A recent reader comment (from Matt at To One Million and Beyond) stated:
I’d love to hear some of your experiences with your online businesses as I’m about to start one (possibly two) in the next little while. What kind of successes, failures, and difficulties did you encounter?
While only one of the businesses that I have had has been an online business, I thought I’d share some of what I experienced. Before we were married, my husband & I formed a partnership to start an online business that licensed stock photography. The premise was that customers would be able to download the photos they needed from our web site after paying a royalty-free licensing fee. Our target customers were those in the mid-range — people who did not want to or could not afford the licensing fees charged by companies like Corbis, but who were willing to pay more than say what you would be charged by companies like istockphoto.com. Basically, our target customer was me: web site designers working for small clients who needed photos that they had the legal right to use. This is one thing we did right: start a business in a field that you know something about that you also see an unfulfilled need in. I knew web design, my sweetie knew computers, and both my sweetie & I knew photography. (I often shot photos for my web design customers, because I couldn’t find exactly what I needed elsewhere at an affordable price.) I also had previous experience starting a successful business.
We chose a Limited Liability Partnership as the business form (which I believe is only available in some states — if it had not been available we would have selected a Limited Liability Company instead). We had a written partnership agreement that spelled out what we were each bringing to the partnership and the various means by which the partnership could be dissolved. This is the one step I would not skip in starting a business: clearly laying out how the business can be dissolved and how each person with an interest in the business can get out without dissolving the business. Assume the worst case scenario — a part-owner who is sued, a part-owner who dies and leaves their share of the business to someone that is out to ruin it or who divorces with the result that their share of the business is tied up in a legal battle, etc. Be sure that your business can pass the bus test, or if it can’t, that nothing significant is lost when it instantly closes. If nothing else this kind of planning really makes you think things through, and well-planned businesses have a significantly better chance of success.
Speaking of well-planned, another step to be sure to take is writing a business plan. So many people start companies, and the first thing that they think of doing is creating the business name and a business card. Those should be pretty much the last step. There is no point in doing those things until you have a very good grasp of whether or not there is any chance that your business will be viable, and you can’t know that until you know exactly what your business will do, who its customers are, who its competitors are, the form it will take, how it will be run, how you will market it, how much it will cost to start & maintain (including fees like web hosting, credit card processing, and bank fees), and how long you can go without taking any income out of it. We also got legal advice from various types of attorneys (including a couple of intellectual property attorneys) and technical advice from people who knew Linux, our chosen operating system.
So…those are the things we did right. The biggest thing that we did wrong was underestimating just how many photos we would need in order to be able to compete successfully in our target price range. Realistically speaking we probably should have had at least 10 times the number of photos that we did. We had traffic, and we had customers, but unfortunately we also had people doing searches for photos that we didn’t have. We also did not expect that istockphoto would take off the way that it did right at that time — their business model was better, and had we used the same one (allowing ANYONE to contribute photos, rather than just licensing our own) we would have been on the scene at exactly the right time with the right amount of photos. So, not thinking broadly enough was an issue. Or rather, thinking that others would have the same concerns that I did was the issue. Chalk that mistake up to not doing enough research on how our target market actually thought and felt. I never actually asked other people, “Hey, when you license a photo for use, do you care who took it? Are you concerned about whether or not they really have the right to let you use it?”. We had the needs down right, but not some of the details. And the devil is in the details.
All of those were hurdles that we could have overcome, if we had had the patience and money to do so. But we got discouraged, and we grew tired of seeing consistent losses. Knowing when to stay the course and when to fold can be difficult. In the end, we decided we weren’t committed enough (and we weren’t willing enough to change) to do what was necessary to make the business profitable. We had a very good idea, just not enough follow-through or money. So we cut our losses and moved on. But, even though the business itself was not a success, I do feel that the experience was worth it. You can learn a lot from analysis of what worked and what didn’t work, and use the experience elsewhere.