Online brick and mortar or both
Should Your Business Be Online, a Brick & Mortar One, or Both?
This is episode three in our series on So You Want to Start a Business. In today’s episode we’re going to talk about a very important principle, should your business be a brick-and-mortar business, an online business or perhaps both. And we’re going to help you learn how to decide which it should be, or if it should be both.
Here is a story of two startups. I know both of these people. They have been clients or I have been a co-counselor on one of them, and so I know who they are and I know their history, so I can talk to you about them. I won’t give you any specifics as to exactly who they are or anything like that, but they are both great people, they both had great ideas. One succeeded marvelously, the other one didn’t do so well. So, anyway, let’s talk about them.
The first one is the one who had an original design, it was a baby carrier, not this one, but it’s a carrier she designed for moms to carry young babies, newborns up to, you know, a few months old. It was designed specifically to be sold online, and she actually did really well with that, to the point that she expanded radically and I don’t mean that in a bad sense, I mean she just did really well.
The other was another client that came in but they made a bunch of decisions before they talked to us. This particular client had the idea of starting a business for selling pet accessories, like the one on Rover here, little caps and bandannas and cat jewelry, and hairpins, and all kinds of stuff that could be sold for animals, for your pets. Her idea was to sell these in a shop and by the time she came to see me she had already signed the lease on the shop so she was going to sell these from this business location, which requires traffic and it requires fixtures and tenant improvements and the like. This didn’t work out so well. This business actually did not survive. So here’s why it didn’t work out so well. The cost for these are not the same. Running a business online as opposed to running a business from a brick-and-mortar place is very different. So let’s take a quick look at this and see. You see one of the secrets in business which we’ll talk about in just a little bit is the ability to control costs. You’ll understand before you get very deep in this, how much this is going to cost.
If you have an online business, you’re going to have several things. You’re going to have a hosting service for your website and that is roughly equivalent to a lease on a building somewhere or purchase of a building, usually people lease a storefront at a mall or strip mall somewhere. And that’s a monthly cost, you’re going to pay that every month for your hosting service and it won’t cost much, literally from five to ten dollars a month for a quality hosting service at HostGator, or DreamHost, or HostWins, or BlueHost, or one of those. There are a lot of them there, GoDaddy is another one that’s out there that you can can host from, and so it won’t cost you much. And then you have website development. This is what TI, means Tenant Improvements. That’s the equivalent of building out your business, if you think of a hosting service as a plot of land and then your platform which is usually WordPress, because it’s a good content management system, it has plenty of e-commerce plug-ins that you can use. Then that’s a bare building. And then your website development is what the building is going to look like, the rooms that you’re going to have, that’s the pages and the services you’re going to offer online. And branding in terms of colors and fonts and the design. Generally that’s a one-time cost that if you don’t have this talent yourself, and most of us don’t, then you’re going to have to hire this done. That can be anywhere from a few hundred to a few thousand dollars, depending on the complexity of website development and who you hire to get it done.
Then there’s marketing, because you need to drive traffic to your website. Just because you build it online doesn’t mean anybody will ever find it. There’s over a billion, that’s a thousand million websites online, and so you’re going to have to help people find you. So marketing is the key there, and you’re going to have to spend some money typically, and certainly a lot of time and expertise, and that’s usually a monthly cost, but it can pay huge, huge dividends. It’s the equivalent of putting your business in the best location.
The hosting service is just digital space, it’s not good, it’s not bad, it’s just space.
Marketing is what determines where your business is positioned in the great array of businesses online and how people are going to find you because nobody makes any money until somebody buys something.
Somebody has to buy something, and before they’re going to buy it from you they have to find you and they have to want what it is that you have. Not every person who browses the Internet is looking for what it is that you have for sale, you have to find that person.
Then the next cost here is maintenance and security, which is a monthly cost of fixing things that go wrong on the website and updating plug-ins and updating your platform and doing security issues. And I’m here to remind you, you really do need security. There are some plug-ins that you can get that are not expensive. You will be hacked, everybody is hacked. We have been. We are every day. We get notice of people who tried to hack our websites. So you’ll need security, and that’ll cost a little bit of money, but not very much, figure 20 or 30 bucks a month.
Then you’ll need office space, but you can run this from home. All you need is a computer and an Internet connection and you can run your online business at home, because in the case of the person here on the left who was selling, she was manufacturing first in her home. But then business got so good that she had to outsource that to other people, little sewing manufacturing facilities, they were producing these things for her, and then she was storing them in her garage. Maybe you might have to store these in rented storage space or something like that, but that’s not the cost of doing business that we’re talking about here, what we’re talking about here are the two similarities of actually having a storefront from which your business can function.
Now, for a brick-and-mortar business there are some similarities, but they’re not equivalent in cost. In an online business you have a hosting service, in a brick-and-mortar business you have a storefront that you have to lease somewhere or a shop if you’re doing that sort of work. Now, some businesses, of course we’ll talk about that in a minute, don’t lend themselves online but most do. So, if you’re going to have a storefront business, you’re going to have a lease that has to be paid. That lease will be from one to five years depending on what you negotiate with the landlord.
Then there will be TI, that’s tenant improvements. That’s the build out, inside on the fixtures, carpeting, paint, room divisions, office equipment, point-of-sale equipment, all that kind of stuff that goes in having an brick-and-mortar business. And that’s a one- time cost, they can be substantial.
That’s where the lady that has this little pet boutique business came in. She’d already leased the building, and she was now trying to do some tenant improvements to it. We’ll see in a minute how that was a big mistake.
Then there’s website development because you probably will want a website as well for your business, at least a location website, even if it’s one page and here we are and here’s our hours. You’ll probably want that because nobody uses Yellow Pages anymore or a phone book, they look online for products or services they are looking for.
Then you’ll have utilities, phone, power, Internet, water, that will be a regular cost to you.
Then you’ll have marketing, because you’ve got to drive traffic. Just because you build it doesn’t mean anybody will find you. So you have to be able to market that. So marketing is very, very important because people have to find you.
Then there’s maintenance and security on the building, depending on what you negotiate.
And there’s also going to be taxes. As for office space you can probably have the office in your storefront building.
Okay, now, some businesses can do both. Some businesses actually should do both online and brick-and-mortar. Some businesses can do both. You can be both an online business and a brick-and-mortar business. Some should do both even though they may only be one, and others can only be one type. A restaurant for instance, not going to work online, although you’ll have a website but it’s not really your business, your business is in a brick-and-mortar place. Same way with a repair business, people don’t typically send things like a car to an online place, they find it online and they take it there. Okay, so that’s the differences.
For either business type all costs, and we went through some of those, all costs must be covered before you, the business owner, make any money. So you have to cover the hosting service and pay for the website development, and pay for the marketing costs, and pay for maintenance and security, and pay for any office equipment that you had to buy before you make any money. If you have a brick-and-mortar business that monthly lease payment has to be paid, and all those tenant improvements have to be paid for, and all of the utilities have to be paid for every month, and any marketing that you’re doing has to be paid for, and any maintenance and security have to be paid for, and that office space that you’re using costs you every month because you’re taking up square footage in a piece of property for which you are paying a square footage price. So all of those have to be paid for.
Now, happily, the lady who was selling the baby carriers, she did great because her costs were low and she kept them very low. When it came to the other one, she didn’t survive, the pet boutique did not survive because she had the wrong type of business location. She should have been, could have been an online business, because that opens her up to the world. If you have a local business your traffic is going to come from local people. If you have an online business your traffic is going to come from everywhere. So instead of being able to sell pet boutique items to local pet owners she could have been selling pet boutique items to all pet owners anywhere, and that’s what would’ve been the advantage. She didn’t make it because she didn’t start the right type of business. It was the wrong type in the wrong place.
Now, controlling cost is key to a profitable business and in none of those do you want to go crazy with spending fabulous amounts of money before you get things up and online. You want to get by with what you can because it cost money to start businesses so it’s time to evaluate and consider carefully before you sign a lease, before you buy a hosting agreement, before you spend any money, evaluate and consider carefully, talk to a business mentor. Talking to a business mentor, someone who’s experienced in starting businesses is so important, particularly if you’ve never run one before. You can find them at local universities and colleges, there may be a business organization in town that can help you out. Go to Score.org if you are in the United States, Score.org, they have business mentors who offer free mentoring services all throughout the United States. Talk to somebody and determine exactly what is the right type of business that you should be offering.
Next week we’re going to talk about how much money you’re going to need. The idea of raising capital is always critical, always important, never of understood well and finding sources of capital is another problem that we’re going to address. See you next week.