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Starting Up an Online Business in a Down Economy
OK. We all know we are experiencing less-than-stellar economic times. While there is no official "recession," every person you probably know is watching his daily spending and cutting back wherever possible.
Since money may be tight, is it really a good time to start an Internet start up?
You bet. Why? For starters, Internet startups have low startup and overhead costs. Startup costs can be as low as $3,000--thanks in part to inexpensive, yet robust e-commerce software and services on the market today What's more, the business can be set up in a home office and attended to at nights and on weekends, allowing new entrepreneurs to keep their day jobs. In addition, many budding netrepreneurs can set up their online businesses in under one week.
Another reason Internet startups could be lucrative even in a down economy is that online shopping is growing. In the first quarter of 2008, revenues generated by online-based businesses (and the online aspects of traditional retail businesses) were $32.4 billion, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, according to the U.S. Census Bureau (census.gov). That tally is up 13.4 percent from results for the third quarter of 2007.
In general, e-commerce is the bright spot in the retail world today.
While Grau warns that the economic downturn is slowing down e-commerce sales somewhat, "online sales are still growing at triple the rate of store sales, so it is still a very desirable marketplace."
And, more and more online shoppers are turning to the Web to shop instead of paying gas to go to the mall.
A new poll conducted by RetailMeNot.com, an online coupon Web site, found that nearly 9 out of 10 American consumers have been forced to make adjustments to they way they do their shopping as a result of high gas prices.
The poll asked visitors to RetailMeNot.com, "How have high gas prices impacted your shopping habits?" More than 1,000 consumers responded, and the results follow:
Of course, whether or not the economy is bad, there are some best practices to keep in mind when opening up an online business. Here are a few of them, according to eMarketer's Grau:
1. Have a niche or focus on a specialty category. Since you are essential competing with box box retailers like Walmart or Target when you enter the online retail space "be sure you have something niche-oriented, such as fashionable maternity wear or urban street ware," says Grau. "Or focus on a specific category, like shoes, but that's all you do. But offer great custom service, such as making it easy to return shoes."
2. Offer an innovative marketing technology. "A good example of this is Diapers.com, a small Web retailer," says Grau. "They are very successful in part because they have an innovative referral program where if a Diapers.com customer refers somebody else to the company--and the person who was referred comes to the site indicates that they are there because of the original customer--that customer gets a discount. That is one way they have built up their customer base." Grau also says Diapers.com has some packaging innovations that enables it to cut down on the shipping costs of diapers. Finally, the company is innovative in its focus on convenience; it makes it easy for young parents to have diapers delivered to their door without having to make a midnight run to the store because they are out of diapers.
3. Keep pricing in mind. Even if you are selling a niche product, always keep pricing top of mind. "You are never going to compete with big box retailers on pricing, but perhaps there is a promotion or value-added program you can offer that helps people deflect that or takes their minds off of pricing."
Having a unique product, an innovative marketing technology, and a promotion to help customers deflect prices are all important business strategies during a recession because "people have less discretionary money to spend," says Grau. "As a result, it is all the more important for e-tailers to focus on strategies that keep their customers coming back."
Melissa Campanelli is a leading expert in small-business e-commerce. She is author of Start Your Own e-Business and writes the monthly "Net Profits" column for Entrepreneur magazine, offering valuable advice to online small businesses.
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