I recently heard a well-known politician describe the first quarter of the 21st century as being likened to the renaissance period of the 15,16th centuries; the massive expansion of electronic media communication bringing the same revolutionary changes to the dissemination of information as did the printed word in the earlier part of the renaissance period. The point being that whatever your business, you reside in the E-Commerce world.
Eight ‘killer’ tips are offered herein; some addressing financial, structural and organisational aspects of start-up businesses but many addressing the challenges and opportunities of the internet as the key route to market. Let’s assume that you have an idea, you have identified what your business will be – what service or product you intend to sell. The points to address are then how to achieve a successful exploitation of your business objective.
1. Your start-up business, whatever it is, will reside in the E-Commerce marketplace.
Although this article is titled ‘start-up business in the E-Commerce environment’, the first point to make, is that your business will reside in the E-Commerce environment whatever you are selling – be it cobbler, window cleaner or email marketing. A key route to market for your business, probably the main or sole means of reaching your customer base, will be emails, website and social media platforms such as twitter, youtube etc. Traditional marketing; shop frontage, personal contacts, print advertising, TV, radio etc., may well be no more than reinforcing marketing tools or at the very least will sit on the shoulders of a well-orchestrated internet presence.
2. Set out a clear financial plan.
Always a precursor to business start-ups is the need to set out a financial plan based on projected sales and associated cost of sales. If start-up finance is to be sought, then a minimum 3 year financial plan will be required by your friendly banker or investment partner. This should be realistic, remembering that if the start-up is to be a main (sole) source of personal income, a falsely optimistic financial projection is not serving your need. In my experience, start-up failures always exhibit a falsely optimistic initial projection of sales and cost-of-sales. The plan should, as minimum, project monthly sales and ALL direct and indirect costs associated with these sales. Direct costs means costs directly arising from a sale – materials, additional labour, postage etc. and indirect costs means those costs that occur even if no sales are made – rent, rates, utilities, your wages etc.
3. Sales are vanity. Profit is sanity. Cash is reality.
I have this aged pearl of wisdom framed and on my wall. Many business failures do not correctly account for direct and indirect costs and don’t price accordingly. Many so called ‘busy fools’ are seduced by sales volume without correctly working out a true profit per sale and end up working hard on activities that don’t generate acceptable margins (profit).
And of course the third pearl is the killer. All aspects of the business that hold up cash – stock, payment terms, equipment, are killers. For example, a business that has to operate with high stock levels is permanently tying up cash. Similarly, improving average payment terms (so called debtor days) is directly equivalent to a pro rata increase in sales with no extra activity required. Running out of cash means failure even if the assumed profit line is positive.
4. Keep the break-even sales level at a minimum.
The break-even sales level is the value of sales you need to achieve day-in-day-out to just stand still – i.e. the zero profit sales level. The counter argument to minimising break-even is ‘plan for success’ – in my experience ‘plan for success’ can be paraphrased as ‘plan for success but cost for failure’. In the start-up plan, every thought should be focused on how to operate at the minimum level of cost. I was consulted by a hairdresser who wanted to start-up on her own and I advised that she did not initially rent a salon but set up on a mobile ‘we come to your home’ basis. With low stock and equipment requirements, no rent, rates etc. and only fuel costs, almost all sales income was at 100% margin – all profit. The result was a flying start with great income streams almost immediately. Of course the marketing of the service was paramount – see below.
5. Routes to market – Email marketing.
Email marketing is fast becoming the most cost effective route to market. I have written blogs on the benefits, best practice and best in class email marketing services and what to look for; the key point to remember is that emails cost nothing and using a good email marketing service (such as Email Blaster, excuse the plug) carries very low costs when compared to print and media advertising. As I have repeatedly advised clients however, the quality of the email list is paramount. Don’t use a purchased list of unsubstantiated provenance. Lists acquired from so called marketing consultancies are usually worthless. At Email Blaster we recently de-duplicated and cleansed an email list that, we subsequently found out, had been purchased; thousands of the addresses were duplicated, made up or known spammed addresses. A good email list is one that you have developed yourself even if it is only a few hundred, or one acquired from a proven source that is verifiable and with some quality check.
6. Web site.
A good website is essential and worth paying for but for a start-up company, it need not be hugely expensive. A good quality website produced by a quality company need only cost circa £200 to start with. Don’t use a ‘build your own website’ service, it’s equivalent to purchasing business cards from a dispensing machine at a motorway services – tatty and easily spotted. A well designed site – even for only £200, will use good graphic software, be economic on coding, will load quickly and look good. Getting people to your site is the difficult bit. Unless you’re very specialist, you will be competing with thousands of other companies and if you’re not on page one of Google, you will get very few visits. However, getting a good ranking for popular search phrases can be very expensive using search engine optimisation (SEO) services. I wish I knew of a cheap way to get a good search engine ranking, if you know one let me know. Of course the website is where your emails will send interested customers and it can serve as a booking tool so it doesn’t necessarily need to be on page one. Consider what you want the website for.
7. Keep legal and tax status affairs in order.
But it isn’t always necessary to employ the services of a chartered accountant to manage your company tax affairs – another cost to dispense with. I’ve always found Revenue and Customs helpful and informative when it comes to payroll, corporation tax etc. for small company accounts and both are within the capability of a person intelligent enough to set up a business. It is vital to properly account for tax and to ‘keep legal’. Use a low cost accounts software package from day one. I’ve found Sageone payroll and accounts a great package that is not expensive and is easy to use. (I don’t work for Sage by the way). Starting off with a package like Sageone is much easier that converting to it at a later date.
8. Do something you are going to enjoy doing.
The most successful start-ups started out from an interest or a hobby – read Steve Job’s biography. If you’re going to make a living (or your fortune) from your business it will take a lot of time and effort and your enthusiasm is vital. That hairdresser I mentioned earlier, she loves her work, is good at it and makes a great living so enjoy it!
At Email Blaster UK
Michael Peters BSc. is a well-known business turn round and start-up expert with a proven track record in the automotive, manufacturing and marketing areas.