Andrew Youderian
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April 18, 2012
We’ve all heard stories of founders who spend years building a product only to find that no one wants it. In business, determining that a viable demand exists for your service or product BEFORE investing the time to create it will significantly increase your likelihood of success. It’s possible to do this in all industries, but for physical products, it’s incredibly simple.
Want to gauge the potential demand for ink-jet printers? Head on over to the Google Keyword Tool and BAM! You immediately know that approximately 22,000 people are searching for the phrase “inkjet printers” on Google each month. Now, I’m not advising that selling inkjet printers would be a good idea. In fact, I can’t think of many WORSE things to sell online. But the ability to easily determine relative demand for an existing physical product is a great advantage over “hoping” someone is going to want a new product you create.
If your “business” involves trading your time for a paycheck, it’s not a business – IT’S A JOB! Our ultimate goal when starting a business is to create something that can function without our constant involvement. I want to put in a lot of time and energy up-front, and then enjoy a steady income stream without the demand for continual attention and maintenance. This doesn’t mean you get to abandon your business –upkeep and re-investment are crucial — but we DO want something that can go for long stretches of time without needing to be micromanaged.
E-commerce fits the bill perfectly. Assuming you invest the time to create the proper site, systems and team, a drop-shipping website can process 100 daily orders almost as easily as it can process 10. There will be a few operational and customer service costs that increase, but they will rise significantly slower than your increases in revenue and profitability. (Again, this assumes you set things up properly. Stay tuned to eCommerce Fuel to learn how.)
Compare this with a freelance or consulting model, where you’re simply trading hours for dollars. It’s a great model for those with marketable skills looking for some extra income, and it can provide a lot of flexibility. But at root, it’s a job — and one that you ultimately can’t scale.
“But I don’t have $20,000 to go out and buy inventory to stock a warehouse!” It’s a predicament often shared by budding entrepreneurs. This is why the drop-shipping e-commerce model is so wonderful. I’ll be adding a detailed post on how drop-shipping works, but here it is in a nutshell:
Instead of buying, stocking and shipping your own products, you partner with a wholesale warehouse. They stock all the inventory and pay for it up-front. When you receive a new order you need to fill, you simply forward it to the dropship wholesaler. They charge you only for the product you need to fulfill the order, and they ship it directly to the customer. No massive up-front inventory costs. No having to stock, store or ship the product. It’s like having your own warehouse and inventory without actually having to pay for it up front.
There are a few trade-offs, of course. The margins will be a bit smaller than if you purchased in bulk from the manufacturer. And because there’s a third party between you and your customer, there are a few more logistical issues to work out. But overall, it’s an amazing way to start a business, especially in the early stages when you’re trying to prove market viability. Remember, you always have the option of purchasing and stocking your own product once you grow.
Have a great idea for a new web app or piece of software? Great! Either learn to program or pony up the cash to PAY a developer to create it. Your chances of convincing a programmer to create it based on your “great idea” are almost non-existent. Ideas are a dime a dozen. Execution and the ability to actually CREATE something yourself comprise about 90% of business success.
Luckily, you don’t have to be a programming genius from MIT to build a successful e-commerce business. With companies like Shopify, which make it incredibly easy to get an e-commerce store off the ground, just about anyone can get a shop live. Let me be clear: Most successful online entrepreneurs have a working knowledge of web basics like HTML and CSS, and I think there’s a lot of value in spending time to understand how these work so you’re not at the mercy of someone else for basic changes and updates. However, tools exists that make it possible to get started without being a programming ninja. Once you’re up and running, you can then invest some time in learning about the intricacies of the web so you better understand your business infrastructure and how to improve it.
I left this one for last, as it’s a bit obvious but definitely bears mentioning. An e-commerce business is — drum roll, please — an INTERNET BUSINESS, bearing all the wonderful benefits of working online.
Work from anywhere in the world. Reach a global audience. Enjoy incredibly low overhead and operational expenses. And perhaps the best benefit: tap into the incredible power of recurring free traffic using SEO (search engine optimization).
Well, SEO it’s not really free. A LOT of work goes into improving your Google rankings. But I promise you that in terms of advertising ROI (return on investment, or how much value you get back from your invested time/money) there’s no better method of building long-term, sustainable traffic than SEO. I receive tens of thousands of dollars of free traffic each month (compared to paying for this traffic with ads), and it’s a key component to my businesses’ profitability.
Well, maybe not. In fact, definitely not. There are a few fairly serious disadvantages to starting an e-commerce site, which you can read about in my follow-up post, “Four eCommerce Pitfalls and Ways to Overcome Them“.
Photo by Images of Money
3 Comment
I was wondering where I could find an existing e-commerce site for sale. thanks
It’s hard to find quality marketplaces for eCommerce stores. You can try Flippa.com, but there is a lot of junk you need to filter through to find decent properties.
My one concern with using a drop shipper is how to sync my store’s inventory with what is currently available from my drop ship supplier. How to you make sure, without to much labor intensive processes, that what you sell will be available from your supplier?
Thanks
Ron M