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lancelotarnold

How to start an online business? First analysis to be made: product-market fit.

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The main prerequisite is that the product should be hard to find. Selling a product online which can be easily found in local stores is risky. This is why it would be beneficial to find a completely “new” product (jacket with electronic functions), a known product with a special twist (customized) or one that is catered towards a niche (environment-friendly or full-body customers are two examples).

Another aspect to be taken into consideration is how crowded is the market. While this can be a great sign for a potential investor (having companies which have reached an interesting market share), it also means that investments to increase brand awareness will be consistent and require important amounts for the marketing strategy.

Even finding a product which shows the previous characteristics, the search is far from over. In particular, we are looking for a product which is:

  • Not too expensive. If we are bootstrapping and we do not use dropshipping, thinking of selling products for more than $200 could be problematic from a cash-flow perspective. An excessive inventory could hurt our ability to use funds in the short term, especially if we are still testing the e-commerce with an initial investment.
  • With good marginality. Actually, the price itself is not as relevant as the marginality. As long as we have a good margin (at least 40%) we can sell items on our store with confidence. This is also a great reminder on why promotions and sales should be carefully crafted in advance, as a 20% discount on the complete purchase widely differs from a free shipping on the order or from the possibility of adding a complementary item for free on the same order. The cash flow should not be underestimated in this regard.
  • Easily sourced. Are we sure that it would be easy to sell 10 as well as 1000 of these items per month? Which are the alternatives if there is a problem with our main sourcing partner? Generally speaking, various startups try to reduce the risk dealing with multiple suppliers at the same time. The issue, in that case, is creating a consistent experience while having to rely on different manufacturers. On the other side, there is a certain security that the website won’t suffer from an “out of stock” option anytime soon.
  • Easily shipped. Shipping is widely underestimated, as it should be automatized and also properly communicated to the consumer on the website. When the competition is made out of retailers, the “free shipping” could make all the difference and is easier to absorb if we are dealing with smaller items.

ftaccelerator.it

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