How to start your own internet business

If you've ever had an idea for a product or service that you think could net you a fortune, you may well have considered setting up an internet business with the aim of sitting back and watching the money roll in.

After all, in 2006, consumers spent £30.2bn on online goods and services, according to IMRG, the industry body for global e-retailing. Over the past 10 years, the growth of the internet has resulted in the high-profile successes of many internet-related businesses. Just a few weeks ago, for example, price comparison service Moneysupermarket.com became the second-biggest internet float in the world since the dot.com implosion, after that industry behemoth, Google.

The internet has certainly revolutionized the way we live our lives, and offers a place where individuals can compete with global organisations. But just how easy is it to get started?

Your business plan

The starting point for any new venture is to create a business plan, says Tony Cohen, the head of entrepreneurial business at Deloitte.

"You need to know your target market, know your competition, attract funding, secure good resources, build consumer loyalty – especially blogger coverage – and forge alliances with strategic partners," he says. "Preparation and research are key."

Jeffrey Macklin from FDUK, a company that provides part-time finance directors to start-up businesses, says the objective of the business plan is to tell a simple yet compelling story that leaves the reader wanting to meet the management team and find out more about the proposition. "It should be as succinct and accessible as possible, and around 20 pages at most," he says.

Finding a market

One of the most important elements of setting up an online business is finding out if there is a market for your idea.

"It's all about finding a niche," says William Berry, a self-made internet millionaire. "Hampers, for example, are a niche of food retailing, but there are already market leaders in this area, so you either need to aim for a niche which doesn't already have a market leader, or attempt to become even more niche – by offering Christmas hampers, say. "

Financing

There are many different financing options available to aspiring entrepreneurs. For many businesses, raising funds may involve several sources.

Bank finance in the form of a loan or overdraft is usually cheaper than selling shares or equity in your business, says Macklin. But he adds that equity investment is ideal for those businesses that do not want to increase their level of borrowing, or are unable to provide the necessary security.

If you're considering equity investment, two options are so-called " business angels" and venture capitalists. Business angels are wealthy individuals who look to invest in growing companies wanting to raise between £10,000 and £250,00. They will also offer contacts and advice. Venture capitalists will only invest – usually a minimum of £2m – if they can see a significant return in three years, say.

For internet start-ups with a sound business proposition but without the necessary security to obtain conventional lending, the Small Firms Loan Guarantee is another option, according to Steve Jennings, director of business banking at Alliance & Leicester Commercial Bank. He says cash-flow analysis is vital.

"A common error businesses make is to ask for too little financial support in the hope of getting at least some of the funding they need," he says. "But this is potentially a recipe for disaster."

Your website

Websites will set you back varying amounts. "The cost is relative," says Berry. "While a basic one could cost as little as £500, a really good one that dominates the market could cost up to £20,000."

If building your own website is not an option, try searching for web designers online, or ask friends and colleagues for recommendations, says Nick James, a small-business consultant and the founder of Nick-James.com, an online club for entrepreneurs. Keep the site clean and simple: people will buy from you if they trust the site and can find what they want.

"Make sure you update your website's content constantly, as innovation, imagination and invention are essential if you are going to succeed in the longer term," he says. "Also make it easy for people to get in touch: your business needs to present a human face."

Marketing

One area where internet businesses often fail is marketing, according to Lisa Richards, a partner at accountants Smith Cooper.

"Too many people fall into the trap of developing their product or service and then expecting orders to come racing in," Richards says. "But with no 'shop window' through which to promote yourself, how are potential customers going to find you?"

Sites such as Google AdWords can be a cost-effective way of advertising, she says. These operate on a "pay per click" basis, so you only pay when someone clicks through to your website.

James also recommends emailing your friends and family with details of your site. "Look out for chatrooms and discussion forums, and let people know you're there," he adds. "Network with others and get referrals."

You may want to get a company to do search engine optimization (SEO) for you to ensure that you catch any potential customers searching for your type of product on the likes of Yahoo! and Google. "But try to get them to work on the results," says Berry. "SEO isn't that important if you have spent money effectively on online ads. A lot of people try to get to the top of search engines – and there can only be one."

Customer transactions

Make it fast and easy for customers to order, as a site with a difficult sales process is likely to lose customers, says James. "Fulfil every order as fast as you possibly can," he adds.

Websites should be easy to navigate so users don't get frustrated and leave without making a purchase. Security should also be a priority, and potential customers should be assured their details will be kept safe.

"How you treat customers matters," says James. "Talk to them as often as possible and help them to get to know you and build confidence in you and the services you provide. Ask them what they want from you and react to what they tell you."

-independent.co.uk