URL: http://www.entrepreneur.com/startingabusiness/businessideas/startupkits/article37948.html

Editor’s note: This article was excerpted from our e-Business start-up guide, available from SmallBizBooks.com.

This is it--your chance to strike it very rich because suddenly, the internet has changed all the rules. For a half-century, the big players in business, from IBM to Exxon, dominated the game, leaving little room for newcomers to move to the top of the heap. Then in 1994 a little startup named Netscape introduced a web browser, and the race for cash was on. Amazon, eBay, Yahoo!, 1-800-Flowers, drugstore.com, Priceline.com, WebMd.com--today, they are million-, and in some cases billion-dollar businesses, but where were they ten years ago? Out of nowhere these companies, and hundreds more, have emerged to challenge the gods of commerce. They're succeeding because the new rules favor small companies that are flexible, smart, tough and ultra-quick to react to changing market conditions.

Chew on these numbers: E-business research firm IDC expects the total worldwide value of goods and services purchased by businesses through e-commerce solutions will increase to $4.3 trillion by 2005 from $282 billion in 2000. By 2007, total online retail spending will reach $105.2 billion, up from the $51.7 billion consumers were expected to spend by the end of 2003. And in the 2002 Christmas shopping season, consumers spent $7.92 billion online, a 23 percent increase over the 2001 holiday season, according to e-commerce research firm BizRate.com.

The web is both a new distribution channel and a new way of doing business. Don't miss either part of that statement. Think of the web only as a new channel--a different way of putting products and services in front of customers--and you miss the threat and the promise of the Internet, which is that it will utterly change how you do business.

Reasons to Dotcom

Need convincing that the Web is the place for your business to be? Here are 10 reasons why you have to be online:

1. It's cheap. There is no more inexpensive way to open a business than to launch a web site. While you could spend up to many millions of dollars to get started, low-budget web sites (started with as little as $100) remain viable businesses.
2. You cut your order fulfillment costs. Handling orders by phone is expensive. Ditto for mail orders. There's no more efficient--cheap, fast, accurate--way to process orders than via a web site.
3. Your catalog is always current. A print catalog can cost big bucks, and nobody wants to order a reprint just to change one price or to correct a few typos. A Web site can be updated in minutes.
4. High printing and mailing costs are history. Your customers can download any information you want them to have from your web site. Sure, you'll still want to print some materials, but lots can be distributed via the web.
5. You cut staffing costs. A web site can be a low-manpower operation.
6. You can stay open 24 hours daily. And you'll still get your sleep because your site will be open even when your eyes are closed.
7. You're in front of a global audience. Watch your site log, and you'll see visitors streaming in from Australia, New Zealand, Japan, Malaysia--wherever there are computers and phone lines.
8. There are no city permits and no hassles. It could change, but in most parts of the country, small web businesses can be run without permits and with little government involvement. As you expand and add employees, you'll start to bump into laws and regulations, but it's certainly nice to be able to kick off a business without first filling out reams of city and state forms.
9. There are no angry customers in your face. You can't ignore unhappy customers in any business; in fact, how well you deliver customer service will go far toward determining how successful you are. But at least with a web business you'll never have to stand eyeball-to-eyeball with a screamer.
10. It's easy to get your message out. Between your web site and your smart use of e-mail, you'll have complete control over when and how your message goes out. You can't beat a web site for its immediacy, and when a site is done well, it's hard to top its ability to grab and hold the attention of potential customers.

Remember the waves of glum news of internet hopes gone awry that washed over us a few years ago? You'd be forgiven for thinking dotcom dreams are just another route to bankruptcy. Probably the scariest finding came from Webmergers.com, which tracks the merger and acquisition activity of technology companies. In a recent report, Webmergers found that since January 2000, some 962 internet companies have shut down or declared bankruptcy. Yikes! That's rotten news to read over your morning coffee. But is it news that should get you thinking about another business direction? Should you tear up your dotcom business plan?

Probably not. Webmergers' findings may be hard to swallow, but many of those 962 companies were heavily funded blockbuster dotcoms that entered the scene spending wildly (buying everything from Super Bowl advertising minutes to multipage spreads in People magazine and multiyear exposure deals on AOL) in a madcap race for "mind share," or customer awareness. The big trouble: Many of these dotcoms had little (often no) cash flow and only investment money to spend. As those dollars began to run out, wise heads started looking at the outflow and the income of these dotcom enterprises--and very quickly realized the businesses as presently conceived could never prosper. There's no way around the fact that when you consistently spend much more than you bring in, sooner or later you'll find yourself with angry creditors beating down your door.

You're likely not a richly funded dotcom and need not sit around worrying about the day the VCs show up at the door demanding some kind of return. So breathe normally--but don't make the mistakes the dotcoms that crashed and burned made. Like what?

• Bad balance-sheet math: At no point did these companies generate financial statements that indicated any reasonable relationship between income and expenses. And yet they spent wildly, renting expensive offices in Silicon Valley and New York's Silicon Alley, hiring deep staffs (and often paying salaries upwards of six figures for minor positions), and buying fantastic exposure in ads of every medium. No genuinely small startup could long afford these lush business habits.
• No revenue model: The core question that is supposed to be asked of dotcom startups is, What's your revenue model? This is shorthand for, How do you envision bringing in income? What will your revenue streams be? In the past, dotcoms have vaguely explained that their revenue model involved a mix of ad dollars and e-commerce, and in most cases, that answer was accepted. It was a mistake because, as the failed dotcoms proved, nobody had ever really put flesh on the revenue models.

  Never open a business without understanding your source of revenue. This seems so elemental, but in the heady days when vaporous businesses such as Yahoo! and eBay quickly snagged multibillion-dollar market caps, so many people abandoned this axiom.

• Building market share to the detriment of the business: Market share is not God, although CEOs of the many failed dotcoms who pursued a strategy of building market share at any cost wanted you to believe otherwise. Look through the financial filings of many of the best-known dotcoms, and what's stunning is that a common practice is selling merchandise for less than they paid for it. Pay $300 to a wholesaler for handheld computers, and no matter how many you sell for $250, you won't do anything but go broke.
• Ignoring stakeholders: Who has a stake in your business? Investors, your employees, management, your vendors and your customers. Long debates can explode around attempts to prioritize these stakeholders--whose stake is meatiest or weakest?--but probably the best strategy for most dotcoms is to assume that all stakeholders carry equal weight.

  To succeed, businesses need to satisfy all stakeholders. That doesn't mean all will get what they want (stakeholders quite commonly are in conflict with each other, and a management task is seeing that everybody gets enough to feel happy), but it does mean you need to stay aware of your stakeholders, their wants, and what you're delivering. Failed dotcoms often had little or no awareness that any stakeholders existed (at least any that were not on Wall Street), but stakeholders always exist and will always get their due.

• Forgetting what industry you're in: Guess what--your online store is still a store, meaning you're competing in a retail universe. Yet CEOs of stumbling dotcoms talk as though they're in any industry but retail, throwing around terms like new media, content and consulting. Never fool yourself about your industry.
• More ego than profits: Not only did many CEOs of defunct dotcoms forget what industry they were in, some seemed actually to forget that they were in business at all, and that the essence of a business is to make money from revenue--not from bedazzled stock market speculators and frenzied angel investors pouring cash into the till. The sad fact about many failed dotcoms is that they could have been successful--maybe not quite on the lavish scale hoped for by the founders, but profitable nonetheless. And they blew it by forgetting that, in the end, business is business. While it might be fun to make it on the cover of a magazine, it's ultimately more fun to be on top of a steady stream of black ink (and it's no fun at all to manage a business that's dripping red ink).

The message for you: Don't be discouraged by the stumblings of the name-brand dotcoms. They had it coming. That sounds cruel, but really, they did. You can avoid their mistakes and thereby create a very different outcome for your business.

B2B Commerce

Used to be, the dream was starting the next McDonald's, or maybe inventing a new widget that everybody would need--putting you on the fast track to wealth so immense it could scarcely be counted. Today, of course, the dream is to come up with the new Amazon or Yahoo!--but that might be the wrong dream.

Isn't this guide all about launching the Next Big Thing? Nope. It's about building businesses on the internet. Nowadays, a very good argument can be made that there's a smarter way to go than scouting around for the idea that will spawn a new Amazon.

Taking Care of Business

Consider Walt Geer. It was in late '98 that Geer, a partner in an Atlanta promotional products company, faced up to reality. His little business--which sold logo merchandise such as pens and coffee mugs to companies to hand out to employees and customers--was chugging along OK, but it was just one of 19,000 promotional products companies in the country. So he decided to cut the cord on his traditional company, dump his existing customers and put his business online as eCompanyStore.

How is he doing now? Well, there were a couple months of hard swallowing: "We had no revenue coming in," recalls Geer, "but we had to focus our energy on the internet because we didn't have the resources to do it and run our traditional business." But, he says, "In just a few months, the internet let us move from being a small company to a national player. Before, we serviced lots of little accounts. Now we have Microsoft, for example. The internet lets us go after big accounts."

eCompanyStore is just one of hundreds of a new breed of business-to-business (B2B) enterprises, where companies sell not to consumers but to other businesses. Listen up, because in 2001 Forrester Research--a technology research and consulting firm--predicted that the B2B sector would go vertical, with North American B2B online sales reaching $7.2 trillion in 2006.

In the meantime, Forrester predicted, online retail--that's the business- to-consumer (B2C) market--would also grow, but the numbers were piddly in comparison. In 2006, says Forrester, B2C e-commerce will reach $219.8 billion. Do the math: B2B will generate 33 times the cash--and that's a multiple that demands attention.

Why the rush by businesses to purchase on the internet? Simply put, they are realizing that using the internet allows them to drive down costs.

How much? "Shift purchasing to the web, and a business can eliminate about 90 percent of the cost of a transaction," says Rob Rosenthal, a senior research analyst at technology research firm IDC. "It can be pretty dramatic."

B2B Vs. B2C

There are many small B2B web companies thriving despite the current economy. And there is more good news: Venture capitalists are also more interested in B2B companies than in B2C companies nowadays, says IDC's Rosenthal. "The deals aren't as lucrative as they used to be [before the dotcom bust], but they are getting done in the B2B arena," says Rosenthal. "Companies are looking to invest in dotcoms that are less consumer-oriented and more B2B-focused, such as companies that provide tools for large companies or products for large companies." Why? "Because many VCs got burned investing in B2C companies, and most of the good ideas in the B2C segment are already taken, in my opinion," he says.

In key respects, the bar may be higher in B2B e-commerce than it is in B2C, and the requirements for succeeding likely will be stiffer. "B2B is different from B2C," says John J. Sviokla, a vice chairman of DiamondCluster International Inc., a global management firm that helps companies develop and implement growth strategies. "To succeed in this space, you will need deep domain knowledge." You don't need to know much about farming to successfully peddle peaches to consumers, but to build an exchange for farmers, you have to grasp the fundamental issues in that industry. Lack that, and there will be no trust on the part of your target audience.

Another hitch: B2B involves long selling cycles, and, likely as not, before big deals are nailed down, you'll need to do face-to-face selling. It's one thing to buy a $10 book with a mouse click. It's an entirely different matter to buy $100,000 worth of coffee mugs. "A web site won't close deals for you," stresses eCompanyStore's Geer. "To make B2B deals, often you've still got to put feet on the street."

Some analysts are somewhat suspicious of pure-play B2B e-commerce companies in general (these "pure-plays" are purely online--they don't sell out of storefronts, etc.). "I know there are probably some successful ones out there, but I think that is the minority," says Christopher Dallas-Feeney, a New York-based vice president with management consultancy Booz Allen Hamilton. "I think all businesses need to be able to reach and service their customers in a variety of channels, both online and offline. In my mind, unless they reach out to customers in a variety of channels, they become incomplete solutions for large or middle-market customers."

But not everyone agrees. In general, it's a great time to be in B2B e-commerce if you're a small company, says IDC's Rosenthal. "You can reach buyers all over the country, all over the world, and because of the technology and service available," he says, "it's easier to appear to have the resources to deal with a big company."

Choosing a Web Site Host and Domain Names

With your web site designed, you need a place to stow it so that visitors can access it--and you have hundreds of choices. Many hosts are free, and few cost more than $20 per month. Truth is, setting up your own host--a dedicated computer that's permanently wired into the net--wastes money and time and, for most small businesses, is a bad idea. Better to outsource hosting to folks who specialize in it.

When picking a host, you first and foremost want to know if a host can handle e-commerce activities. Some of the most barebones companies simply aren't equipped. Other criteria that are important to most users: setup and monthly fees (a typical range for basic web hosting is $9.95 to $49.95 monthly, but the price usually goes up when adding e-commerce functionality, with a setup fee equal to one month's fee); amount of available storage space (you want at least 10 to 25MB to start as well as the option to add more space as your needs expand); and connection speed (some very low-budget hosts rely on slow 56K modems, while most business-level hosts have high-speed T1 or T3 connections.

Comparing hosts is difficult, so a good policy is to quietly set up an account and test the host--kick the tires, so to speak--for several weeks before announcing your presence to the world. Isn't that expensive? You bet, when setup fees are factored in. But more expensive--and embarrassing--is to make a big push for traffic, only to have your host drop the ball and leave you with cranky visitors who can't quite make it in. Better to know your host is operating smoothly before inviting guests to the party.

Master of Your Domain

Before setting up your site, you also need to stake out your domain name, which is the word in between "www" and "com" or "net" in web addresses. So what name suits you? Come up with some possibilities, then surf to Network Solutions. Other businesses now offer domain registration, but this place was the first, and it has the technology down pat.

The drill is simple: You type in a name, and Network Solutions tells you if it's available. When you strike out--that is, the names you want are taken--Network Solutions then offers possibilities that are available for registration. Network Solutions traffics in the main U.S. top-level domains--"com," "net" and "org" as well as newer domains, such as info, biz, us, cc, bz and tv. Find a name that suits you, and the charge is $25 for three years. After that, you own the rights to the name.

There's wide agreement that nothing matters as much as a good name. Yet who would have thought Amazon was one? What most matters in a name is that it's easy to spell and easy to remember. For my money, that's an argument against using a catchy name with an unorthodox country code suffix. Most U.S.-based computer users just automatically type "com", "net", "edu" or "gov." Throw a weird ending at them, and you may lose them. So I would recommend a clunky name with a "com" or "net" ending over a catchy name with an unorthodox ending.

Search Engine Listing

Just about every search engine provides tools for easy registration of new sites. Just look for an "Add URL" or "Add Site" button, and then follow the directions (ordinarily no more complex than typing in the address and hitting "Send").

There are hundreds of search engines to choose from. For-hire site registration services typically say they submit to more than 100 engines. But there's little value in being on an index no one uses, which is why e-tailers should focus on a handful of high-traffic engines. According to Piper Jaffray Inc., the leading search destinations are Google, Yahoo!, MSN, and AOL. Together they have more than 80 percent of the market share.

Low-Cost Options

What will lure visitors to a site? Although heavily funded internet companies can make seven- and eight-figure deals to buy prime advertising real estate on the major internet portals and online services like Yahoo! and AOL, you're likely priced out of that race. So winning visitors becomes a matter of creative, persistent marketing. And the good news is that it's still the little things that will bring plenty of traffic your way.

There are fundamental steps that too many businesses neglect. For instance? "You should always put your URL and a reason to visit your Web site on your business cards", says Larry Chase, publisher of Web Digest for Marketers, a weekly e-mail newsletter that delivers short reviews of marketing-oriented sites. "I call this cyberbait. For example, you should mention what people will get when they visit the site, such as a newsletter or a list of 'Top 10 Tips'. That substantially increases visitors and eventually customers or subscribers."

An e-mail signature is an especially powerful--and absolutely free--tool. Create a signature with a link to your web site in it and have it automatically attached to every one of your outgoing e-mails. If your e-mail recipients click on the link, they'll be taken to your site. It only takes a few seconds to create an e-mail signature, and it'll bring in visitors to your site every day.

Another low-cost traffic builder: "Get active in online discussion groups and chats, and, where appropriate, give out your URL," says Shannon Kinnard, author of Marketing With E-Mail. Sell bird toys? Scout out the many groups that focus on birds and get active. A good place to find groups is at Google Groups which archives discussion lists. Getting active in these groups spreads the word about you and your site. That spreads the word about you and your site, and "you'll get traffic coming to you," says Kinnard.

Another big-time traffic builder for any Web site that retails is posting items for sale on the major auction sites, such as eBay, Yahoo! and Amazon. Those sites let you identify yourself to viewers, and a few dollars spent on putting out merchandise to bid just may bring in lots of traffic from surfers seeking more information. Many small e-tailers tell me their entire advertising budget consists of less than $100 monthly spent on eBay, but they nonetheless are seeing traffic counts above 500 daily, with most of those viewers coming via eBay. My advice: Put up a few items for bid on each of the leading auction sites and then track traffic. Even if you sell the auctioned goods at no profit, the traffic jams your site may experience could well justify your efforts.

Classified ads offer more possibilities for traffic generation on the cheap. Check out Yahoo!, for example. Classified ads there are low-cost and vary depending on what you're selling. Listing is simple--just follow the steps at the site--and, again, you can insert your URL so readers who want more information can get it with a click. For my money, classified ads--at least the freebies--represent one of the very top ways to generate no-cost traffic, yet many businesses ignore them. Why? The complaint is that such sites have too many listings--hundreds of thousands--but don't let that stop you. Put up some ads, and watch your hit count climb.

Spam-Free E-Mail Marketing

For many businesses, direct mail--good old e-mail--may be the surest and certainly the cheapest tool for building traffic. "E-mail still gets results," says Hans Peter Brondmo, senior vice president of strategy and corporate development at Digital Impact, a San Mateo, California-based direct marketing solutions provider for companies such as Dell Computer Corp., Citibank, and MasterCard. Who reads spam? Nobody, says Brondmo, but well-constructed e-mail is "informative and personal, and people will look forward to getting it and reading it."

A key to making e-mail effective: Use "opt-in" sign-ups, where Web site visitors are asked to indicate if they want to receive e-mail from you. How to get sign-ups? "Offer a free monthly newsletter," says e-mail expert Shannon Kinnard. "The key is to give really good information."

The number-one question on the minds of new web site builders is, How do I arrange to accept credit cards for payment? Once upon a time (which means last year, in internet time), getting merchant account status for an online storefront was tough because credit card companies were suspicious about vendors who lacked brick-and-mortar storefronts. No more.

Credit cards aren't processed cheaply, however, at least not for a startup. A typical fee schedule for a small-volume account (fewer than 1,000 transactions monthly) would include startup fees amounting to around $200 and monthly processing fees of around $20.

Is that money you need to spend? Absolutely. It's simply impossible to run a real electronic storefront without credit card processing capabilities. In very special cases, yes, you can go online and ask customers to mail in checks, but when your aim is to build a volume storefront, you've got to take credit cards--customers expect it, and it will make transactions easier for everyone involved.

A good first place to start your search for merchant status is your own bank. Most issue credit cards, and if you have a long-term relationship with them, that's a big plus. What if your bank says no? Try a few other local banks--offer to move all your accounts there--and you just may be rewarded with merchant status.

You may also try other companies that specialize in issuing accounts to online merchants, including:

• Cardservice International
• VeriSign
• Credit Card Processing Services
• The Processing Network
• 21st Century Resources

Providing Great Customer Service

E-tailers used to be innocents who thought that with web-based retailing, all customer service would be a thing of the past with the entire sales and service process becoming neatly (and oh, so inexpensively) automated. Ha! If there's a mantra for e-commerce players, it's this: Customers may be virtual, but their dollars are real.

How can you provide the best online service possible? Just follow the leaders:

• Anticipate questions. Many e-tailers anticipate questions and then answer them in their FAQs. This will save you and your customers time. Of course, sometimes customers will e-mail you with questions, and this can be a good thing. Get lots of e-mail complaining about a certain feature that the customer has simply misunderstood or bemoaning the lack of a particular product that you know is in stock, and you are learning important things about how your site is failing to communicate to visitors.
• Stay in touch. At Hewlett Packard's hpshopping.com, every customer is asked if he would recommend hpshopping to friends, and 88 percent say they would, according to Chief Operations Manager Cindi Zelanis. But the small percentage who say "no" aren't forgotten. "We contact them via e-mail or phone and ask how we can satisfy them," says Zelanis, who adds that it's usually not hard to do: "Just contacting them alone is often enough to win them back."
• Respond quickly. The web is an instant medium--except when it comes to getting responses from many businesses that seem to route incoming e-mail into a folder labeled "Ignore Forever." Smart e-tailers know better, however. "HP's goal is to respond to every inquiry within 24 hours," says Zelanis. Others raise the bar higher still, with responses within four hours emerging as the new goal of many. What's right for you? With a smaller staff (and probably no staff during night hours), you might find a 24-hour standard to be enough of a challenge. But monitor customers. If they demand a faster response, somehow you have to find a way to meet their needs.
• Hold their hands. "Online, not every customer knows how to shop, and you have to be ready to help them buy," says Anne Marie Blaire, director of Internet Brand Development at Limited Brands, where she ensured the successful launch of VictoriasSecret.com. No brick-and-mortar retailer has to teach customers how to buy, but online, that remains a thorny problem. Every day thousands of shoppers log on for the first time, and these newbies genuinely crave handholding as they make purchases. Understand that and be ready to help. Be patient, too.
• Use cut and paste. Canned responses--cut-and-paste scripts--are used by all the leading sites, which track questions, hunt for the most asked, and produce templates for their representatives. You can do likewise. As you answer customer questions, file away your responses. Odds are, you'll be asked the same question within the week, and it's a great labor saver to have an answer ready.
• Stay sensitive. A worry with e-mail: It's easy to seem cold and unresponsive in the formality of the written word. Read and re-read your responses before they go out. You want to be--and appear--interested in the customer's issues and eager to find solutions.
• Offer choices. It's important that you offer a variety of choices that customers can use to contact you, such as e-mail and phone. The easier the online shopping experience, the more likely the customer will come back for more.

These steps will get you started delivering better customer service, but they're not enough. Successful entrepreneurs say that the only way to do online service right is to have the right attitutde, really believe the customer is king, and make sure that every one of their customer service reps know it. Many fail on this score, but when you've made customer service your top and continuing priority, success is within reach.

Here's the blunt truth about e-commerce: Most of what you want to know will not be in books or even in magazines and newspapers. This industry is exploding so fast that the only medium that is successfully tracking developments is the Web itself. When you want to know more, or need answers to questions, log onto the Web and go searching. The information you crave is rarely more than a few mouse clicks away. Here you will find dozens of the sites that deserve tracking.

Consumers and the Net

• BBBOnLine: The Better Business Bureau's entry into monitoring e-tailers
• BizRate: A leader in evaluating e-tailers
• E-Commerce & the Internet: Advice from the Federal Trade Commission pinpointing common frauds
• WebAssured: Another e-tailer evaluator

E-Commerce Miscellany

• All Domains: Find out about (and buy) international domains here; countries from Afghanistan (af) to Zimbabwe (zw) have domains for sale
• Compare web Hosts: Helps compare competing hosting services
• LinkShare: Sign up for affiliate programs with name-brand e-tailers
• NetMechanic: Check your site for bad code and broken links, free of charge
• Network Solutions: The primary marketplace for registering U.S. domains
• TopHosts: Useful articles and background material to digest before picking a host
• Yahoo! Groups: Still the easiest and best way to set up a free internet mailing list--and it's free

Net Traffic Reports and Ratings

• comScore Media Metrix: Another take on web site traffic
• Gómez: Many e-commerce sites are critiqued and ranked by Gómez Advisors
• Forrester Research: Technology research and advice
• Internet Traffic Report: This site measures router volume at various points around the world
• Nielsen//NetRatings: Sites are ranked by unique audience, among other factors

Stats and More

• E-Commerce Times: More news from the e-tailing front lines
• eMarketer: A great news source with an e-commerce focus and lots of stats
• Internetstats: All kinds of Net-related statistics
• Nua: Nua compiles all the net-related stats it can find and puts them into a readable format
• Shop.org: An association of online retailers that compiles the latest industry stats