Monday, December 22, 2008

The basics of a business plan

I am going to briefly discuss a business plan today. A business plan is essential to the success of any business. I have seen thousands of businesses fail because of one reason: They never planned for failure.

In my business plan, I outlined the following sections for each venue and site I operate, Gravity Video Warehouse, House of Blu, and my store on

1. Mission Statement - What am I offering that sets me apart, and how I will use it to my advantage. For instance, the design of, and the product line, is exactly what a visitor would expect to see in a HD movie store. I specifically designed the site to make it as Blu-Ray themed as possible, and cut the product line to cater only to that segment of customers.
2. Goal - Where I want to be in the same time next year, which is updated monthly.
3. Market Analysis of what I sell - This took weeks to research, and I update it at least every couple months.
4. Strategy to succeed, and 5 different common scenarios for failure.
5. Profit Margin - How much I gross per sale, minus processing costs, supplies, hosting cost percentage of the sale, and labor.
6. Excel spreadsheets where I enter sales and profit weekly compared to all projections, as well as calculate cashflow and credit payments for merchandise. If it has a number, it is entered into these spreadsheets.
7. Effect of Competition, which shows the ways I can succeed and fail to win customers over both established online businesses, brick and mortar businesses, as well as mom-and-pop eBay type businesses. On Houseofblu, I was able to get fantastic pricing to offer the product for closely competitive prices to a couple other popular HD movie stores, except I offer free shipping on top of the competitive pricing.
8. Quarterly Projections for 3 years, and I was very conservative. To show how conservative, I have doubled my sales for this quarter already on both Alibris ($5340) and ($3058), but have fallen far short on Gravity Video Warehouse mainly due to my marketing strategy.
9. Marketing - How I will bring new customers, and keep old customers to shop with me.
10. Current Goals achieved - This is where I write that I have doubled my projections on Alibris and Houseofblu, and my strategy to continue that trend. It will also show how I intend to build Gravity Video Warehouse to the same success rate.
11. Exit strategy - If the water gets too hot, how to close the business with respect for customers and suppliers, and at what stage to close with zero debt.
This is almost an exact breakdown of a business plan I actually saw from a seller. What a business plan is not:
I want to sell widgets for $50.
I will pay $25 for my widgets.
I expect to sell 100 widgets a month and make $2500 a month doing it on eBay.
I will start moving my eBay customers to buy from me on XXXXXXX's auction site, so I can make more profit since there are no fees.

Unsurprisingly, that seller is no longer selling the same widgets. Unfortunately, thousands set out with the same plan, including myself in 2002 when I began selling. It took about 6 months to realize I needed to account for what I was making from the business, and eBay at the time didn't have all the Quicken downloads and business management sections in "My eBay." I downloaded a free version of Business Plan Pro, and still use it to this very day.

If you do need a business plan (which you do if you sell anything online) then visit here for an outline.
You don't need to purchase any software right away, and can probably find the software you need free when you are ready. Take the time to do this, it is more worth it that you will realize until you have failed.

Wednesday, December 17, 2008

Introduction to Online Business

While it may be true that anyone can sell something online, not just anyone can run a business selling products online. Selling something online is as simple as creating an eBay and Paypal account, and following directions. I know because my mother was basically computer illiterate, and I told her how to do it over the phone. She sold a few things she didn't want, and hasn't sold anything online since. She was a seller, not a business.

There are many differences between an online seller and an online business, including office setup, software, and shipping supplies, just to name a few. A seller may have a few envelopes, and a box or two in their closet in case they decide to sell something. A business may keep 500 envelopes and several dozen boxes just as a backup if their supplier ships late. A seller will have a program that came with their camera, or from a 1-hour photo booth to edit their photos, while a business will likely have the latest version of Photoshop on their system to enhance and place watermarks on their photos. Last, a seller will typically have things scattered around a makeshift office in their den, while most businesses need extensive organization to save time on their busy schedules.

These are just a few differences between sellers and businesses. Now, it's time to focus on the businesses, and more importantly, the successful ones and what they do.

1. Successful businesses live by two rules: Consolidation and organization.

Without a consolidated business, an operator will find himself scrambled and have more than he can deal with. This may include maintaining a presence on more than 3 selling channels, attempting to sell a wide variety of products, or running dozens of non-focused marketing campaigns instead of a to a few targeted audiences.

Multi-channeling a business presence has turned some businesses into ecommerce giants since the early days of Amazon and eBay. It can give the same exposure as JC Penney or Parisian's could have by opening a store in two malls within the same city, except without paying far too much in rent. A professional seller can use two volume channels, and sell twice as much, and with services like Fillz and ChannelAdvisor, it is much simpler to manage inventory. When a business owner tries to fill orders on many different channels though, it can become too much to handle and seriously harm the business, especially when the owner stocks their own inventory. This can cause long delays or cancellations, and ruin the chances of repeat business from the customer. It is always a good idea for a business to use multiple channels, but never more than they can handle.

I have seen ad and marketing campaigns for sites that have absolutely no relevance to the sites on which they advertise, or even worse, for products that the general public know they can get elsewhere much cheaper. For instance, you can visit nearly any news site and find ads for hair loss treatments, Netflix, and Weight Watchers. Obviously, there is an audience for those products on a news site, but how many wasted clicks could you have compared to advertising hair loss treatments on a site like GQ Magazine. I have seen Netflix ads plastered all over FoxNews, and at the same time on the TV they were advertised at $3 a month cheaper. And when Weight Watchers runs ads all over the internet for a special that ended weeks before, that's a lot of wasted marketing dollars. I have seen all of these types of ads, and they are quite frankly a waste of resources to the companies.

My very first attempt at buying PPC ads on Yahoo several years ago was a complete disaster, but had success written all over it. I found a great liquidated lot of 300 Anime DVD sets, all retailed more than $50 at, and I purchased them for $15 each. I took a position to make at least $25-35 on each set, and walk away with as much as $10,000 in profit. My problem was that I didn't take into account how many people search Yahoo for "Anime" which was my primary keyword. I burned $200 in 5 days, and sold only one set. Then, I realized I needed to select targeted keywords. Instead of using "Anime DVD Sale" as my lone keyword, I changed the campaign to the actual set titles, and even a little more specific into the directors and studios. If I remember correctly, my highest conversion keyword was something like "Trigun Anime Geneon Pioneer Nightow Complete." I spent another $500 in a month by targeting specific keywords over the next 2 months, and sold nearly all the sets. I then sold the rest off on Amazon for about $10 profit on each, and ended it with about $7,000 in total net profit. If I had stuck to the course where I burned $200 in 5 days, I would have spent $2400 on ads, and been trying to liquidate them just to pay off the credit card I charged the ads to. Anytime I advertise now, I select the most detailed keywords possible, and while I may not get the traffic, I get the conversions.

Last on the two rules is Organization. I started selling pro wrestling videos and DVD's on eBay in 2002. I immediately stood out in the crowd, because I had an eBay store dedicated to just that line. About 6 months into it, I had a few things I wanted to sell, such as a SDRAM card and video card I never used for my computer, so I listed them for sale in my store as well and they sold right away. That's when I had a brainstorm, and decided to buy a bulk lot of computer components on to sell from my store. Now sure, I sold most of them, but my business selling the wrestling videos took a major hit because customers couldn't search my store without running accross 10 computer "things" on a page. Not only was the store disorganized though, but can you imagine a 1 bedroom apartment with 200 drives, webcams, scanners, and speakers, on top of 3 bookshelves holding 500+ videos? That is what can happen when businesses try to diversify their products. The end result was a full sell of what was left through in a single auction, at a loss, for all the computer "stuff" and a return to the primary business focus targeting wrestling fanatics.

When a business begins carrying too many different types of products, it begins to operate like a yard sale. Any time you have a yard sale, you want to sell the things you can get the most for right away. Look at the weekly classifieds, and you will see TV's, Washer/Dryers, stereos, etc. in the ads for yard sales, but you never see anything like "Come to my yard sale and get some 15 year old pots and pans." The same happens when a business attempts to sell a wide line that have no direct cross-selling potential. This can be found in a multitude of sites, where the shop name is "Mama's Pottery and MORE!" When arriving at the shop, you will find a large line of pottery where the business makes the majority of it's sales with pottery, but adds in candles, towels, books, records, and clothing into the same site to make up the "MORE" aspect. This can cause not only a disorganized shopping experience when browsing a catalog, but can also cause a very disorganized workspace. If selling only pottery, there is a specific way to store and package. When selling all the "MORE" products, the business must not only have medium boxes with foam and wrap, but must also have padded mailers, small boxes, flat boxes, and different sized labels, which can take up the room needed for the primary products. To make matters worse, it can often lead to a "bidding war" with the business owner on which products will create the most cashflow, and the remainder of the items take a backseat, costing valuable space and money for every day they sit on the shelf. This is one good reason to have a basic seller account on eBay maintaining decent feedback, so you can sell off those great finds without confusing our customer base.

2. Customer Service and when to say no.

Customer service is the most important aspect of selling online. With literally millions of sellers and businesses to shop with, it can't be the same as with brick and mortar stores. A B&M store can afford to tick off a customer over something small, say a refund, and that customer may someday come back. If not, they may tell a few friends about the experience, but that's about the extent of the damage. Online, a dissatisfied customer will post on forums, blogs, your own site, your feedback, send emails, IM's, and any other method available to make sure people know you "screwed" them over.

Depending on your business, your return rate may be as high as 5-10%, or may be non-existant depending on your product line. Clothing has a high return rate, but books are usually very low. You can minimize it by following the basics, or what I call "Little Stuff." Add a link in every product listing to your return policies, and do your best to state them clearly at the bottom of your checkout page. This one little convenience for your customer can save you hours down the road.

Everyone has a customer who claims they got the wrong size, wrong color, or wrong item altogether. The first thing to remember is a refund is much easier to deal with than a chargeback. So they bought a hat, and sent the hat back without the tag and smelling like 2 week old baseball field sweat... It may be better to take the loss than deal with your processor and their bank over a $20 hat. If the customer bought a $200 dress, removed the tag and wore it out to a club where she spilled a drink on it, soaked up all the smoke from the people around her, then it may be time to send it back with a polite "Hell No." The way to figure this is to objectively ask, would you expect to get your money back from a store if you returned it like this?

3. Shipping and Packaging

The first rule of shipping is making your shipping policy public. Don't hide that it takes 5 business days for you to ship something unless you want problems. If you say you will, then do it. If not, add an incentive for the possibly dissatisfied customer to return, like 10% off or free shipping on their next order. Next, don't ever say you know how long USPS, FedEx, and UPS will take to deliver. Their shipping times aren't guarantees, and you could leave a bad taste in someone's mouth who likes to tell their friends, chat buddies, email list, and blog readers.

When packaging your order, be sure you know what the industry standard is. If most businesses ship books in bubble mailers, then you'll probably be OK to do the same. But if the majority of businesses ship clothing wrapped in plastic, in a sized box, don't expect good reviews when you stuff your clothing orders into a padded mailer.

And while it may seem logical, even comical to many, if you are shipping electronics, wrap them in plastic to protect from weather. If you are shipping glass, pack one item per box and load it full of foam or paper. And last, if you are shipping something that isn't fragile, there is no need to pack it to the max with bubble wrap and peanuts. This is the one issue I have with Amazon, that they have apparently moved past this year. I used to order a book from Amazon, and would get the 7"x10" paperback in a 12x16x4" box. Inside, I could pull away all the plastic bubbles, paperwork, advertisements, and find my book a few minutes later. This week, I got a book from them delivered in a cardboard mailer, with only a packing slip included. I suppose they realized how much those ads, bubbles, and paperwork cost and cut back their expenses. They finally figured out that usually, a single packing slip (if anything) will suffice when shipping to a customer.

There will be more to come on this article, but since I have hit the high points I believe it's time to stop for the night.

So, you think you found a great supplier?

At first, I thought I hit a goldmine. I found a business that sold wholesale, and had just started dropshipping their products. Now, keep in mind I had never dropshipped anything until this point, and do not just dropship through just any ole website today either.

Dropshipping basics: You sell the product, you place the order with someone else, they ship it to the buyer with your return address.

There was a small monthly fee, and I setup my account and started listing the products on eBay.
Initial response was great. My inventory doubled, and I started having an extra few hundred sales a month with a 30% profit. What I didn't realize is that if I found this business so easily, anyone could. They didn't require much information to setup a dropshipping account, no more than a any website would, which meant any Tom, Dick, or Harry could compete with me. The ride was short lived, since at least 10 other sellers found them in just a couple months. Now I had to compete with 10 others, and my sales of a few hundred were divided by 10. Then came the addition of this site to the "Wholesale and Dropship Lists" on eBay. I started selling just 10-20 or so a month.

The company did nothing wrong by dropshipping for so many competing sellers. They did it to make a profit, and I would have done the same thing in their shoes. This was simply a middleman's middleman seller. When I found their supplier, I was shocked that their dropship prices were actually 50% higher than I paid, then I found their supplier's supplier, and was floored. What I was paying $8 for originally cost about $2. Sure, I expected to pay a little bit for them carrying the inventory, but I would have never started if I had just looked a little deeper from the beginning. I could have been buying from the original supplier and saved thousands (and made thousands) but I just saw the "perfect setup" and ran with it.

Here are some tips for finding a great supplier:

1. When you find one you like, search Google Shopping/Base for that product. If you see more than 5 sellers with over a 10% markup over their prices, look for another supplier.
2. If you find it in a catalog of dropshippers like Wholesale Central, see tip 1, and monitor it weekly.
3. If you find one that passes the first two, do a search for a product name plus the words "wholesale" and "minimum order." You may have to search through a couple dozen pages, but you should be able to find out if they buy from the manufacturer or from another middleman pretty easily.
4. Last, never tell anyone who you buy from! Someone is probably already looking into your business to find out where you get your stuff, so don't help them out! You need as little competition as possible from the beginning to build your customer base. Once you are established, you can handle others getting into the market, but no startup can survive immediate competition.

No supplier is perfect. I know several online sellers who use Amazon to dropship 100% of what they sell (They sell it, order it at Amazon to deliver to their customer) and apparently they do quite well since one in particular works around the clock on 10 different sites, with a 6-figure income. How he does it when every box has Amazon stamped all over the shipment is beyond me. I also know several others who are the only dropshipper for their supplier and sell more from the supplier than the supplier sells themselves. And I know many, many who use the same supplier as hundreds of others use, and fight down to pennies of profit on each sale.

I will be writing more on dropshipping soon!

Moderation: A key to online business

This whole post is going to be about moderation. It's a necessity of life. I am the type of person, who even though I work just 3 miles from home, I still leave 20 minutes before I need to be there. The drive is about 10 minutes, and I relax listening to talk radio a few minutes outside before I go in. At the end of the day, I walk in, kiss my wife if she is there, and relax at the computer for about 15 minutes. That's how I do it, and it works for me.

I juggle my job, everyday life, and online business fairly well for one reason: I moderate the part that isn't necessary to exist. My priorities are very simple:
1. Family - This includes my wife, parents, brothers, her parents, and making sure everything with them is well. To take care of us, I have to work, so that makes the top of the "Family" priority. If a bill needs to be paid to make sure we have A/C then I pay it. If I come home and she is dead tired from work, and I'm not, I cook dinner and do the laundry, or vice-versa. Once I have honored this priority in my life, I begin to look to the others.
2. Everyday life includes going somewhere, anywhere, that isn't paying me to be there. I don't care if we just walk around Target for an hour sipping on a coke I bought outside, having a cookout at her parent's house, or we go out and spend $100 walking and shopping around the mall.I know it's not fiscally responsible for us to spend $100 at the mall every day, and we just don't feel like doing anything other days. Anywhere that isn't paying me to be there is necessary to unwind, but in moderation.
3. I had someone ask me, "Since your online business is last on your priorities, you don't take it seriously?" Wrong, it wouldn't be a priority if I didn't take it seriously. Some things aren't priorities: Watching my favorite TV show, playing a game online, and reading a book would be a few of them. None of those benefit the ones around me at all, so they aren't priorities. Sure, I can't make enough money working online part time to provide for us, but I can do some good things working online. I have met people whose experiences are phenomenal, and met total jerks who think they are better than everyone else in business online, and learned more about business from both types. I have had some terrific relationships with customers, even developed close friendships with some. Even when I was on Wagglepop and other small auction venues, I made a couple steady friends to discuss our businesses to this day. The difference is, I moderate this priority more than the first two. This one is not necessary for us to exist, so if I have to go a few days just checking emails and packing up a few orders, then that's all I do. I don't get angry because I cann't spend more time on my stores, with my first day off in 11 days, because my wife wants us to do something together. I moderate the priority that, if that day ever comes, I can live without and be content if necessary.

Moderation took several years to master once I started selling online in 2002, and by the time I mastered it I was doing it full time. I have seen people lose everything, family, business, hope, dreams, because they don't moderate their online activities. Whether it's eCommerce, Social Networks, Chatrooms, or even blogging, it should always be seen as expendable when there are bigger priorities.

Competing against the giants of e-commerce

I live in a small town, about 7000-8000 residents, and the nearest "big" city is about 20 miles away. The economy in town is thriving, despite the national economy struggling, because it is usually cheaper to shop in town than to drive an hour, in traffic, to shop in the "big" cities. Stores around here include gift shops, clothing stores, a thrift store, a bookstore, drug stores, dollar stores, a game and a movie store, then the staples like Walmart, Lowe's, and a couple grocery stores. There are also many privately owned restaurants and a few corporate and franchise restaurants like Ruby Tuesday. There really isn't much need to go to the mall in the nearest cities, since it can all be found here. This is the way the economy runs the real brick and mortar world. Buy close, buy in bulk, and stay home.

But, in the ecommerce world, businesses are struggling. One would think that it is cheaper to shop online than drive to buy what you want, but that isn't always the case. There are shipping charges, cost of living and operating increases, and supplier increases. Only a few online retailers can have the same buying power as a national chain with hundreds, or thousands of stores. Surveys have shown that over 70% of all e-tailers use a second party to dropship some or all of their products (including retail companies like Circuit City, Best Buy, and KMart) leaving their online businesses at the mercy of supplier charges. The supplier has no incentive to give these 70% any discounts, since every order is processed individually by them. Therefore a moderately successful seller can dropship the same products and get the cost close enough, that with lower overhead, can match the pricing. This is where customer service pays off in the world of ecommerce.

If the suppliers are willing to dropship for any business, there can't possibly be much difference in price among the many e-tailers. In fact, I used the same distributor that Circuit City and KMart use for media products, but I never came near 1% of their sales. The difference between my business and theirs is their reputation of customer service. These are branded companies, I was not. Sure, I had a following on eBay, but they had decades of customer service I could not match. What I had to do is stop competing with everyone else, and just make myself stand out. Here is how I did it:

How can any business succeed against established corporations who sell mass catalog dropshipped products online?
1. Offer terrific service. No corporate online business can beat one on one personalized service. They hardly send real emails to customers, so if you do, you have an edge. This won't win all their business, but it will draw a few away who want that personal touch.
2. Stop competing. Don't sell the exact same products at the exact same prices. They will always win in this economic slump due to their name recognition. I sell the exact same movies as Amazon and Best Buy's sites, and a lot of mine probably cost more. What I offer is a better shopping experience with quick email responses, and quick resolutions to problems if they come up.
3. Sell your servic-ers, not your servic-es. When is the last time you saw a profile of the person shipping packages for Best Buy's website? Let customers know who is handling their order, pictures, short biography, experience, etc, and you will gain trust immediately.
4. Take a few hours each week, and visit customer profiles. For instance, if one customer buys quite a few Sean Connery movies, I would customize a packing slip to print for each order just for them. When I make the order, I let them know that they will receive 20% off their next Sean Connery movie, and tell them the discount will show up the next time they login. Then, thank them by name, and save it for their almost certain next order. Or, if I have a very loyal customer, I may just throw in a freebie I think they may like... I have done this for years, and it never fails to make some new friends when the customer opens a package and finds something free.
5. Finally, instead of just printing a packing slip and stuffing it inside the package, try a little personal touch. Try writing on every one:
"Thank you XXXXX for shopping at House Of Blu.
Sincerely, Duane
Owner, House Of Blu - We Are Blu-Ray"
Boy, wouldn't that just tickle a customer to read a personal message handwritten from the owner of the business they just gave their money to?

Those are just a few tips for competing in a global, corporate dominated world of ecommerce. That's it for today!