Is the honeymoon
really over? Or is it just that reality has finally set in? While
the Internet may seem to offer a new way of doing business, it
really doesn’t. Think about it: You have a “storefront,” you order
products, you inventory them, and you sell products. At the end of
the day, if you have money in your pocket, you made a profit. This
is the business world that your grandfather taught you about.
Now you have Internet
businesses set up by twentysomethings with little or no business
acumen. Their ideas sound wonderful, so investors pour money into
them. These twentysomethings establish a business and revenue model,
often without testing it. Their gross profit structure is too low,
and their advertising costs are too high. And, worse yet, their
return on investment for ad dollars spent is horrible. I had an
Internet client last year whose total annual revenue was $25,000. We
put together an e-commerce strategy that looked good to investors,
and within three months the business was sold for $30 million!
Somebody perceived a value in the business, and the total annual
revenue was deemed immaterial.
Before you go saying,
“I told you this Internet would go the way of the hula hoop,” let’s
look at some simple commonsense business rules for operating an
Internet business. And if they seem familiar, that’s because they
mirror the steps you took when you set up your first store.
Think about
profit. Michael Dell, CEO
and founder of Dell Computers, said it very well at a conference I
attended: “In spite of what people think, you still need to make a
profit.” His company is now the largest computer company in the
U.S., and it makes a profit. Too many folks think that the cost of
doing business online is smaller, since you don’t need a
bricks-and-mortar store. Wrong! In many cases, the cost of an online
store is greater than the cost of a bricks-and-mortar one. Toys “R”
Us spent $80 million on its online store, ToysRUs.com.
Be sure you that have
enough gross profit (GP) built into your products. I usually see
online retailers establishing a 30 percent GP, whereas their
bricks-and-mortar counterparts establish a 50 percent GP.
Examine your
purpose.
You first have to determine what your
reasons are for creating an online presence. Do you want to sell
online, or drive traffic to your bricks-and-mortar store? What is
your target market? Why should somebody do business with you? What
differentiates you from the hordes of competitors online?
Ask yourself what
your customer wants. Too
often, we make the mistake of thinking that we understand our
market, and we develop a plan based on that knowledge. The correct
method is to ask your customers or prospective customers what they
want from your store. If you really want to do things right, conduct
a series of focus groups with your target audience, and listen to
what those people are looking for in a Web site. Probe them to find
out if they would purchase from you online. How do they find you
now? What would convince them to come to your site? While focus
groups usually cost between $5,000 and $7,000 each, and should be
done in threes, you’ll find that they are some of the best
investments you’ll ever make.
Think about how
you will fulfill orders.
Will you be able to fulfill
the additional orders generated by an online site? Will you stock
more inventory, or have your supplier fulfill on a just-in-time
basis? Are your back-office order processing, inventory, and
accounting systems up to date? Another factor to consider is that
the Internet is a global market and can potentially give you
international business. Are you prepared to handle that? Or do you
want to ship domestically or locally only?
Plan out your
site.
Now that you have established your preliminary goals, you have to
consider what to include in your site. Be sure that the buyer using
your site can easily navigate between products and categories. A
good rule to follow is “two clicks to find, three clicks to buy.”
Focus on your core
business and avoid the temptation to stray. For example, don’t
accept banner advertising from others if it doesn’t add to your
site.
Build
communication and support.
In a series of focus groups
that we did recently, we discovered that the number one concern was
communication. People wanted to know when there are delivery issues,
and they wanted to be able to contact somebody and get prompt
responses, via either e-mail, fax, or telephone.
Don’t be fooled into
thinking that a Web site will require less support than your
physical store does. Since the Net is global, and since folks like
the convenience of shopping at any time of day, you may need to
provide 24/7 support. This support may consist of answering
questions via e-mail or phone, or conducting real-time online
discussions.
Create comfort and
trust.
In order for customers to buy from you, they must be comfortable
with your business, your products, and your longevity. So you need
to convey staying power and trust. Write a detailed explanation of
who you are, what you do, and why someone should do business with
you. Expound on your history and the size of your organization.
Avoid the latest
and greatest.
Content is still king! Folks are more interested in knowing who you
are and what you do than they are in the prettiness of your Web
site. Don’t use meaningless graphics or “splash pages” (i.e., pages
that pop up without any links to other sections). Keep in mind that
many people still use slow modems and old computers; thus they can’t
access streaming video or Java script. And, unless you are selling
music, forget sound. Your customers may browse at your store from
their offices, and sound suggests to their colleagues that they are
goofing off. A simple and elegant site is much better than a
gadget-filled one.
Have your site tested
on different browsers. Netscape works differently from Internet
Explorer, which works differently from the America Online browser.
Some features that look great on your machine won’t work at all on
others.
Protect Privacy.
Privacy is a concern, both in
terms of financial security and in terms of the ways you use the
personal information you gather about your customers. You need to
post a privacy statement that alleviates customer fears.
These tips are the
same ones any smart businessperson would use with a
bricks-and-mortar store. Whether you’re in physical space or
cyberspace, a simple, commonsense approach to running a business is
the best way to establish a solid footing in an unstable world.
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