Last night my brother-in-law came over to discuss a new business plan with me. He and a friend want to start an online business and wanted my advice.
My advice mostly consisted of a series of questions that everyone needs to ask before they begin a business.
1. How much money do I need to make for the business to be worth my time?
If you can work full time and make $30,000 a year then it doesn’t make sense to start a business that will make you less money for the same amount of work.
In fact starting a business is a risky venture and so you may have to be able to earn twice as much money for it to be worth your risk.
Before you build the business you must decide how much it must earn to be worth your time.
2. How much time, money, and other resources in my willing to commit to the business?
Building a new business often requires some money invested and a lot of time.
If you’re building an online business then you may need to register a domain ($10 for one year), pay for hosting (say $10 a month), and pay for an auto responder service like Aweber (about $20 a month).
The total cost of these items is $10 up front about $30 a month. That’s a total of $370 for one year.
Whatever your business is, you need to understand what the startup costs are going to be. This way you can make an educated decision whether you are comfortable with these expenses.
Be sure to break it down into monthly costs and the total cost for one year.
If you’re not sure what the cost would be then find someone who has run a similar business and ask them for a detailed list of the various expenses to start your business.
Another thing you must consider is your time commitment. How much free time are you willing to commit to this business? And where will that time come from?
If you determine that running your site business requires 20 hours a week and you can only commit to 4 hours a week in your business will probably fail. You need to be realistic about how much time you really can devote to a venture.
3. What is the product that I’m selling?
You need to find a product to sell. And it needs to be something that people will buy.
You may decide to sell a physical product online. In this case the product you’re selling is obvious and it’s easy to track your success. All you have to do is track the number of widgets you have sold.
If you decide to build an information website and make money off of advertising than your product is actually the advertising space that you sell. Selling advertising space can be tricky if you don’t have much traffic. To be successful at this you must match the advertisements to the visitors on your website. You must also put the advertisements in locations where readers will see them without annoying your readers.
4. How many products do I need to sell?
If your goal is to make $5000 a month and you sell widgets for $5 and you need to sell 1000 widgets to meet your goal of $5000 a month.
This works out to 34 widgets sold every day. Is this goal reachable for you? Is this realistic?
5. Who will be my customers?
In order to sell stuff you must have customers. Both who your customers be?
If you’re selling high-end golf clubs then you need to determine what kind of people would buy them. I’m guessing that the most common buyer of high-end golf clubs are wealthy men that are white and play a lot of golf.
If you’re selling a book that lists 10,000 baby names with their meaning and origin then your customers will be very different than the high-end golf club customers. They will most likely be women that are married and pregnant with their first child.
Whatever your product is you need to come up with a specific profile of your ideal customer.
6. How will my customers find me?
Once you have identified the type of person is most likely to buy your product you need to figure out how that person will find you and buy your product.
How will they know they your product exists?
Putting up a simple website and just hoping that people will magically find it won’t get you anywhere.
Instead you should find out more information about your ideal customer. Where do they shop? What are they do for fun? Where did they go for advice?
People who buy high-end golf clubs spend a lot of time and money golfing on various golf courses. They might also be a member of a country club. These places often have small shops that sell golf related paraphernalia. This would be a good place to sell your high-end golf clubs.
There are also golfing magazines, websites, and forums. All of these places would also be good to advertise on and sell your high-end golf clubs.
Individuals who buy baby names books might also shop at stores that sell baby cribs and baby clothes. For fun these people might go to the park and associate with other mothers of small children.
If they have questions about their pregnancy may go to online forums to get advice.
Figure out where your ideal customer spends much of their time and use that information to better market your product.
7. How can I prototype the business to avoid unnecessary risk?
Beginning any business comes with some risk but there is things you can do to minimize your risk.
If you’re selling baby names books then I suggest paying to have no more than 10 copies printed. Try to sell just those 10 copies even if you don’t make any money. The point in selling 10 copies is to prove your business model.
Once you’ve proven the business model then you can pay for 100 or 1,000 copies to be printed.
Another way to cut costs is with a website. If you’re just starting out and you don’t have any money then consider getting a free blog to host your website. Once you’ve actually made $10 then reinvest that money and buy a domain.
{ 2 comments… read them below or add one }
These are a lot of the questions that people never think about. And I will be the first to admit that I really didn’t look into these before starting my blog. I just thought that if I could make a couple of dollars a day on Adsense I would be sweet. I it looks like I need to be doing a lot more to bring it up to scratch!
I would estimate that 90% of the websites running Google AdSense are losing money because they don’t have everything setup correctly.