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Building an Internet Empire, a Guide

Written by Nico Black

Digital Strategist and early-stage investor, Nico is also an AdTech enthusiast. He has over a decade of digital marketing experience and has been investing in tech companies since 2006.

January 4, 2012

What do you need to know in order to build an online business empire?

Consider your business is a whaling ship. You want to make sure that you hunt down the whale (your top converting demographic), but that it’s done in a way that’s sustainable in terms of cost structure.

So the question is: How do you research, plan and execute a basic online business? 

What does that mean? What is a sustainable business? What are the basic steps needed for an online business?

Consider this, if you have a ton of revenue, but your operational and marketing costs are weighing you down, you have built tanker when actually you need a speedboat.

Building the right vessel, the right business structure, is key when you consider how your business is set-up (to say nothing of your business model). Here are a few rules of thumb:

  1. The business model can always change (think: pay per lead, adsense, cost per action, direct sales, etc.)
  2. Traffic is everything (you can monetise it 100 different ways. Just get it at a decent quality, and make sure you have volumes to test till perfect)
  3. Build a profitable business, but keep your eye on the list
  4. Cash isn’t king, profitability with a solid list is

So with these principles outlined above, the question is “what is the logical process to build an online business“? Here are some good steps to go through by order of sequence:

  1. What is the opportunity at hand? (e.g. emergence of mobile payments in Africa)
  2. What is the demographic to target? (e.g. who in Africa is making these payments – rural users, using mobile payment to substitute for lack of credit cards)
  3. What is the business model? (e.g. sell e-book on selling African entrepreneurs the how-to, on setting-up their own mobile phone based payment system for their business)
  4. What are the distribution channels? (e.g. media buys, PPC, email marketing, etc.)
  5. Can you set-up partnerships (e.g. partner with Kiva – micro loan provider for 3rd world countries, maybe blast their mailing list)
  6. Create procedural systems (e.g. have a system for landing pages,  traffic testing, ad copy testing, create a flow of operations which allow for product delivery in writing, work against one metric: profitability)
  7. Have a daily task list or repetitive tasks (e.g. see a great affiliate’s example here, on “Mastering The Art Of Getting Shit Done“)

Now that those steps have been completed, we sail onwards.

The process of researching, planning, launching and finally optimizing your new enterprise requires a fine act of balancing. The operational and marketing costs need to be far lower than the marketing costs in order to generate profit.

The usual way that most entrepreneurs approach this process is by defining the product first and only then seeking the traffic that will convert for them, hoping that the equation will balance out.

This however may be a fatal mistake. Being problem focused is much more important than being solutions focused. Let’s take a closer look:

  • Problem focused – the user has a problem, they need a way to pay without cash for businesses that work without cash (example: electric companies, telecom companies, etc.). The user is willing to test multiple solutions in order to solve his problem (e.g. checks, mobile payments, barters, etc.)
  • Solution focused – the entrepreneur has a solution (let’s call it “solution a”), however is this a solution that will convert better than “solution b”? What if “solution a” has a 20% operational cost attached to it? What if ”solution b” has a 4% operational cost attached to it AND it converts better?

The solution is to find a good volume of traffic (to have enough statistical samples to test options), and then test various “solutions” (a solution can also be a different spin on the same product). If your first solution falls flat on it’s face, move on.

The best way to avoid second guessing one’s self is to work with arbitrary benchmarks. Traffic that has some thought put into it (has actually been contextually targeted) should convert (sale \ lead generated) somewhere around 1%. To make sure that you don’t quite too early make sure you get at-least 30 transactions per “solution”.

If the solutions converts at less than 1% for 30 transactions, it’s time to test another solution. This means that 3,000 hits have been used up for this test. The question now is, how will the next 3,000 hits work with the next solution? To (re) clarify: a solution doesn’t necessarily mean a new product. It can mean a new value proposition, or a new landing page. Which is why we stressed the need to have a good procedural system (landing page system, traffic testing, ad copy testing, etc.)

And, so now that we agree that a model is useful to create certainty, how do we know what traffic sources to avoid from the get go? Well, let’s take a scenario:

  1. Scenario A:
    • Traffic converts into sale at 1%
    • That transaction is worth $100
    • This means that 400 click generate $400 (in profit, this includes your fixed costs)
    • Thus, the Earnings Per Click (EPC)  are $1.00
  2. Scenario B:
    • Traffic converts into sale at 0.80%
    • That transaction is worth $150
    • This means that 400 clicks generate $480 (in profit, this includes your fixed costs)
    • Thus, the Earnings Per Click (EPC) are $1.20

And so, when we approach which traffic sources to consider we can see that a different value proposition \ product \ offer can afford us access to more expensive traffic sources. Scenario B allows us for a 20% higher spend on marketing.

Having a $1.20 EPC is very nice. But it doesn’t address the reason why we went into business: profits(“entrepreneurship is solving problems with a profit” ~ unknown). As we are working with a model, we can now set what profit margin we want by capping our EPC at 50%, or $0.60 (or any other profit margin). Based on these set of assumptions for scenario B, here are some priorities for marketing our winning solution (by order of preference):

  1. Media Buys – geo targeting of for Africa, for example.
  2. Email marketing – email list sponsorship or rental from Kiva, for example.
  3. Pay per click – Africa is pretty low cost in terms of CPC, but to be honest getting a credit card transaction there is pretty hard as well – so maybe our example isn’t great in that respect. But a $0.60 CPC in the US would be a pretty hard sell in terms of getting CPC volume. Maybe for this scenario South Africa would be a sweet spot in terms of CPC costs and the availability and acceptance of e-commerce for buying the ebook).
  4. Online public relations – reach out to bloggers in the niche (Alexa smaller than 200,000), get in some interviews and tie it in to your SEO strategy (this however is not recommended at the testing phase, as you first want to make sure you’re focused on the right direction in terms of what solution you’re working with).
  5. SEO – see note above, not recommended for the testing phase.
  6. Affiliate marketing – really best reserved for the last phase. If you can’t market your product for a profit, there is no reason that another marketer who by default is far less dedicated than you, would do a better job. A 2% conversion rate is recommended for your funnel before you consider affiliate marketing.

A final consideration is your funnel. More on that next week.  It’s important when you’re hunting down your whale to get it through the right sequence of steps. These steps ensure that not only you can convert with a profit, but also truly maximize your efforts.

So to answer our original question: What are the steps required to build a basic online business to start with? We must consider:

  1. Use the right underlying principles (dynamic business model, traffic is critical, focus on profits and build a list).
  2. Work logically (opportunity, demographic, business model, distribution, partnerships, procedures, daily tasks).
  3. Test models (work off the EPC metric to make life simple)
  4. Prioritize promotion roll-outs based on the test models (media buys, email marketing, pay per click, online public relations, SEO, affiliate marketing.

Having a plan, a model and clear funnel vision ensure you have a system to gauge the risk and rewards involved in each phase of your project.

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