Just because your business is confined to the virtual world does not mean it is any less of a business. Internet companies are taking the marketplace by storm. Just look at Amazon.com, eBay.com and other cyber sensations. They may not have an actual "brick and mortar" residence, but they are multi-million dollar companies that huge percentages of the populace frequent each day.
Financing for an online business can seem a bit unorthodox--how much could it possibly cost to run one? But that's where many people go wrong. In fact, many online businesses fail within their first year due to inadequate funding. Even though Internet businesses are looked upon much more favorably these days as real businesses, they still undergo some unique trials due to their virtual nature.
But to brighten your enthusiastic, entrepreneurial mind, let's start with the unique benefits of starting or expanding an Internet business, and the effects those benefits have on financing.
Online Business Benefits
Internet businesses lend themselves to several benefits unique to their online nature. These include:
Cheaper To Run
Even though you may need to rent or lease office space or warehouse space, running an online business can be significantly cheaper than running a traditional brick and mortar business. You will most likely have fewer employees and less equipment than a physical company. Likewise, you don't have to worry about the "look" of your store; rather, you will just need a competent web designer.
Even though web design can come with a hefty price tag, it's not nearly as expensive as the designing, layout and execution of a physical store floor plan.
Not to mention, if you run your online business out of your home, you may be able to cut out many costs altogether! And with the home office expense deductions available during tax-time, running an online business seems like a truly great way to go.
Unique Marketing Potential
The Internet provides limitless opportunities for spreading the word about your business and makes the entire process of marketing much cheaper and easier. Unique online marketing ventures include:
Search Engine Optimization
Nowhere but the Internet can you tailor the aspects of your company to draw in the most unique visitors. Search engine optimization or SEO utilizes keyword studies on the frequency of search engine queries for particular phrases or terms related to a particular business or industry and then incorporates said terms in the content of the company website. These keywords can be included in the meta-tags, at strategic points in the body text or made into links to allow for maximum search engine visibility. You certainly can't perform this sort of marketing strategy for a brick and mortar only business!
World-Wide Exposure
Nothing offers more publicity than the Internet, if it is used correctly. An online business lends itself to exposure to a much wider audience than it would if in existence solely offline. For instance, customers can access your website from around the world, at any time of the day. While you're sleeping, orders across the globe can be placed. With this sort of systematic functionality an online business allows entrepreneurs greater freedom and a greater ability to expand their market.
Targeting With Ease
Marketing an Internet business can be much easier than marketing for a brick and mortar business. This applies to not only the marketing tactics themselves, but the market research. Sifting through piles of documents and data in order to assess the best demographic and market to target can take hours--but at least the Internet puts these items right within easy reach. You can, in fact, do the majority of your research online without ever having to go to the library! The convenience alone is noteworthy, but the ability to access current information in a short amount of time, makes market research and the Internet a no-brainer pair.
Resources Abound
There are tons of websites available that offer expert advice and insider tips on how to finance a business. Everything from investor targeting tips to business plan samples can be accessed with a few keystrokes and a click of the mouse. The financing process is certainly complicated, but at least with the wonderful tool that is the Internet, budding entrepreneurs can access the information they need quickly.
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Investors At Your Fingertips
Investors can be some of the hardest people to track down, but the Internet changes that. There are numerous websites available aimed at people just like you looking to finance their start-up or growing business and offer listings of investors. Many of these sites are broken down into categories to reflect the individual investor's description. For instance, an investor that only considers investing in companies with a technological focus may be in one category, while an investor that prefers to fund service-oriented companies would be in another. Investors may also be broken up into distinctions based on the types of companies they will invest in, such as a start-ups or established businesses.
Background Checks At Your Fingertips
Along with finding investors, you can also check up on them online. Websites that offer background checks can help you save a lot of grief before signing a deal that ends up ruining your company. Before you go into any written agreement with an investor, you can run a background check on him or her that reports back with their bank standing, legal standing, business licenses and whether or not they've ever filed for bankruptcy or been convicted of a crime. Without the ease of use the online environment provides, it would be virtually impossible to find out all of this information on a potential investor. And don't forget: the Internet lends itself to be a great reference checker. Check up with any businesses the investor has funded in the past. How was their experience? You'll be glad you made the extra effort.
Online Business Issues
So far, everything seems rosy in Internet land, but that is unfortunately not always the case. While running a business online has numerous benefits, it also has its share of concerns and issues that must be addressed before seeking any finance money.
Unique Security Issues
Having your business online can be great, but it also makes you vulnerable to all sorts of nasty bugs. Viruses, Trojan horses and what have you are lurking on the net in all sorts of unexpected places.
Being unprepared just exacerbates the problem, putting you, your company and your customers at risk. Also, the security of your website is a major concern, with hackers and identity theft scams running rampant. Without the appropriate security tools and measures, it is highly unlikely anyone will take the risk and purchase from your company.
Money Isn't Everything
Just because you secure investment money, does not mean you will have a successful business. Unfortunately, a lot of people that attempt to start a business online have little to no "know-how" and think it will automatically be easy because it's online and "everybody's doing it!" However, this couldn't be further from the truth. Online businesses are ventures that require serious attention, just like brick and mortar businesses. All that is different is the format.
In order to run a successful online business and secure adequate financing, the business owner must be knowledgeable in their particular industry and take the venture seriously. Even more importantly, should a company secure funding, it is imperative that the owner knows just how to utilize the capital. Without appropriate money management skills, your business could be ready to go under within a year's time!
It's Not Every Investor's Thing
This is becoming less and less the case, but some investors still shy away from online businesses. Whether it is the continuous fluctuation of the marketplace or the relatively small investments required for start up, it is hard to say. However, some investors just do not "waste" their time on Internet start-ups. Sadly, many start-ups fail within their first year, due to inadequate management.
Likewise, many online businesses are small ventures and share the same troubles as brick and mortar small businesses. Without a significant return rate on their investment, investors often bow out before the deal is ever made.
Financing Options
The financing options for an Internet business run pretty much parallel with those intended for brick and mortar businesses; however, there are some unique stipulations and exceptions worth mentioning.
SBA Loans
The U.S. Small Business Administration helps business owners fund their companies with loan money obtained from lenders in the private-sector. While brick and mortar business can obtain these loans, they are particularly beneficial to the start-up online business, specifically the MicroLoan program. These loans are of a lower amount and interest rate, which is suited well to the smaller budget of a virtual company. The goal here is to get your business off of the ground and into operation.
Internet Incubators
Internet incubators fund online business start-ups and help to build the company up for success. An incubator does more than finance a promising venture. Instead, they provide management teams, office space and other services designed to help a business get off the ground. Internet incubators are different than any other type of investor because they become directly involved with the company in question and provide all of the support services they will need to flourish. Many incubators are industry-specific, so be sure to really do your research before placing your proposal in front of one.
Venture Capital = High-Growth Only
Unfortunately, many venture capital firms are not interested in small businesses, let alone small Internet businesses. VCs like to invest a lot of money into a company that shows a promising ability to make a huge profit. Most online businesses do not fall into that category and are therefore completely overlooked by the big venture capital firms. Also, many VCs simply do not like to make "small" investments. The mentality is somewhat "the more we invest, the more money we'll make." While this is often not true, it is the mantra of venture capital firms, making the plight of struggling Internet start-ups all the more of a rough and tumble operation.
Moving on, it's time to find out just why you should finance, and how to get over that nagging fear of finance failure. Chapter 3 should help to ease your worries.