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Rules for building a sustainable online business

The period 1997 to 2000 was marked by the founding of a new breed on internet business known as dotcoms.

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By simply adding an e or .com to their names, companies would see their stock prices shoot. Venture capitalists were throwing millions of dollars into new online businesses hoping to reap billions in profit.

The party ended spectacularly in 2001 when stock markets crashed and many dotcoms collapsed after burning through their venture capital and leaving behind massive debts and broke financiers and investors.

What opportunities did many see in the online world and why did venture capitalists pump so much money into this new industry?

Venture capitalists saw record-setting growth as dotcom companies experienced meteoric rises in their stock prices and therefore moved faster and with less caution than usual.

A few companies survived the bust. Cisco Systems, Amazon and others saw their share prices collapse but later managed to recover. The problem with most of the failed companies was their business models. They relied on harnessing network effects by operating at a sustained net loss to build market share.

These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later. The motto “get big fast” reflected this strategy.

Today many online business models are not generating significant revenues. The owners of Facebook, Twitter, Pinterest and LinkedIn believed that if they offered valuable services for free, one day they would be able to monetise their business models. Facebook did so last year by pushing its paid advertising service.

LinkedIn offers premium services in addition to the popular free ones. I use WordPress for blogging. The basic service is free, but if you want more, like custom design, bigger memory size and audio and video uploads, you then have to pay for premium upgrade.

Thousands of entrepreneurs are making money online, including here in Zimbabwe. Learning from the successes and failures of internet entrepreneurs, I have discovered some fundamental rules that are essential to success in online business.

Rule 1
Have a clearly defined business model. Early internet entrepreneurs could not define their business models. Today the most successful models online include retail (like Amazon, Zimazon.com, magrosa.com, Innov8bookshop.biz); advertising (think Google, Facebook and most online media, including this newspaper); subscription — where people pay to access information and other services, and freemium, where basic services are free and upgrades come at a price.

Rule 2
Offer real value to customers. If customers don’t see value, according to their perception, they will not pay. Some traditional brick and mortar companies have succeeded online because they were already well-respected and offering good value.

The new internet entrepreneur faces the challenge of building respect and value when building an online only business. You need to apply the basic marketing strategies to get the business known. Get your first customers to spread the word and you will build your customer base as well as market credibility.

Rule 3
Educate customers. Your site should educate customers. Offer lots of information about your product and service to build trust with customers. Tell the truth and showcase the product.

Rule 4
Constantly stay close to customers’ pulse. The internet’s ability to spread information to millions of people instantly is a plus for your online business.

But it can also spell doom if bad news spreads about your business. You need to hear what customers are saying and attend to problems and complaints quickly. Providing room for customer feedback will help in this regard. Social media conversations will also help, so connect with your customers on Facebook and Twitter to hear their see their thoughts. You can also use Google search tools to gather information on what is being said about your business on the web.

Share your ideas, advice or ask questions on entrepreneurship at Facebook.com/pages/SME Businesslink. Until next week, best wishes in growing your business.

Phillip Chichoni is a business planning consultant who works with SMEs and entrepreneurs. You may contact him by emailing to chichonip@smebusinesslink.com or visit http://smebusinesslink.com

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