As Elon Musk once said: “Creating a company is not a sprint. It’s a marathon.” What can an aspiring entrepreneur learn from this quote? First of all, the process of building an online store is long. Secondly, it is complicated. And finally, thirdly, it requires a lot of preparation. Just as there are just a few people who can run a marathon without prior training, only a few entrepreneurs succeeded without the proper strategy. And this strategy is a business plan.
Is a business plan for an online store really necessary?
This is like asking: “Is it possible to come to an important exam without preparation and pass it with an A?” In theory, yes, but it’s unlikely and hazardous. eCommerce is an industry with a very low entry barrier, and this often turns out to be deceptive. A simple start allows you to open a business “immediately”, without much preparation or capital. However, reality can be brutal, and, usually, success is reserved for those who have approached this business strategically.
The very first step in building your own eCommerce company is a business plan. This document should not be treated as a tool to achieve just one specific goal–for instance, funding. This is definitely something more–the foundation of a business that will allow you to dispel any doubts, especially at the beginning of your journey.
Step 1: Find a problem that you can solve
There are currently over 24 million eStores in the world. With such a scale, it’s challenging to come up with a completely new idea, but luckily, you don’t have to! At the very beginning, it’s better to think about a specific problem that your product can solve, instead of specifying precisely what and how you want to sell.
Below are a few examples of problems that your store could solve:
- Desire to have beautiful, original creations without having to spend a lot of money on them (case: E-Garderobe, online brand clothing rental)
- Willingness to buy a product on the internet that requires a try on (case: Muscat home glasses fitting room)
- Access to original designer products that are not readily available in the local market (case: 9designe – the art of design and Gepetto – wooden glasses)
Naturally, your business does not have to (and even shouldn’t!) solve just one problem. Try to devise at least several problems, such as:
- I want to provide a product that customers can adapt to their needs
- I want the entire purchasing process to be intuitive and automated
- I want to offer unique shopping experiences
As an answer to these needs, you can build an online store that sells, let’s say, wallets. The customer will be able to choose the type of material the wallet is made of, its color, finish, and functionality. All of that is possible by merely using the panel on the website. The site will also include a chatbot that will help in choosing all parameters based on the consumer’s preferences–for instance, whether they prefer to pay by card or cash, they are vegan (is such a situation, all wallets made of genuine leather are hidden) or whether they prefer the elegant or sporty style.
In addition, inserts in the form of leather care and cleaning products will be added to each order. Such an idea may seem too complicated and innovative to some, but it turns out that similar stores are operating, and they are doing quite well! Take a look at the Undandy brand, which offers full customization of their products.
Step 2: Describe your business
Once you have an overview of what you want to improve in the consumer world, it’s time for some precision. In this step, you need to specify what you are going to sell and to whom. Answer the following questions:
- Do you sell a physical product (clothes, cosmetics), a digital product (software, e-books), or a service (consulting, training), or maybe a combination of them?
- Do you operate in the B2B, B2C, or mixed model?
- Do you want to sell online only, or do you also plan to sell land-based?
- Where will you get your product–will you make it yourself from scratch or from semi-finished products, or would maybe you’d like to become a broker or distributor?
These are the fundamental questions that, together with the clarification of the idea, should be developed to a very detailed level.
- What exactly will your product look like? How would you describe it and present it to the customer?
- What is your target group like? Is it homogeneous or not?
- Which eCommerce platforms are you going to use? Where are you going to locate your brick-and-mortar store?
- Who will your supplier be? Where are you going to make your products?
Step 3: Identify opportunities and threats
The classic SWOT analysis is probably known to every entrepreneur. It is not necessary to perform it in a traditional form by dividing the card into four parts, listing strengths, weaknesses, opportunities, and threats. Any form will do! What’s important is to carry out a thorough analysis. The purpose of this analysis is twofold. On the one hand, you have to designate features that will positively distinguish your business:
- We sell products not available elsewhere
- We give access to the knowledge base
- We are experienced in the industry
- The product we sell fits in well with the current trends
- We operate in a sustainable manner
- We offer the delivery-related benefits (long payback period, same/next day delivery)
On the other hand, you need to know which issues can limit your business development and immediately think about solving them:
- We have a low budget
- We do not have any storage space
- We don’t know the market we are going to enter
- We have staff shortages
It is also an excellent time to look closely at the competitors’ activities, analyze their pricing policy, and get acquainted with their marketing activities. This will give you insight into how you should position yourself to stand out from your competition.
Step 4: Estimate the cost of running an online store
In this step, you need to think about the financial structure of the business. First of all, you need to estimate the amount of money you need to start your business. It consists of such elements as:
- Personal expenses–salaries for employees
- The office’s cost–finding the right space, furnishing it, and providing the necessary equipment for employees
- Warehouse cost
- Stocking up the store
- Technological and IT solutions–software, payment integration, licenses for necessary programs and their maintenance
- Marketing costs
- Taxes and insurance
Secondly, you need to think about whether you have sufficient financial resources to finance all of that. If not, then credit or investor options should also be considered. It is also worth noting that some of these costs are incurred once, at the start of the business, but others will stay with you from month to month.
Another question is the pricing policy–what margin do you have to put on your goods so that the business is profitable? What will the optimal price be for products to be competitive on the one hand and maximize profits on the other?
Step 5: Choose your logistic model
There are several logistic models that you can utilize in your business. The first is your own warehouse. This option seems quite natural, especially for people who are just starting their adventure with business. Initially, it is relatively convenient and cheap, but when the volume of sales increases, the first problems arise like having to hire new employees or considering the need for larger storage space.
The second option is called dropshipping. In this case, the store acts only as an intermediary–customers can place orders, but the distributor or manufacturer executes all logistical issues (order picking, packaging, delivery).
Cross-docking is another model. Its essence is to collect products from many different distributors and deliver them to one customer. After the purchase, the goods land in your warehouse where they are repackaged and then sent to the buyer.
And finally, you have the order fulfillment service. In this case, all logistics processes are delegated to an external operator who stores your goods in their warehouse and packs and sends parcels. The logistics center also performs several additional services–manages returns, completes sets, and packs parcels in a specific way, requested by the client.
Diagram showing the fulfillment model
Step 6: Promote yourself!
It is commonly known that marketing is one of the key business areas. When starting your own business, your marketing strategy must be ready to use. It should contain answers to questions about communication channels, forms of promotion, the company’s image, and its character. There are many areas to plan, but the crucial ones are:
- Image–what values should our brand communicate, and in what style (playful? educational? rebellious?)
- Communication with customers–are we going to carry it out using social media? Or maybe we plan to build a chatbot that will automatically answer consumers’ questions?
- Web presence–what will our website look like? In which social media do we want to have profiles? Are we planning to run a blog?
- Promotional materials–what will our business cards look like? Do we want to add our own inserts to orders?
Step 7: Check your progress
How will you know that you have achieved your business goals? To measure your progress, you need to designate areas that you want to monitor. They are very individual, but it can be assumed that for most stores, some of the essential points should be:
- The average shopping cart value
- The number of transactions per month
- The number of returning customers
It can also be worth finding out how consumers arrived at your store–from Google, from recommendations, from paid advertising in social media, or maybe from an engaging outdoor campaign?
These are just the key aspects that every entrepreneur should think about. Many issues are individual, depending on the industry in which you want to operate and the nature of your business. However, in every case, a business plan for an online store is a universal matter which is the pillar of online activity.