Choosing Which Business to Build
Determine what your customers need, and then go on from there.
Q: I'm thinking of starting an online business selling information. I have no business plan and don't know what my Web site content will be. What is your advice for me?
A: The Internet makes it seem like it's easy to start a Web-based business. And though industrial-strength sites can take thousands of dollars to build, you can still create a successful site on a shoestring budget. But be aware: The overwhelming majority of sites fail, even when backed by big-name investors with famous CEOs, because the entrepreneur doesn't live and breathe the principle that leads to successful businesses: Start with the customer.
More accurately, start with what your potential customer needs. You've decided to create an information-based web site, so now find people who need information. Some markets may need existing information made more accessible. For example, when the U.S. Securities and Exchange Commission began making company financials available electronically, they didn't supply the necessary tools for investors and analysts to use the data. FreeEDGAR.comcame along and created a successful solution by making that data accessible in an advertising and partnership-supported business model.
Other markets need information gathered from many sources. Patricia Pomerleau found that CEOs needed to find information on the Web but didn't have time to scour the Internet. So Pomerleau created CEOExpress Co.to give CEOs a home page of edited, quality-controlled bookmarks, putting their most important resources at their fingertips. The company has extended this idea with Journalist Express, MDExpress and LawyerExpress, providing a portal for these particular professional groups.
Another approach is providing a forum for visitors to exchange information. Movie review sites like the Internet Movie Database(IMDB) and financial sites like The Motley Foolgrew with much of the value coming from the site users. The sites make money by advertising, licensing content, providing premium subscription services or publishing newsletters supported by advertising.
Your next step is to turn your information solution into a business. You must entice visitors to your site, gather and edit the information you'll publish, create the site, build an organization to keep everything fresh and accessible, and create a business model based on advertising, partners or subscription services. Map out the skills you think it will take to pull everything together. Then get out there and network until you have a team that can create the business. Because the current fundraising climate makes it unlikely that you'll find millions of investor dollars, be prepared to start the business on a shoestring by taking care of many tasks yourself.
Sales and marketing skills are critical. Concentrate on building your customer base and turning them into cash. IMDB and Motley Fool started through word-of-mouth, but you'll likely need to acquire customers actively. That means direct mail, e-mail marketing, advertising, one-on-one sales, partnerships, search engine placement and viral tools. Marketing will be one of your biggest hurdles.
Serving real customers-even on a small scale-will force you to hone your product until you're delivering something your market really wants. You'll confront the competitors for your customers' dollars. And you'll have to build a back-end that gathers the information and gets it to the Web site when you've promised to deliver. You may be surprised how tricky it is to get your operations running smoothly.
Once you're making money, are familiar with your customers, and know you can deliver your product, it'll be time to expand. Expansion takes capital, and you'll need to find it from banks or investors. That's when you'll need to rethink your business plan and start raising money.
As an entrepreneur, technologist, advisor and coach, Stever Robbins seeks out and identifies high-potential start-ups to help them develop the skills, attitudes and capabilities they need to succeed. He has been involved with start-up companies since 1978 and is currently an investor or advisor to several technology and Internet companies including ZEFER Corp., University Access Inc., RenalTech, Crimson Soutions and PrimeSource. He has been using the Internet since 1977, was a co-founder of FTP Software in 1986, and worked on the design team of Harvard Business School's "Foundations" program. Stever holds an MBA from Harvard Business School and a computer science degree from MIT. His Web site is a http://www.venturecoach.com.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.
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