5 MOST FUNDAMENTAL TRIED AND TRUE PRINCIPLES FOR SUCCESS IN ONLINE BUSINESSAfaq Khan
What are the most fundamental economics principles that apply to an online business?
Economics 101 apply as much to online businesses as they do to their offline counterparts. These are the tried and true principles that you need to keep in mind before you start an online business.
Let me summarize.
- Your time and energy spent in running a business is directly proportional to your sales or revenues, it is NOT proportional to your net profit even though that’s what matters most at the end of the day. As they say, it’s not what you make, but what you keep that matters so focus on business models that allow you to have very high net profit margin. Unfortunately, any business that deals with physical products (as opposed to digital) esp. when using a platform like Amazon FBA, would hardly ever offer you margins over 35%.
- As Mark Cuban said, “only fools start business on loan”. It doesn’t mean you have to say no to external cash infusion that’s needed for growth and scale, what it means is that, don’t let easy money distract you from creating you the most value for your customers or market. No amount of cash will buy or guarantee you market success, otherwise every startup chasing a $1B+ market would do well.
- One of the key benefits of getting into online businesses is that they allow you to tap into set-and-forget operations on the basis of software, tools and SaaS platforms. You’ve to make sure that you fully leverage the automation and outsource what can’t be automated.
- While it may seem obvious, but you gotta solve a real problem with a compelling solution or it isn’t worth it. You need to use that compelling solution or convenience that your solution provides to carve out a space for your business.
- While one-time sales are always welcome, you want to have continuity products, i.e. products that allow you to offer subscriptions that have recurring billing. Why is that important? It is a big deal for many different reasons such as predictable monthly revenues, optimized customer LTV, and much higher valuation (x4-x5) if you ever decide to exit.
Last thing you want to do is to pick a model based on what’s hot or in fashion or what someone else used successfully, remember your mileage may vary.
Last but not least, subject matter discussed in this post, as well as others, is covered thoroughly in various online courses offered by Private Label Mastery.
Please feel free to share your questions or comments, I will be answering them over the next few days.
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