1. Be sure this is for you.
Before you even spend a penny you should think very carefully about the life-changing decision you are making.
When I first started I believed there was very little risk involved because I intended to operate from home, as a sole trader. I thought I could give it a go and walk away at any time if things weren't going right. I was wrong.
Even after months of working 15 hour days and running at a loss, I refused to give in. I attribute this phenomenon to partial reinforcement, the same mechanism that keeps the multi-billion pound gambling industry alive! There was always something in the back of my mind that told me that if I kept going, one day I would make a million. To make things worse I read books on sales and positive thinking which resulted in me putting pictures of luxury yachts, sports cars and posh houses on my desk. Every time I received a sale I felt elated and my dream car seemed a little closer! I even changed the sound in my email client to make the 'ch-ching' sound of a cash register every time I received a sale!
Every time I thought of walking away, I looked at the pictures of my dream life-style and simply couldn't bring myself to make an objective decision. I made excuses to myself and to others and started viewing the accounts with a very biased, overly-positive view. The other major draw that kept me from cutting my losses was the thought of having wasted all the money and time I'd ploughed into the business, not to mention the feeling of having failed. After all, people always said that I could be anything I wanted to be!
When I look back now I realise how important that initial decision was to start the business. It pains me to think that I didn't spend more than a few hours making the decision (if that).
If you only take one thing away from this article then make sure it's this: it is essential that you invest considerable time in making this life-changing decision. Talk to friends and family, weigh up the pros and cons, compare the likely rewards with alternative career options and, most of all, ensure you are being honest with yourself. Visualisations and success stories can be hugely powerful... and damaging. If you are going into business imagining you are going to be able to reap large financial rewards by only working a few hours a day, ask yourself how realistic this day dream really is. I can assure you that building a successful business takes huge amounts of time, effort, sacrifice and money.
This is not a decision you can afford to take lightly and before you even start contemplating the pros and cons of this career choice, you need to do a significant amount of research first.
2. Research your market.
According to the Office for National Statistics, there were 723,165 babies born in England and Wales in 2010. If you are considering starting a business in the baby/parenting field then this statistic is encouraging. Furthermore, there were 706,248 babies born in 2009 which suggests the potential market is growing significantly.
However, a quick Google search of 'Baby Gifts' produces approximately 214 million websites. That's a lot of potential competition! What resources do you have at your disposal to get you to the top of Google above those 214 million sites? You should be very cautious of 'SEO experts' who claim to be able to get you to the top and we will talk more about this later. Furthermore, I can tell you from personal experience that being in the top positions in Google for 'Baby Gifts' is lucrative, but not a fraction as lucrative as I thought it would be. The average online conversion rate in this industry is between 1 - 2% and you can expect to receive around 50-200 visits per day from occupying a top 3 position for this search term. Once you get below the first 3 spots, the visitor rate drops exponentially.
Google Adwords has a free, useful tool which enables entrepreneurs to gauge the size of their potential market and helps them choose search terms (keywords) to target. This tool compares the number of people a month who search for a particular keyword with the level of competition. However, it will usually lead to you overestimating the amount of traffic you will likely achieve and should be used as a general comparative guide only.
You need to thoroughly research your market and assess the different ways of bringing traffic to your website. For example, you might find it much easier to market your website offline with leaflets, networking and word of mouth than an exclusively search-based marketing campaign. If you are under the impression that you can start a website, write some content and META info, swap a few reciprocal links with other webmasters and start getting decent Google rankings for lucrative key-terms, I'm afraid you are grossly mistaken.
You should ensure that you spend considerable time researching this market: talk to business owners and potential customers in great detail and ensure you gain an accurate and realistic picture of the market and how it works before you begin.
If you are unwilling to pick up the phone or to hit the streets with a clipboard and pen then Mintel is a great place to get extremely detailed market research about your industry but you will have to pay a premium for the reports you download.
3. Know the law.
If you do decide this career choice is right for you then the next order of business will be to familiarise yourself with the numerous legal considerations of starting a business.
Business Link used to run a superb service where you could get one-on-one expert business advice in your area. Sadly, due to spending cuts, the service in England and Wales is now limited to their website. I believe Business Link in Northern Ireland still offers the one-on-one service but I could be mistaken.
The Business Link website is a trusted resource and has a wealth of good quality information, however, due to the volume of information involved, it is often difficult to find out everything you need to know using this resource alone.
I therefore strongly recommend that you spend the money required to get some good quality legal advice from a qualified solicitor with experience in the field. I know this is extremely unappealing but it will save you hours of time and could potentially save you from hefty fines or even imprisonment should you neglect any of your complex legal requirements.
4. Create a Business Plan.
The degree of planning you do before you start will ultimately determine if you will succeed or fail. The vast majority of start ups fail in the first year. Most of the time this is largely due to inadequate planning. Assumptions are as dangerous to a business as poor cash flow. Make sure your planning is based on research and facts.
Deciding on the business structure is one of the first things you will need to do. Most E-commerce websites are set up by sole traders or private limited companies and there are advantages and disadvantages to each type of business structure. In a nutshell, setting up and managing a business as a sole trader is simpler but you will be personally liable for the debts the business accrues. Furthermore, a private limited company is actually fairly easily to set up and run these days, especially if you hire an accountant. I'd strongly recommend you hire an accountant regardless of the business structure you go for. You should expect to pay between Ã�£200 - Ã�£500 per year to begin with for a good accountant but he or she is likely to save you more than this by ensuring you pay the lowest amount of tax possible.
You should also decide on your branding. What type of brand are you aiming to build? This is closely tied to the pricing strategy you will adopt and your target demographic. Who will you be selling to? How much do these people generally spend on presents for babies? What type of companies/brands do these people generally buy from? You can then use this information to produce your marketing plan which will basically tell you exactly how you will target these people. I regret that I cannot go into more detail here but this article is an overview to give you some key considerations. I will cover more detail in subsequent, more focussed articles.
Accurate forecasting is also an essential requirement at this stage. You need to make a good educated guess about how much money will be coming into the business and how much will be going out. However, this 'guess' should be based on actual data about the market size and the likely percentage market share you will be able to acquire. If you can get your hands on the books of a company in a related field to the one you are starting, this would be ideal.
One of the best ways to start a new business is to spend a few months or years working as an employee in a similar type of company to the one you intend to start. This would give you the opportunity to learn everything about the market and provide you with access to the hard figures desperately needed to plan a new venture. However, you will need to make sure there isn't a clause in the employment contract that prevents you from setting up on your own after you leave the company.
Your accountant will be able to help you with the financial forecasting for your new business and he or she will also be able to explain the various financing options that are available to you. Even if you are personally financing this project, ensure that you plan and track every pound going in and out of the business, right from the start.
One important thing most business owners overlook is their exit strategy. Ensure you're not one of them. Although it might seem like the last thing in the world you need to think about right now, having an exit strategy in place from the outset will shape your entire business. Do you want to build this business up so that you can sell it for a big lump sum? If so, how successful will the business have to become for you to sell it? Who will you sell it to and how long will it take you to get the business to this stage?
If you don't sort the exit strategy out now it may cause huge problems for you later. For example, if you come to decide much further down the line that you want to sell the business, you may find that you cannot get a reasonable valuation due to the firm's daily operation relying heavily on you and your unique skill set, thus devaluing it significantly. In this scenario, if you had planned to sell from the start you could have ensured your role was easily transferable.