Do you want to earn more money than in your current job? Are you looking for more autonomy and schedule flexibility? If you answered yes to these questions, creating your own business is a great alternative for you. You may be asking yourself, isn’t it very expensive to create a business? Do I need a place to sell, another one to manufacture, and another one to store? Nothing could be further from the truth, today you can create an online business.
Online businesses are characterized, as their name suggests, by conducting their operations via the Internet. This presents many advantages, such as saving storage and rental costs. There is also the possibility of making the business available to a large number of people (1). If you want to know more about this type of business and learn how to set up your own, do not stop reading, because here we tell you the steps to achieve it.
Summary
- Low knowledge of the procedure for making a business plan increases the chances that your business will not be profitable (2). In general, launching without a plan increases the probability of failure in the business world.
- Start small, do not invest a large amount of money if you are not totally sure of the success of the business. That way, you can pull out before you make a big loss.
- Practically, you can do an online business without the need of having things like a sales and manufacturing location, there are even business models in which the only thing you need is an internet connection and a device that allows you to connect.
Steps to start an online business
Surely you have a millionaire idea that has a great potential to become a successful business. However, you should know that if you jump into it without thinking through what you are doing and without having a plan, your chances of success decrease. Be sure to follow these steps:
1. Conduct a market study
Before entering a market you must know it. What do we mean? We mean that you must know your potential customers, that is, ask yourself who they are, what they like, where they buy, how much they would pay for your product and a long etcetera. We know that paying for a market study or doing one on your own is very expensive, but that doesn’t mean you can’t do anything about it. Here are some alternatives you could use:
Talk to people
You don’t need to hire a big marketing agency to have relevant information about your potential customers, you can use the following techniques:
Quantitative research techniques
- Surveys: To use this research technique you can use easy-to-use alternatives such as Google Forms or Survey Monkey. You can get accurate and relevant information at a very low cost. It is recommended to have a minimum of 40 responses or more.
Qualitative research techniques
- In-depth interviews: This consists of meeting with your potential customers, for an hour each of them, to talk about their point of view on a particular topic. You can do this through virtual platforms such as Zoom or Google Meets.
- Focus Group: This is basically a group interview. You need between 6 and 10 participants. The aim is to know their opinion on a particular topic, the product, and their recommendations for it. It is usually done in Gesell chambers, but you can do it virtually, just like the interviews, via Zoom or Google Meets.
To get participants you can join Facebook groups or forums that address topics of interest to your target audience. Also, you can ask for help from your friends to help you get people, etc. You have to be resourceful during this stage.
Considerations for market research techniques:
- Participants should never be marketers, advertisers, psychologists, or any other related profession. Since they use these techniques, their answers may be biased when they learn about the dynamics. It is worth mentioning that what we are looking for are spontaneous and sincere answers.
- The participants should not be your acquaintances, friends, or relatives. In addition, they should not know each other. This may lead them to alter their answers. This recommendation applies to focus groups.
- In focus groups, it is recommended that participants have not already participated in a focus group. If they have already done so, they should not have participated in a focus group for at least one year.
What to ask in surveys, interviews, and focus groups?
To answer this question, we will classify the research techniques presented in two groups (qualitative and quantitative) and mention what findings can be made in each of them:
| Actions | Qualitative Techniques | Quantitative Techniques |
|---|---|---|
| Deepening opinions | Yes | No |
| Sizing frequency and quantity of purchase | No | Yes |
| Explore purchase motivations in depth | Yes | No |
| Quantifying the most consumed brands and products | No | Yes |
| Knowing the attributes and benefits sought | Yes | Yes |
| Sizing price perception and perceived value for the consumer | No | Yes |
| Sizing of participants’ personal data (age, gender, income, place of origin, etc.) | No | Yes |
Use crowdfunding
If what you are going to do is a digital product or service, or anything that can be prototyped or tested online, crowdfunding is an excellent alternative.
It involves posting the product on a platform, where it can be seen by potential consumers, who can show their support for your project by making monetary donations. This serves both to finance you and to get feedback and get an idea of the acceptance of your product. The downside is that this platform is more useful when it comes to products such as games, and programs, among others.
Analyze the current situation
You must know well the environment in which you will compete, as well as your own strengths and weaknesses. Therefore, we suggest you use the following models to analyze your current situation and, later on, help you plan strategies:
PESTEL analysis
The tool known as PESTEL analysis allows you to analyze the variables of the environment that influence a business. These variables, being external, will reveal the current and potential opportunities and threats for the business. The variables to be taken into account are Political, Economic, Sociocultural, Technological, Ecological, and Legal (3).
SWOT Analysis
You may have heard of this analysis model. In it, you must list and analyze the strengths and weaknesses, which are internal, and the opportunities and threats, which are specific to the environment in which you will compete (4).
Then, you must place them in a matrix, cross-reference the information and, based on this, propose strategies.
Strengths: skills, knowledge, resources, etc. Favourable internal aspects.
Weaknesses: Lack of knowledge, resources, little experience, etc. Harmful internal appearance.
Opportunities: trends, demand, laws and other external aspects that favour the business.
Threats: trends, demand, laws and other external aspects that harm the business.
FO strategy: optimize strengths to take advantage of opportunities.
FA strategy: optimize strengths to counter threats.
DO strategy: reduce weaknesses to take advantage of opportunities.
DA strategy: reduce weaknesses to protect against threats.
Do a product research
Product research consists of conducting searches on different platforms, such as Amazon, of the product you are going to market. These searches will help you verify the demand for the product you are going to market.
It is worth mentioning that this type of research is especially useful if you are going to market products manufactured by a third party. However, if you are going to create your own version or variant of an existing product, it can also be useful.
2. Define your target audience
Market segmentation
Once you have researched the market, you will have an idea of the potential market you can target. To do this, you must first perform a market segmentation with the information resulting from the research you conducted. This process consists of separating a market into groups of people with different characteristics, needs, and ways of acting (5).
To define market segments, we suggest using the following segmentation variables: demographic, geographic, psychographic, and behavioural (5). Once you have the possible segments, choose one to target, in other words, choose your target audience.
| Variable | Data |
|---|---|
| Demographic | Age, gender, socio-economic status, occupation, generation, stage of life cycle, etc. |
| Geographic | Nations, neighbourhoods, location, population density, etc. |
| Psychographic | Social class, lifestyle, personality. |
| Behavioural | Occasion of purchase, benefits sought, level of brand loyalty, level of use of a product, etc. |
Define your buyer persona
Another alternative that you can use instead of market segmentation, or in a complementary way, is the creation of buyer persona profiles. This is the construction of an ideal customer model for a product or service. For its creation, you have to take into account, in addition to the variables mentioned above, their interests, habits, and motivations that can be addressed by our product or service (6).
We know that so far we have given you a lot of information, so to facilitate the definition of your target audience, we leave you the buyer persona generator of Hubspot, a company that specialized in inbound marketing and content marketing. Although it is a free tool, it will help you to easily create the profile of your target audience even if you have no experience in it.
3. Write a business plan
After you have found a market large enough to be profitable, it is time to plan how you are going to run your business. To do this, there is a document called a business plan. This document is vital for your online business to succeed, as it describes what needs to be done to achieve your goals.
Business plan structure
There are many templates on the Internet that can help you write and structure your business plan. Here are the points that are usually addressed in a business plan, depending on your project you can adapt this structure:
- Executive summary
- Concept and description of the business
- Market analysis and research
- Resource analysis
- Organizational plan (structural and legal)
- Marketing plan
- Financial plan
- Plan of operations (production)
4. Determine your business structure
It is important not to forget that you must establish the type of company you are going to create. But, what types of companies are there? Which one is more convenient for each project? Here are the different types of business structures that exist.
Types of business structures
| Corporate Structure | Description |
|---|---|
| Self-employed or individual entrepreneur | The owner of this company is the only worker in it and has full control. It is easy to set up and terminate. It is recommended if you are going to provide services as an independent professional. |
| Community of property | It is very similar to the previous type, however, there are two or more owners. In addition, the incorporation process is a bit more time-consuming. |
| Limited company (SL) | It is composed of a low number of partners, even one. The investment required is usually quite low. The liability attributed to each partner depends on the capital he/she has contributed to the incorporation. |
| New Company Limited Partnership | It is a simplified version of the previous type. Only a maximum of 5 partners are allowed. It facilitates the completion of formalities and reduces the time it takes to set up the company. |
| Public limited company (PLC) | It has a greater number of regulations and requires annual accounts and inspections from time to time. It is ideal for larger projects, which are usually listed on the stock exchange. The company’s capital is divided into shares. |
| Employment partnership | It can take the form of an SA or an SL. It is characterised by the fact that its shares, and therefore the ownership of the company, are shared by two different groups: The workers, who have at their disposal at least 51% of the shares, and the general class, who do not work directly in the company. |
| General partnership | It works well with a small number of partners, as those who contribute capital and labour can participate in the management of the company. If they only contribute labour, they cannot manage. |
5. Check the legal requirements
Contrary to what many might think, an online business is subject to legal requirements similar to a traditional business. Make sure you are aware of the requirements in your locality. Requirements regarding company registration, and obtaining necessary licences and permits, among others. The requirements will vary depending on the type of online business you are setting up.
However, an essential aspect of any website is the privacy policy and terms of use. This will help protect you against liability for data collection. While it is true that the privacy policy is usually established once the website is created, we recommend you to check Iubenda, a privacy and cookie policy generator, with more than 90,000 customers in 100 nations.
6. Get your products
There are several ways to get products for an online business. Here are some of the most viable options today.
Manufacture and store your products yourself
This is probably the option you will choose. If you want to start an online business at a micro level, that is, aimed at a very small target audience, this is a viable option for virtually anyone, because the production volumes will not be very high and, therefore, the cost will not be either.
If you want to go for a larger audience, keep in mind that you will need to consider that you will have to incur higher costs to make your online business successful. If you want to go to a larger audience, be aware that you will need to consider that you will have to incur higher costs to make your online business successful. Regardless of which one it is. Among them are the following costs you will have to incur:
- Purchase and transhipment of raw materials
- Producers’ salaries
- Transfer of goods
- Storing
- Manufacturing cost
- Cost of delivery (courier)
As you can see, manufacturing your products yourself can be very tempting, however, there are several costs involved. Don’t worry, in case this option doesn’t suit you, you still have more alternatives to use.
Dropshipping
If you have few resources, dropshipping is a good alternative. It consists of acting as an intermediary between companies and customers, all online. This business model helps you save a lot of costs. For example, you will not have inventory maintenance, packaging, or shipping costs.
The problem with this form of business is that, unfortunately, low-priced products tend to generate lower margins. For that reason, you need to keep your website active and incur marketing costs. A good tool for this online business model is to work with dropshipping companies that offer directories of other companies. One of the best dropshipping directories is Oberlo, check it out.
Work with a wholesaler
This business model consists of buying directly from the manufacturer or wholesaler and obtaining the rights to resell the items as a retailer. Working with wholesalers is a way to get higher profit margins, as you can get deep discounts on their products.
But working with wholesalers also means more labour, overhead, and operating costs. For example, the costs of procurement, marketing, warehousing, and fulfilment services. So keep this in mind when setting your prices in your online store, however, keep in mind that the price should correspond to the perceived value of your consumers.
7. Create your brand and image
It is important that your customers know you exist and recognize you, so you must create a brand. You probably associate a brand with its most representative elements. These elements are names, logos, and packaging, among others. However, a brand is much more than a combination of these elements.
A brand is a product, but one that adds other dimensions that differentiate it from other products designed to satisfy the same need. These differences can be rational or tangible, i.e., related to the performance of the branded product; or they can be more symbolic, emotional, or intangible, i.e., linked to what the brand stands for (7).
Building a successful brand
Now that you know the importance of a brand, you should take care to define the following elements of your brand, and make sure they are coherent among them so that they communicate the same thing. Especially, if you are going to create your own brand instead of working as an intermediary.
- Purpose: Your brand must have a purpose beyond the satisfaction of the needs that your product covers. It must have a greater meaning. For example, Coca-Cola does not sell carbonated beverages, but happiness, well, in its communication we see how much emphasis is placed on this.
- Target audience: Your brand must be related to your target audience, this will determine the channels through which you will contact and communicate with them, as well as the tone of your communication.
- Visual elements: This is where the elements that people usually relate to brands come into play. Read, logos, colour palette, brand name, and slogan, among others. The objective of each of these elements is to generate brand awareness and contribute to brand recall.
- Competitive advantage: What differentiates you from the competition? Is it sustainable in the long term? You must answer these two questions to identify your competitive advantage.
8. Create your online store
The next step is to launch your online business. To do this, you must choose a suitable platform, and test that the website runs well, among other aspects to consider. Below, we will detail everything you need to consider when creating your online store.
Creating the website
There are two ways to create a website. The first is to do it from scratch, which you can only do if you are a programmer, or hire one, which can be very expensive. The second, and cheaper, is to use a website builder.
We recommend free website builders in case you have a low budget. Nowadays, there are many alternatives on the market. Currently, one of the most used alternatives is GoDaddy for all the features it includes. Among them, it allows you to purchase the hosting, or domain, which is the place where your website is located on the Internet. Other website builders do not give you this option and you must look for a separate provider.
Payment and shipping
Make sure that your website, whether you create it from scratch or by using a website builder, has a built-in payment gateway. The latter will give your customers the ability to make payments through different means. If you don’t include this option, you could lose potential customers and sales.
Perform tests before launching your website
Before launching your website, first test if everything works as expected. This involves testing in the different browsers that exist, to see if the site loads correctly, how long it takes to load, and how easy it is to navigate. In addition, you have to make sure that your page is responsive, that is, that it adapts to different devices, from desktop computers to cell phones.
The above-mentioned will help you detect problems before they become big problems. For example, if your site loads slowly, you need to test the speed of the web server before doing anything with your website. If hosting is the problem, you may need to change providers.
9. Grow your business
While you are laying the foundations of your business, you should be thinking about the marketing strategies you are going to use to make your project known and contact your future customers.
We suggest creating a landing page on your online business website to attract potential customers before launching your business. Many times, this page can be created within the same platform you used to create your website. The point here is to communicate in a way that generates interest in the project you are about to launch. You can take your potential customers to this landing page using the following tools:
- Posting on social networks.
- Email marketing (although you must have a database first).
- SEM (Search Engine Marketing).
- Content production (for example, on platforms such as YouTube).
You can continue to use these strategies once you have launched your business to keep getting new customers and retain your current customers.
10. Don’t forget to formalize your business
Remember we talked about business structures? Okay, once you’ve decided to incorporate a new business, you need to formalize it. To do this, you should choose one of the business structures listed in this article, depending on your needs and resources.
If you are a sole proprietor, we recommend a limited liability company structure such as a limited liability company (SL). Why? Because this will keep all the assets of your business separate from you, i.e. it limits your personal liability, which reduces potential legal problems in the future.
Advantages of starting an online business
Investment and risk are low
Depending on the business model you choose, product sourcing, and sales platform, you could start an online business for very little money or even no money at all. For example, if you opt for dropshipping and you are an individual account holder, you won’t have to pay anything until you have sales.
Similarly, if you decide to sell on your own online, start small so that if it doesn’t work as expected, you can stop without incurring a large number of costs.
Access to a large market
As time goes by, more and more people have access to the Internet and therefore make purchases online. In other words, with access to the Internet, you can sell to anyone anywhere in the world, as the market of online shoppers is huge and is expected to grow a lot in the coming years:
Due to the pandemic, the adoption of this mode of purchasing has accelerated and it is quite likely that this shift to online shopping will continue. Therefore, this is the perfect time for you to jump into the pool and implement your own online business.
Continuous operations
One of the main advantages of online business is that once your company’s website or store is up and online, shoppers can add products to the shopping cart at any time, without the need for you to be there.
In other words, the sales will keep coming, whether you are monitoring them or not. If you automate the sales process from inventory management to delivery, you can literally make money while you work, hang out with friends, or even when you sleep.
Types of online businesses
Okay, so now you know how to start an online business from scratch, but how do you know what products or services to offer? We know that this decision can be very overwhelming, that’s why this section was written for you.
Tips for choosing which services or products to provide
People who start businesses do it for several reasons. Some do it out of mere curiosity, others to sell things they no longer need, among other reasons. However, if you want to create a consistent and sustainable business you will need a stronger motivation.
In addition, you will need to take into account many more factors to choosing a product or service to offer, so that you can be sure that they will make your business profitable, which is the main motive of a business, to generate profits. We give you the following recommendations:
- Find a product that solves a relevant problem for consumers.
- Focus on a topic or need that you know very well and/or are passionate about.
- Research the market, and look for trends.
- Improve existing products.
- Sell products that people want but can’t find.
Much of this information can be found on the Internet. In case you cannot find it, you can apply some of the market research techniques that we taught you in previous sections, such as online questionnaires.
Most profitable online businesses
As we mentioned before, the main objective of a business is to generate profits, that is, to be profitable. When it comes to online businesses, the situation is very favourable, since all people use their devices to shop, as you can see in the graph above.
Therefore, online businesses are those that involve selling some kind of product. Coupled with this, there are business ideas that nowadays many people are applying to generate extra income and, due to their popularity, they are seen to give good results:
- Store online.
- Affiliate marketing.
- Sell or create online courses.
- Provide online services.
- Content creator and writer.
- SEO and SEM consultant.
- Create online courses and sell them to platforms.
As you can see, many of these professions are related to online content or advising other businesses to grow. This is another sign of the wide potential that this market has, as you can see, the possibilities are wide.
What online business can I do from home?
It is very likely that you do not have a place equipped to do business. You may be thinking “I don’t have space at home to store my products, I can’t rent a place, I don’t have enough money to invest in machinery”, and this discourages you from starting a business.
However, this does not have to stop you from embarking on the great adventure of entrepreneurship, because, among all the online businesses that you can implement today, there are many that you can do from the comfort of your home, and without having to rent or buy a place to operate or sacrifice space and comfort. Here are some ideas to get you started:
- Sale of products: Acting as an intermediary on Amazon or other platforms.
- Graphic design: If you are a designer, you can offer your services online.
- Content creation and management: Nowadays, content is very important for companies.
- Online advice: If you are an expert in any subject you can provide advice via the web.
- Development and programming: Apps and web pages.
- Transcript: You don’t need any experience and you can earn a considerable amount of money.
Conclusion
You already know the procedure to start an online business from scratch, now it’s your turn. Take it easy, we know it is a lot of information, however, it is important that you take into consideration each step and recommendation we have given you. Remember, you don’t have to follow everything to the letter, adapt these recommendations to your needs.
So now you know, there is a world of opportunities to make money using this wonderful tool that is the internet, you just have to make the most of it. That’s all for now, go and make that great business idea that brought you to this article a reality. Go for it!
