Stage 0- So you want to start an E-Commerce Business
Before you begin to drive a car, you are taught how to drive. You may not be able to grasp all the rules of the road at first, but you have a basic understanding of how your journey will begin and end.
Similarly to driving, many of us start a business by knowing how our journey will begin and end. Some of us will know some business fundamentals but many of us will find out along the way. Business fundamentals are similar to the rules of the road, the more you know the more you control the success of the business along the way.
Our clients start with a great idea and usually end up making just enough profit to keep struggling along. But what if you didn’t have to struggle? What if, with the proper knowledge, you could scale and grow your business effortlessly? It is not as much of a pipe dream as you may think. We have uncovered many of the business fundamentals that are important to each stage of an eCommerce business to help you keep growing. With Clearinity on your team, you don’t have to keep struggling along. We want to share our knowledge with you, we want to make it effortless.
Let’s get started.
When starting a product-based business, Clearinity passionately stands by paying attention to the three core cornerstones of your business. The three cornerstones are people, process, and technology. We break out the fundamentals of each stage of business by using these cornerstones. When in balance with each other, these three realms create a successful and scalable business.
Our first dimension is your processes. This dimension creates the structure and framework of your business. In a product-based business, your process starts with legal structures. It then continues on to explore how you buy, sell, store, and track your products.
When building a product-based business we suggest you start with forming an LLC. Choosing to be an LLC and not an S-Corp before selling any products allows you to grow your business with employees as soon as you may need. An LLC also protects your personal assets by keeping your business and your personal assets separate. See chart below,
** Formally, this is an LLC that has taken an S-election
There are many different agencies and online services that can assist you in the formation and the legal processes around forming your LLC. These services come at an extra cost but provide benefits that ensure you are filing your LLC appropriately and finding the best business insurance for you.
Business insurance is necessary for a product-based business. Insurance allows us to protect our assets such as our inventory, our tools, and our building. In the event something is lost, stolen, or damaged, business insurance can help recuperate some of the costs instead of being left empty-handed and digging into your personal finances. In a product-based business, where inventory is your main asset, it is crucial to keep it protected at all times. There are many types of business insurances, Business News Daily suggests paying attention to these types of insurance:
Auto & Home Insurance Riders
Business Interruption Insurance
Employment Practice Liability
Errors and Omissions Insurance
Product Recall Insurance Rider
Inland Marine Insurance
Key Person Insurance
Business Overhead Expense Insurance
Once you have your insurance and are registered as an LLC to protect you while selling your products, you must have a way to collect payments. Many e-commerce selling platforms either already have integrated payment methods or integrate easily with a variety of payment companies. The most common payment processing company is Paypal, but Square has seen amazing growth recently and is a rising star in the payment processing world. There are a lot of payment processing platforms out there, which may leave you wondering which is the best for your budding company. Clearinity suggests choosing one that has low processing fees and allows your customers the best user experience possible.
BUY: Sourcing your Inventory
The most obvious and important question is where are you acquiring your inventory? In a product-based business, there are three methodologies for sourcing products. There is the DIY, or Do it Yourself, method which is making or assembling the product yourself. Next, is the increasingly popular method of dropshipping. Dropshipping is the ability to have your vendor fulfill your sales order on your behalf; you never touch the inventory at all. Then there is a more traditional model involving you buying inventory from a vendor and then fulfilling your own sales orders. Fulfillment may occur at your own warehouse or an outsourced warehouse where you own the product. Lastly is manufacturing or wholesale production sourcing.
When you source from a manufacturer or wholesaler there are a few important questions to ask that will let you know if it is the right manufacturer for your product. Below we give some suggestions to assist you in finding the right production model for you.
What is the total cost of production and shipping?
Will the manufacturer ship and store the product? Are there additional fees?
Do you have control over product packaging branding?
Are the terms in your contracts negotiable or flexible in the event you need to change something for the business or customer needs?
Do you have a minimum order amount?
SELL: How to Market your Product
So, you have a legal business and you have the product you would like to sell. The next step is finding your marketplace and marketing your product.
Walmart, eBay, Amazon, Shopify, and many others offer the ability to list and sell your products on their websites. Big platform services like these are “marketplaces”. Your products will compete against other sellers on the same platform, sometimes even against the platform itself. When deciding which marketplace is right for your product it is important to ask questions such as :
Are there costs associated with listing my products?
What are their return policies?
Are there hidden fees for advertising?
Another option is to build your own shopping experience on your own website using a Shopping Cart. WordPress and Squarespace both offer e-commerce integrations and are user friendly for easy inventory management. However, there are a plethora of shopping cart platforms, and your needs will be discussed during the Clearinity Process.
It is important to begin to start looking at your budget and accounting for the extra cost of marketing as it will be the catalyst for getting your products sold.
At a Stage 0, or the very start of a business, your storage options often are limited or may not be needed quite yet. At this stage, your garage is often your warehouse. While this may not be important now, it is good to keep in mind the options for the storage of inventory.
Options of storage include, but are not limited to :
External Warehouse- Often referred to as a 3PL or Third Party Logistics Warehouse
While your garage or basement will suffice for a while, it is important to begin tracking your inventory and gaining management information on your products. This will be very helpful when you do transition to a different storage solution. It will prevent headaches and money dumps for everyone involved.
TRACKING: Inventory Management
Tracking at this stage is similar to acquainting yourself with accounting terms and systems. Just as it is important to note terms such as Profit and Loss Statement, and Cost of Goods Sold, you should become more efficient and aware of the moving parts when tracking your inventory. You may not be able to track all of the pieces at this point and that is ok. This stage is for learning how to prioritize.
For now, you might have a personal bank account. It is strongly advised that you open a business bank account. If you are going to be an LLC, you need to keep your business and personal accounts separate at all times. This is so, in later stages, you will be able to track your inventory and accounting statements in a holistic manner.
Let’s talk about assistants, contractors, employees, teams, and departments. Similarly to the cornerstone of process, your people aspect consists of sourcing, warehousing, marketing, and accounting. At this point in your business, all of these departments rely on you – the owner – as the main controller and it is important to pay attention to how you are operating in those spaces. Eventually, each of these departments will have a team of people that may be employees or contractors. Your personal awareness will inform your decisions about which department requires people first and which departments you may be able to manage yourself until you are further along in your journey.
In Stage 1- Business Fundamentals we explore the difference between employee and contractor as well as which departments may call for more people first.
We believe that technology plays an important role in sourcing, marketing, storage, and tracking inventory. Technology is the first cornerstone many new business owners love to “beef” up because they can see the value in having technology assist them. What they often discover is that technology is only as good as the people and processes using it. We have mentioned several technologies along the way in this article that are worth exploring here a little more.
Your Marketplace Technology
It can be tough to identify the key questions you should be looking at when searching for a marketplace. Digitalcommerce360 recommends looking at these to start:
Do you have the products that are right for the marketplace?
What will these marketplaces do for my business? Is there a need?
Can I offer competitive prices?
When identifying eCommerce supporters for your hosted website, we recommend looking at these questions to start:
What is your budget?
What product or service do you sell?
Do you have a large or small inventory?
How fast do you anticipate to grow?
Does it support your preferred payment processing method?
By identifying the answers to these questions you will gain insight into the processes and people that construct yours and your customer’s experience. We go over technology assumptions later in Stage 1- Business Fundamentals.
Who is your eCommerce supporter? Is it woo-commerce, big commerce, Shopify? Are you running your own website? Is your marketplace integrated with a shopping cart feature? These are the questions you should ask yourself in regards to your e-commerce marketplace platforms. It is important to identify these answers as they give you an insight into your processes and the people operating or constructing yours and your customer’s experience.
Payment Processing Technology
Once you identify your e-commerce supporter it is important to identify your payment processing options and technology. Is it user friendly? Does your payment processing include payment options for your customers? Your payment processing options should give your customers an experience that makes them want to keep coming back. Your chosen platform should also provide you with critical information, data, and accounting features that allow you to assess the health of your business.