E-Commerce

Successful Start-ups: 1. Researching and Deciding upon Your Online Business Niche Dr. Ralph F. Wilson , Web Marketing Today - Jul 19, 2011

There's a myth floating around that you can make quick, easy money on the Internet. Not true!

Do you know how hard small store owners work to become successful? Very hard! And they have to put up a lot of money  for a lease, furnishings, and inventory -- probably even use their home as collateral for the lease. There's a lot of risk involved. Many fail.

Small Internet businesses have a couple of primary advantages:

1. Start-up costs are not nearly so great. A good website is a primary cost. If you're selling online, then you'll need to invest in store software and a merchant account so you can take credit cards. Inventory isn't as essential, since you can start by drop-shipping orders. You'll still need to market your business, however, and that is not inexpensive.
2. You can do this part-time. A brick-and-mortar storefront requires personnel to be present during posted hours, but the beauty of an online store is that you don't have to be physically available when a person is shopping. It helps to have quick and responsive customer service, but a well-designed shop can sell 24 hours per day.

I've been teaching small businesses how to get started on the Internet for the past 16 years. Frankly, getting started can be a lot harder than it used to be:

1. There's much more clutter on the Internet.
2. Everything has been done already -- or so it seems.
3. Competition is fierce.

Self-Discipline

Getting started and then becoming successful take a great deal of energy. Starting an online business will consume nearly all your spare time for months. Only after you've begun to make significant money can you let up a bit and take a deep breath.

If you want to be a successful online entrepreneur, you'll need one quality in spades: self-discipline. You'll need to be able to set yourself goals and then work consistently towards meeting these goals. To be successful, you can't afford to slack off for long. You have to prepare yourself for a steep learning curve, absorb a great deal of information, do your research carefully, make decisions, and then begin step-by-step to build your online business. If you have a record of never finishing what you start, then don't waste your money on starting a business at this point in your life.

Finding a Business Focus

The most important thing you can do for your online business is to not start yet. Strange advice. But the reason that most small online businesses don't succeed is not doing their research before selecting a focus for their online business. Watch out!

Research will probably take weeks -- some of the most important time you'll ever spend on your business. Here's what you need to determine.

1. What fields interest me?
2. How much demand is there for this kind of product, information, or service?
3. How much actual competition is there online in my country and/or language group?
4. What kinds of weaknesses do I find in my competition?
5. Are enough people willing to pay enough money for my product, information, or service for me to build sufficient revenue?
6. If you've come this far with an idea, then: Describe in a concise sentence or two your Unique Selling Proposition, that is the unique benefit to the customer that your online business will bring, compared to your major competitors.

Why a Unique Niche Is Vital for Start-ups

One of the most helpful pieces of advice I can offer prospective online small business start-ups is to understand the value of the niche. Large companies and established brands can afford to diversify. They can offer general stores and get away with it. You can't. Here's why.

Your most expensive ongoing investment for an online business will be marketing -- either in time or money, or both. Since you have limited resources, you'll want to focus your marketing on just a very limited set of keywords. The way you do this is to develop a niche mentality. Let me show you what I mean:

General	Hobbies	Collectibles	Food	Furniture
Specific	Models	Stuffed animals	Specialty foods	Baby furniture
Narrower	Model trains	Teddy bears	Chocolate
Niche	Backyard model trains and supplies	Patterns and materials for making teddy bears	Chocolate-making supplies	Rocking or gliding chairs for nursing mothers

If you were to consider a physical store in a strip mall, you'd probably need a more general focus, since you're trying to appeal to the needs of a limited number of local people. Your primary competition would likely be stores within driving distance. But on the Internet, your competition is any online business within your country or language group. This has several implications:

1. There is much more competition.
2. There is a much larger number of potential customers than for a local store.
3. There may be enough people looking for your specific specialty that will allow you to earn adequate income in a narrow niche.

Once you get established, you can always broaden your niche, but to start you're wise to develop a narrow niche that promises enough income to make a decent profit.

Monetizing Your Niche Site

Before we get much farther, let me explain how you'll eventually monetize or get revenue from your online business. You have three main options.

1. Direct Sales. Sell products and services directly, making a profit on the margin between the sales price and your costs. This is known as online retailing or e-commerce.
2. Affiliate Sales. Point people to e-commerce sites that sell products or services, making a profit on the referral fees you receive from merchants. This is known as affiliate marketing.
3. Advertising. Provide quality information on your site that attracts targeted visitors, then sell advertising. Google AdSense text ads will be your best approach here.

In future articles I'll elaborate on each of these approaches. You don't have to decide just yet how you will monetize your site. Whatever you decide, however, your niche will need to:

1. Traffic. Attract enough targeted traffic to earn some money.
2. High Value. Point to products or services with a high-enough price tag that you can earn enough money for your labors. If you're projecting a total average sales price of $20 or under, you're not likely to make much profit after shipping and handling costs. If you're writing about exotic mollusks, you'd better make sure that the bid price of PPC ads is high enough for you to earn some money -- or that your referral fees from a merchant who sells these mollusks or their food or supplies is a high enough percentage to earn you adequate money.

Non-Profit vs. Profit

It's okay to have a website about your passions, to do it out of love, but don't confuse this with developing a profit-making business. I have two kinds of online websites:

1. For Profit. Web Marketing Today e-mail newsletter and website (wilsonweb.com) provide a huge amount of quality information about Internet marketing. This business is advertising supported, with minor income from affiliate programs. In the past I sold subscriptions to a specialty newsletter, as well as some of the original books on emerging Internet marketing and e-commerce topics.
2. For Passion. JoyfulHeart.com and JesusWalk.com provide free information on Christian topics and free e-mail Bible studies. Website advertising provides a bit of income. E-book and paperback sales provide a little more. But I don't kid myself. These sites aren't designed to be profit centers.

Passion websites are great, but be very clear. If you want to make money online, you have to be very deliberate about how you go about it. Of course, if you make a good profit, you can afford to finance your passions.

Niches, Passions, and Knowledge

It's ideal, of course, if you can combine your passion with a profit-making online business. You certainly don't want to begin an online business that focuses on something that bores you silly! So, as you begin to look for an online business niche, write down what your passions are. Perhaps you're a soccer fanatic. Great. How can you earn money from this? Perhaps you absolutely love quilting. Perhaps you devour murder mysteries. Perhaps you have a passion for sailing. What is your passion?

It's also helpful to assess what kind of knowledge and experience you have. Did you work in a framing shop? Then you know a lot about the materials and techniques involved in framing art and making shadow boxes. Did you coach a lacrosse team? You know a lot about uniforms and equipment. Did you used to sell watches or clocks? You've got product knowledge. Do you already own a successful brick-and-mortar store? Then you have a real advantage.

They say that you can become an expert in nearly any field if you spend about 10,000 hours in it (about five years full-time). You may be an amateur now, but if you're willing to study and learn, you'll have a lot to offer future customers.

Knowledge is vital, since one of the most important ways you'll promote and add value to your website is by writing about topics you have knowledge about or are willing to research.

Look at your passions and current knowledge as you begin to decide upon an online business niche. But don't stop there. Now's the time to do some real research.

Keyword Lists

The next step is to list several niches that might interest you. Don't just focus on a single possibility at this stage. For each possible niche, list several keywords that people might use to search on to find information, products, or services in this niche. Then use a keyword research tool to find the most-searched-for words in this niche. Three useful (and free) tools include:

• Google Insights for Search. Great for ideas and expanding your keyword list.
• Google Trends. Great for seeing new developing trends.
• Google AdWords Keyword Tool. This tool provides the actual numbers of monthly searches and some idea of your competition. It also gives you an estimated cost per click.

As you look for keywords, you'll probably learn a lot about what people are looking for in your field. You may also begin to discover ways to narrow down your niche -- or perhaps broaden it.

Now for each niche you're considering, narrow down to a list of perhaps a half-dozen keywords to research more thoroughly. The more keywords you research, the longer it will take you, so research an extended number of keywords only on the fields that look most profitable.

Assessing Supply, Demand, and Value

At this point you need to determine what niche has the best potential to develop into a profit-making business. There are three factors to consider: demand, supply, and value. Ideally, what you're looking for is high demand, low supply, and high value. Of course, others will be looking for the same thing. But if you find that your business niche has low demand or low value, you won't be able to build profitable online business. Better to find out now.

1. Demand. How many people are searching for these keywords? If your niche is too narrow, you may not have enough customers to make a living. You can determine the number of searches for your keywords using the Google AdWords Keyword Tool. It also will tell you the estimated number of click-throughs per day for ads using this keyword. This helps you assess demand.
2. Supply. How many websites come up in results when you search on this keyword? How much competition would you have? Google AdWords Keyword Tool gives you an approximate indicator of competition in terms of paid search. At a gross level, any Google Search will tell you the number of websites that come up when you search for a particular term.
3. Value. How much can I earn from this niche per sale or per click-through? Google AdWords Keyword Tool will tell you the estimated average cost per click (CPC) for an ad. This is valuable! The average CPC will tell you how much your competitors value this particular keyword. A high value means they can make a good profit here. A low value means little profit potential.

Cutting Through the Clutter

It's daunting, however, when you begin your research, to see all the thousands of websites offering something similar to what interests you. Is there any hope? Yes.

1. Scraper sites. Many of the pages that come up on a keyword search are "scraper pages," that is, they've scraped or copied someone else's content and put it on their webpage so they can sell Google AdSense advertising on it -- not recommended. These webpages aren't real competitors. Though they might rank high for your keywords, I think you can easily outrank them if you work at it.
2. Different Niches. Many of these sites have a different niche. Many of the search results will be from sites where the keyword is mentioned, but only tangentially or in a blogpost or e-zine article. They aren't your competitors either.
3. Inactive Sites. I'm sure you'll find sites where "the lights are on, but nobody's home." That is, the siteowner lost interest in the site because it wasn't making any money, and has nearly abandoned it. Such sites won't compete with yours.

Your real competitors are online businesses that are actively promoting a similar set of products, services, or information as what you want to focus on. So don't be daunted by what you see initially. You'll need to drill down some more, however, before you can tell if your online business idea has potential.

Ratios Help

Over the years, marketers have developed various metrics to help them spot potentially profitable keywords. Here are a some:

R/S ratio = requests / supply = searches / websites in search results

A higher R/S ratio will identify sites with a higher demand than supply. Look further at these. A more refined metric is the KEI (Keyword Effectiveness Index) developed by Sumantra Roy:

 OR

KEI = R²/S

What you'd really like, however, is a profitability ratio that takes into account not only supply and demand, but also keyword price, a key indicator of profitability. Unfortunately, I don't know where to find a free research tool of this kind. However, a couple of paid services offer this type of tool. Both of these have been around for many years and have gained my respect:

• Ken Evoy's SBI. More general profitability focus. Their toolset for SBI subscribers includes Brainstorm It! 3.0, which wins my highest recommendation. Access to this tool at this stage in your research is well worth the price of a year's subscription in terms of the time it will save you and the accuracy it will afford you.
• World Wide Brands. Tool for members focuses specifically on profitability from product sales, either direct or drop-ship. Lifetime membership. Excellent for e-commerce research.

With a profitability research tool, you can cut your research time down dramatically, though you are able to do a lot of this yourself with a combination of free tools, if you have the time.

Avoid Pitfalls

In my opinion, if you take the time to do your research for an online business niche that offers the promise of adequate demand, profitability, and something you'll enjoy doing, you've just separated yourself from 90% of the start-up wannabes, that is, losers who try to start a profitable online business but fail miserably.

You're on your way, but there are some important hurdles to jump over before you're ready to begin. In the next article I'll explain how to find your competitors' weak-spots so you can develop your own winning Unique Sales Proposition that will help you refine your proposed online business model even further.

Dr. Ralph F. Wilson is the founder of Web Marketing Today, an e-mail newsletter on Internet marketing and e-commerce that has been published continuously since 1995. He is the author of a dozen of the early books on emerging Internet and e-commerce topics, including Planning Your Internet Marketing Strategy (Wiley).