Secrets of Online Business Success

Part I: Taking Your Brick-and-Mortar Online
American Pearl had been a successful jewelry store in New York City's diamond district for almost 50 years when Eddie Bakhash took over the company from his father, Charlie, in 1997. One of Eddie's first moves was to take the brick-and-mortar company online. Since then, he says, sales have grown yearly at a rate of 20%. Last year they surged to almost $20 million—with 20% in person and 80% online.

Bakhash attributes some of his company's success to having a well-known and respected store, and good word of mouth. But, he says, the key was constructing a site that builds trust with the consumer, while educating them about the product or service offered. "We tell the truth, showcase the product, and recreate the world that the product comes from through a variety of rich media," says Bakhash.

Retailers like Bakhash are aware that doing business online boosts sales. A 2006 Forrester Research study of 174 retailers found that online retail sales rose last year by 25%, to $176.4 billion, and are expected to rise 20% in 2006, to $211.4 billion. By 2010, sales should reach $329 billion.

HELPFUL SERVICES. If you are contemplating taking your brick-and-and mortar online, don't think you have to set up the site yourself. Providers such as Yahoo! Stores (YHOO), FreeMerchant, or LiteCommerce can create an online storefront that is easy and affordable (see BusinessWeek.com, 9/05/06, "An Online Business for $3,000").

"Small businesses inherently have built their business themselves. A lot of people look at doing everything themselves—the backend servers, all the infrastructure, learning HTML. Whether selling products or not, you don't have to do that anymore," says Jimmy Duvall, director of e-commerce products for Yahoo! Small Business.

Once the site is up, don't start conducting business until it's been tested and deemed ready. Make sure all the site's features are working, since customers today expect the same good service and quality online that they find in regular shops.

And just because the site is up, don't think your work is done. You have to update continuously (see BusinessWeek.com, 6/8/2006 "Treating Your Web Site Like One of Your Best Employees"). If you have outdated information, "you could be losing sales and causing customer dissatisfaction," says Harry Hollines, vice-president for channels and business development at Englewood (Colo.) direct marketing consultant Verio, which also offers a service to help small businesses update their sites.

When your site is running on all cylinders, then it's time to think about traffic. Develop a plan for generating buzz online (see BusinessWeek.com, 4/17/06 "Building Good Web Buzz") and search engine optimization (see BusinessWeek.com, 7/6/2006, "How SEO Upped the Revenues").

ONLINE STREET CRED. Many small businesses—almost half of those surveyed by Forrester—are also using cross-promotions between their offline and online stores to boost sales. But while promotions can often increase sales, don't overwhelm your loyal customers.

"It's important to be an active online marketer, while making sure not to overload people with offers after they've been nice enough to patronize your store in the first place," says Kim Gordon, president of the National Marketing Federation, an outfit based in South Florida that counsels small business owners on marketing (see BusinessWeek.com, 6/21/2006, "Building a Web Presence on the Cheap").

Don't take for granted that potential customers will believe every offer of a discount or sale. People can sense a scam, even if it's virtual. That's why credibility is just as hard to come by in cyberspace as in the real world, and there are multiple ways to establish it.

Having a high-quality site goes a long way. But for e-commerce, having an established and reputable payment system like PayPal or WorldPay can turn a nonbeliever into a customer.

If you've been running a brick-and-mortar business for a long time, it might seem unnecessary to have to prove your credibility all over again. But that's the name of the game in the online world, once you've found a way to get people to visit your site in the first place. Those who succeed find that a new world of customers awaits them.

Part II: What Not to Do When Building a Web-only Business

Kieden, a San Francisco software startup that helps companies track the success of their Google (GOOG) keyword advertising, launched in January and was snapped up by Salesforce.com (CRM) just eight months later (see BusinessWeek.com, 8/22/2006, "Salesforce Dives into the Mash Pit"). Salesforce hopes Kieden's application will help integrate its core customer-management program with Google's AdWords service, significantly improving advertisers' ability to track click conversion.

Kieden co-founder Kraig Swensrud says his company's launch was successful both because of what the company didn't do and what it did. Most importantly, he says, it resisted the urge to take on an entire industry.

"Ours was originally a grand vision, to help all companies understand return on investment from online advertising programs," says Swensrud. To develop such a broad application, Swensrud reckons, would have taken several years. So the company narrowed its target customer to users of both Salesforce.com and Google.

For innovative companies like Kieden, doing business online offers no shortage of opportunities. But when starting one, there are plenty of missteps to avoid. Be sure to choose a differentiated product or service and master it before looking to expand. "If you're the small guy, you're not going to come in and get noticed, unless you have something different," says Melissa Payner, CEO of BlueFly (BFLY), an online-only designer apparel retailer with about 80 employees and $60 million in revenue last year.

ALL ABOUT AGILITY. For online video store Netflix (NFLX), the key was not trying to perfect its service before taking it online, says Neil Hunt, chief product officer. When it launched in 1999, Netflix' speed to market and subsequent agility was mission critical in its unlikely bid to compete with Blockbuster (BBI) (see BusinessWeek.com, 5/25/2006, (see "Netflix").

Although acting speedily is dangerous for businesses looking to transfer from bricks and mortar to online, it can be the key to success for Web-only outfits. Getting the product out there not only puts pressure on the competition but also provides an earlier opportunity to get customer feedback.

"Don't believe that you understand the whole business model from the beginning. We built stuff quick and dirty [before launching in 1999], because we didn't want to spend all this time and money working on the wrong thing," says Hunt.

The experience helped Netflix find what its users wanted and deliver it with gusto. Hunt says his company's willingness to adapt is the major reason it now boasts over 5 million subscribers, a number he says continues to double every 18 months.

ENCOURAGING IMITATION. Companies offering great services that customers begin buzzing about can't neglect the need for scalability. Get the servers in place and the Web technology up to speed immediately, and make sure it's set for multiple years of rapid growth, says Hunt.

Also, don't think that one or two players in the market means there's no room for a new one. "In the past, the first brand out the door in old businesses tended to do well. But with the Internet, the second mouse gets the cheese—look at Yahoo, eBay (EBAY), and Monster (MNST). It's encouraging for small online startups to look at what people are doing and do it better," says Marcel Legrand, senior vice-president for strategy and development at Monster.

Photo sharing and printing service Snapfish was the 127th to market. Today, Snapfish is the largest photo sharing site in the world, with 30 million users. That's up from 14 million in early 2005, when it was acquired by Hewlett Packard (HPQ).

Seven years after launching, general manager Ben Nelson says Snapfish is still working to serve its primary demographic, a hypothetical customer named Emily. Emily, who Nelson says makes up about 80% of the market, is a woman who takes a lot of photos and looks for value, convenience, and easy-to-use service.

"If we constantly work to serve the biggest market segment, we're probably in pretty good shape with the rest," says Nelson. The formula worked for Snapfish. Keep these strategies in mind to help make your Web-only business flourish, too.