Editor’s note: This article was first published in April 2011; its references to Google AdWords, now Google Ads, and to group-buying deal companies reflect online advertising at that time.
For many people, starting a business isn’t a choice but a necessity. The internet offers an incredible opportunity for self-employment. As we have mentioned before, the advantage of starting a business online is that the initial cost is lower, and so are the monthly running costs. Lower doesn’t mean there are none, though, and starting a business online doesn’t spare you steps similar to those of much larger businesses.
In other articles we noted that internet businesses find it easier to get loans and financing, but the truth is that, as this type of venture grows, banks and investors are also scrutinising it closely, given the high failure rate many entrepreneurs are experiencing.
Not every business idea works online, so experts advise taking the same steps as for any other business. You will still need a business plan: a description of the product, the potential market your business idea is aimed at, your competitors, the value that sets you apart from them, a sales strategy and a detailed financial plan.
These are, more or less, the requirements when you apply for financing from a bank. If you are going to get financing from private investors, then on top of all the requirements above you will have to make it very clear to the investors when they will get their return, how much it will be and, above all, where they would stand if the business didn’t work out.
Distrust has grown along with internet businesses, because they are very easy to start thanks to the low cost, but very hard to keep going and make work.
With this type of business there are two options:
- Online businesses with zero start-up cost: these are usually websites, blogs or information networks, which you can start simply by buying a domain and using free hosting. Clearly, sites like these will take a long time to make significant profits, although the cost is practically nil. If these sites start to bring in income, the business model has been proven and all that’s left is to define a growth strategy, with the advantage that when you look for financing you can already show that there are profits and that they can be improved.
- Other online businesses (online shops, buying and selling, etc.): these usually require an initial investment, because an online shop needs programming, servers to host databases and maintenance, not to mention advertising costs. These online businesses can be a quick success or an agonising failure. They may be the ones investors like best, but only when they have a well-defined advertising strategy.
As we said before, internet businesses are not a cure-all: they are not immune to failure, and entrepreneurs are not exempt from needing to know the basics of how a traditional business works.
On the other hand, it is argued that many entrepreneurs forget to register their domain with the Mercantile Register (Spain’s companies register), an indispensable requirement for applying for financing, because that domain is your company.
Before you launch your own internet business, you should get advice on all the paperwork involved, which is identical to setting up a bricks-and-mortar company. Once you know the procedures you have to follow, the next thing is to set aside capital to advertise your business.
That said, an internet business has two ways to advertise:
- Free: social networks will be in charge of making your online presence go viral. If your service or product is eye-catching and innovative, with value that sets it apart from similar products, word will soon spread through social networks. Even so, you will also need to design your own marketing strategy on social networks, because the viral effect sometimes doesn’t happen the way we expect.
- Paid: with paid advertising you have many options, whether it’s a Google AdWords campaign, renting ad space on sites whose content is aimed at readers who may be interested in your service, or hiring a company that specialises in group-buying deals. In this article we explain the best ways to advertise an internet business.
With both advertising systems the goal is the same: the more users who can see your company, business or service, the better your business’s chances of success.
So remember: however much your current situation is stifling you, forget about rushing and stop for a few days or several weeks to study and define your strategy before you dive in. Don’t fool yourself, because certain kinds of ideas are doomed to fail even before they are put into practice.
Although the figure in this article is that 8 out of 10 internet businesses fail, don’t be discouraged: you can be one of the 2 and not one of the 8 if you start off the right way.
Further reading
- Ways to finance your online business idea
- Business ideas you can start with less than 1,000 euros
- How to find business ideas
- How to start a business with no money
- The mindset of an entrepreneur
Featured image: David Monniaux, CC BY-SA 3.0, via Wikimedia Commons.
