One weakness to opening an online derma-cosmetic business is the competition. This industry is not new and many are already successfully running their own businesses. It can then be hard to enter this market.
Inability of Customers to Sample Products
Still, another weakness is that unlike brick-and-mortar stores where customers can
sample products, this can’t be easily done with online stores. This becomes a weakness in that the store will not be able to easily promote new products as customers won’t have the chance to try them or even see them in their actual form.
Difficulty in becoming a Reseller for Large Brands
In addition, it may be quite difficult to get the permission of large companies to resell their products, especially when the online business is a start-up business. To overcome this weakness, the company must be able to present a good portfolio or company profile to these manufacturers. As well, the online company should try to establish a good reputation so that even if they don’t get the big manufacturers’ buy-in at first, they may eventually be able to do so once they’ve established the company.
Difficulty in Establishing Customer Relations
Unlike in brick-and-mortar businesses where the business owners and the staff can personally interact with the customers, this is not possible with online businesses. However, with good customer relations being a good strategy for ensuring the success of a company, online businesses can still form good relationships with their customers through newsletters, personalized customer service, and the like.
Sources of Capital
First off, I’d like to point out that you don’t need a large capital to start a business. According to an Inc. Magazine article (Anon., How to Raise Start-up Capital 2012), “many of the 2002 CEOs launched their businesses with $10,000 or less. And more than a third of those bootstrappers started with less than $1,000” (Anon. How to Raise Start-up Capital 2012). As such, the following sources of capital would be viable, depending on how big you want to start.
One’s Own Money
One source of capital is the business owner’s own savings. If possible, it is best for the business owner to startup their own business with their own money so that they don’t get weighed down by debts so early on in their business.
One success story is feelingunique.com, an online cosmetic company in Europe. It made a £1m profit on £17m turnover in 2011, but it was started with only £80,000 -- £40,000 from each of the partners (Anon., Profile: The online entrepreneur n.d.).
Investors and Lenders
Another source of capital is the investors and lenders (Anon., How to Raise Start-up Capital 2012). When trying to pitch your business idea to these people, you must be able to present a good business plan, which will show them your company’s potential. You should also show them that you are knowledgeable about your resources and that you are determined to achieve your business goals. As well, make these lenders and investors understand your industry in order to improve your chances of getting a loan. Moreover, be honest about your business’ real status, whether it’ good or bad.
Family and Friends
In addition, your family and friends can also be a source of funding. This is a good option if your business is still too new or too small, as it’s unlikely that any company will be willing to finance your business at this point. However, be sure to have everything formally documented in order to avoid problems later on. It’s important for you to implement an organized corporate capitalization, as this may be the basis for whether investors and lenders will provide you with funding for the future. As well, it’s important for you to sign a promissory note regardless of whether you borrowed money from a friend or from a bank. This signifies your promise to repay the money.
Aside from having an e-commerce website, it will be good for the business to have a mobile app that will allow customers to make purchases on their mobile phones. Although having an in-house IT staff is preferable in the beginning as this will be easier to set up for a startup business and will allow management to have direct control over this function of the company, it will be wise to consider outsourcing this function to Asian countries such as India and the Philippines as the company grows in order to save on costs. As well, it will be worthwhile to consider outsourcing the customer service function not only to save on costs but also to better ensure 24/7 customer service. In the same regard, the company website should provide customers with various forms of support, such as via phone, via email, and via chat.
Ordering and Delivery
Customers will be able to choose from various shipping methods, which come with different rates where a standard or ground delivery will be the cheapest and the next business day delivery will be the most expensive. The customers can also create an account on the website so that they can track the status of their orders online.
Dropshipping vs. Inventory
Keeping a warehouse or an inventory will be chosen as the method for storing the products. Although this would require purchasing all of the products for the inventory at once and although there’s no guarantee that all the items will be sold, it is still the better option as the prices of the items become cheaper when purchased wholesale, which in turn enables the company to sell the products at competitive prices. On the contrary, dropshipping entitles the business owner to purchase the products at the same price as all the other business owners who drop ship. In addition, by keeping their own inventory, the company is able to provide better customer service in that they are better able to track the status of the orders’ deliveries since they have direct control over these. In turn, they are better able to provide this information to the customers than when the drop shipping method is used.
Dividing Online and Offline Markets
Studies show that offline sales were much larger than online sales in Europe in 2011. According to the Center for Retail Research (n.d.), online sales in Europe had an average of 6.64% share in the entire European retail trade in 2011 (Center for Retail Research n.d.). Similarly, there are more companies selling offline than online (Lieber and Syverson 2011). On the other hand, more consumers are buying online and these consumers are younger, more educated, and have a higher income. These consumers are also able to wrowse more online stores than offline stores at one time. However, online stores prevent consumers from inspecting goods before purchase and online companies tend to be newer firms with less brand reputation (Lieber and Syverson 2011). As well, information assymetrics are larger when purchasing online. Search costs and distribution costs are also lower online than offline and there are no sales taxes.
According to the Center for Retail Research (n.d.), the European online sales for 2012 were forecasted to increase to 16.1% whereas the online share of all European online retail businesses is forecasted to increase to 8.8% in 2012 (Center for Retail Research n.d.).
How to Find Your Niche Market
When trying to find your niche market, try to find a niche product that you are passionate and knowledge able about (Drost 2006). Since you will be working on your business a lot, it should be about something that you enjoy doing; otherwise, you might not be able to persist and put in the necessary amount of time and effort. You should also choose a niche that you’re knowledgeable about as this would reduce the learning curve and since you already know what you’re doing, this reduces the risk of failure. However, if you want to go into a niche that’s new to you then try to research about it and gain as much knowledge on it first.
Also try to define your niche market by conducting the necessary research. Try to determine whether there’s sufficient demand for your niche. Try to avoid targeting a broad niche, as it will be difficult for you to stand out from the competition unless you’re a very big company. Instead, it would be better to focus on a highly targeted niche product.
You can also perform a keyword search using keyword tools in order to determine how many people are searching for products in your niche. As well, you can conduct a survey about the types of products or services that your target market prefers. In addition, try to create your own Unique Selling Position. Analyze what other companies have done, which made them stand out, and try to determine what can make your business unique. You can do this by either choosing a unique product or by catering to a highly defined target market. Finally, build and promote your website by filling it with relevant content that not only will be search engine optimized but will also be useful for your customers.
One of the European laws for online businesses is the online shopping laws, which require a fourteen-day cooling-off period for online purchases. It also ensures that traders pass on only the actual cost to people who pay by credit or debit card (Anon., EU: New online shopping laws to help consumers buying from abroad 2011). Moreover, customer-service phone lines will no longer be charged at a premium rate.
There is also the EU cookie law, which requires websites to obtain the visitors’ permission before storing or receiving information on a computer (Anon., How to comply with the EU cookie law 2013).
General Laws about Opening a Business
Some of the general laws about opening a business include securities registration; franchise registration; employment law issues; the securities law; environmental protection programs, and business licenses and permits (Department of Employment and Economic Development 2013).
The Best Place to Open a Business
The best place to open a business is Ireland. According to the World Bank, Ireland had an international ranking of 13th for starting a business and 10th for doing business in 2011 (Jardine 2011). It takes only 4 procedures and 14 days to start a business in Ireland (Jardine 2011) and only 0.4% of income per capita is needed for the administrative costs of starting a new business. Moreover, no bank deposits are required (Jardine 2011). Forbes Magazine also names Ireland as the fourth best country for doing business in 2011 (Badenhausen 2011).
Badenhausen, K., 2011. The best countries for business. [online] Available at: < http://www.forbes.com/sites/kurtbadenhausen/2011/10/03/the-best-countries-for-business/> [Accessed 7 April 2013].
Center for Retail Research, n.d. Online retailing: Britain and Europe 2012. [online] Available at: < http://www.retailresearch.org/onlineretailing.php> [Accessed 7 April 2013]
Starting_a_Business/Legal_Regulatory/index.asp> [Accessed 7 April 2013].
Drost, H., 2006. Niche marketing - How to find your perfect niche market. [online] Available at: < http://www.isitebuild.com/niche-marketing.htm> [Accessed 7 April 2013].
Gaines, M., 2013. How to start a business selling cosmetics online. [online] Available at: <http://www.ehow.com/how_7666014_start-business-selling-cosmetics-online.html> [Accessed 7 April 2013].
EU: New online shopping laws to help consumers buying from abroad, 2011. [online] Available at: < http://www.consumersinternational.org/our-members/member-activity/2011/06/eu-new-online-shopping-laws-to-help-consumers-buying-from-abroad#.UWFjiEpmwUU> [Accessed 7 April 2013].
How to comply with the EU cookie law, 2013. [online] Available at: < http://www.computerweekly.com/guides/How-to-comply-with-the-EU-cookie-law> [Accessed 7 April 2013].
How to Raise Start-up Capital, 2012. [online] Available at: < http://www.inc.com/
guides/finance/20797.html> [Accessed 7 April 2013].
Jardine, N., 2011. These are the best European countries to start a business in, according to the World Bank. [online] Available at: < http://www.businessinsider.com/europe-world-bank-business-2011-10?op=1> [Accessed 7 April 2013].
Lieber, E. and Syverson, C., 2011. Online vs. offline competition. [online] Available at: < http://faculty.chicagobooth.edu/chad.syverson/research/onlinevsoffline.pdf> [Accessed 7 April 2013].
Profile: The online entrepreneur, n.d. [online] Available at: <http://www.startupdonut.co.uk/startup/start-up-business-ideas/types-of-business/
profile-the-online-entrepreneur> [Accessed 7 April 2013].