Friday, May 11, 2012

E-commerce for Dummies, Part 1: What Is an Internet Store?

This is my 300th post. There are 299 others like it. I’ll wait here while you go back and read them all.

Throwing my wife’s thoughtful suggestions for my “guest lecturer” gig to the winds, I decided to write about something interesting instead. I think her e-commerce grad students will find these three topics entertaining:

1.    What is an Internet store?
2.    Where does a dollar go?
3.    Self-employment: The good, the bad, and the ugly

My only payoff for doing this is the blog posts that I can get from publishing the first drafts. Here’s the first one (865 words): 

What is an Internet store?  
Besides being a state of mind, it’s mostly ones and zeroes. The muscle and guts of Curio City Online are:

•    Shopping cart software on a rented server;
•    The MySQL database that the shopping cart creates;
•    A Quickbooks company file;
•    A couple of Excel workbooks;
•    A checking account and two credit cards;
•    A Google AdWords account;
•    A UPS box (address) and a cell phone number; and
•    400 square feet of cellar space, more or less, devoted to merchandise and shipping supplies.

But first, the bones: Every business starts as a concept. Unless you have a specific passion, that’s harder to nail down than you might think. Curio City’s concept didn’t come into focus until I’d been in business for several years, and it is still evolving. Read my blog posts tagged “early history” from the bottom up if you want the full story.

Three layoffs in two years persuaded me to make a career change, and a small inheritance made starting a business feasible. My background in writing and editing, bookselling, and computer game development led to retail as the easiest and potentially most lucrative path.

After ruling out opening a bookstore, a game store, or a hobby shop, my search for a niche that wasn’t already owned by either a mass market retail chain or a category-killer web store settled on the vague label of “gift shop”. Keeping the store’s name non-specific would give me flexibility, and I could use the store’s website to test merchandise before making big inventory commitments.

Researching my business plan convinced me that brick-and-mortar stores can’t possibly make money. Rent, loan payments, and payroll (in that order) consume all the revenue. All of the desirable locations that I scouted were far too expensive, and all of the affordable leases were undesirable. I refused to go deeply into debt unless I was sure that it would pay off, and my spreadsheets were adament that it would not.

My wife’s suggestion that I start with the website first and worry about the store later broke the stalemate and led to Curio City Online as a home-based, one-man business. It took the Great Recession to finally kill the idea of opening a physical store (again, read from the bottom up if you want the full story).

Now to put some flesh on those bones.

The skin that Curio City shows the world is a licensed software program called Sunshop. There are a lot of competing shopping carts on the market (wiki has a good list) ranging from free up to $800 or more. The shopping cart’s front end displays products and enables checkout. Its back end is the interface that I use to manage my products, transactions, and customer accounts.

A MySQL database forms the guts under that skin. A web store is essentially a huge collection of data tables that one only need deal with directly when something goes wrong. The shopping cart manages that database.

Quickbooks is the desktop accounting software that organizes all of that MySQL data into a business. Although far from beloved by its users, Quickbooks has owned at least 75% of the small business accounting software market since the 1980s.

The Excel workbooks that I had used for research evolved into inventory and sales tracking tools that I find more useful than QuickBooks. I’d be lost without my Excel files, but this is a personal quirk. Most businesses get by just fine without them.

Cash is the life blood of any business, and that involves banks. Money arrives through a credit card processor, PayPal, or Google Checkout (all of whom take a cut off the top), rests briefly in a checking account, and quickly departs through Mastercard and Amex cards. When small businesses fail, it’s almost always because they lost control of their cash flow.

Google AdWords (and Microsoft AdSense) sell advertising on search engines. I pay a small charge (typically around 25 cents) every time someone clicks one of my ads. “Paid search” drives more than 80% of my traffic so maximizing the bang for those bucks is crucial.

My UPS box and cell phone are the closest thing Curio City has to a physical presence. Every retailer needs a physical address and a place to receive shipments, and a telephone number is just as mandatory, even if you seldom use it.

Most home-based retailers use dropshippers. These vendors (manufacturers, wholesalers, and importers) ship products directly to your customers without you ever seeing them, usually in exchange for a cut of the sale. Dropshippers free you from the need to buy and warehouse merchandise and from the effort of shipping it. But they also limit you to products from dropship vendors, which is why so many small online retailers sell the same stuff. Investing several thousand dollars and half of my cellar in actual, physical inventory gives me the freedom to carry whatever I want, quality control, and all of the revenue. Eventually (I hope) my sales will outgrow my ability to handle them and I’ll have to outsource warehousing and shipping. I’ve blogged about strategies for kicking it out more than once, although the Great Recession put the kibosh on those plans.   

That's essentially all there is to it. I'll be happy to answer your questions about the specifics.

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