Continuing with our series on Creating An Internet Company From Scratch, we move into the fundamentals of identifying our market and developing a business plan.

Many businesses fail because the owners of the company didn’t take the time to build a sound and detailed roadmap for success. They failed to do adequate research into the market they want to target, and did not fully understand what was necessary to penetrate and acquire a sufficiently large enough share to be profitable.

Others fail because they are unwilling to adapt their plans to current market conditions. It is one thing to review, asses and implement a strategy on “theory” or “Projections”. It’s entirely another to implement that strategy, obtain real data, and adapt to the actual market. Failing to adapt is a sure path to a failed enterprise.

Regardless, a business plan is all about you putting a preliminary roadmap together on how your business is going to get from Point A to Point B.

Let me interject here and make sure you know a full copy edit has not been completed on this write-up. My copywriter is quite busy and won’t have time to review and scrub this write-up until sometime next week. Just in case you find my wonderful grammar errors, you’ll know why.

The purpose of a business plan is to help us, the entrepreneurs, to have a better understanding of what our business is about, what we need to do, how much we expect to invest, where we’re going to make those investments, who our target market is, how we’re going to reach them within the limitations of the capital resources we have available, and what we’re going to have to do to get to a sustainable level of profitability. It’s our roadmap to success. We have to be flexible enough to adapt and adjust to our target market as we attain real actionable data to work from.

While it’s much more complicated than that, it is in fact as simple as this overview represents. What I am putting together here can translate into a more traditional brick and mortar business strategy, however, this specific write-up is really all about building a successful online business from scratch, so we will really be skipping some of the more complex elements of a traditional business plan. If you want to learn more about business plans in general, just do a google search and I am sure you’ll find tons of free resources readily available.

What Information Should I Consider In My Business Plan?

When considering elements of a business plan, I personally prefer working from bullet points, but if this is your first time, I highly recommend you go into as much detail as is necessary to have solid grasp of what you’re going to do and when in your business model you feel will be the right time to make it an actionable process.

While it may seem overwhelming to some of you, its really not as hard as it’s portrayed, or may appear even here in this brief write up. Much of what any of us who have run a profitable and successful business try to share are things that we ourselves didn’t take into account in past ventures. The unexpected.

When you’re starting an online business, you don’t have to do everything in your business plan at once. As a matter of fact, it’s very foolish to try and doing everything at once. Business plans are designed to be fluid and change based upon actionable data.

If your budget is tight, you can do only the things that are necessary right now to launch your project and get it to market. What you elect to do will really be based upon how unique your idea is, and how important any one element in your business plan is to the security of your idea and the success of your online venture.

I suppose, if you have a day job, it will also be about the stability of other income you have to draw on during the startup phase of your project, which can be quite expensive. Regardless, only you can answer these questions. I personally prefer to do it right from the get go and account for everything that is important to me without cutting corners or taking excessive risk.

Here are just some of the questions and relevant details you need answer and think about in order to minimize your risk of making poor and very costly decisions:

• The #1 question is really basic. Is there sufficient online demand for your products or services to justify the investment risk?

When creating an online business, without sufficient prospects for your service or products, you’ll be forced to actually create a market. I don’t know about you, but I’m not into reinventing the wheel. This means good keyword research. And don’t just think like you think, think about how your prospects would look for your service or product. When it comes to keyword research, it doesn’t matter one bit how we think it should be done, all that matters is how your prospects do it.

If you’re dealing in the local market, you have to research locally. You don’t want to rank for “Pest Control Company” nationally, if you can only service “Tampa”. That would really suck and mean you’ve misappropriated your marketing dollars, wasted probably two years before you figured it out and aren’t going to get the return on your investment you need. Fact is, you may actually start losing money as result dealing with people you can’t really help.

So what is keyword research? Keyword research is the process of identifying what words people are using to find a specific service or product that you are offering. Now, there are plenty of tools online, and plenty of them that are paid. For me, the best one is, without a doubt, Google’s adword keyword research tool – and it’s bloody free. It will not only show you the traffic data associated with specific terms & related terms, it will also show you what advertisers are paying to attain that traffic using pay-per-click. The higher the amounts that are being paid on keyword phrases, as it relates to overall search volume, can mean the conversion rates on that traffic are significantly better than those with much higher search volume. Naturally, you’re better of “testing” that first, before just assuming it to be fact.

Regardless, the google keyword research tool can help you, as a online business owner, gauge whether or not there is sufficient online search traffic for your niche to justify the costs for development of an online business designed to serve your market.

• Do I have the necessary capital, time and industry expertise to invest in the project and maximize the opportunity for a positive outcome? If providing a service, do you have the skills to provide the services you are offering? If selling commodities, will you have access to the products you need at sufficient wholesale costs to sell the product retail and make a profit?

I like to think this is pretty straightforward. You either know your products and services or don’t. If you don’t know them, you plan on learning about them in great detail before you start doing business, or you have a business partner that is actually competent in what you’re about to undertake.

Do you understand the nuances of wholesale buying and retail selling? Are you a good negotiator and a people person? Most manufactures run through distribution channels. It’s a rare thing when you will ever buy directly from the producer of the product and you want to focus on minimized inventory whenever possible. Heck, it’s even better when you can actually work with a distributor that does drop shipping. That means you never touch the product, you don’t tie up operating capital, and no longer have to worry about fulfillment. It’s done for you. It’s a hard thing to find now a day, but could be worth a lower profit margin because of what it saves you.

Based upon your business plan for developing your online company, do you have enough startup AND operating capital to move the company forward from being an expense to being a profit center. If you don’t, you have the means, or ability to attain working capital over an equal period of time/as it’s needed. If not, then you should really re-think your strategy, shrink it down to basics, and grow it over an even longer than normal time frame. These things should be about multiple years anyway, and not about 12 month projections or “getting rich quick”.

What Other Issues Should I Consider?

When developing your business plan, you should also take into account these factors for your online business startup:

• Present market conditions, projected future market conditions – This is important for understanding whose buying and what they’re buying. In economic downturns, luxury items become just that.
• Technology/Product life cycle – Product life cycle plays a huge role in inventory decisions. If you’re dealing in inventory that has a shelf life, you’ve got to know what’s moving before you ever invest working capital in stocking inventory. You’re much better off working from lower margins, than stocking 100K in dead inventory. I kid you not; I have been the guy responsible for company inventory management and had to liquidate 300K to 500K in dead inventory at pennies on the dollar. It is not a pretty thing to have to explain to a business owner why he just lost that much in profit, not to mention all the carrying costs over the years he had to endure. Also, inventory has a tax cost, and that inventory represent working capital that is no longer liquid, which can really hurt when things get tough for a business. Finally, if running an online store, technology also means constantly changing product choices. The more technology focused your product, the more labor/time will be involved in the upkeep of your website.
• Business revenue cycles – I am a big believer in staying away from seasonal business models. If you’re selling Christmas stuff, V-Day stuff, etc., you are really going to be hurting for 10 or 11 months out of the year. Avoid building a business around seasonal stuff at all costs unless it’s a “hobby” type thing. Then great, you make some extra money during the season and everyone is happy.
• Licensing requirements by state you will be selling product or service in – You definitely want to check with your local and state government for licensing requirements.
• Projected revenue & profit – formulated by accounting for market penetration (business growth/sales) and accounts for related factors. (i.e. cost of goods, marketing expenses, traditional overhead expense, labor costs, etc.)
• What you expect your website to do – This needs to be detailed. This is very important to your overall development & conversion strategy. Get this wrong, it will cost you money in more ways than one. You have to know what you want your visitors to do when they arrive, so you can build your website and content around having them take that action.
• What your strategy is for penetrating your market – Again, this really needs to be detailed. If you don’t know how you’re going to market your business, you could fail right out of the gate – no matter how good your website/product or service is.

You will also need to accurately know these very fundamental costs for an online business startup so you can figure out just what you need to invest before opening up for business. You’ll be able to decide what you can wait on, and what your monthly recurring costs are going to be for future budgeting. Some, many or all may be relevant to the actual startup costs for you online business.

• Legal Fees
  • Cost to incorporate – You DO NOT want to pay self-employment taxes!
  • Cost to develop contracts
  • Cost to develop web policies
  • Cost for copyright filing – If you’re going to write and publish it, you need to protect it.
  • Cost for trademark filing and defense – If you’re going to develop a true online brand, you should really consider filing for trademark protection.
• Accounting – Trust me, you want an accountant/CPA. I use a CPA and Tax Attorney, plus she can do the corporation side. Cynthia Petitjean – 813-659-2020 – Get one.
• Misc. Expenses
  • Phone
  • Computer/Printer & Related Electronic Equipment
  • Software – QuickBooks or other accounting software. I recommend QuickBooks.
  • Office Furniture
  • Office Supplies
  • Business Cards
  • Letterhead and Mailing Material
  • Postage Cost
• What platform will you be using and the associated development costs
  • Domain Costs
  • Web Hosting Costs
  • Website Costs
  • Programming Costs
  • Photography Costs
  • Copy Development Costs
  • SEO Costs
  • SSL
  • Credit Card Gateway
  • Merchant Account Provider
• Monthly Banking Costs
  • Monthly Bank Charges
  • Credit Card Transaction Costs
  • Debt Servicing Costs – Should you take out a loan
• Monthly Phone Costs
• Monthly Internet Costs
• If opening an office or storage unit – Monthly Rent Costs
• Required Inventory Investment Costs
• Product Shipping Costs
• Packing Costs
• Payroll Costs
• How will you be marketing the company and the associated costs
  • Directory Costs
  • Paid Banner Costs
  • Article Development Costs
  • Press Release Costs
  • Traditional Organic Marketing Costs
  • Affiliate Costs
  • PPC Costs
  • Yellow Page Advertising
• Memberships and Association costs that will develop trust with your prospects
  • Better Business Bureau
  • Local Chamber of Commerce
  • Online Industry Memberships and Accreditation

Now, I am 100% confident this is not a complete list of things you need to consider in developing your online business. However, it’s not bad for a couple hours worth of work. While it may seem trivial, this phase in preparing for your online business startup is probably the most important thing you’ll be doing. If you get this wrong, it screws up a lot of everything else. That goes back to that great programmer saying; Garbage In, Garbage Out.

Take your time with this and think long and hard about it. Don’t “rush through” anything when it comes to developing your online business. If it is going to be successful, it is just as likely to be successful two years from now, as it would be launching next month. So unless you’re dealing with something that has a “Time Life”, you’re chances of being successful will probably be higher if you take your time about it, versus rushing to market.

The next post in our Creating An Internet Company From Scratch series will revolve around some of the things we have done in our project to date along with some cost elements that will give you an idea of real investment requirements.

Until Next Time.
George Chaney
President/CEO
SEO King, Inc.