is a good idea? The simplest way to verify this is to find out whether other people (preferably not friends and family) share your belief. You may need to actually get out and do some market research. Question a few people from your target market and find out whether they like your idea, and more importantly whether they would be prepared to pay for it. Take responses with a pinch of salt here though, it’s one thing to express an interest in buying a theoretical product, and quite another to actually part with hard earned cash. However, your market research should indicate whether you have a marketable idea or not.

The best ideas are those that do not try to re-invent the wheel. I’ve heard some absolute clangers in my time - listened to presentations of wacky ideas created by people who believe they have the next big thing, and won’t listen to any information to the contrary. If a business relationship works in the conventional world, it may well work online, and it may be that you can significantly improve that relationship with your idea - that’s the sort of thing that sells. If your idea is modeled on a business relationship that does not exist in the conventional world, be extra thorough in your research and be prepared for failure.

The Plan
After you have had your big idea, and conducted some initial market research, it is time to write a business plan. An e-business needs a business plan, just like a conventional business does. You will not be able to make it up as you go along, so preparation at this stage is crucial to your success. You should consider where your revenue will come from, your staffing needs and the costs of setting up and maintaining the e-business. Remember that time is also a cost. Do you have the available time that will be needed?

You will of course need to make arrangements for business banking, and this is an ideal time to get your plan checked over by someone in the know. Give your business plan to your business bank manager and listen to the feedback they give. Don’t assume that because they don’t know the Internet or don’t share your conviction in the idea, that they don’t know what they’re talking about. An e-business is a business like any other.

The Website
You may be planning to build the website yourself. Unless you are a skilled commercial web developer, this is a complete waste of time. Take your idea to a skilled commercial developer, they will be able to offer advice and suggestions that you may not have considered. However, the idea is yours and you must have a very clear vision of how the website will function and what it must achieve. That vision needs to be conveyed to the developers at the outset. It is entirely counter-productive to interfere with the project development and change things on the fly. If you do this, you will receive an inferior product and almost certainly end up paying for additional works outside of the original contract. Additionally, it will be impossible for the developer to meet any deadlines due to the additional workload you have placed on them.

Consider also the contract you are signing. The vast majority of web developers who build dynamic websites have terms and conditions that define ownership of the various elements of the website. In most cases, some or all of the code will contain IPRs (Intellectual Property Rights, or copyrighted material) that will remain the property of the developer. You should read these terms carefully and ensure you are happy with them before signing. You will not be able to reverse this ownership later on.

It never ceases to amaze me how many people completely ignore good advice from their developer. The whole point of employing a commercial web developer is to benefit from their years of experience, so ignoring advice given is like hiring someone to paint your house and then doing it yourself. The biggest sticking point here is usually design. Many people treat a website design like art. Whilst this may be appropriate for certain industry sectors, for the vast majority the website should be designed to appeal to the target market not the artistic whims of the website owner. This applies to both the look of the site and the interface.

I have experienced customers who know nothing about website design submitting their own designs (usually generated in a completely inappropriate format, i.e. Word) and insisting that they are used. This is always a terrible idea and the resulting website will simply not be effective.

In short, if you employ a commercial developer, let them do what they do best.

The Launch
So, you’ve had the idea, you’ve done the research, completed a business plan, and employed a developer to complete the website, and now comes the big day: the launch. Did you leave plenty of money in your budget for marketing? If you didn’t then you just bought some very expensive eye candy. Assuming you do have a sensible plan, don’t focus all your marketing around the launch - you will need several weeks or even months to iron out any bugs and teething troubles. No developer is perfect and no business plan is perfect. You need to allow for the mistakes.

Hosting the Website
Where will your website live? Often, your developer will arrange this for you. This is a good thing as it gives you one port of call for all your website requirements. All the more reason then to choose your developer carefully. Investigate their hosting options and don’t skimp. You cannot host a successful e-business on a $1.99 per month hosting account, no matter what the online adverts for such companies will tell you. Good quality, secure hosting with high speed connectivity and ample bandwidth does not come at bargain basement prices. Your income may depend upon the quality of the hosting service offered - if your site is unavailable, how will you make money. If it is slow, will your customers want to use it?

Marketing
Don’t expect to launch your website then sit back and count the money. It doesn’t work like that. You don’t get anything for nothing, and web businesses are no exception. It will take a good deal of time and money to realise your dreams.

You should set aside at least the cost of the website again as a marketing budget, preferably more. Spend your money wisely. Pay Per Click campaigns provide excellent return on investment, as do professionally managed search engine campaigns, but don’t rely solely on these. Consider avenues like viral marketing, and publicity stunts. Traditional marketing like newspapers, radio, TV, Yellow Pages etc. typically don’t work as well for e-businesses.

Many clients I’ve had invest their money in mailshots or email shots. The latter is a dubious pastime unless you have the permission of the recipient to send email to them - many ISPs and webhosts will simply not allow this practice anyway, so make sure you check first. Remember too that mailshots have a low rate of return. Work on a return of interest of just 1% - it could be better, it could be worse depending on the market sector. So if you send 500 mailshots, 5 people may express an interest. Of those 5, maybe only 1 or 2 will actually progress to a sale. You can improve these figures with an enticement or special offer, so give consideration to that within your business plan.

Time
I have had clients telephone me less than a week after the launch of their new website to complain that they are not in the search engines yet or they haven’t made a sale yet. This is a ludicrous expectation. The search engines will index your site in their own time, and whilst a good search engine management company can get you listed fairly quickly, the reality is that it will take several months before these listings have an effect.

Don’t be surprised if take-up is lower than you expected. This is often the case, and all too often the business owners have failed to adequately provide for this in their projections, as a result, the business can be dead before it begins. Very very few websites take off immediately, but an e-business can provide a good income and become successful with a combination of planning, a good developer and a sensible marketing budget.

Most businesses, whether e-business or conventional, do not realise a profit in their first year. Many don’t even realise profit in the second either.

Cash is King
Most businesses, whether conventional or e-businesses, fail due to lack of cashflow. A sale is not a sale until the money is in the bank. In a consumer/retail environment, even cash in the bank may need to be refunded to a dissatisfied customer, so make sure you make an allowance for this in your cashflow planning.

Legal Protection
Take out insurance for professional indemnity, public liability etc. as appropriate. In today’s increasingly litigious world, you may well have need for this cover.

Sensible Budgets
Different ideas and projects require different budgets, but as a rule of thumb you should budget around £20,000 to £30,000 to launch an e-business. A third to half of this budget should be allocated to the website, and the remainder to marketing. Your wages will have to come from elsewhere whilst the site gets rolling, so you’ll need to figure this out too.

Conclusion
I imagine many people would be put off setting up an e-business after reading this article, if so then I am glad that I have saved you from a costly mistake. Very few people have the entrepreneurial skill and dedication required to make a success of an e-business, but if you take onboard the above advice and plan carefully, you may be able to get that e-business off the ground in time for early retirement!