Nothing makes me cringe more than hearing someone say “you need money to make money“. Simply put, this is a load of crap. For many of the people who say this, it’s purely as an excuse which they try to pass off as a reason. However that’s all it is, an excuse. It’s an excuse so they don’t put themselves out there in a world where failure is a definite possibility. Its an excuse to not have to put in any effort. Most notably is an excuse to themselves as to why they are where they are and why they are not happy. People feel validated by this excuse and keep reminding themselves that having no money is the reason they are unable to achieve their goals. It’s the easy way out.

In my experience the amount of money that I have spent on starting and growing a business has had very little effect on its profitability or success. I have spent $50k developing a mobile advertising network which although has proved successful, has not netted me anywhere near what I was expecting. Yet on the other hand, I created several mobile sites, each one under $100 and they have taken off, in fact they have produced more of a profit than my 50k project! I wouldn’t call the 50k project a flop, as it works great, but I would call the smaller projects huge successes and examples of how I didn’t really need money to make money.

The level of success of my businesses have been completely disproportional to the amount of capital invested, however totally proportional to the amount of value they provide. In later posts I will go through the various options but for now I wanted to share a few examples. Firstly, so that you can stop thinking that you need money to make money and secondly to start thinking about how value, hard work and determination creates money.

1. Plenty of Fish: Markus Frind started this dating site with nothing. It started as a hobby when he was trying to learn ASP.net programming and decided to practice on a dating site. He worked on it a few hours a night and did it because it was a challenge to his ASP.net skills. But what he created was immense value. Value in that all other dating sites around the world charged members to talk to other members. Markus didn’t charge a cent for this service and this was value according to site members. The sites popularity spread massively to where it is today, a 1.5billion page behemoth making anywhere between $5-10 million a year in Adsense revenue. All he did was create a simple service that others would charge for, charge nothing for it and make money through advertising. Simple.
2. Shoemoney: Started the now famous Shoemoney blog. Started off struggling to hold a job. Found out how to turn images into wallpapers for a mobile phone.  Told others how to do it and got a great response. Set up next-pimp.com and used Google Adsense for revenue. Then moved into the ringtones industry and made more money with Adsense (leading to his famous $132,994.97 Adsense cheque) until he got into the subscription/membership revenue model. He had 70,000 members paying 19.95 every 6 months and generating over 3 millions dollars for that year as a recurring income. Once again the fact he had no money to start with didn’t mean he couldn’t make money.
3. J.K. Rowling - Do I need to explain? Born in Bristol, England into a middle class family. Hit hard by the death of her mother, who suffered from multiple sclerosis, and left for Portugal where she married and had a daughter. Returned to Edinburgh a single mom; lived on welfare while finishing her first Harry Potter tale. (Forbes). She went from living on welfare becoming one of the richest woman in Britain in the space of a few years. The 2008 Rowling’s estimated fortune was £560 million ($798 US million).
4. Steve Jobs – Adopted and could not afford to stay in college so co-founded Apple in his parents garage. Has has been monumental in how we use personal computers today and has changed entertainment forever with the introduction of the category and history killing iPod. Once again, starting with nothing but an idea, created a remarkable product and value… now the rest is history.
5. 2/3rds of the worlds billionaires – not a person or a company but more an institution. 2/3rds of the worlds billionaires started out with next to nothing. It was determination and drive that got them to where they are now. These are people who faced adversity many times over and yet still overcame the difficulties to become extremely successful in their field.

This is why whenever I hear that dreaded saying I cringe. People who were in much worse sitatuations than you and I have been able to overcome barriers much worse than simply start up capital problems. We are talking about prosecution, famine, war and other situations which many of us have been fortunate enough not to have been exposed to. It’s not that the doubters don’t have the money, but rather they don’t have the determination, drive and passion when it comes to following their dreams.

For the majority of examples, entrepreneurs start a business to generate revenue and hopefully in turn, make a profit.

Before I go any further I want to clarify something. I have always found it perplexing the way people approach how they should be making a profit from their value offering. I’m not talking about the method in generating a profit, I’m referring to how they think about the term, ‘profit‘. People almost feel guilty if they have an aim of making a profit. Why would you feel guilty about this? There is no reason to feel ashamed of doing something to make a profit. If you provide a product which is of great value and set your price in a range where people can and will purchase it then its a win-win situation. First, you generate revenue and your buyer has purchased something that has a certain perceived value for something they were willing and able to purchase it. I don’t see why anyone should be ashamed of this? If you provide a sub-standard product and charge an exorbitant amount to people who don’t know better just to make a profit, then yes you should be ashamed.

Before you go on this post is continuing from my previous steps for starting up a business. Step 1 and Step 2. If you havn’t read these I strongly recommendyou do as you’ll be completely lost for the remainder of this post!

That aside, once I have thought of an idea with potential and then put down some points regarding the concept, my next step is to think of how I can make money out of offering this service. Well the first and most obvious answer would be to copy the Youtube example and place ads on the website which will earn me money whenever a site user clicks on them. That sounds pretty straight forward but people who are regulars to this blog know my thoughts on using advertising as the revenue model. In short, I’m not a big fan. After all, how many times have you clicked on a display or text ad on Youtube?

On the other hand, will people actually pay to use a video sharing service on their mobile when there are so many free options out there? No I don’t think they would to be honest. If I started charging for a service to stream videos onto mobile then wouldn’t my users start reverting back to using another mobile video streaming site? Most probably. I’ll think a little harder.

Ok so what do I do now. I know that Youtube is the giant and so far offers the best mobile video offering available. I also know Youtube only allows streaming to your mobile and the other download sites are not really anything special. So I’m thinking if I can offer the streaming service for free and support it by advertising I will keep and retain the casual visitors. On top of that if I can also offer a premium service for those wishing to download those videos onto their mobile then I would be able to charge for this as the current alternatives are pretty poor. This allows me to work with two revenue streams, the first being advertising for those casual streaming visitors and as well as a membership based premium service for those wanting to download the content to their mobile.

Ok so this is what I’m thinking:

1. Revenue model 1 – Free video streaming (will not include video downloads) will be supported by advertising. Advertising network options include: Adsense Mobile, Admob and Decktrade.
2. Revenue model 2 – Offer a premium paid service where users can stream videos as well as download any mobile video they like directly to their mobile. Premium members will pay a small monthly fee in order to use the download service.

I’m pretty happy with this as it offers both a streaming option which anyone can use and yet also tailors for users that want even more and wish to download any video directly to their mobile. To do this they will need to become site members and pay a relatively small ongoing membership fee. For me that means the highly trafficked free streaming section still generates a revenue but I can also offer great value and charge for membership which is a great form of recurring income.

I mentioned in my previous post how I am able to get Google Adwords traffic for 1c per person. It’s truly a bargain in that for only $10 I can get 1000 users to my site who may benefit from my services, hopefully click an advertisement or even better, purchase a product. But is it really a bargain?

First of all, there is very little chance you can make up the advertising dollars spent by the advertising revenue on your site. To effectively get good advertising revenue, either through Google Adsense, Adbright or whatever, plenty of organic traffic is the way to go. Why? Well first of all you need to think of your site as a real business. Where advertising is your revenue model, using paid Adwords traffic to drive traffic is effectively your cost of goods sold (remember accounting 101: COGS?).  It’s your main expense. With organic traffic you don’t have that expense. (I know, not too technical here).

Most importantly however, (this is the part to really think about) Adwords traffic is traffic that came from a contextual environment. A contextual environment is your ad showing up on a relevant and contextual keyword search, another site or a blog that is in a similar niche. So the amount you pay for an ad is roughly the same amount you will receive for a click on your site, as you also run contextual ads. This means that in order for you to make a profit, or even break even, almost everybody who comes to your site must click an ad. You will need a 90-100% CTR on your site which isn’t going to happen. The only way around this is to drive traffic from probable alternatives (ie get traffic to a credit card site from a job search site) but then it will be difficult to get good conversions as your not playing the percentages. Or you can run several ad campaigns from different ad networks but then again it would kinda look like this.

But what if you sell a product? I’m still not sold on this. I honestly don’t think that Google Adwords does that great of a job to drive qualified and potential customers to your online business. I may be wrong and you may have a completely different take on this so if you do, please share. Some bloggers have their own secret tips. There are too many factors you need to overcome in order to break through to the sale. These include your anonymity, trust, competition and desire from the consumer. I can’t imagine that receiving 10,000 people from Google Adwords would compare to receiving 10,000 referred and organic traffic, either by word of mouth or through recommendations.

Genuine organic traffic is traffic that is not complicated with the earlier mentioned barriers of anonymity, trust, competition and desire. I think if your interested in running a successful online business the hardest part will be developing a following and building the genuine organic traffic.  Nothing valuable comes easily overnight, it requires you to provide value, day in day out and accept the fact that the rewards are long term. Sure you can use Google Adwords and I’m sure that you will benefit from it, but the real value comes later down the track when your effort and persistence becomes worth the effort. Work hard, don’t give up and keep at it as everything else is just a fragile quick fix.

I have a university degree in Business. The importance they placed on creating and defining a business plan was paramount. You need a business plan there are not two ways about it. It needs to have all the information including where your business will be located, what you will do, your revenue model, your sales forecasts, a SWOT analysis, a mission statement, first aid steps and a budget… among many other things. What complete rubbish.

I’m about to tell you this. If your interested in trying out a new business idea and decide to start by putting a business plan together then your a goose. When starting out a business plan is an acceptable form of procrastination. I will repeat that again and put it in bold and italics. A business plan is an acceptable form of procrastination. If you have a bright idea and want to get the ball rolling and you set off to write a business plan then all that is doing is stopping you from getting started. You may be thinking writing a business plan is getting started but I’m sorry, it’s not. Getting started is jotting a few points down and then doing it. Not thinking about it or writing about it but actually doing it.

Why skip the business plan? The first thing a business plan will do is make you reconsider your initial idea. You will come across hurdles and barriers that you didn’t think about before and slowly but surely you will be weened off the idea before you have even started. You might be thinking that this is a good thing right? This would mean that you have effectively saved yourself time and effort by finding out all the flaws in your idea before wasting your time, right? Wrong. What you have done is convinced your mind that the idea is not possible, nothing else. If you had actually started implementing your idea you would have come across these barriers regardless. In every business there will be barriers. The difference is that because you have started and are immersed in your project you will find away around these barriers. Thinking and pin-pointing these hurdles before hand will make starting less likely and therefore you will never find solutions to these problems.

Another problem is that a business plan actually complicates things. A business plan will flood further ideas into your mind and your fantastic small idea will turn into an overwhelming behemoth before you know it. You add more and more bells and whistles, change tact and thinking about more revenue models and target market opportunities. You no longer have a great simple idea but a complex global conglomerate before you have even started. This will again put you in an overwhelmed and less motivated mindset and cause you not to start. If you keep it extremely simple, then its very easy to get started and create your idea. Once this idea has been created you will then know where the other opportunities lie.

A business plan is effectively your mind trying to find a way to not get started. This could be due to a fear of failure, fear of the effort you need to put in or fear of not knowing how to get it done. It’s all a form of procrastination. What your doing is taking the relatively easy and non-confrontational option of working on your ‘business plan’. I am guilty of this, if I didn’t feel confident about getting started I just focused on my business plan. It’s like not wanting to make cold calls so you prepare emails instead. The problem here as I have mentioned before, is that the business plan is not just a time consuming procrastination but it will also give you more and more excuses why you shouldn’t go ahead with your idea. Very rarely does it motivate you even more to pursue your idea, your motivation is already existent pre-business plan and all your doing is finding a sure fire way to destroy that motivation. This is the worst type of procrastination, let alone a productive, business enhancing task!

Nothing is ever constant especially in the current business world. Your business plan and direction will continually adapt to internal as well as external forces. Businesses today need to be extremely flexible with the ability to adapt quickly to change. After creating a plan for your business, you will certainly find that what ends up working in the real world is entirely different to what you had in your plan. Sure a business plan is adaptive in itself but why start with one? Why not do your idea, learn from it then find out the best way to move forward. Not the other way, that would be a complete and utter waste of time. When you get an allergy test does the doctor give you a plan of what you may be allergic to because others are allergic to it then move you on your merry way? No. The doctor tests you for each individual allergy by giving you a bit of the cause and watches for a reaction. Only then does she form an outline of what you are allergic to. Why doesn’t your business idea need testing then?

Am I saying never to do a business plan at all? No, I think a business plan is great, but not for when your starting out. I am going against everything I have been taught and the reason for this is that I am basing it on experience. A business plan should be implemented after you have gone out and tried your new idea, not before. Today, things are so much cheaper to create compared to what it once was so there is absolutely no excuse to have an idea and not put it into action. To be fair this wasn’t the case 10, maybe even 5 years ago, so what we are taught in schools, colleges and universities are defunct only a few years later. Now it is essential you go out and create your idea, only then will you be in a position to determine what you should include in your business plan.

A business plan can also be effective when you are working with a group of people. A basic plan will help put all the ideas down on paper so you have a chief aim and defined objectives to work towards. Even then, the plan should really only be a couple of pages long, if that at all. It needs to be just enough to point out the main details and get everyone thinking along the same path. This is not really a business plan but a basic business outline, leave the plans for later.

What about for investment? Don’t you need a plan? Yes of course you do, but you also need something to show for your idea. Most investors and venture capitalists want to see something in action before they decide to invest. So do something first, then plan out after.

A proper business plan takes times and effort. This is time where you could be putting things into action. This is the time when your at your most motivated and excited yet you will be putting it to waste. This is the time that will enable other people to leap frog you and get a started on your idea. This is the time when you could lose your first mover advantage. With the endless number of plug-ins and software on offer as well as the ability to easily and safely outsource the creation of your concept, the only person you have to blame for not getting started is yourself. Stop using your business plan as your excuse.

Drop shipping is quite a magical concept: you take an order, get paid, send a request and payment to your supplier then they send it directly to your customer. You don’t see the product, you don’t touch it. You simply get your money, pay for the goods (hopefully the goods cost less than what you sold it for!) and that’s it. With the presence of major online trading hubs such as eBay as well as how easy it is these days to create your own online e-commerce store, its a fantastic cost effective option o doing business online.

Personally, in the past I have experimented with drop shipping using eBay as well as my own online stores and I can say that drop shipping definitely is a great profitable option however there are a few catches and factors that you need to be aware of. This is not a bad thing as in any industry there are things you need to be aware of and traps that are to be avoided. Nothing is ever as rosy as you think but adopting the right measures will ensure that you give yourself every opportunity to succeed. First I’ll outline the good stuff!

Pros:

1. Inventory - What inventory? Drop shipping allows you eliminate the cost of holding industry as well as pre-purchasing it. There is no need for an office or warehouse to house stock. Your drop ship partner does this for you. Plus there is no need to purchase stock in bulk to meet potential demand as you only buy stock once you have received the order (and your money!).

2. Risk - As you don’t hold stock or order masses of inventory the risk is relatively minimal. However most notably the risk of a product not selling is minimal as if it does not sell you have only really invested the cost of promoting that product (eBay fee, Google Adwords etc). This allows you to spread to risk and try a multitude of products at little cost until you have found something that sells and is profitable.

3. Marketplace - The online world is a massive marketplace. There are multiple avenues you can take in order to sell a product. The first way would be through using eBay. The great thing about eBay is that people who are going to eBay are looking to buy. That’s usually the main reason why they are there. Of course you have the browsers but it’s a place where genuine  buyers will hang out. On top of this the selling infrastructure is excellent and there is everything you need to run an online business, even the all important traffic. Another alternative is to open an online store which is much easier than you may think. Gone are the days where you need a mint to hire a programmer to create a custom e-commerce infrastructure or even install a shopping cart plugin. Today there are easier options such as Shopify who specialise in hosting great looking online stores that include all the features you may need. There is even a free option so you can give it a try before signing up for their service.

4. Automated - Drop shipping if done well can turn into quite an automated process (to an extent). Due to you not holding any stock there is no need to pack items and send them out, this is your drop shipper’s job. Therefore this way of doing business leans itself towards developing an automated system to receive orders then send the order through to your drop shipper on a daily basis. Even if you don’t want to be so technical you can simply designate 1-2 hours every couple of days to send through a new batch of orders. I would recommend this over sending a request one item at a time as you can compress your work load significantly and also please your drop shipper as your making large orders, not 3 separate orders a day which can get frustrating and confusing. Ensure you inform your customers of any possible lead times (say 10-14days) and using this strategy you can deliver to them well before your stated benchmark. Under promise over deliver and they’ll love you for it.

5. Time - My favorite. Drop shipping when done correctly in association with all the above points will lead to freeing up plenty of time to do the things you really want to do. Sell a great product at the right price using a good automated system and you will need to do very little for a great passive income. But of course there are always issues that can (and will) pop up and you will need to address these but these should be minimal providing you have a good relationship with a quality drop shipper.

Now for the Cons!

Cons:

1. The Dropshipper - So far I have referred to drop shippers quite objectively however they are a major factor when it comes to getting into this business. Put simply, if you don’t have a good drop shipper then you don’t have anything. Finding a great drop shipper is extremely difficult and there are many out there fighting for your business. The problems you may face include questionable quality products, bad service, a tough return policy and even counterfeit goods among other general mistakes. I cannot stress enough the importance of a great drop shipper and finding a good one is the first major step you will need to take. People usually find the product they want to sell and then look for a good drop shipper. I do the opposite, I find a great drop shipper and then I look at the products I can sell! If you can’t get a drop shipper recommended then bite the bullet and purchase something from a prospective drop shipper and send it to yourself. Find out what their service is like, ask them plenty of questions to see how quickly they respond and most importantly test out the product and make sure you like it. Ask yourself, would I buy this? If the answer is no then chances are other people won’t either. If you sell it regardless and people buy, then expect the complaints to come rolling in. Think of it as your own personal litmus test.

2. Competition - The internet is packed with people selling drop shipped goods. The costs being as low as they are lead to businesses competing heavily on price and this diminishes the ability to sell with good profit margins. This is most evident on Ebay where you have hundreds of sellers all drop shipping and pretty much selling many of which are selling the same product as you. Some are happy to sell a $100 item and only make a $2 profit. This is ridiculous but such is the competition it happens. My recommendation is that if your profit margins are not at least 80% its really not worth doing. If I buy a $100 dollar item I want to be selling it for at least $180-$200. If I can’t get this price I pull out as the headaches of returns and questions about the product are simply not worth a few measly dollars.

3. Exchange rates - This can also be a positive thing. Remember when your selling online you effectively buy and sell to the world. You will be at the mercy of exchange rate fluctuations and other global forces. Of course a good exchange rate can be beneficial and make you a few extra dollars however the flip side of that coin can be disastrous. For example most of the time when you buy from a drop shipper you pay in $US. Say you are in Australia and the $A buys 70USc, you need to know what you have to set your price at in order to make a profit. If you run a 7 day auction on eBay and during those seven days the market decides to nose dive (trust me this happens.. more than you could possibly imagine!) and the dollar goes down to 62c US then your in trouble. Think what would happen if you sell 20-30 items set at the original price and it gets  a bit scary. You might think this is only trivial but it has happened to me multiple times and in today’s current environment its definitely not uncommon.

4. Other business costs – This is more of something to be aware of rather than a point against dropshipping. When you start drop shipping, never make the mistake of thinking that you have no overheads. That’s not true at all. Overheads will include the cost of the item itself (cost of goods sold – COGS) as well as any taxes you need to pay on both the profit as well as any goods and services tax such as Australia’s GST. These costs are REAL costs… not something that you can get out of because you drop ship! I’m not an accountant nor can I give any financial advice but i’ll give you a personal example. If I buy an item for US$200 I don’t pay GST but when I sell the item in Australia I pay GST.. so I lose any benefit of an offset. Therefore I always need to put aside my GST component and on top of that pay tax for any profit I make. I personally needed to factor in almost 40% in taxes! Once again, I cannot give financial advice as I’m not qualified and I would recommend you see your accountant and discuss the purchasing and selling process and he/she will be able to tell you what your tax liabilities are.

5. People - Yes people. People get angry. People are not stupid. People want the best products for nothing. You will have to deal with these people. Don’t ever think people can’t see inferior quality, they can and usually will. So don’t sell crappy goods. You will be caught and regret it. Check your item first before you consider selling. Even if you do sell a great product, expect people to complain. You can’t take things personally and need to learn to deal with the issues at hand and move on. However the biggest problem that results in people being people, is that you will hit a critical mass where an abundance of complaints will come your way and you will need to deal with it. This isn’t fun and becomes time consuming. This was my main frustration as I felt I had to reply to everyone who said “thanks great product” through to people who said “how do I turn this on?”. I eventually learned to screen out the important from the non important but the realisation that “passive” no longer became “passive” the more sales you made and the more money you turned over. Make a little and things seem great. Make a lot and expect to work hard, there are no two ways. I understand there are many theories behind automating a process and dealing with these matters using other less exhausting ways but as long as your dealing with people, don’t expect to sit back and do nothing, especially if you set yourself high financial goals.

6. Numbness (my personal one) – I’m not sure how to explain this any other way but the main reason I got out of drop shipping was because I felt it provided a very numb feeling. Think of a business anesthetic. You have minimal control over quality or control of anything that has to do with the product and this made me feel kind of numb. You know its there but you can’t feel it or do anything with it. And this is what I didn’t like. But this is my personal “con”, not one that can be applicable to everybody.

These are my pros and cons for drop shipping and is purely based on my experiences NOT what I have read or what other people have told me. Im finding it very frustrating when I read through some blogs and the blogger is simply out promoting a product and trying to add content in a field they have never been involved in, yet claim to be. So you end up reading regurgitated drivel which can be spotted a mile away. So if I have left something out that you feel is important then please leave it as a comment as these are now enabled. Let me know your thoughts or share your own valuable drop shipping experiences.

Drop shipping articles worth reading:

7Th blog.com – Is drop shipping an easy way to earn cash?

Tips for Mums - How to start an online drop shipping business.

Internet marketers and entrepreneurs are in a rave about creating passive income streams. A passive income stream is simply a form of revenue that you receive regardless if you work on the business or not. It’s regular, runs 24 hours a day and does not require you to be there in order to earn money. The net is the perfect environment where passive income streams can be generated as you can automate business systems that give information, accept immediate payments and deliver your value offering 24 hours a day, without you having to do anything. Could there be anything better?

In fact, many online marketers think there is a better way… have several of them. Makes sense doesn’t it? If you can build a website generating $40 per day and you build 5 of them, then that’s $200 per day. Every day. Without you requiring to work for it.

The next question is what type of passive income stream can you build? We know the options vary from selling products online whether it be your own products or through a drop ship mechanism, through to creating a membership based training course or similar. If you want some offline options have a look at this post. The main difficulty we face is that the average online consumer is becoming more accustomed to searching the net and getting what they want.. for Free. For example I was recently doing some research on how to learn php programming online. There were many courses available varying from $47 through to $497. Which one did I decide to choose? Neither. I picked the free options which gave me some basic tutorials and I went from there. Where there is plenty on offer, your bound to find what you want at no cost.

With the Internet today you simply can’t create something of mediocre value and expect great returns. The flip side is that when you provide something with great value it requires your undivided attention yet you yield the benefits. Meet these two halfway and your potential customers will search for the free options. So what do you do?

Ultimately you need to keep your expectations in check. Unfortunately you would most likely be unable to set up a decent passive income stream in a couple of months. Yes, there are examples of this happening but these are the exceptions and chances are you won’t be that exception. Sorry. I’m not trying to offend here but if everyone was the exception then it would no longer be exceptional? Correct? Successful online businesses take time and effort to build and sustain. Developing a passive income stream is something that requires plenty of trial and error, tons of effort and dedication. I believe that you can most definitely create multiple forms of passive income using the Internet however you will be the only factor that stops you from doing it.  The online world is very competitive and getting into any niche industry will almost certainly mean competing against established businesses in the same field. You will need to offer great value over an extended period of time in order to start gaining market share, gaining momentum and develop loyal and viral customers.

Another option is to think of other mediums other than the Internet. The Internet is attractive because the setup costs are extremely low, there are very minimal barriers to entry and it provides the potential of generating income 24 hours per day from anywhere in the world. But what if I told you that there is another, virtually untapped medium which can generate revenue 24/7 from anywhere in the world? What if I also said that this very medium is growing by an even greater rate than the Internet? What If I went as far as saying that, compared to the Internet, this other medium has even lower start up costs, lower barriers to entry and an abundance of untouched market niche’s which you can take advantage of?

This is a screenshot of a business I set up in January 2009 using this ‘other’ medium. I started off with a bit of advertising to generate just under 100 unique users per day. Now it’s closer to 1000 unique users per day in under 3 months with little to no change in advertising.

I am able to build traffic quickly due to being in an medium which isn’t yet infiltrated with content and businesses. I think the future in this medium will be targeting the niche markets and developing the appropriate revenue models. There is a chance to get back into the hay day of internet business and advertising.

But i’ll leave that for my next post. I’m a bit tired after a full day so please excuse my tardy grammar this time around!

Exactly what does an online business cycle look like? Traditional bricks and mortar businesses are very much subject to traditional forces such as that outlined in a standard business cycle. You start off, a few people buy your product. These people like your product tell their friends and also come back for some more. You make money, spend it on more promotion, getting more quality customers and your business grows. Simple, straightforward and organic. More growth will occur when people start to recognise you with your goodwill improving considerably the longer you have been around and the more happy people you have served. You serve a local area and this level of goodwill and familiarity are key factors in helping you grow a successful business.

Then came the Internet. For an online business I take the view that there are no set rules and online businesses can’t simply be defined by the rules of yesteryear.You are no longer local. Your goodwill can simply come in the form of a well designed website. You have moved into the world of anonymity.

For example if you were to set up a business selling t-shirts online you may begin making sales immediately through online advertising such as Google Adwords to drive traffic to your site. Now here is the point I’m interested in. People coming to your site have no idea you opened yesterday. They have no idea who bought from you previously or whether they were happy or not. All they can see is your site, your product and a need that can be met if they purchase from you. What if they love your product? Then their testimonial is displayed in large font in your sales letter. What if they don’t like your product? Well then you have one unhappy, anonymous customer. In any traditional business environment, an unhappy customer spreading the word would have dealt a major blow. In the online world, its (usually) relatively insignificant. You have elasticity and an element of customer satisfaction lee-way. This is the extraordinary power of anonymity.

By adopting an online business model, a marketer and entrepreneur can effectively skip a very large portion of the traditional business cycle instantly. It is the catalyst for the multitude of online scams out there as well the many online success stories. It gives people the advantage of starting out with very little yet provide a vehicle of growth for great returns. It allows first time business people to make mistakes and learn without the risk of putting their business into disrepute.

But there is a catch. I believe in the power of anonymity however only to an extent. Used to weed out any flaws in your offering it can be useful especially when adopting a “fire ready aim” approach, not uncommon when your trying to get into a particular market segment quickly. However it can never be used as a unique proposition in itself. I liken it to a “business muzzle”. It does not foster viral promotion, it does not cause excitement and its suffocating if it cloaks your business for too long. A company hiding under anonymity will never provide as much value as a company that is transparent. Anonymous entities will always succumb to competition and alternatives. Interestingly, as I was writing this blog post I received a blog update from Seth Godin which is related to this very topic. I strongly recommend a read of this post as it brings to light some pitfalls of anonymity.

Your online business may well take advantage of the power of anonymity. However if it is used as a means to drive the business forward then it will form a restrictive and negative force. It’s your business muzzle. It’s there to effectively refine the rough edges rather than act as a profound mechanism for online growth.