| The dot-com debacle
showed that many online business models are fated to fail. No matter how
deep are their pockets, many Internet businesses have crumbled under
the oft-heard excuse of “poor market conditions.”
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continued below ...)
onetheless, there are consumer sites on the Internet many of which are
home-based businesses that have been quietly counting profits continuously
for
months despite the slowing global economy. These work-at-home online
entrepreneurs join the ranks of luminaries like eBay and Yahoo as part of a
handful of sites that have been profitable. They may not be the darling of
the press, but they have been making much more revenues than those who constantly hog
the headlines.
What are the secrets of these Internet entrepreneurs? For the past
months, we have been running a series called “Making It Big on the Web”
showcasing real home-based entrepreneurs that have turned a profit. Some of
these entrepreneurs operate from their homes, but others have grown big
enough to afford a real office or open a retail store.
These Internet entrepreneurs have demonstrated an important fact:
e-tailing has more to do with old-fashioned business sense than with which
outfit has the snazziest web site or most innovative business model. They
may not have the bells and whistles of well-funded sites, but they knew the
value—in dollars and in loyalty—of treating customers right.
By looking at those few online home-based businesses that are actually
making money, we've extracted twelve lessons that can lead to profits on the
Net.
1. Find a promising niche.
Niche marketing entails offering unique
products or services to a few concentrated markets. Whether on or off the
Internet, it is a less risky strategy and provides the best opportunities
for small businesses throughout any marketplace.
Tony Roeder of RedWagons.com (http://www.redwagons.com), an online store
selling mainly Red Flyer toy wagons, credits much of his success to his
strategy of concentrating on a small area of the toy market. According to him, “We
focused our attention on Radio Flyer Wagons and became an Internet toy store
primarily selling their products.” He balanced his narrow product offering
by giving customers the widest selection in that niche. As a result, “We
have the advantage because we have a wide product line whereas most online
stores only carry two or three models of the products. We're filling a niche
and answering the problem that there was no selection since most stores
carry only 2-3% of that selection.”
Michelle
Donahue-Arpas, founder of GeniusBabies.com (http://www.geniusbabies.com)
selling infant developmental products said, “We tried to stay with our
niche, and expand our product line within that niche.” From selling five
different baby gift baskets containing an assortment of infant stimulation
and pre-natal products, Donahue-Arpas's product line has grown to about 700 as her business grew.
2. Keep your operations tight. The successful Internet entrepreneurs we’ve
featured thus far has one common trait they are all frugal. They all
avoided unnecessary expenses in the beginning, particularly since they all
operated on a shoestring budget. They started with very small budgets and
proceeded without spending a bundle. These entrepreneurs all proved that you
can make money on the Internet if you don't spend a lot in the first place.
Donahue-Arpas of GeniusBabies.com
said, “We
started very small. We literally started with just a few thousand dollars
invested - less than $5,000 -- and then only about $300 a month to sustain
the business, with more supplies, business phone and fax lines, web hosting
and such.”
The key to success on the Internet is to treat it just like any
old-fashioned business: minimize costs and maximize profits. Roeder of Red-Wagons.com perfectly captured this bit of wisdom: “The
main part of our strategy is that every decision, especially the marketing
decisions, has to make fiscal sense upfront. We do not spend any money on
speculation.”
3. Expand slowly, but
surely. Entrepreneurs working on smaller niche
markets and tighter budgets have no choice but to grow slowly. Donahue-Arpas
said, “I am content with the business growing steadily, not growing
rapidly. That is not our ultimate goal. And we don't want to compromise what
we had - the personal care that we give to every customer that has made it
successful. We give our customers a unique experience that they couldn't
believe that people actually cared - that they got a personal reply or
response for all the things they said, or someone being kind to them.”
Roeder reaffirms this, “For the past two or three years, we just
focused on building a business and getting it up and running. Now that we
are established and feel that we have the strength to move on. … We're in
our second stage right now. We still need to grow our customer base. We need
to build the strength of our company. So many online businesses, the
greatest examples are Etoys and KBKids, spent millions of dollars on
advertising. They spent $50 million on advertising and got $50 million in
sales, so at best they had a 1:1 ratio. So when you look at their sales and
profits, there's bound to be a loss. We cannot afford a 1-to-1 basis.”
4. Avoid keeping
inventory. As part of the strategy to keep the costs
down, one of the things a start-up Internet entrepreneur must avoid is
keeping a huge stock of inventory. While in its infancy, an Internet site is
still struggling to find its audience. Keeping a huge inventory at this
point may mean that a lot of money will simply lay dormant as inventory
sleeps.
In fact, most of the home-based entrepreneurs we featured even avoided,
to the extent possible, having any inventory at all. The founders of
Sneetch.com were even “inventory-averse.” As Lundgren and Lidvahl
stated, “When we started, our goal was - and it may not stay the same the
entire time that we are in business - not to carry an inventory. We did not
want to think about what to pre-order or hold; and how to get rid of those
that didn't sell or the dead stock - the whole inventory process. We want to
do something else.”
Donahue-Arpas reaffirmed this thought, “Some people go out there and
spend a fortune on inventory. And I say noooo!”
To get around this problem, these entrepreneurs employed two approaches:
arrange for drop-ship fulfillment or purchase small quantities at a time.
Roeder describes the drop ship arrangement that he used for RedWagons.com
as, “We would download orders off the Internet, convert them into purchase
orders, which we would fax to the manufacturer and they would fulfill the
order.”
The same approach is used in Sneetch.com’s operations. Their
distributor drop-ship fulfillment, freeing them from overheads associated
with shipping and handling. The founders described it as, “Once we get the
order into our system, we process it, screen out for fraudulent orders, etc.
After we do that, we submit through EDI (Electronic Data Transmission) to
our distributors for fulfillment. They carry the entire inventory. So after
that, they ship it out if it's in stock and they send us back a file that
says this has been shipped, or this has been back-ordered. Then we get the
tracking information of the shipment, which we send to our customers in
their confirmation email.”
Donahue-Arpas simply arranged to buy smaller quantities: " I started
with small manufacturers, calling them up and saying, I want to start this
business, can I buy 12 and can I have a discount? I started small: paying
very small money and paying things upfront. I told the manufacturers,
"I believe that it can be bigger, if you could have some faith in me.
And hopefully, we're really going to grow."
5. Customer service reigns
supreme. Good online businesses rely on
customer relationships built upon mutual advantage and trust, the way
businesses always have.
Donahue-Arpas
attributes the success of GeniusBabies.com to her
customers. As she said, “Our business has blossomed-- thanks to our
wonderful and loyal customers. It is much more difficult to give the
personal touch when there's 50 or 100 orders a day, than it was when there
were 10 or 12. But no matter, I see to it that all inquires are replied to
promptly. If we see that someone has selected to pay for Next Day Air
Shipping for $30 to ship to North Carolina, and we can send it by Ground, as
we're in Charlotte, we immediately reduce their charges to $6.95 and inform
them through email. The personal touch again, the old fashioned idea of
being kind, courteous, and respectful, and treating our customers just as we
would like to be treated. Simple as that! Many of the big e-tailers spent
millions of dollars to get everybody to their site. We are not doing that.
Instead, we just took exceptional care of the customers that did come.”
Aside from personal touches, prompt delivery and fast response time to
customer inquiries, most of them use promotions designed to keep the
customers that they have. Tamara Carlise, owner of BigKids Video
(http://www.bigkidsvideo.com)
uses such promotional programs. “We try to keep existing customers and
show them that we appreciate their repeat business. Customers, after their
fourth order, are elevated to a Preferred Status where they receive a 10%
discount from us from now until eternity.”
Continue
to Part 2
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