PlusOne - Musings of a marketer

Many people view owning a web site business as a low risk way of running a business. In many ways this is true and an internet business is an ideal way of determining if you have the committment and focus to operate a real world business.

But there are serveral traps for the unwary that can turn your flegling online business enterprise into a financial black hole.

This was clearly demonstrated to me about a year ago. I had a request from a young couple for a free website appraisal. This was not the usual look at the website and how it could be improved, but a serious request to find out for how much they could sell their site.

It turned out the site was just a little over three months old and was not performing as expected. The couple had invested over a thousand dollars on web programming to get their database built and a shopping application working. In addition they have spent almost another thousand on web design and web graphics.

This in itself was not so bad - a business set up for under three grand, using their existing home computer as the operating ‘tool’.

But the two big traps they fell into are typical of many budding internet entrepeneurs.

The first was they did not have a realistic time frame see their business start to grow. Sure, using tools like Adwords can kick traffic along initially (heck we do that with Caricature King) but the reality is that it takes at least six months, and generally 12 months before one can really say the business is starting to get established. It is during this time that stock is added, SEO done (and fine-tuned again and again) and links to other sites swapped. It is also a time when fine tuning of product types that are stocked is undertaken, so you can start to hone in on the most popular items.

And this is where they fell into the second, and often business destroying trap. In fact I fell into this trap when I first started out in ecommerce in 1977 with the Australian Business Bookshop - and that is holding stock.

In any business excess and non-moving stock can drain your resources - and in internet businesses this is amplified because during the build up of business, it can be hard to move any stock at all.

In my case I had to order stock from publishers, with a $200 minimum order, and then repack and reship the order. The balancing act was to second guess future orders when buying books up to the minimum amount (a challenging task when it was only one or two books for a total of $50 being ordered). I have a few books still on the shelves 6 years after closing that site - and some of the ecommerce books make fun reading with their ‘old fashioned’ approaches and site building methods.

The young couple had fallen into the trap of getting in stock. In fact they had a double garage full of it. Both cars had been parked in their driveway for three months and they had build a shed in the back yard to house the items that normall live in a garage.

And their stock was depreciating fast - because as fashions changed they were finding it almost impossible to sell some lines. To make matters worse, they had used up their own spare cash on purchasing and were looking at borrowing to try to buy more fashionable stock lines. The only upside was they had not borrowed to get stock in the first place.

So how do you avoid the stock dilema? Easy - only deal with suppliers who will handle delivery for you by ‘drop-shipping’. There is no shortage of suppliers who will do this for you and it frees you up to be able to add and delete lines in keeping with the supplier’s changing inventory without worrying about non-sellign items that are getting pushed to the back of the shelves.

The only downside to this method is you have no control over how the goods are presented at the customer’s end. You cannot include a business card or a personal note with the order. You can do this by email, but those ‘personal’ touches are lost.

However a good supplier will present the delivery professionally and quickly and you will not end up with thousands of dollars worth of stock gathering dust.

And the young couple? Fortunately they took advise and started using Ebay to move stock - admittedly at a reduced margin, but they slowly reduced their inventory and found ‘drop ship’ suppliers and have been building a staisfactory online business.

Share your experiences via comments

technorati tags: ecommerce | web marketing | drop shipping