Three Web-Only Retailers with Winning Business Models

Online commerce is growing fast and innovation is key to staying relevant on the market. The simple catalog model is still here but for how long? With customers in need of customized products and personalized offers, with omnichannel gaining momentum, it’s the new and innovative startups that are defining tomorrow’s shopping standards.

To show just how important innovation is in online retail, this post will showcase three web-only business models that proved successful. Each of these companies has been listed by Internet Retailer as a top-growth retailer.

Let’s start with …

eSalon.com – custom formulated hair color products

Year on Year Growth: 200.3%

You know how cosmetics and hair care companies list so many hair coloring products? Yeah, that’s because hair color is quite a personal choice. So eSalon has made sure it stays this way. They provide a special customization form where customers can offer personal info, relevant to building the perfect hue. Hair coloring delicate and often hard to do perfect. So there really is a lot of data you have to fill in before you get the right product but I believe it is worth it.

The company’s main target are women and do it yourself hair coloring is not an easy process. Help from expert that can combine and blend multiple ingredients in one perfect hue is great. But eSalon doesn’t have to do this blending too often. Once the hair color is just the right fit and the customer is happy with it, it will probably keep coming back.

Dollar Shave Club – Shaving Blades delivered monthly

Year on year growth: 242.10%

Here they are – shaving blades. It’s the one item most men have to use daily. Dollar Shave Club manufactures shaving accessories and personal care products for men. Their main product: shaving blades, sent each month to customers, for 1-9$ subscription fee.

Blue Apron – Recipes and recipe ingredients delivered at home

Year on year growth: 550.2%

Blue Apron is the fastest growing US retailer, with a 550% growth from last year. Any kind of business that grows five times in one year has to be a pretty amazing concept. And it is.

Think of Blue Apron as IKEA for the kitchen. Cooked meals get a lot less expensive when they’re purchased as ingredients. Basically a web web grocer, Blue Apron has decided to take a special approach. By showing how ingredients fit together with recepies, they were able to increase the number of products purchased by customers.

A great concept like Blue Apron has to have a great team behind it. That team is made up of a previous VC investor, a previously technical architect and of course … a chef. A recipe for success, if i might say so.

Econsultancy / Adobe Report: Omnichannel will become a reality in 2015

Adobe and Econsultancy recently released their 2015 Digital Trends report and data shows some really interesting insights. The report is a result of interviewing almost 6000 marketing, digital and ecommerce professionals. The general consensus is that marketing is moving fast and content, personalization, mobile and omnichannel will be key aspects to maintaining a relevant connection to consumers.

Among other facts, the report shows an emergent need to understand customers journeys across multiple channels and a need to insure consistency across these channels. 97% of all respondents pointed to having a clear understanding of customer journeys across channels as being either very important or quite important. Content consistency across channels is also a key priority for 96% of all respondents. 66% of marketing, digital and ecommerce professionals list content consistency as being very important and 30% list it as quite important.

Because omnichannel success is usually a result of strategy and team effort, the report shows training teams in new techniques, channels and disciplines is very important and quite important for 95% of the professionals surveyed.

Personalization, Big Data and Multi-channel campaigns – very exciting in 5 years time

As the customer is getting more and more empowered by digital technology, results show that some aspects of marketing and retailing will become highly popular in the next 5 years. The most exciting for those surveyed are:

  1. personalization: ensuring a relevant message to the customer in terms of marketing campaigns and content
  2. big data: by using large volumes of data campaign management and marketing can be more relevant and results more personal
  3. multi-channel campaign management: addressing campaign consistency across channels seems to be a very exciting opportunity for professionals, but not really feasible right now. While 12% listed this option as very exciting in 5 years, only 7% listed it as very exiting in 2015. This probably has to do with the fact that although professionals and senior management understand the need for multi and omnichannel campaigns, there are few successful use cases that can be used as a threshold right now.

Overall, the report paints a very optimistic picture for omnichannel followers and professionals. 67% of those surveyed agree that omnichannel personalization will become a reality in 2015. 

You can download the full report at here

The Omnichannel Supply Chain

For a very long time, retailers used a linear approach to the supply chain. It meant that merchandise flowed in just one direction. Products would move between the manufacturer, the wholesaler, the retailer and onto the sales channel. This sales channel meant the brick and mortar store, in all its variations, for a very long time.

With the internet revolution came the concept of eCommerce, where customers would place the orders on an internet store front and they would receive it at home. Medium and large retailers used the same method of silo-management to the online store.

The “silo” approach meant that each new sales channel would be treated as a separate silo, independent from the other stores. That worked for the previous concept of brick and mortar stores, so it had to work for the ecommerce approach, too, right?

Not quite. The concept of having an online store work as a separate operation doesn’t fit the profile for the new consumer. The fact is that there are very few exclusive online shoppers. People like to spend time in stores, touching merchandise, they spend time on social media, get informed, place calls to ask for info and generally live in a complex world that mixes online and offline experiences.

Customers demand new options from retailers, things such as “buy online, pick-up in store”, “order in store, receive at home” – just some of the many challenges retailers face right now, trying to connect with the new consumer.

To go from being a retailer to being an omnichannel retailer, companies need to step up their game. And it’s not just marketing or hardly operational shopping programs. Customers demand a real change in the way they are engaged. Companies such as Macy’s have invested in creating experiences that handle multiple journey maps for their customers and the results are satisfying.

To achieve this, retailers need to adopt an omnichannel supply chain. The biggest difference between this type of approach and the previous is the fact that it is omni-directional. Whereas the classic supply chain was mostly linear, flowing from one place (manufacturer) to the other (customer), the omnichannel supply chain flows across many boundaries.

To achieve relevance in the omnichannel age, retailers need to be ready to handle:

  • cross-channel inventory transparency
  • a multitude of customer journeys (ex.: customer places a call in the call center, gets informed, places the order online, picks and pays for the order in a brick and mortar store)
  • new manufacturing demands and technologies (mass-customized merchandise, 3D printing, work in process real-time information)
  • information flow within the company and outside the company (with wholesale partners or manufacturers)

The omnichannel supply chain is not easy to achieve. Medium and large companies are caught up in a web of systems and processes that may have worked 10 or 20 years ago but they are now obsolete. The linear approach to supply chain management and marketing is really not their best bet. The change in consumer behavior is irreversible and the omnichannel supply chain is one of the most important changes in today’s retail.

Functional Online Marketplaces

The marketplace has been a very influential social and economic construct for a very, very long time.

It has been a central concept to commerce all over the world since the dawn of man kind. In time, the marketplace has been refined and evolved to include ever more complex structures. During the past century it morphed from temporarily trade gatherings to large permanent structures such as shopping malls and eventually it evolved into what we now know as the online marketplace.

Ebay, Alibaba, Etsy, Amazon and others have one thing in common – they get sellers and buyers in one place. These online marketplaces are fueled by a business model that has seen a steep increase and proved excellent in the past years. But now, it’s time for the next step:

Functional Online Marketplaces

I believe the times they are a-changin’, like Dylan would chant. The Online Marketplace is not enough any more. The markets demand something more.

That something is the Functional Online Marketplace, a virtual hub that combines the features of a marketplace (buyers and sellers, reputation management, transaction handling) with functions that improve the lives of either sellers or buyers.

The Functional Online Marketplace goes beyond just letting sellers and buyers trade. It helps the seller run its business better and the buyer benefit more from the product purchased.

And some of the biggest tech companies we know have created this type of Functional Marketplaces. We’ve used them and most customers love them. We just didn’t put a name on it. Have a look at some examples:

The Apple Ecosystem

Steve Jobs envisioned the PC as a digital hub, a central unit that connects the user’s digital activity. From email to web surfing, from music to pictures and more. It than proceeded to create this vision and along the way he built much more.

By launching the iPod and than the iPhone, Apple moved the digital hub inside the consumer’s pocket. With such a valuable real-estate in the reach they’ve had to build a system that shipped music, video and applications from third parties to these devices.

The iTunes Store and the AppStore were born. Apple built the platform to consume apps, the place where customers could download these apps, empowered developers to build these apps but did something else too.

It built Xcode (the development tool for iOS developers), it launched Objective C and than Swift (the programming languages used to build apps) and helped developers create useful apps.

Apple went beyond the marketplace paradigm. Yes, it allowed media and software consumers to meet developers but it also created the platform where they could be consumed and the tools to build them. It built an extraordinarily effective Functional Marketplace.

But Apple is not the only one …

The Uber-marketplace

Uber is an extraordinary successful company that connects freelance drivers to those in need of their services. It connects buyers to sellers. It is technically a digital marketplace. And more.

First of all Uber empowered a set of freelancers that didn’t know they’ve actually had a market. The driver app allows drivers to see potential riders and provides GPS-linked functionality inside a simple mobile device.

The functional side of Uber not only improves the way sellers (drivers) provide their services but actually it makes it possible.

For customers, the app makes hailing a driver an easy task, it allows direct payment on mobile phone and brings the comfort previously unattainable. The functional marketplace at its best.

Google – the biggest functional marketplace

Google is many things. Search giant, mail provider, mobile os developer and robot builder among others. But at its core, the business model is quite simple: Get people to pay for ads. Show ads to customers. Make people click on said ads.

Advertising accounts for 89.5% of Google’s total revenue so it’s safe to say that ads are its bread and butter.

To achieve these levels of revenue Google has to place together “The Sellers” (Advertisers) and “The Buyers” (Customers clicking on ads). Though customers don’t technically buy on Google, those that generate the company’s revenue end up as leads or buyers on advertisers’ websites.

To do this, Google built its ad market on top of its primarily function: Search. Users searching for information of interest are effectively buyers in the Google functional marketplace.

The marketplace, therefore provides functional support to buyers. The search, Gmail, Android – are all basically functions that lock in the ad-clicker and in turn generate revenue through these types of transactions.

These are just three functional marketplaces examples but they illustrate the concept. To be successful, a newly established marketplace has to provide more than just a connection between buyers and sellers. It needs to provide function beyond the commercial. By improving the lives of buyers and sellers beyond the commercial, Functional Marketplaces provide the type of lock-in and effectiveness previous models don’t.

How to Start an Online Store: Part 5 – Ecommerce Marketing, Sales Channels and Testing

Here we are. The fifth and final part of the guide to starting your online store. It’s  been a fun ride for me and I hope it hase been fun and informative for you. Before we dive right in, let’s take a moment and go through a quick recap of the steps we’ve covered so far.

As you remember, Part 1 covered planning and finding the right business model. Part 2 was focused on registering your business, finding and negotiating with suppliersFulfillment operations and making your back office work were the main subject of our third part and last week we’ve covered branding, ecommerce software and content in part 4.

Now … it’s marketing and sales time!

During this section of the guide you’ll discover how to expand your reach through additional sales channels, market your brand and products and finally – how to test the main areas in your online store.

So let’s go ahead and have a look at…

Adding Sales Channels to your Online Store

First of all – what is a sales channel? The answer is quite simple: any method of getting products to the market so customers can purchase them. For example, your online store (the actual web store) is a sales channel. It showcases products, it tells their price and allows customers to purchase these products.

Let’s assume that by now you have already started your online shop. The web store is up and running and customers start showing up. But the web store should not be your only sales channel. Your customers are complex and their habits diverse. One day they’re browsing your store, the next they’re hanging out on Facebook and meanwhile they search product info on their mobile phone. You should be there also.

You could have your products lined up in a Facebook store. You could build a mobile app that engages customers outside your store and collects orders.

It’s not just online, either. Offline engagement shouldn’t be a taboo either. Maybe a brick and mortar showroom for your main products is not cost – effective. But you could set up a pop-up shop occasionally.

There are numerous ways you can add sales channels to increase your market reach and some are really easy to set up. Others are a bit more complicated but in the end it’s mostly about your product, your brand and of course your budget. Let’s see which are the most popular sales channels and how you could benefit from them.

Call center

Out of all the sales channels you may choose, one really complements the online store. The call center can be a simple line you for customers to demand information on products.

(Zappos’ call center is legendary and effective. It’s both a sales and suppor channel.)

 

It can just as well be a full fledged call center with operators answering calls and helping customer choose the right product, handling orders and managing complaints. It can also mean people calling prospects or indecisive potential customers or just plain cold calling sales leads. No matter the choices you will be making, the phone is a great connection to the customer and you should build a smooth phone support operation.

 

Social media

You could ask – isn’t social media more about marketing and communication, connecting and understanding your customer? Yes it is but it can work just as great as a sales channel.

For example – Twitter is testing purchase options (right now with just a few high profile retailers such as Amazon) and ways to drive targeted traffic to stores through offers. Pinterest is also testing options to drive targeted customers to your online store and they do that through their ads. That is great news as Pinterest is more efficient into turning views to sales than any other social network. It works awesome for industries such as travel, home-deco and fashion.

And let’s not forget Facebook. Being the largest social network in the world it is a place you should be digging into. For a while, the network was so popular with retailers that a term was coined to split Facebook commerce from everything else: f-commerce. Recently, the company lead by Mark Zuckerberg has focused more on advertising revenues than helping retailers get close to their customers but it is a great channel to study, nevertheless.

There are some companies that will make selling on Facebook as easy as it gets. And if a Facebook store may look like a great option for your store, this involves apps connecting your store to Facebook.

(Shopify, among others, built options for users to connect their stores to their fan pages and sell directly on Facebook.)

On the previous chapter we’ve discussed the most popular ecommerce software choices. Turns out most of them get some sort of support for a Facebook store by third party apps. Here are some of them:

  1. Shopify for Facebook: Shopify provides useful tools for store owners that want their Facebook fans to browse products and place orders directly on Facebook. These add-ons work as extensions for online stores that retailers can set up easily.
  2. StoreYa is a simple solution for owners of stores running on the usual ecommerce platforms. The company supports Shopify, Magento, Prestashop, WordPress and even marketplaces such as Ebay or Etsy. Although the Facebook Shop is their main product, they also offer other effective marketing apps for store owners.
  3. StorefrontSocial works with new and existing retailers to connect them to Facebook fans and allow for an easy store set-up. Unlike previous options, StorefrontSocial works as a standalone platform where you can either set up a new store or import existing products. It doesn’t allow for an existing platform connection.
  4. Beetailer is yet another option extending your existing store to work on Facebook. It integrates great with platforms such as Magento, Shopify, Prestashop or even Amazon Store. Plus – if you have less then 30 products, you get a free account so you can test and see how it all works.

There you have it – these applications are easy to set up and you can start selling directly on Facebook thus adding a new sales channel. And once you start adding sales channels, you now you have to look into …

 

Mobile Apps

What is the device you think customers use the most throughout the day? It’s the smartphone. Mobile usage has gone through the roof lately and its bound to continue.

(Number of smartphone users in the US (millions). Source)

So you want to be close to your customers. Mobile apps provide a special sales channel, one that’s personal and it makes impulse buying all the more attractive.

How do you add a mobile sales channel?

There’s an app for that. Actually more:

  1. Shopgate makes it possible to turn your store into an app. It connects with Magento, Shopify, Prestashop and other ecommerce platforms to enable store owners to build mobile apps. It works on both iOS and Android operating systems and provides support for both smartphones and tablets.
  2. Shoutem is not built specifically for eCommerce but among others it supports building mobile apps for your Shopify store. The interface is quite simple and doesn’t offer many options but it gets the job done if you happen to be a Shopify user.
  3. MobiCart works with established ecommerce platforms and can help you build your mobile app. They integrate with Prestashop, Magento and others.

Give mobile apps for your store a try. The more smartphones become a part of our daily lives, the more we will use them. Your store can benefit from users that are not strapped to their desktop or notebook. And speaking of that, a great way to interact with customers are the …

 

Pop-up Shops

Pop up shops are temporarily stores, in the real world, where online store owners can showcase their products and interact with their customers. The pop-up shop sales channel has really taken off recently and store owners have started adopting this online-offline connection.

(Adidas pop-up shop. Not exactly low-budget but hey – one can dream, right?)

Setting up a pop-up shop is a personal choice but works great if it’s posted either in a high-traffic area (such as a popular shopping center) or at an industry event. For example you could set up a pop-up shop at a home-deco event if you are a store selling home decorations. It is a great way to interact with customers and get feedback on your merchandise.

Companies such as Storefront help shop owners find retail space temporarily by connecting them with retail space owners. To help online stores they’ve put together an ebook that is free for download. I encourage you to have a look at it as it explains the main steps in setting up (pup-up) shop.

 

Online Marketplaces

Last but definitely not least – the marketplaces. Amazon, Ebay, Etsy, Sears, Buy.Com, NewEgg.com and more. You name them. They provide lots of options to lots of users and chances are your next customers are there shopping right now.

( Ebay – the original online marketplace )

The reason marketplaces are the last on potential sales channels is because I want to emphasize just how important they are. Just like the “old” shopping centers, customers go to marketplaces because diversity means options and options mean they can find what they are looking for.

Diversity drives customers. It drives sales. So you want to be there but plan ahead before you dive in.

As an online store start-up you should be looking for as much exposure as you can get but still try to focus on the right marketplace. Amazon and Ebay are the obvious choice but before you join them you have to ask yourself:

  • are these marketplaces right for me? Not all that’s great is great for you. Just because they have traffic, that doesn’t mean you will get traffic and if you do, you don’t know whether that traffic will turn to sales. The most important aspects you should be looking for are exposure and sales.
  • can my product be found? expect to have competition. If you are among the few selling the product AND your product is popular, than the answer is YES, the product will by found by the customer. If your product is also sold by hundreds of other sellers, there are thin chances you will be the one showcasing the product. Try to make your product look special and attractive through copy, media and of course, price.
  • will my product be bought? If you have indeed managed to get customers to have a look at what you are offering, you must also get them to buy. Most important things are the way you showcase the product to create desire (“A beautiful hand-crafted lamp“), urgency (“A beautiful hand-crafted lamp in LIMITED offer”) and affordability (“just $49.50“).
  • do customers trust me? Marketplaces usually have some sort of peer-review mechanism. Customers can review sellers according to their fairness. Your reviews are your digital reputation. Positive reviews mean more sales, negative reviews can mean NO sales. So try to be as fair, effective and open with your customers.

Handling orders from marketplaces.

Listing your products on all marketplaces can seem like the right choice but it’s usually not. Each marketplace is a sales channel itself. You should be sticking to those that work for you and improve your experience there. Until your business is large enough to allow you to handle orders from more marketplaces, focus on fulfilling orders effective and quickly.

Most marketplaces offer some form of integration with your existing store and you should use those. Product information should be going out of your online store and orders should be synced with your order management system. This way, the order management team can have a single point of entry for orders instead of getting lost in a dozen of order management systems scattered throughout the marketplaces you are using.

The big ones will get bigger

Marketplace orders will continue to be a large part of your business. So large that they will, in the future, dwarf those from your online store. The reason is people tend to gather and shop where they will find diverse products and retailers. Just like in the real world. Online is even more so – marketplaces get even more traffic from search engines, have more money to spend on ads and are better at keeping customers returning.

Connecting sales channels

Each sales channel you will be adding will bring you more exposure and more sales if handled correctly. The sales channels I’ve described so far are the most popular ones right now. But they are not the only ones. As technology evolves, so will commerce. New channels will pop-up and some I haven’t mentioned here will probably increase in importance.

Think about the impact Internet of Things will have. Maybe in the future the greatest sales channel for groceries will be smart appliances. Think of a refrigerator than can place orders for customers when it’s depleted. It sure is going to be an interesting challenge to integrate those in a sales channels mix.

( Omnichannel means connecting all sales channels in a way the customer finds natural )

By adding sales channels you wil turn from an online retailer to an multichannel retailer and if all channels work seamless together you will become an omnichannel retailer. If you want to know what that means – have a look at Macy’s omnichannel strategy. And if that is not enough dive into this omnichannel report I’ve wrote to help retailers integrate their sales channels.

Marketing your Online Store

Marketing is one of those concepts that’s so hard to understand and yet so overused. Most of the times its meaning is so cluttered by useless acronyms and buzzwords that people have trouble understanding what it actually is.

I am not saying that marketing is easy. It’s not. Yet is not the Holy Grail of human knowledge either. It’s just communication. Talking, showing, describing products to the people most likely to buy it.

It’s that simple. The basics need to be simple.

If you are going to survive as an online store owner, you need to keep your marketing basics simple. You have a product. Hopefully a great one. There are people who want to buy that product. Most don’t know they want to buy it from you. You need to show them why they should buy the product you’re selling. You need to show them why they should buy it from you. And then, if everything I’ve shown you so far has been decently implemented, just let them buy it.

Everything else is gimmicks. If you’ve got the basics right, everything else will fall into place.

The market

To get people to buy your product, you need to know who these people are, what they want and how they act. Most likely not everybody will want your product. But if you’ve done your planning right, you pretty much have know a lot about your market.

Targeting demographics

Yup, your customers are “the target”. Why is it called that you ask? Well, because your communication targets them. Until the internet became the norm and we’ve started gathering more data than we can handle on customers, we used to define them through demographics. That means basic info on consumers. Age, sex, marital status, location, education … this kind of data.

( Pictured here: advertising in the 60s. Not pictured here: Google algorythms and tabacco advertising ban )

These targeting methods were made popular when mass marketing was just blooming, in the days of TV, print and outdoor ads made by the likes of Mad Men. When you ran your ad in the magazine or on national TV, you needed to know who’s going to use your product, make sure you understand their psychology and shout from the top of your lungs how cool the product is. Once the ad was approved, there was no going back. Advertising agencies would research, create and test the ad before the campaign was launched because there was no way you could change, tweak or even pull back a campaign in real time.

So demographics were the bread and butter when you would push your message to the market. But the Internet changed that into …

Targeting behaviors

Basically, if you were a mid-class urban wife with no college education in the 60’s there were slim chances you would receive ads trying to sell you repair tools for your car. Even if you were actually a mechanic. The same would hold true if you were a man and would be looking for a sewing machine to fulfill your lifelong passion of becoming a fashion designer.

You would have to find those products yourself. We’ve come a long way and thanks God, we now have the freedom to fix our own cars and sew our pants, no matter the gender

That happened when contextual marketing (the ads you might see when searching on Google), interactive marketing (information instantly delivered when interacting with say an website) or behavioral marketing hit the shelves.

The last one, behavioral marketing, is probably the single most important aspect in online retailing. Technology now personalizes marketing and responds to customer behavior.

For example Amazon’s recommended products (“See what others have purchased”) is a form of behavioral marketing that is based on a complex research on previous customers behavior before they purchased something. Simply put, when people would purchase something, their interaction trail (the products they’ve seen so far) becomes an indication that people taking the same or similar steps would most likely purchase similar products.

The ads you see on Google feature a similar concept. They are shown as to answer your needs. Some ads respond better than others at what you are looking for and thus have a better chance of getting clicked. Google trusts this system so much that they invoice advertising on clicks, rather than how many people have viewed the ad.

So basically we went from effectively targeting people to targeting people’s behavior. Still, demographics and customer profiles are very important and a lot of what you will be doing is to try to guess customer responses based on demographics assumptions. Such assumptions might mean you will favor ladies over men if you are selling women’s clothing (doh!) or rather more complex assumptions such as “Men over 32, employed and married are more likely to buy a family car”.

Indifferently of your assumptions, test them and always quantify your results with …

Analytics software

Here you go … numbers. Charts. Estimates. Hope Miss N., your math teacher, was your favorite back in school, because this is going to be damn complex. Nah, just kidding. Most analytics software is pretty much plug and play and the numbers and charts I mentioned are usually generated on the fly and in such a manner you can easily understand.

You can’t have marketing without analytics and research. Fortunately, it is a lot easier now for a small online store than it was 40 years ago for the largest companies in the world. What is not so fortunate is that it’s easier for everybody so you’ll have to dive deep and understand what your analytics are saying. So will the competition.

Once you have installed Google Analytics or one of these other ecommerce analytics software, you will probably dive in and see what your customers are doing. What you will want to look for is patterns that lead to increased sales. Special products, a certain type of copy, products featuring media versus those that don’t have media. Look for what makes your sales increase.

Targeting, knowing, marketing – the most important ecommerce marketing strategies for your online store

So you know the target, you have the analytics figures, now it’s time for the actual marketing. The web is full of resources to fine tune your online marketing understanding. I will show you which are the most effective ways of marketing so you will have a bird’s eye view on what makes an online store sell.

Search Marketing: SEO

As a startup there are really little things you can do better with smaller budgets than writing quality content and optimizing for search engines. SEO (Search Engine Optimization) is a really large concept and many people earn their living through SEO services. You will probably ask a SEO expert to help you find the perfect balance so your store will show up in search engine results. But before you do that, have a look at the basics. These are the things you will need to keep in check so Google will bring the right customers to your store:

  • content: write great and extensive content. For humans. Describe your product like you would want it described for yourself. Don’t do “keyword spamming” which is the result of cramming keywords in your description so more people would find you. It just doesn’t work that way.
  • code: your webstore is visible on customers’ browsers thanks to programming languages that output information in the way we are accustomed to. Search engines index this information and if you are to have your store indexed properly, you need the right code. If you are not technically savvy, better call someone who knows what they are doing. In the previous part there is a section dedicated to finding technical support when integrating your store.
  • links: get other (relevant) websites to post links to your store. Although not so important now as they were in the past, links are necessarily so search engines can find and index your web store’s content.

Email marketing

Ask your customers to leave you their email address so you can update them on news and offers. This is a great way to get people right back on your store.

But don’t annoy them and don’t do spam! Everybody hates unsolicited email. Make sure your customers give you their permission to send them emails. You can use apps such as Mailchimp or CampaignMonitor to save customers’ emails and then send them newsletters.

Social media marketing

Where would you go if you were to market a product? The answer is fairly simple: where people gather and interact. Social media outlets such as Facebook, Twitter or Pinterest are now used by billions of people. That’s where your online store should be.

Just like interacting with friends, some things work better than others. Here are some tips on how to use social media to interact with potential and existing customers:

  1. listen first, talk later: social media is a great place to gather insights on your market, your products and even your brand. Some of those insights may not be friendly but you should pay attention to them nevertheless.
  2. focus on building strong bonds rather than gathering masses: it’s just like with your friends. It doesn’t matter if you have 10 or 10 000 friends. What matters is how strong your connection with said friends are. It’s better to have few, engaged fans rather than many fans that do not relate to your brand or product.
  3. find the influencers: some people wield more influence than others in their social circle. And they somehow do it naturally. You should get close to these people, develop relationships with them, show them your products and share content they might find interesting.
  4. provide value, not sales pitches: yes, your products are great but don’t bore people with constant product sales. Provide content. If you sell hats, show fans their history, tell them about the manufacturing precess, showcase famous hats. Make it interesting and valuable.
  5. be patient and constant: don’t tweet 40 times one day and than stop for a month because no one followed or retweeted you. Social media success takes time, patience and constant effort.

If your social media strategy is not going the way you’d want it to, there are always the ads. Most social networks provide ways for you to get closer to your potential customers, faster. Most people call them ads  . Facebook, Twitter and Pinterest – they all provide advertiser with the possibility of engaging fans through ads.

And speaking of ads, one of the most effective way of advertising your store and products is …

Paid earch

Remember those Google ads I’ve mentioned earlier? That is Google AdWords, a very effective form of advertising that places ads on search results, ads that are directly related to your search.

For example, if you were to search for “cars”, you will be shown the natural search results AND special search ads. These ads are fueled by advertisers that pay each time someone clicks one of their ads.

You can be one of those advertisers. By carefully analyzing traffic and allocating search ad budget, you can determine with high accuracy the number of clicks you need to convert visitors to buyers. Because search ads are contextual, this means you can optimize your ads in such a way that only those interested in purchasing your product might click it.

However, paid search campaigns are usually better managed by professionals. Even though you might spend a little extra for someone to handle your ads, just leave it to the professional.

And one more thing: Google is not the only one providing the option for paid search ads. Bing does it and Amazon does it, so there’s room to play there.

Performance marketing

Performance – well that sounds nice. What is it?

Performance marketing is a broad term that means advertisers pay a fee depending on how well an action is performed. This action can mean showing an ad a certain number of times or making that ad transform into a special action. The standard actions you might want to encourage are:

  • clicking
  • downloading a certain file (say a product catalog )
  • showing interest in a product (the user becomes a lead)
  • buying a product

And because marketing people happen to love acronyms, you might find the info above coded in three-letter words:

  • CPM means Cost Per Mille (that’s Latin for thousand) – one thousands being the standard minimal block of ad views you can purchase to show an ad.
  • CPA means Cost Per Action – the generic code for any action you might define with those selling the ad space. It is used for sales and therefore sometimes referred to as Cost per Acquisition.
  • CPC means Cost Per Click – the cost you will be paying whenever someone clicks on your ads
  • CPL means Cost Per Lead – the cost paid whenever a visitor shows interest in your product

Performance marketing is sometimes used interchangeably with affiliate marketing. That is  more of a misconception, as affiliate marketing, though popular, is a subset of performance marketing. It works as a shared revenue deal, where the retailer shares a portion of the revenue with the publisher (the one displaying the ad), whenever advertising turns into purchases.

Affiliate marketing is ran through affiliate marketing services, that cover three very important aspects: they connect advertisers to publishers, they make sure all sales are registered and attributed to the right publisher and they handle transactions between advertisers and publishers.

If you decide to go along the affiliate marketing path, here are the most important affiliate networks that can help you sell your products:

  1. CJ Affiliate (formerly Conversion Junction) is the global leader in pay for performance programs. It is the home to many publishers that can help you run your ads.
  2. Rakuten Linkshare is the big contender to CJ Affiliate and a fast growing one.
  3. ShareASale is a great affiliate marketing resource for retailers. Slightly smaller as it may be, it is still very effective.
  4. ClickBank works great for entrepreneurs and content creators. It is effective and easy to use.
  5. Avangate is an young yet fast growing performance marketing company that’s focused on software and digital products.

Comparison Shopping Engines

A great way to get your product out there is place it in comparison shopping engines. These applications gather information from more online stores and show potential customers what is the best way to shop in terms of pricing.

It basically works for those that are price competitive so before you join such a program, make sure your prices are aligned with the market.

(Shopzilla is one of the most popular comparison shopping engines)

Most comparison shopping engines are CPC based and you will pay anytime people click your products, arriving at your web store. The top four most popular are Google ShoppingShopzillaShopping.com and Pricegrabber. Getting listed can draw targeted traffic and can mean a very scalable way of converting traffic to sales.

Other marketing options

So there you have it – these are the most effective ways you can market your new online store. But don’t stop here, don’t settle. Marketing in the digital world is usually a matter of imagination. Be curious and try new things that might be fit for your online store.

For example you can attract relevant bloggers to mention your store and review the products. You can put out press releases and talk to the media. You can  run contests and sweepstakes to increase reach and turn fans into loyal customers. Once you have the basics up and running, you will be ready to add more and more marketing options to your online store.

Testing and optimizing

Remember: your work is never done. If you want to keep your customers happy and sales growing, you need to constantly optimize and tweak your store. To do so you can run tests that determine what works and what does not. When testing you will be looking for either errors, bottlenecks or usability issues. Do so through:

  1. Functional testing: test your store’s functions. The navigation, user account, user login and others. Each needs to be thoroughly tested and improved
  2. Process testing: we are talking business processes here. These are things like managing orders, fulfillment, shipping or warehouse management. If your company process don’t run smooth, customers get their orders delayed, mixed or canceled.
  3. SEO testing: as I’ve mentioned previously, search engines will always be a very important factor in driving traffic to your online store. Check to see how you stand against competitors and against previous positioning.
  4. Mystery shopping: put yourself in the customer’s shoes and see how’s everything going. Place an order and see how operators behave, how long does it take for the order to arrive and more. You might find some interesting things there.
  5. Hot areas testing: some parts of your shop are more important than others. You can improve conversion rate through a careful  inspection and recurrent A/B testing of what you could call “hot areas”:
    • Homepage
    • Product page
    • Checkout cart
    • Payments
    • Forms requiring customer input
    • Mobile interfaces

Customer journey maps

A great way to see how customers interact with your company is drawing customer journey maps. These “maps” show your existing sales channels and how customers interact with them. Customers may find you on social media, browse products on the web store and place orders through the phone. This is a customer journey map.

When these journey maps get too complex you have to constantly test and look for signs of problems of sources of frustrations for your customers. It may be a poorly designed checkout cart or the voice of your phone operators. By understanding your target customers and their journey maps you can have a guide to testing what works and what doesn’t on your store.

( A blank example of potential sales channels. By connecting the channels you can draw journey maps )

Testing means improving and you should strive to make your store better and better. Little improvements and constant focus on making the customer experience better turns your store into a success. So keep testing :).

And that’s it!

We’ve got this far. Wow! Testing is the last section in our guide to starting an online store. It’s been a great ride and I hope these posts will help you build the store of your dreams. If you’ve managed to get this far I believe you are ready to start your own store. Give yourself a pat on the back for having the patience to get through all this data. It’s not easy, I know, but it is a lot easier than just starting a store and then figuring it all out along the way.

I am more than happy if I’ve managed to help you on your path to becoming an ecommerce entrepreneur. If this guide was useful to you, please refer it to someone else who may be in the need for know-how.

You’ve taken a large step ahead to running your own business and online store. You may be anxious and a bit scared but rest assured. So was Jeff Bezos when he started Amazon. Knowledge, hard work, innovation and persistence will get you far. Have a safe trip in reaching out for your dream!

 

How to start an Online Store: Part 4 – Brand, Online Store and Content

Welcome to part 4 of the complete guide to starting your online store. So far we’ve covered the basics of planningregistering your business and finding suppliers. Last but not least we’ve discovered the importance of developing your fulfillment operations.

By now you have an idea of what your online store will pe selling, you already have some pretty sweet deals in place with your suppliers and the fulfillment team is hopefully ready to process and ship the orders. But wait: you have no actual store. So let’s get started with building a brand for your company, finding the right software for your web store and adding products and content to it.

Building a brand for the online store

What is a brand? Is it a name? Is it a nice logo that people like and recognize?

I will not get academic on you and I will try to cut beyond all the buzzwords you might encounter when building your brand.

The brand is all those mentioned above and more. The name, the logo, the colors and everything else is there to remind your customers of how much they like you and why. The brand is that feeling you get when you think of someone. You don’t know whether it’s the clothes, the color of their hair, their personality or anything else. You just feel in some particular way about that person. That’s the brand. The way people feel about your company.

Now, to build a brand you need some special ingredients. Some are easy to come by and some are harder. However, once you got that main ingredient on the table, the others will be easier to implement. Here they are, ordered by their importance:

1. Personality

This is “who” your company is. You have to decide right from the start what type of personality you will be showing to the world. Are you young and enthusiastic or maybe mature and conservative?

What does your company stand for, except for … you know … selling stuff? What is your purpose for being in the market? You have to answer these questions and maybe more to find out what is the right personality for your brand. Remember – people will most likely never meet you or any of your team members in person so you have to focus on sending out the right message in the digital world.

Example:

One of the best use cases of building a great brand personality is Warby Parker. The company designs, manufactures and sells beautiful eyewear at an affordable price. Not only that but sales fuel its humanitarian efforts in providing developing countries with quality eyewear and means for individuals to self-sustain.

They have an extensive section in telling people WHO Warby Parker is and why they’re a great fit for society. Branding goes beyond just commercial info and showcasing the products. It projects an image and a personality so customers can have the feeling of actually interacting with a real person. A great one, that is.

 

2. Naming

Shakespeare said “A rose by any other name would smell as sweet“. Things are what they are. The names are secondary. Once you know what your online store stands for, once you know what your brand’s personality is, you can put a name on it.

For example, Jeff Bezos named its famous company Amazon because Amazon is the largest river by drainage. He envisioned the largest store in the world right from the beginning and named it accordingly.

The name you will be choosing is extremely important. Out of all the other components in building an online store brand, this one is the one most likely to turn into a real asset. Your brand personality may change, so could colors, shapes and slogans. But your name has to stay the same. The reason is the Internet is built this way. Web pages get bookmarked, indexed and remembered by their name.

Amazon for example changed its personality and graphic cues throughout its history. But the name stayed the same. So did all other brands that managed to catch the customer’s attention.

When choosing a name for your online store do check for available:

  • domain names (preferably a dot com domain – they are still most likely to catch on)
  • social media accounts (check for the chosen name on twitter/facebook/instagram etc. Not all may be available but try to register your brand on the most important social networks)
  • mobile apps (check to see if any app using the name you’ve covered is published on either iOS, Android or Windows mobile. The future is mobile so your brand should be too.)
  • any other areas where your brand could be present and there is a potential brand conflict

 

3. Visual identity

Once you’ve designed and presented your online store’s personality, you need to code this personality through visual cues.

The brain perceives images faster than sound and letters. Images deliver powerful messages almost instantly whereas sound and text take longer to be perceived.

That’s why companies compact their messages in some iconic combinations of symbols, colors and letters: logos. The logo is the basis to building your store’s visual identity. We use symbols because our brains are wired to connect shapes to meaning. Color is usually added to further identify a given company. For example you probably don’t remember what’s the exact shape of the Coca-Cola logo, but you do remember the red-white combination.

Once the basics of visual identity (shapes and colors) are set, more elements are usually added to the list of brand identifiers:

  • company fonts (used in graphic design)
  • secondary colors (a special color palette used separately from those in the logo)
  • imagery (the types of images used to convey marketing messages)

 

Example

Once the visual identity is set, it will be communicated through a brand manual, or brand usage guidelines collection. You can have a look at Amazon’s brand manual here to get a feeling of what you can incorporate in your visual identity.

 

4. Brand implementation

Once you’ve got all those above ready, you can begin expanding your brand to other areas. There are two large areas your brand needs to shine in, and they are independent from one another:

1. Within the company: what does your brand mean for your team? What is the message you are sending to your employees? For example Zappos strongly supports handling customer service in the best way possible. Zappos customer service went so far as to register a 9h and 37 minutes call with a customer that needed support on choosing the right shoes.

The brand can be implemented within the company through signage (remember the large company logos in call-centers or warehouses), company communication but mostly through the culture the company will build.

2. Outside the company: Your brand will meet your customers. There are some very important touch points you will need to keep in check and see how the customer perceives your online store:

  1. Your call-center support: this is the voice of your company. It needs to reflect your brand’s personality and keep customers happy and coming back.
  2. The package: the way your package looks and feels is a great way to showcase your brand and build an emotional connection to the customer receiving and opening the package.
  3. Your web-store: we will get into more detail about the way your web store reflects your brand but rest assured: this is the place your customers will be spending the most time on so you need to make it yours. The webstore needs to reflects your brand personality and your visual identity.
  4. Social media: your personality and visual identity will go beyond your online store. The most common areas you will need to be present are social media outlets. For example check out these companies shining on Instagram.

 

Example:

(Examples of Amazon using its brand on different supports)

Implementing the web store software

When everything is in place and you have your brand ready to go out and face the customers, it’s time to build the online store.

To do so you will have to go through:

  1. choosing the right software for your store
  2. finding technical support in implementing the software
  3. adapting the software to match your brand identity
  4. connecting payment gateways and shipping partners
  5. adding products and content to the online store
  6. training the team in using the online store

 

Choosing the right software for your store

Ecommerce applications are usually targeted at two types of users

  • small and medium retailers (such as yourself)
  • large retailers

I will not get into too much details regarding what large retailers use but if you want too, you can check them out here.

Instead, I will focus on guiding you through the four most popular options for small and medium retailers. In the end, you will have to decide which one is best for you.

Before I go any further I would like you to have a look at this chart from Google Trends showing how many searches for each of these applications have been registered in the past. This is a great way to see how popular each of them is and what could you expect in the future.

The graph above shows how the four most popular solutions for ecommerce have evolved throughout the years in terms of Google searches. You can see Magento at the top, Prestashop right beneath it, WordPress ecommerce at the bottom and Shopify growing like crazy. Let’s have a look at what ech of these tools has to offer.

 

No 1: Magento

Magento is owned by Ebay Inc and works as an open-source application. It first hit the digital shelves in 2001 so it packs quite a lot of experience.

It is estimated that roughly 250 000 stores are now powered by Magento. It is usually used by medium sized retailers because of these reasons:

  • the number of features aimed at web stores that have passed the startup phase
  • enhanced sales, online payment, returns and customer info features
  • ability to customize and extend beyond the standard installation
  • ability to handle large number of orders, if optimized

There are however, some caveats:

  • you will need experienced developers to handle customization and/or extensions
  • increased server costs due to increased requirements

Long story short: Magento is fit for medium to larger retailers. It is usually installed on your own hardware (server) so beyond development costs you will also need to take into account hosting costs. Development and server costs usually top everyone else on this list. However, it makes up in stability and features what it lacks in cost structure.

No. 2: Prestashop

There are now more than 200 000 stores using Prestashop. The company started in France and is now a global player that aims for Magento’s spot. Unlike Magento, it can be used both as a hosted solution (on your own server) or as a cloud solution (where you pay a standard monthly fee for the right to use it).

It’s easier to find developers that can handle Prestashop’s structure so development costs could be lower. It’s targeted at smaller retailers (usually startups) and you can read a full review here.

The pros:

  • easy to install and setup
  • you can start your store without any technical know-how (with the cloud solution)
  • has great warehouse and suppliers management applications
  • development costs are lower, due to having rather simple technical requirements
  • hardware requirements are lower, resulting in great performance and lower server costs

The cons:

  • it may not be the right solution after you go beyond being a startup and you’ll have to move up
  • smaller developer community

All in all Prestashop is a great choice for small to medium online stores so it’s definitely worth checking it out. It may not get you to $1 billion in sales but performs great for startups. It’s highly customizable and easy to manage.

No.3: Shopify

Shopify is the great challenger on this list. It works great for small startups, you can start using right away, its pricing structure is great and you get tons of apps you can use on your store. It is the fastest growing solution right now and it is used by 150 000 online stores.

Not only that but the company is really well funded. It recently received $100 million in venture capital and now it aims to work as a cloud platform for both online and offline small sellers. Although it started as an online store solution, it now works for offline retailers through its Shopify POS solution.

The pros:

  • cloud solution: data is always safe, you can access it from anywhere
  • extremely easy to setup without technical know-how
  • you can extend your shop through third party apps and visual themes
  • can work both for online and offline sales

The cons:

  • not so easy to extend beyond core features. The solution can be extended through separate apps
  • the development and designer community is still rather small

The fact is Shopify is the most promising solution on this list. It is well funded so it probably won’t close shop any time soon, it is the fastest growing and its app and themes ecosystem makes it perfect for the ecommerce entrepreneur. You may need to switch to another solution once you go big but until then – everything works just great.

No. 4: WordPress

Although WordPress is not technically an ecommerce application, it evolved beyond its blog youth and its content management adulthood. Using ecommerce themes such as these, shop owners can easily extend WordPress beyond content management.

What WordPress lacks in native ecommerce support it more than makes up in developer community, theme and plugins support. At the moment 74.6 million websites rely on WordPress. Out of this huge figure more than 50% are self hosted.

There are 40 translations for WordPress and WordPress.com receives more traffic than Amazon. These facts and othersmake WordPress quite a great platform for shop owners just starting up.

Unlike other ecommerce applications that are built with commerce processes in mind, WordPress is great at managing content. Products can be described in so many ways and content can be easily published. This does wonders for search engine optimization and communicating with your audience.

Oh, and remember that figure above? Check out the difference in searches on the term “wordpress” only, as opposed to the other applications:

That blue line up there, dwarfing all others, is WordPress. It has a huge user base and these users can turn their blogs into online stores.

The pros:

  • huge user base, very popular application
  • a large variety of themes and plugins (almost 29 000 plugins up to date)
  • a large number of developers
  • easy to set up and manage
  • a large knowledge base
  • many themes designed specifically for ecommerce

The cons:

  • not built specifically for ecommerce
  • only the hosted version can be used as an ecommerce application
  • not many operational tools (such as inventory management, complex customer service etc)

WordPress is a great way to get your store off the ground quickly and at a low cost. But if you want something more, you will probably need to look into other solutions.

( A visual comparison between Magento, Prestashop, Shopify and WordPress for ecommerce )

Finding technical support and customizing the ecommerce software

For all those solutions above, you will most likely need two types of support:

  • implementing and extending the applications: you will need to look for developers
  • adapting the standard layout for your own needs: you will need to look for web designers

To do so, you will need to find talented and effective designers and developers on established online marketplaces. The freelancing marketplaces are pretty straightforward. Think of EBay for digital jobs. You post the requirements and freelancers will bid for your online store requirements. There are dozens of places to find designers and developers for hire but some really stand out:

Elance.com

Elance.com is one of the oldest and most popular places to find great programmers and designers from all over the world. There are currently 260 000 programmers and 190 000 designers listed on Elance.

Guru.com

Guru was founded in 2001 by Inder Guglani and now boasts more than 1.5 million members worldwide and $200 million worth of freelancing jobs processed through the marketplace.

Smashing Jobs

Smashing is a very influent online magazine for designers and developers alike. As talent naturally gravitates around other talented people, this community jobs site is a great place to find those great freelancers to get your online store up and running.

 

Using themes and plugins to improve your online store

All of the ecommerce software solutions listed in this post rely on themes and plugins to customize the layout and improve the functionality of your online store.

Both themes and plugins are offered by their respective developers either free or for a premium. You can think of plugins and themes as building blocks that you can attach to your online store and get it to either look or behave better.

You can find plugins and themes on special marketplaces as well as developer’s plugin shops.

The best places to look for themes and plugins are the following:

  1. ThemeForest.net (Features themes for all major ecommerce solutions)
  2. TemplateMonster.com (Features themes for all major ecommerce solutions)
  3. Shopify Themes and Apps
  4. Prestashop Themes and Modules
  5. Magento Themes and Extensions

 

When you’ve chosen the application you are going to use to manage your online store, contracted the right developers and designers and chosen the appropriate theme and plugins, you’re ready to implement your online store. If everything is set so far, the freelancers you’ve contracted will know what to do. The overall process will be, in a simplified manner, the following:

  1. implementing the basic software package
  2. implementing the chosen theme
  3. optimizing the theme or building one from the ground up to be the right fit for your brand
  4. implement the right modules (say a special CRM module to handle customer information storage better)
  5. implement payment gateways so you can process order payments
  6. integrate with shipping partners so there few to no shipping errors

 

Once the process is complete you will have an up and running online store, without any products or any type of content.

 

Adding the content to your online store

Content is any text, image or rich media that you will be hosting on your online store. As a startup, great content can mean great sales. There are two converging reasons for this.

The first reason is search engine optimization. Many of the people that will be visiting your online store and hopefully buying, come via search engines. You probably know a bit about how Google works, you may have heard a thing or two about search engine optimization but the fact is content is king. Great content is better indexed by search engines and can provide you with visitors you can turn into customers.

The second reason you should pay great attention to content is the customer. The customer needs to get as much information on your products and on your company as possible. Upload beautiful images, write extensive product presentations and say everything you can about your company.

And go beyond …

Here you’ll find three great strategies to conquer your market with content. Explain your customers how to use the products. Showcase the lifestyle around your products and brand. The more content you will be pushing towards your customers, the more credible your brand and online store will be.

When you’ve added all the products and the relevant content, don’t stop there. Optimize your product descriptions constantly. Start a blog and get people to send you their stories. Content is king and it will stay like this for a long time.

Training the team in using ecommerce software

Once everything is ready to go live, you still need to do one thing: train the team. Segment your fellow team members and train them according to their responsibilities. For example order management personnel won’t be handling product information so there’s no point in  showing them how to use these features.

The main areas where you will find features that team members need to learn using are:

  • product management
  • customer relationship management
  • order management
  • order fulfillment
  • inventory and warehouse management
  • marketing and PR
  • financial management

Most of the ecommerce applications have their usage guidelines either online or can be provided to you when required.

So training should be done according to responsibilities, it should be done in an interactive manner and team members should be provided with a form of software manual or written guidelines.

Once the online store is set up and reflects your brand, the products are all online and the team members are familiar with the ecommerce software, you are ready to go live!

Wow – we’ve covered a lot of ground and by now you should be ready to have your store online. But there’s one last chapter to our journey. Meet me next week on the final part of this guide, covering marketing, extending sales channels, testing and fine tuning.

Featured Image Source.

How to Start an Online Store – Part 3: Fulfillment

<< See Part 2 of “How To Start an Online Store“: How to register your business, finding the right suppliers, integrating them in the supply chain and setting the right product prices.

So you’ve got this far. Starting an Online Store is a lot easier when you’ve got the right info and this is the place where you can find it. It takes a lot of drive do get through Part 1 and Part 2 of this guide, so good for you!

During this part of the guide, you’ll get a better understanding of what fulfillment means and how to build a company that can effectively manage orders and ship the right products to the customer.

Good, good … fulfillment. Yeah! But wait …

What is ecommerce fulfillment?

Good question! Although the term fulfillment is used quite a lot, not everyone has a clear grasp on the whole idea. I mean – why fulfillment? Well, it’s actually a pretty simple concept. Order fulfillment is anything that has to do with fulfilling your promise to the customer. That promise is you’re going to ship the products they’ve purchased, those products are going to be in good condition and they will arrive as soon as possible.

Fulfillment also covers the reverse process (also called reverse logistics). That means getting merchandise back from the customer. That type of operations happen:

  • in case of a package return
  • when the customer refused the package
  • the shipping company was not able to get deliver the goods

So basically when your ecommerce business is fulfilling an order, it is actually making good on its promise to deliver merchandise in the best way possible. Although the concept is not that really hard to grasp, making it happen is a little bit harder.

In order to make sure your fulfillment operations you’ll have to look for the answer to four very important questions:

  1. am I moving the goods in the most effective way? This is a question you will always have to be answering to. The answer is usually no. If you have answered yes too many times – you are not really trying that hard. The truth is ecommerce operations are evolving very, very fast and there is probably always something you can do better.
  2. am I always shipping the right products? You have to understand that sometimes you will not be shipping the right products. Yup – that’s a fact. It may happen when you’re using a drop-shipping service or when your team is overwhelmed with the number of orders (say during the holidays). You have to minimize these type of mistakes and always strive to correct your mistakes.
  3. is my team working in sync or are there any communication or operational bottlenecks? Your ecommerce business will not always run smooth. The most common reasons are either the team is not communicating properly or the IT systems are not fully connected (say your order management and inventory management tools are not synced). You have to stay alert and solve these type of issues as soon as possible.
  4. is my fulfillment scalable? You won’t need to ask yourself this question in the first days but eventually you will have to check if your operations are ready to scale if you’re successful. To do so – try wondering what will happen if all of a sudden you were to receive each day ten times as much orders as you’re expecting right now. How about if your sales were to increase one hundred or one thousand times? Would you be ready? How would you manage this change?

The 4+1 steps in ecommerce fulfillment

Fulfillment is probably the most complex and tedious part of ecommerce. It is also the one thing that is the least talked about in terms of ecommerce. It’s not flashy and it’s not cool. It’s complex, involves a lot of tweaking and a lot of work to getting it right. While most ecommerce guides will point out to the importance of picking the right shade of orange for the “Buy now” button, few will speak of how important fulfillment is.

Just to get a glimpse of how important fulfillment is – think of your car. While having the right color and the right type of leather is important, the car won’t start without an engine. Fulfillment is the engine that keeps ecommerce going.

There are just five basic steps in fulfilling ecommerce orders. Four of them are mandatory and one is optional. Hopefully you will cover this last step as few times as possible. These five very important steps are:

  1. Receiving the orders
  2. Receiving the products
  3. Processing the order
  4. Shipping the ordered products
  5. (hopefully not needed) Handling order returns

Overview of the Fulfillment Process (including returns)

1. Receiving the orders

Customers will place the orders through one of your sales channels. It may be your online store, on the phone or through a mobile application or a pop-up store.

There is a great variety of order management software out there and later on on this guide will get through some of them. It matters less what you will be choosing later on. What matters from a fulfillment standpoint is what the order info should contain. Here is the minimal information you will be needing:

  1. who is handling this order (who will be managing the order and who will actually be picking and packing the products)
  2. the customer info – usually name, address, whether the customer is a person or a company, whether the customer has already purchased from your store before
  3. special discounts or shipping conditions – this may happen when the customer has used a voucher or a special promotion and is entitled to a smaller shipping fee, a gift or a bonus product.
  4. order info – total cost, estimated shipping cost, whether the order is prepaid or paid on delivery, and where you will be shipping the products from (either internally from your warehouse or from a drop shipper)

Most of the time, you will be receiving more info from your order management tool but these are the essential blocks of information to keep in mind.

2. Receiving the products

Before moving on to the actual order fulfillment bullet points I have to make a point. You don’t HAVE to fulfill the orders yourself. Some companies outsource their fulfillment to other companies. My advice is you should keep most of your fulfillment operations within your company. You won’t be able to ship products across the globe but you can pick, pack and carefully wrap orders for your customers.

When medium and large online stores are fighting each other over consumer mind share, we only see the marketing and superficial aspect of this battles. But the fact is, underneath all this visible struggles, the real battles are won in the warehouse. Your real chance for success stands in picking, packing and shipping the right products, within the timeframe you’ve promised.

It may seem hard to handle fulfillment operations and it sure is. But because it is hard, you have to master it before the competition does. Walmart and Amazon, two of the largest retailers in the world, are also two of the best supply chains in the world. It’s not that these companies have developed spectacular fulfillment operations because of their huge sales but the other way around.

Glad we’ve got that out of the way. Now – what’s the best way you can receive products in your inventory?

It all starts with an order to your supplier. It is usually called a “Purchase Order” as you are placing an order to purchase products. We will assume that you have already set up an agreement with your suppliers and they will ship the products. You will probably pay as you place your order, when the order arrives or at a given time after the order has arrived, if you have agreed as such with your supplier.

Once the products have arrived at your warehouse you will need to:

  1. verify their integrity – check whether the goods are damaged and if so return those that are damaged
  2. count the number of products – check if the supplier has indeed shipped the correct number of products
  3. check if the product cost is the one agreed upon – if you have agreed to either pay on delivery or at a given deadline you will probably receive an invoice with individual costs split. Check to see whether these costs are those you have agreed upon when placing the order
  4. add the product SKU’s to your inventory management – Standard Keeping Unit or simply SKU is what retailers use to define unique types of products that can be sold. They are used to track goods movement through inventory. The SKU is not to be confused with the product model no, although this can be included. The SKU code is formed using product characteristics (such as manufacturer, size, color etc.) and it is usually used as a barcode so it can be tracked easily using bar code readers.
  5. add bar codes corespondent to the SKU’s you’ve just issued for the products. You can do this using special bar code printers and special stickers that will be attached to the product package.
  6. once the product is received and marked it will be sent to your storage unit (or warehouse) where it will be placed in a way that it can later be easily picked and packed.

( Basic check list when receiving products from the supplier )

Placing the products in the inventory is a very important part in receiving the products. The better you keep track of where the products are, the less time and effort you will need when picking and packing the products.

When placing the products in storage you need to keep in mind some very important aspects:

  1. not all products are equal: products should be placed according to how popular you expect them to be. Some products will be sold faster and they need to be easier to reach. Either closer to the packing unit or lower on the shelves so they can be easily picked.
  2. however, all products have to have their position in stock clearly assigned and saved. Each SKU should have a clear position in the warehouse. You will probably develop your own warehouse numbering system but you will probably have to add things such as aisles, sections, levels and positions to keep product identification easy and scalable.

Hopefully at this point you have managed to get the products in your inventory, they are correctly marked and stored and you are ready to pick said products for the orders you are going to be shipping.

3. Processing the orders

Once you have the products in the inventory and orders are coming in, it’s time to process these orders.

Order processing is split between four main areas:

  1. picking
  2. packing
  3. quality control
  4. movement to appropriate shipping station

 

Picking products from the inventory

Picking is probably the most time consuming part of order processing. It also gets a lot more complicated as your business grows and it may be prone to errors. Having more products in your inventory will increase the complexity of picking the right products in the fastest way possible.

If you’ve managed to place the products in the right spots (as stated in the step above – receiving products) your chances of correctly processing orders increase big time. The reason is it will be easier for picking staff to move fast through the aisles and pick the right products.

How does product picking work?

To have a streamlined picking process that works just as well with 10 orders per day or 1000 orders per day you have to decrease the chances for errors. To do so, your picking staff will cycle through these steps:

  1. Receive a pick list – the pick list is a … well … list of items to be picked from the inventory. It may vary depending on how you run your fulfillment operations and what kind of software you are using but it usually contains:
    1. Product location (section A, aisle 3, level 3 etc.)
    2. Product code (usually the SKU)
    3. Quantity to be picked
    4. Product description and image (for quicker identification)
    5. Barcode (usually used to confirm product picking directly into the inventory management system)
    6. Product bin
  2. Create the optimum route to pick products: usually picking staff will collect more orders to improve efficiency and gather all the products in one trip. This route is usually generated by the inventory management software based upon the warehouse layout.
  3. Pick products and place them either in separate bins based on ordered items or a general items to be sorted later at quality control or packing stations.
  4. Bring products to the Packing Station, where they will be sorted, placed into the right packages, and so on.

( A basic example for a picking list )

Packing ecommerce orders

Packing is the next step in the fulfillment operation. Once the products have been picked from the corresponding aisle, shelf or bin, they are sent to the packing station where they will be split into orders and prepared for shipping.

The packing operation is usually split into these further steps:

  1. Choosing the right package – depending on the products shipped, they will be placed into special packages, according to specific needs. For example a wine bottle will be shipped in a different package than say, a dress or a cardigan.
  2. Scanning and marking the package – after the products are placed into the right package, products are usually marked with specific documents, usually used by the shipping company so their transport progres can be tracked. They are also scanned so the inventory management software will register said products as getting ready for shipment.
  3. Adding invoices, product slips or other documents and / or marketing prints – this step includes placing needed orders information or documents (warranty certificate or invoice), as well as marketing materials that should reach the customer (say a discount voucher or a bonus product).
  4. Preparing the package for quality control and shipping

 

Quality control

Once the products are placed in the right package, a quality control station will check for any errors that may happen.

Quality control personnel will usually check for one of the following errors that may appear:

  1. Wrong products: products may sometimes get mixed or the wrong information has been sent somewhere along the order management process. The most important aspect is that quality control will make sure the customer gets what he or she ordered.
  2. Wrong address / customer: sometimes orders get mixed and orders are sent to the wrong customers.
  3. Wrong payment information: there is a multitude of payment options and you do not want to ask your customer to pay something that was already paid for.
  4. Shipping options: maybe the customer opted for a quick delivery option. Quality control needs to make sure the product gets to the customer in the specified time frame. Another shipping mistake happens when online stores work with multiple shipping partners (say one for internal shipping and one for overseas shipping). It is important for the order to be routed to the right shipping partner to avoid delays or extra costs.
  5. Specific order information: quality control also needs to check for specific demands such as gift wrapping or a specific timeframe to be shipped at.

 

4. Shipping orders

Once the products have been picked, packed and quality control made sure there were no errors in the order management process, the package is ready for shipping.

Online stores usually partner with one or more shipping companies to deliver the goods. The shipping station will check the package weight and direct it to the right shipping partner.

Most shipping companies will provide you with a general framework on how to handle packing and preparing for shipping. Here are the most popular ones:

 

When these companies (and others) will charge you for their shipping services they will take into account some (or all) of the following variables:

  • package weight and size
  • departing country and arrival country
  • departing city and arrival city
  • shipping insurance
  • tracking services (now most of these companies offer this service bundled with others)

 

Once the orders are picked by the shipping company, the order status is constantly updated so customers and the online store knows where the packages are at the moment.

When the products are delivered the status is updated and the order is confirmed. After this point the product is in the customer’s ownership and any reverse process wil be treated as a return.

 

5. Handling ecommerce returns

Oh, returns – can’t live with them, can’t live without them. Just kidding. A clear and friendly return policy is what sets the likes of Zappos.com apart from the competition. They will let you return the products you’ve purchased within 365 days, free of charge and as their return centers will check the products you will be credited within 7 days with the money you’ve spent.

Great, right?

Ecommerce customers love a great return policy and you need to be ready to handle one. The logistics involved in such a return process are usually dubbed reverse logistics. This means you will reverse the steps mentioned above.

Basically you will unship the products, unpack, unpick and un-order everything.

If you offer free shipping, you will have to handle the shipping costs from the customer to your return center (for small and medium companies, the return centers are the same as the fulfillment facilities).

Now, the big problem when getting information on handling returns is that most of the resources out there are either

  • irrelevant (usually stating how important return policies are or how to market your return policy) or
  • boring (usually a bunch of text mixed by logistics experts that have no need to explain how reverse logistics work)

What will follow will hopefully be a bit more relevant and a bit less boring. The big idea you have to keep in mind is returns are the reverse process of everything you have read so far.

You will have to tailor the following concepts to your specific company structure, accounting, IT systems and processes.

That being said there are three main areas you need to focus:

1. Getting the products from the customer and into your fulfillment center.

There are usually three main options to do this:

  • using your shipping partner: most shipping companies offer return services. What they will do is go to the customer, pick up the package and send it back to you. Either you or the customer have to pay for these services. Companies offering free returns also include a special options for customers to use within a certain timeframe, in order to ship products back. This is usually a special voucher the shipping company will then use to charge you instead of the customer.
  • using your own network of brick and mortar stores: if you also have a network of stores (either classic or pop-up stores) you can direct the customers to these stores to save on shipping costs

2. Getting the products back into inventory

Once the products are back at the fulfillment center you will have to get them back into inventory. The process is similar to what you would do if you were to receive goods from your supplier. The main differences are:

  • in terms of accounting this operation will be treated differently
  • products need to be checked for damage or missing items
  • instead of paying your supplier, you will either credit the customer

3. Returning payments to the customers

Once the products have been checked and returned to the inventory, you will need to issue a refund to the customer and inform said customer of these changes.

And … that’s it.

It may seem complicated right now but keep in mind that thousands of online store owners are doing all these things. Now that you’ve got the basics, you will be able to deal with most of the operation challenges you will face. If there is anything else you need to know – just ask in the comments sections bellow.

This concludes this part of this guide. This is probably the hardest and the most important part of making your store run smooth. It involves many operations, usually lots of people and it needs to be built in such a way that it will easily scale when your company is growing at double digits.

Next week we will focus on branding, designing and choosing an ecommerce platform for your online store. See you soon!

How to Start an Online Store: Part 2 – Business and Suppliers

Last week we’ve covered the basics of starting your online store. We’ve talked about choosing your market and your particular niche, We’ve covered the main questions you need to figure out before you start building your actual store. Finally we went through the main business models and scanned some of the most innovative and interesting implementations in B2C (business to consumer) ecommerce.

Now that we’ve covered the basics, let’s turn your idea into a real store. This part of the “Starting an Online Store” guide will show you how to register your business and how to build the operational basics for your store. At the end of part two of this guide you’ll know how to find the right ecommerce suppliers, integrate your business with said suppliers and set the prices for your products.

How do I register my online store as a business in the US?

Note: This part of the guide is intended to work as a guide mainly for readers in the US. That’s why some of the acronyms and type of companies you’ll find in here are going to be aimed at those of you registering your business in the US. If you are registering your business elsewhere please leave a comment as to where you intend to register your business and I will try to get back to you with more info.

That being set, most of the information you’ll be reading here is in essence applicable in other countries or regions. Even though business structures may have different names and have slightly different usage in different parts of the world, their purpose remains pretty much the same, as globalization tends to level the playing field.

So let’s get started with why you would want to register your store as a business?

Sure, planning and building your business is a great way to spend your time and effort. But you also need to work as a legal entity.

There are basically two ways you can register your business:

  • as an un-incorporated business (solely owned or owned by a partnership) or …
  • an incorporated business.

You can start as a Sole Proprietorship (the most popular type of business for ecommerce entrepreneurs) and move to other forms of businesses as your chances of success increase.

If you are the sole owner of an online business, the Sole Proprietorship (also known as DBA – “Doing Business As“) is the easiest form to register and manage your business. It actually works as an alias for the individual doing the business. Because of this, the owner is personally liable for the company. That means that all debt is imputable to the owner. However, as Sole Proprietorships are usually low-liability businesses, a lot of startups work under this type of legal entity.

The second big option in starting an un-incorporated business is the General Partnership. In Partnerships, more individuals get together to start some kind of business. Just like the Sole Proprietorship, Partnerships are easy to set up and manage and because partners share equal control on the company, the liability and profits are also shared.

Incorporating your company

Like I’ve mentioned above, the second category of companies falls under the “corporate” model. When you’re incorporating your company you don’t become a corporate behomoth and you don’t automatically get billions in revenue, as you’d expect. It just means you’re operating under a different set of rules. Plus you get to do a lot more paperwork and pay some extra taxes.

Pros of incorporating the business

The most important reasons to incorporate your company as an entrepreneur are liability protection and documenting deals with partners.

By far liability protection is the most important reason to incorporate your company. Under a corporate structure, your business is treated as a separate legal entity. If things go awry in your business (and sometimes they do) the company is liable for paying all debtors, not you. That, of course, if you have been operating your business in a legal manner.

Basically, registering as a corporation will keep your assets (house, car, golf clubs) protected from any issue that might arise operating the business.

The second important reason to incorporate your company is documenting a business deal with partners. Whether you are raising money from investors or selling shares in your company, you need a corporate structure to do this.

Cons of incorporating the business

You may hear other reasons why you should incorporate your company, things such as tax benefits, business credit and transferable ownership. But don’t rush to register your corporation just yet. Most entrepreneurs are doing just great running un-incorporated business in the beginning. Tax benefits are usually tangible when your company is already successful enough. So if you are just a startup, you can probably forget about tax benefits.

Building business credit means companies are evaluated independently from their owners but that doesn’t necessarily have to be a good thing. If you are a startup with no cash in the bank, no sales and no clear plan, that fresh business credit won’t be of help much.

Finally, saying an incorporated company is a lot easier to transfer to other individuals or companies leaves out a very important aspect. Before transfering your company (hopefully selling it for lots of cash) you need to build this company. So again – this won’t help you that much either.

But the biggest disadvantage small businesses that incorporate have to face is paperwork. Lots of paperwork. You will have to fill in state reports, organize annual meeting and deal with involved bureaucracy.

Then there’s the fees. You’ll be paying fees for legal council, tax filling and others. Professional help is not cheap. Plus you get the minimum franchise taxes and others. These amount to thousands of dollars in fees, which is a bit much for small business owners.

So incorporating a company is no easy feat. Or better said – it’s not easy to manage an incorporated company if you are a small business owner.

But if you do find yourself in need of incorporating the business, here are the most important type of corporations you can choose:

LLC – Limited Liability Company

You have probably heard one thing or two about LLC (Limited Liability Company). It’s the most popular form of business among small and medium businesses, including online store owners. It combines what is called pass-through taxationfor its members with the limited liability corporations provide.

Although not technically a corporation, it is a great choice for those that want to join a limited liability partnership. It basically works as partnership or sole proprietorship in terms of taxation. This means the owners (called members) pay taxes on the LLC’s profit directly. The company doesn’t fill taxes separately, which makes things a lot easier to manage.

This types of businesses are actually pretty young as a commercial concept. The LLC structure was first formed in 1977 and now it’s accepted in all US states and a throughout most of the world.

At the heart of LLC stands the “Operating Agreement“, a document signed by all members, setting the rules under which the company will be managed. It covers things such as profits sharing, company management, adding or removing members and more.

The LLC is the most popular choice in the world right now for forming partnership, usually chosen by groups of up to 5 members.

Although starting and managing a LLC is less complicated than a corporation, it is still more complicated than starting and managing a sole proprietorship or a partnership. You will probably have to hire a legal counselor to help you with the set up and operating the company.

The Regular Corporation (C-Corporation)

The Regular Corporation is … well … the corporation. A company organized as a corporation is a separate legal entity from its owners (called shareholders). The company can thus protect owners from liability issues or company debt.

The corporation provides advantages such as:

  • easier capital inflow (through stock sales),
  • ownership can easily be transferred through stock transfer
  • being a separate entity it can and will act independently from its owners. This means it can sue and get sued, it can own property and it will be taxed independently from its owners
  • tax advantages can be substantial (a lot more business expenses can be deducted)

Once the corporation is set up, it will pay taxes separately from its owners. This can lead to double taxation as companies are taxed on profits and once those profits are distributed, shareholders will also have to pay income taxes. The double taxation problem is solved by incorporating as a S Corporation (see below).

Corporations are not necessarily ran by its owners. The shareholders own company stock. This gives them the ability to elect Directors, organized under a board of directors. Once this board of directors is set up, they appoint Officers (CEO – Chief Executive Office, CFO – Chief Financial Officer etc.), which are the people that actually run the company on a daily baisis. Of course, if you own 100% of stock, you can appoint yourself as the one and only director, be the officer and run the company.

On the other hand, if your company will be owned by more individuals, the Board of Directors and the Officers will run the company. Both the Board of Directors and The Officers have to abide to an internal company document called “Corporate Bylaws“. This document sets the rules on operating the company and can be extended or modified as the company evolves.

The Corporation is a lot more formal than the LLC and of course, the Partnership or the Sole Proprietorship. The records have to be carefully maintained, there is a mandatory yearly Directors and Shareholders meeting and every decision has to be documented and reported.

Although the corporation is harder to form and maintain, it is the oldest and most reputable form of business organization.

Registering as a S-Corporation

When registering as a corporation, you should take into account the S-Corporation. By filling in the appropriate tax election form to the Internal Revenue Service, the company will be taxed as a Sole Proprietorship or a Partnership.

The main advantage for you and your partners is that income and profit is passed through to the shareholders, thus solving the double taxation problem mentioned above.

Even though you’ve solved the double taxation issue – you’re still stuck with the paperwork and specific regulation, which can be a burden for online retail startups.

To wrap things up, here is a rundown of the main types of incorporated business structure you can choose, each with its own pros and cons:

Once you have decided on whether you’re registering your business as a sole proprietorship or incorporating it you can check the specific regulations for your state here and start the registration process.

Integrating suppliers with my online store

You’ve figured out your market, planned on how you’ll build and run your store and what your business model is. You’ve registered your business and you are ready to go. Or are you?

Well hold on there, you still need to have those products you’re selling. That means you need to source your merchandise from suppliers.

Generally speaking, suppliers are those businesses or individuals that are willing to supply you with products priced below end consumer value. Still a bit unclear? Well say you will be selling plain t-shirts. You know you can buy those t-shirts for $20 at the closest store. If you do buy t-shirts in that store, you will be buying them at end consumer value. You are the end consumer. Because you cannot price them at a higher level you are basically stuck with them – hence the “end” in end consumer.

What you need to do is go find yourself some suppliers that are willing to sell you those t-shirts for less than $20. Why would they do that, you say?

Remember the whole B2B business model? Some companies just work this way. They manufacture the products or sell them in bulk and let other companies sell directly to the end consumer.

( The basic operations needed to run your store )

When dealing with suppliers you have to be ready to make a commitment before they agree to do business with you. This commitment can come in many forms but usually it’s one of the following:

  1. buy products in bulk: say you are willing to buy 50 of those plain t-shirts. You can negotiate your purchase price down to $15. Willing to buy another 50? Maybe the price can go even lower, to $10 and so on. The thing you have to remember here is that although bulk buying can be a potentially great deal in terms of price discounts, you also have to sell those products. If you get stuck with $500 worth of t-shirts that you are not able to sell, you have just wasted your money. It doesn’t matter how much you saved purchasing said products. What matters is making a profit and making your customers happy.
  2. commit to a target: maybe you are not willing to buy 50 plain t-shirts, because you don’t know what your potential customers are willing to buy. You are, however, confident they are willing to buy something. So you commit to a monthly, quarterly or yearly sales target. The supplier will than give you a startup discount for purchased products. This discount can increase as you sell more and more merchandise. You can list the products on your online store, stock as little inventory as possible and ship and restock when orders arrive.

 

Once you’ve made a deal with one or more suppliers you will be selling your products right on your store. When the orders start pouring in (or maybe just trickle in the beginning) you have to make sure customers receive the products they’ve paid for. This part is called “fulfillment” as in fulfilling your promise to send the product to the customer in exchange for the payment you have received.

Fulfillment means any task done inside or outside the company that assures the right products are shipped to the customer. Usually this means:

  1. order management: checking order information (customer info, address, number of products etc) and forwarding order details to the right fulfillment center to be completed. If you are a startup this may mean you will be checking the customer details, maybe confirming the order and then planning on where to get the products from.
  2. pick and pack: this is the usual term for picking products from the warehouse shelf and packing them to make sure they are ready for shipment
  3. shipping the products: once products are picked, packed and ready to go, they have to actually leave your warehouse. When this happens you will either bring them yourself to your customer’s address (highly unlikely) or commission a company specialized in shipping (such as FedEx or UPS) to do so.

 

We will talk a lot more about fulfillment later on in this guide but for now I just wanted to give you an overview on the usual processes in handling orders and shipping products to the end consumer.

Fulfillment can be done either within your company, by the supplier or as a mix between the two. Let’s have a look at these scenarios:

  1. fulfill orders within the company: this is the way most medium to large companies fulfill their orders. They build inventory for most of the products they’re selling (especially popular items), stock them in warehouses and when orders arrive, employees in the warehouses fulfill these orders. This process implies a rather large inventory and it can be an ineffective way to handle orders for startups. That’s why most ecommerce startups require another form of collaboration with suppliers:
  2. fulfillment is externalized as suppliers “dropship” orders:  this means you can just showcase products on your store and orders are shipped by your supply partner. Rather than stock on products, you can just forward orders to your product supplier and that company will take care of the shipment. The individual product is then shipped to the end consumer and you are invoiced for said product. You profit from the difference between the retail price (the price you posted on your website) and the price you’re paying to the supplier.

 

Usually, most online retailers (such as yourself) choose a combination between the two and maybe some other processes.

( The example below is illustrated in the figure above. Combining basic operatiosn with supplier drop-shipping. )

For example, let’s say you partnered with two suppliers (see figure above). Supplier A will provide you with plain t-shirts. Supplier B brings in sneakers. After you start your store you receive two orders. Customer X is asking for 2 plain t-shirts. Customer Y is asking for a plain t-shirt and a pair of sneakers.

You will have to treat these orders differently. Order number one, the one where customer X paid for 2 plain t-shirts is forwarded to Supplier A and he will dropship these items and then invoice you for the products.

Order number two is a bit more complicated. You will have to ask supplier A to send you one plain t-shirt (if you don’t already have it on your inventory) and Supplier B will send you a pair of sneakers. You will be invoiced on those products and once you have them in your warehouse you can pack and ship them to the customer.

You can also choose to work with external fulfillment services, such as Fulfillment by Amazon. These services relieve you of the burden of picking, packing and shipping your orders. For a cost.

By building and interlinking separate operations such as those mentioned above, you are actually building what is called a supply chain. The supply chain means any interlinked process that enables you to move products from the manufacturers or wholesalers to the consumer.

The supply chain is not a static structure. It can and it will change as your online store evolves. As you add new suppliers to your supply chain, your ability to distribute products to consumers will increase and so will your revenue. But speaking of adding suppliers to the supply chain …

How do I find Ecommerce Suppliers for my Store?

Yeah, how DO you find suppliers for the online store? Now that you’ve got a sense of why you need suppliers, how to negotiate and deal with them, let’s have a look at how to actually find them. When you’re looking for merchandise suppliers you’ll see that you have two big options when choosing, each with its pros and cons. These two options are domestic suppliers and overseas suppliers.

Assuming you are in the US, using domestic suppliers will be a very viable option but you should also consider the second. Overseas suppliers can be a great addition to your supply chain. They can be used when in need of additional product options or lower prices. Let’s have a look at the pros and cons of using these two types of suppliers.

Domestic Suppliers

Pros:

  • (usually) higher manufacturing standards
  • improved shipping time
  • intellectual property protection (might be really important if you design your own products)
  • no cultural or communication barriers
  • no import taxes
  • safer business relationship
  • easier to check references for reputable manufacturers or wholesalers
  • lower minimum level ordered quantities

Cons:

  • higher prices
  • less products to choose from (not few, just less)

( Directories providing links to domestic US suppliers )

Overseas suppliers

The most important thing you need to remember when dealing with overseas suppliers is that you have to be very, very careful. If you are inexperienced, you should ask for professional advice on how to get the best deals and protect yourself from fraud. Also – if you do find yourself in need of doing business with overseas suppliers, choose to contact those that provide a local sales office or agent or order using established marketplaces that provide escrow payment options.

Pros:

  • (usually) lower prices
  • ability to deliver unique items to your customers
  • a wide array of suppliers you can choose from
  • established online marketplaces provide an one-stop shop for retailers

Cons:

  • you will have to deal with customs, local taxes and special conditions when importing
  • low or zero ability to dropship to your customers
  • must buy larger quantities to actually get said lower prices
  • inability to change or customize orders
  • inability to reorder popular items – usually stocks ran out and without a preexistent order, the supplier will probably not sell the goods you’ve purchased last time.
  • cultural and communication problems
  • longer shipping time
  • harder to check for supplier references

( The most reliable services that connect you to B2B suppliers overseas )

Although the services mentioned above are a great way to find the right suppliers, you can also do your own digging and search for independent manufacturers or wholesalers.

There is no standard way of doing this but some tips may help you get closer to your ideal suppliers:

  1. Contact the manufacturer directly: saw some product you’d like to have? Probably your customers would also. Have a look at the label and contact the manufacturer. They must at least have a name and using that, you can use Google to find out more about them.
  2. Speaking of Google: try going deeper in your search results. B2B traders and manufacturers are not really great at marketing (that is the retailer’s job) so their websites scream “so 90’s” and they are not really optimized for search engines. That’s why you should click further than you’re usually used to in order to find a hidden gem.
  3. Trade fairs: yeah, people still do that. Especially in the B2B trading world. You can find a list that might interest you here and here.

 

So hopefully you now know a thing or two about finding suppliers and you’re going to get the best deal possible. Great! What’s next? Oh, yeah, prices:

How do I set the Price for My Online Store’s Products?

When it comes to pricing, you have two rather simple concepts to always keep in mind:

  1. Cost of goods sold (COGS): this is the cost you have paid for the goods plus any costs associated to getting the goods in your inventory and ready for sale. This includes, but is not limited to: shipping, handling or customs taxes.
  2. Operating expenses: this is the total cost associated with running your business. This includes rent, utilities, wages, marketing costs and others.

Basically, the prices of sold products have to cover the sum of these expenses. The bottom line is always the same: Profit = Revenue – Costs.

Your company will report a gross revenue by selling products. Profits come when you are selling enough merchandise, at the right price, to cover your costs.

Of course, it’s a bit more complicated than this but you get the picture. You have to price your sold products where you can be profitable. However, prices need to stay competitive to the market. This means that there’s a balance you have to keep. Prices should be big enough to keep you in business but small enough to be competitive with other online retailers.

Pricing strategies

1. Markup on cost means you add a certain percentage to he cost associated with the product. It is usually a standard percentage somewhere between 15% and 40%, enough to keep you profitable and your prices competitive.

The formula works like this:

Item cost + (Item cost x Markup Percentage) = Price

Say for example we are selling plain t-shirts, with a cost of $20. We’ve set the markup at 30%. The the price would be:

$20 (Item cost) + ($20 x 30%) = $26

2. Manufacturer suggested retail price (MSRP) is another way small businesses can set their prices in such a way that they are profitable but not too expensive. MSRP is the price the manufacturer recommends to resellers so they don’t start price wars that can benefit no one. This type of price setting leaves out a lot of options for the online store owner and should not be a general rule in the long run.

Above are just two of the simpler ways prices can be set to attract the consumers. We will get into a lot more details in the “Marketing your store” part of this guide so stay tuned.

For now, this concludes part two of the “How to Start an Online Store” Complete Guide. Part three will focus on building your fulfillment operation (picking, packing, shipping and returns) and how to build a brand identity and the actual store front. See you soon!

See part 3 of “How to start an online store”: Fulfillment >>

Featured image source: https://www.flickr.com/photos/27017674@N06/8915361750

How To Start an Online Store: The Complete Guide

If you are here you’re probably thinking about opening an online store and you need some help to get your business up and running. The good news is you’ve come to the right place. This guide contains all the information you need to get your business started.

I’ll guide you through the most important steps in starting an online store. You’ll notice that, just like a car, the things that make an online store are usually under the hood. Of course, an efficient web store and a carefully crafted logo are important but even more important are the products you sell, where do you get them from and how you fulfill your promise of sending them to your customer.

Basically there are ten main areas you need to focus on when starting your online retail business. These are:

  1. Finding your niche and understanding your market. Building The Plan;
  2. Finding the right business model;
  3. Registering your business;
  4. Finding suppliers, developing a supply chain, pricing the products;
  5. Developing a fulfillment operation (pick, pack, ship and handling returns) and preparing for customer care;
  6. Building a brand identity and building your web store;
  7. Posting products and adding relevant content;
  8. Adding sales channels to your business;
  9. Marketing your store;
  10. Testing and fine tuning;

 

That’s a whole lot of bullet points. Of course: an online store is still a business and businesses are not simple. If you’re trying to build a business because you need money fast or because you’re tired of your day to day job, you should stop reading this post right now.

The truth is building your store or any other type of business is hard work. Seems obvious, right? If it were easy, everyone would be running their own business. It’s hard but if you are ready to take on this challenge, prepare yourself with grits and start chewing as much info as you possibly can. The more information you have and the more data you gather, the more likely you are to succeed.

This guide will work as a framework, an outlook on what you have to do to maximize your chances for success. Depending on your current location and specific market factors, you may need to adapt as you go but you can rely on this framework to guide you through.

So let’s dive in:

1. Finding a niche for my web store. Building The Plan.

There are three very important things to take into account when starting your online store and looking for your niche:

  1. provide value for other people
  2. provide the type of value that other companies don’t
  3. provide value for lots of people

The first thing you have to understand is that your business has to provide value for other people.  Just as people do, businesses strive for purpose. Without providing value in a clear and straightforward way, you cannot expect your business to be successful.

Find out what people need or want. A combination of both is great but if you have to choose, go for need – it is way better in the long run. Find out how you can supply these products or services. This is the value.

The second thing you have to take into account is that other online stores may provide the same kind of value. Do your research. Google the type of products you want to sell. Check Google Trends to see how the terms for your products have evolved throughout the years. Compare the number of product searches with the number of companies providing the same type of value you’re planning on offering.

There is a dynamic between demand and supply that you cannot ignore. You are looking for a market that is booming but there are not many competitors. And that’s were the third point comes in: you have to provide value for lots of people. You may like hoodies for cats very much. But it is probably not such a great idea. You are addressing people in your country (don’t think you’re going international just yet), who own cats, who think that dressing up cats is a good idea and who like hoodies. A pretty small market, don’t you think?

The lower the market size, the lower your chances for success. The higher the market size, the higher are your chances at building a great business.

See the graph below on where you’d want to place your business in:

So there are two great combinations that you can choose. Both need as many customers as possible. You should strive for a market where there are plenty of people ready to buy your product.

The ideal situation is the one in the lower right corner. That’s where few companies will compete with you and there are plenty of customers willing to buy your products. But to position your online shop there, you need to identify a need before the competition and quickly get as much market share as possible. However, in this situation, you’ll need to market your products and your brand, advocate product usage and purchase. That means actually building a market. This is no easy feat for a startup.

The upper right area shows a combination of many competitors and many customers. This means this is an established market and you’re more likely to succeed if you prove yoruself better than (part of) the competition. With slight adjusments to the business model, you can compete to established leaders (see below for innovative ecommerce models).

The Plan

Once you have discovered the kind of product(s) you will be selling it’s time to start building The Plan. You will notice that I’m using the term “the plan” and not business plan. That is because this is your plan. It has to come as a natural idea and set of targets you want to acomplish in the future with the business you’re building.

There are nine big questions you need to answer here. You have to be as pragmatic as possible when answering these questions because when you start building your online store there won’t be any place for wishful thinking.

These questions are simple but the answers are usually not:

  1. What are you selling?
  2. Who are the competitors?
  3. Who is the customer?
  4. How do you get the customer to buy your products?
  5. Who supplies the merchandise?
  6. How much will the products cost and what is the proffit?
  7. What are the costs you expect?
  8. How are you going to cover the costs?
  9. How much revenue are you expecting in the first 3-5 years?

 

Answering these questions will get you thinking and preparing for the future. You will notice that these are actually the questions you need to figure out the answers to when building a business plan.

However, take your time to think through these questions. Find information to support your expectations. Question your own assumptions because the market will surely do so. If you’ve taken into account all these questions you are likely better prepared to starting yoru online shop. Remember, “failing to plan is planning to fail”.

 

2. Finding the right business model for my online shop

You’re probably thinking the ecommerce business model is pretty straight forward. You post some goods online, someone orders them and then you ship them and collect the big bucks.

Well, that is why you need to know that even if the logistics and operations may look the same in all ecommerce business, the differences can have a huge impact on how you’re building yours.

I’ll walk you through the 4+1 main segments of ecommerce business model. Than we’ll look through different implementations of the B2C model (business to consumer), the one you’re probably aiming for.

B2C eCommerce

B2C Ecommerce is the most popular form of commerce online. The B2C stands for Business to Consumer and that’s exactly what it means.

Online retailers (aka “The Business”) will stock goods, post them online and sell directly to the customer (“The Consumer“). The Consumer will reach the web shop, browse and hopefully buy the items posted online. When this happens, the operational team will be notified. They will pick the merchandise from the warehouse shelf, pack it and ship it to the consumer.

Most of the online shops you are familiar with are focused on this type of ecommerce business model. Some examples you might be familiar with are Walmart.comTarget.com or HomeDepot.com.

But B2C is not just for the big players. Many ecommerce startups employ this type of business model. For example Bonobos.com and WarbyParker.com are doing just great selling directly to the consumer.

Bonobos is a fashion ecommerce retailer for men. The company manufactures and sells its own line of men wear and its main selling point is it makes shopping easier. How it does that? You’ll find out later in this guide.

WarbyParker.com sells stylish eyeglasses and sunglasses directly to the consumer. It is a great example of finding the right type of product at the right time and packaging it with the right type of social activism twist. When you buy a pair of glasses from them, a social mechanism makes sure that part of the money you’ve paid go to those in need of eyewear in the developing world.

But wait, isn’t Amazon a B2C ecommerce site, you might ask? Glad that came up. See, Amazon has started as a B2C online shop but since then it evolved past a single model. Most of its sales are still directed at the end consumer but Amazon also ships items to businesses (B2B ecommerce) through its Amazon Supply outlet. It also brings other sellers (businesses and consumers) in contact with its own customer database. This means Amazon is indeed the largest online retailer in the world, but it’s not just a B2C ecommerce website.

B2B eCommerce

Another business model that works great is the B2B Ecommerce model. In this model Businesses sell merchandise to other Businesses through an online shop.

You might wonder why even mention this model. I mean, couldn’t those listed above just allow businesses to buy from their shops? Of course they could and most do. But here, I’m talking about a different type of companies, different type of products and most of all – different number of items purchased and different pricing.

(B2B model illustration)

Say you’re a company manufacturing hoodies for cats. Supposedly your market is not as popular as the smartphone market and your factory can ship 1000 beautiful cat hoodies every year. You could, of course, open an online shop and ship these hoodies directly to the consumer. But you’ll find out that it implies development costs, marketing costs, customer service costs and you just want to be in the factory all day, trying to finally manufacture the perfect cat hoodie.

Along come Business A and Business B. These companies are probably retailers and have an established commerce operation, with a huge database of customers and they think they can sell 500 hoodies this year. And they want everything you manufacture.

Before these companies came along you’ve done the math and thought: “My cost for each manufactured hoodie is 10$. I’ll sell these hoodies for 20$ and make a nice proffit.” But then you went on and started selling on your own and saw that including marketing, shipping and other expenses your cost rose up to 18$ and you’re actually making only 2$. Not that much, is it?

But now both Business A and Business B decide they can offer you 15$ for each hoodie and they are going to buy everything you manufacture. On one hand they are offering you less than your asking price but in the end your earning 5$ instead of 2$ so you decide you’re better off selling directly to Businesses.

This simplified scenario is the basis of the B2B ecommerce business model. It means that businesses (either manufacturers or wholesalers) sell directly to businesses and offer incentives to those that buy in bulk. The usual incentives are lower prices, extended payment conditions, free shipping or custom manufacturing.

Some of the most popular B2B ecommerce sites are Quill.com, AmazonSupply.com and of course AliBaba.com, the largest B2B marketplace, connecting businesses in China to buyers all over the world.

B2B2C eCommerce

(Business to Business to Consumer business model graph)

This is a rather new type of ecommerce business model. It stands for Business To Business To Consumer.

How does it work? Say you have your own stocks and you’re selling your cat hoodies through your very own ecommerce website and it works pretty well. But you’re thinking – why not sell more?

So you think of new sales channels, the type of opportunities where your cat hoodies can sell even better if exposed to a larger number of customers. Kinda like Amazon or eBay.

Larger retailers, such as Amazon, offer you the possibility of selling on their own website. You supply the goods and post them on the Amazon Marketplace, for example, and next thing you know -bam! – your cat hoodies can be purchased by Amazon’s customers. Depending on your decision you can either fulfill orders on your own (receive orders from Amazon, pick, pack and ship yourself) or just let them handle the logistics, through their Fulfillment by Amazon program.

C2C eCommerce

So we’ve covered businesses selling to customers and other businesses. Shouldn’t consumers sell to other consumers too? But they do and this area is actually booming.

Consumers usually meet other consumers through online marketplaces. By far, the most popular is eBay.com, the place where anyone can sell and buy anything. Even though eBay hosts businesses also, we will focus on the individuals selling their items through these type of systems.

The online marketplaces enabling C2C ecommerce help sellers post their goods online and buyers to find them.

There are many mechanisms in place to handle these transactions, things such as product showcasing, selling, payment and feedback. But if we were to look at what makes C2C marketplaces work this has to be the network effect and peer review. The network effect means that the more people engage in trading goods in a marketplace, the more people will come and more successful the marketplace will be. This effect also ensures seller and buyer lock-in: the more people are buying or selling, the harder it is for someone to leave the marketplace. The reason – where else will this person find so many customers or merchants?

The second big feature that defines C2C marketplaces is peer review. When you’re buying or selling through this type of systems, you really don’t know who’s on the other end. And because relying on luck and having faith in the good character of people is not the most efficient solution, marketplaces introduced peer review.

When someone buys from a merchant and they get what they asked for, they offer a positive review. When they don’t, and things take a turn for the worse, they slap the merchant with a negative review so others know the merchant is not to be trusted.

The same goes for the merchant. If the customer doesn’t pay up or somehow tricks the merchant – there’s always a bad review at hand to get things leveled.

Once these reviews start pilling up, they start working as a certificate of good standing (or bad standing). If you are a honest merchant or customer, you won’t leave the marketplace that stores this certificate. That’s because reviews are a valuable asset that help members trade in better conditions.

Why mention all these? Because building a C2C marketplace is really, really hard and expensive. For example eBay lost$100 million trying to enter the Chinese market before giving up to AliBaba. It’s that kind of expensive so I would rather advise against building a general C2C marketplace if you’re a startup.

You could, however find a niche where individuals are willing to trade with one another and cater to that specific niche.

For example: Etsy.com is famous for building the biggest handcrafted C2C ecommerce community. Uber and Lyft bring individuals in need of transportation in contact with those able to provide these type of services. In fact, Andreessen Horowitz, one of the leading Venture Capital firms lists Online Marketplaces as one of the most promissing directions for startups.

C2B Ecommerce

Yes, C2B (Consumer to Business) eCommerce is a thing. It might look a little off but there are great ways to start an C2B ecommerce business. There are also some great established services that help connect individuals to the businesses in need of their products or service.

(Consumer to Business Ecommerce Business Model)

Take this blog for example. You see those banners posted on the side? These ads are served through AdSense (a Google program that connects advertisers and website owners). What AdSense does is connect the individual (in this case a blogger) to those businesses in need of relevant advertising. In return for posting these ads, the blogger gets paid everytime someone clicks an ad.

Reverse auctions are a great way for individuals to post how much are they willing to pay for a certain product or service. A C2B Ecommerce site can collect these auctions and forward them to companies willing to fulfill them. For example – the basic model behind the likes of Groupon.com or LivingSocial.com is a combination between B2C and C2B. Companies post their offers but the consumers have to vote by purchasing these offers. If the minimal number of offers is not met, the offers are not activated.

Another great example of the C2B ecommerce model is Elance.com. The website is one of the first businesses that connected freelancers to potential contractors (usually businesses). Freelancers would go online, post their capabilities and those in need of their services would hire them for a limited time or project based.

Monster.com is another great C2B example. Yes, people posting their resumes and getting recruited is a type of commerce where The Individual is pitching The Business to buy his services (aka hiring).

If you’re an one-man startup, this can be a great way to setup something quickly. In fact, most freelance developers or graphic designers practice this type of commerce. Either through large marketplaces such as Elance.com or just by posting their resume and portfolio online and getting orders through a simple contact page.

Other business models for ecommerce

These are the four most popular and used business models but they are not all. There is a separate class of ecommerce business models that has to do with the government. When the government wants to buy products or services from businesses it will post the tenders on a G2B (Government to Business) portal that handles auctions and offers.

If the businesses want to market their their offers to the government, they will employ a B2G business model. See that? G2B vs B2G – pretty simple stuff.

A final model is G2C – government to citizen. Using this model, government authorities can auction goods directly to the consumer. It also works as a way of connecting citizens directly to the authorities and decrease bureaucracy when issuing documents or collecting taxes.

Six innovative B2C ecommerce business models

So you’ve glanced through all these great ways of starting an ecommerce business and you finally decided on one of them. The vast majority of online shop startups are built on top of the B2C business model so the next part of this guide will focus on a few innovative ways of implementing an online shop.

The basics all stay the same. You are still an online shop owner trying to attract the right kind of consumers and provide them with products they will love. But how about some inspiration from the most innovative business models out there?

1. The right fit

Remember Bonobos.com we’ve talked about earlier? Well their whole selling point goes something like this: most men don’t really like shopping. They like to wear clothes that make them look good, without spending too much time choosing. We can make this happen.

That is especially hard when you’re an online store and your customer can’t see, touch or try on the product your selling. But it can be done. To make it happen, Bonobos mixed its great designs with few things to keep the customers happy and relaxed:

  • Ninjas. What? Well, not real ninjas but some pretty great customer service representatives that are willing and happy to walk customers through buying the right piece of clothing.
  • 365 days return. Not the right fit? Maybe the customer is too busy to return the merchandise within the standard 30 days. Why not extend that to  365 days?
  • Free shipping and free returns. This means the customer has no reason to drive up to a brick and mortar store to try on the products. Shipping and returns are free so basically everyone can try on their new chinos at home. If they don’t like them, they send them back.
  • Try on everything. Bonobos has a special kind of store – the one that lets customers schedule a “try on everything and if you are happy with what you find, you get your stuff shipped home” session. Also – preferences are saved so next time the customers wants to click-shop, he knows exactly what’s the right size.

The key take away is if you’re building an online store, it has to solve a problem. Bonobos solves the “shopping for clothes is boring” men problem and promises the right fit without the headaches of chasing a pair of pants all day.

2. Flash Sales

There’s a whole post on Netonomy dedicated to Flash Sales. Basically, these type of online shops sell discounted merchandise to registered members.

Take for example Ruelala (pic above). Customers have to provide the shop with their email address to register as a member. This means that basically anyone who enters the website is also subscribing to an email newsletter.

In exchange customers get discounted, usually designer or brand name products. If you like to know more about this ecommerce model, please click here.

3. The subscription pack

Most online shops have thousands of products listed. This is a great advantage over brick and mortar stores which have to actually stock on all those products. Online shops can stock on the minimal amount and later on deal with orders through supplier dropshipping but more on that later.

A new trend emerged that deals with showing just the right amount of products customers need in a given period and ship those products in a subscription based model.

Take Manpacks.com for example:

What Manpacks does is list just the minimum amount of products men need in any given month. Customers setup their pack and receive it every month, based on a subscription.

There are many advantage in starting such an online shop:

  • Predictability: because your revenue is subscription based, you can estimate your monthly, quarterly and annual revenue accurately. This way you can plan for the future and balance your company.
  • Economy of scales: having few products on sale and lots of customers means you can negotiate with suppliers better prices for the products you’re selling. This means you can also profit more and sell your products cheaper.
  • Marketing is easier: with few products in your offer you can simplify your marketing and communication and improve your customer acquisition (again – more on this later).

4. Community designed products

Are you familiar with the term crowd sourcing? It basically means asking lots of people to do something for you or your company. In this case, we’re talking about designing products.

What Threadless.com did was build a community around the concept of designing t-shirts. Designers would submit their designs and the community would choose what t-shirts were sold. In exchange, the website shared revenue with said designers.

Of course, going against Threadless now is probably not a great idea but you can always build a business by channeling people’s passion towards a commercial goal.

Key takeaways:

  • Community: build and stand by your community. It is the key to creating a lasting brand.
  • Share and save: hiring designers is a costly thing but if you can take independent designers’ ideas and turn them into products you can save a lot on fixed costs. But you have to be willing to share.

5. Customizing for the masses

Mass customization is an ecommerce segment that’s growing really fast. Customers want to express their creativity and they are ready to pay for this.

This type of online sales are technologically advanced and need three really important things to function:

  • a store that can handle customization input for the customers
  • a system that transforms this input to a set of instructions to a production line
  • a operational structure that can customize products in an automated manner so costs are kept in check

For example Nike launched NikeID, a great way to customize their products. After a successful trial period, the program extended to many of the company’s products.

If you’d like to find out more about mass customization, you can get more info at “Is Mass Customization the Future of eCommerce?

6. 3D printing

The final innovation I think you should take into account is 3D printing. Using specially designed machines you can build 3D objects and sell them to customers.

3D printing is a technology that is actually yet to take off but it sounds really promissing. For certain products it can mean a reinvention of manufacturing and commerce. Imagine having your customers build the product in your store and having this product instantly printed and shipped. Imagination is the only thing that could limit what can be done with such technology.

Shapeways for example, started in 2007 as a marketplace for 3D Designers willing to design and sell their ideas. In 2012 it has passed the 1 million products sold threshold so there really is a market out there.

Because it is connecting designers to buyers, Shapeways is a C2C marketplace but probably the future will show 3D printing is not restricted to individual designers so B2C online shops might also leverage the trend.

This was the last of the six innovative ecommerce trends you could use to spark the right idea for your future shop. This ends part one of this guide. To wrap things up let’s walk through what you’ve learned here. First – the importance of finding the right niche and how you cult do that. Next, you’ve learned about the necessity of building your Plan when starting an online shop and the questions you need to answer when building said plan.

Last but certainly not least, you’ve discovered the main business models you can use to build your shop and six of the most innovative B2C ecommerce models. Pretty good for a day’s work.

See Part 2 of “How To Start an Online Store“: Registering your business, finding suppliers, integrating suppliers in your business and choosing the right product prices >>

Featured image source.

Book Review: The Hard Thing About Hard Things by Ben Horowitz

Ben Horowitz tells it like it is: starting and running a tech company is hard. Really hard. But not for the reasons you would think.

Founding and running a tech company is generally viewed as the thing anyone should aspire too. The fame, the riches and everything that goes with it is the dream of our generation. Silicon Valley is just as attractive as a career in Hollywood or being a rock star. With poster boys such as Mark Zuckerberg or Elon Musk, young men and women grow up believing that all you need is a great idea and the guts to start it.

But that dream fades when your bright idea and optimistic vision have to face the hard truths of running the company you’ve just founded. Ben Horowitz has a reputation of being a no-bullshit kind of guy and you can actually feel his straightforward words telling you that your dream will be squashed by reality.

Unlike the glamorous and relaxed articles you’re reading about the likes of Facebook, Google or PayPal, Ben’s book is a clear indication of what you can expect when running a company and what to do about it.

It’s definitely not a perfect guide to running a company but it is a great start to understanding what to expect. Being a CEO is a tough place to be in. It’s a lonely place. It’s full of doubt and decisions that may or may not be right.

Telling it like it is

One of the greatest idea I’ve found in the book is telling it like it is. Yes, telling it like it is when things fall apart. Because they constantly do and someone has to constantly put them together.

Sometimes CEO’s start trusting their PR too much. They start living the persona they need to project to customers, investors and the media. Of course, no one can just go and tell the world that they don’t have enough data to make a decision. Or tell investors that the company may or may not exist in the next 6 months or the product development is stalling. Or tell customers that the product they’ve just purchased may be out of the market in the next year.

No. The CEO’s job is to project confidence and show the world that everything works just smooth. Right? But what do you do when things are the opposite of smooth? What should the CEO do when they fall apart and everything starts running amok. How can you tell the engineers that the customers hate the new features and they just have to rewrite everything so it can be spotless. How can you tell the marketing team that the last campaign they’ve pulled is bringing in no results.

Ben’s answer is simple:
“[…] give the problem to the people who could not only fix it, but who would also be personally excited and motivated to do so”

 

There are three big reasons to do so:

  1. number one is trust: when people get all data, good or bad, they will respond with trust. When dealing only positive thoughts the bad things are kept to only few people. Eventually they will leak.
  2. number two is problem solving: the CEO is not necessarily the smartest person in the company. Nor does he or she need to be. It just needs to relay the correct problems to the correct people and make sure they solve them.
  3. number three is culture: a culture where bad news are swept under the rug is a flawed and inefficient. People spotting the problems don’t have to be the ones who solve them.

 

Take care of the People, the Products, and the Profits – in that order.

Throughout the book Ben Horowitz deals with hiring, managing and retaining employees best fit for the company. And he stresses the “fit” part. People that cannot work in a team should not be part of the team. Egos and politics can destroy companies if not properly managed.

The people themselves have to build products that the market needs and wants and there’s plenty of advice on this topic also. Concise, clear and to the point advice.

Ben shows that innovative products and successful companies are built by CEO’s that lead without knowing where the path would lead to. They lead their teams and they try and try. Sometimes they get the right answers. Sometimes they don’t. That’s because there is no formula for building the equivalent of Facebook or Google or Apple. If it were – more people would be doing it right.

The hard things are things all responsible entrepreneurs and CEO’s have faced. It’s the worrying, the lack of direction or know how, the lack of guidance and the loneliness. It’s keeping your emotions in check and being stronger because of it. It’s finding answers without showing weakness. It’s the struggle you have to embrace so you can continue when things get rough.

In the end I would highly recommend this book to anyone starting or running a tech-related business. My only regret is not having read it five years earlier but then again – it was not written then.