How to Start an Online Business in 5 Steps
15 min. read
Updated November 13, 2023
There are plenty of benefits to starting an online business. You can work from home, set your own hours, focus on a niche you care about, and typically avoid substantial startup costs.
While starting a business online may be more accessible, in order to grow and maintain you must follow a similar process to starting a traditional business. To help you navigate and successfully launch your new business venture, here’s our five-step process to starting an online business.
1. Decide on a business idea
This first step likely sounds like a no brainer. But you’d be surprised how often potential entrepreneurs jump ahead to branding or web development before having a firm idea in place. Here are a few things to consider when sorting out what your new online business will be.
Why are you doing this?
It’s a simple question to ask yourself and the answer can very well determine if your business will be successful. Every good business needs to have a mission and a purpose behind it. And you need to be sure you’re pursuing the startup with the intention to keep it going. Sure, you can have an exit strategy in mind, but if you don’t have the passion or drive to push your business forward it won’t get very far.
Are you leveraging your strengths?
Alongside the first question, it’s also good to ask yourself if you’re really equipped to handle your new business idea. Developing a business around a hobby, skill, or side hustle that you know inside and out gives you a certain level of expertise to leverage. It can help you build clout amongst potential customers and provides familiarity to fall back on as you learn how to manage and grow your business.
What problem are you solving?
Now just because you have a certain skill set or hobby that you like, doesn’t necessarily mean that there’s a market for it. You need to be solving some sort of real-world problem and ensure that there are potential customers that are looking for a solution.
And if there are, is there competition already solving that problem? If so, how will you differentiate your business to compete? Walking through a market analysis and confirming that a problem exists and that there’s room for your business, ensures you aren’t wasting your time with a nonexistent or crowded business concept.
Can your business function solely online?
A unique aspect of starting an online business is determining whether it can solely operate online. Something like a SAAS business or online learning business likely doesn’t require any sort of physical infrastructure to operate. But an eCommerce business, on the other hand, requires physical shipping and distribution and has the potential for a physical location.
This is just an element you’ll need to consider, especially if you’re operating from your home.
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2. Validate your business idea
After you’ve determined that you should start a business and have an idea in mind, you need to validate it. This process can be as simple as chatting with potential customers, asking questions about their needs, and if they’d consider your solution. But when starting an online business there are additional methods you can employ to test the market.
Look through customer reviews
One simple method for gauging current customer interest is looking through competitive reviews. See how people respond, what they like and dislike and check the overall volume of feedback. It can give you an idea of the active market size and if your business concept avoids the pitfalls of current offerings or features some of the requested additions mentioned in reviews.
Set up a landing page
Without setting up a full website, you can run a simple preview landing page to tease your business, product, or service. Give a quick rundown of features, pricing, a release window, etc. and include an email subscription signup prompt to start building out a mailing list. Then it’s as simple as running a handful of social media or search ads that target your potential customers to drive traffic to your website.
Validation here is somewhat up to you. Do you base interest on the number of visitors that checked out your website? The number of email sign-ups? Social shares? Whatever the case pick a handful of these metrics and set some goals to gauge success.
Survey potential customers
As mentioned before, one of the simplest ways to validate your business is talking with customers. But if you can’t interact with them in-person, another option is to conduct online surveys. Similar to driving traffic to a preview website, you can simply run a handful of digital ads promoting your survey to gather responses.
And if you already set up a landing page and started gathering an email list, you can even send out your survey to those that already displayed a level of interest. This may be even more vital, as you can ask more specific questions with a greater chance of receiving actual feedback.
3. Start your business plan
Once you’ve determined potential interest in your business, it’s time to start developing your business plan. Luckily, as you’ve gone through the process of defining and validating your idea, you’ve actually laid out the initial pieces of your business plan. But now you need to place it in a format that you can use to pursue funding, forecast financials, and regularly revisit as your business grows.
Start with a Lean Business Plan, something you can do in 30 minutes rather than six weeks. A Lean Plan is quicker and easier to write and distills your plan down to the essentials. Here’s a free Lean Planning template that can help you get started.
Conduct a market analysis
You’ve already done pieces of a market analysis through the exploration of your business idea. But conducting a thorough market exploration alongside a SWOT analysis is necessary to confirm the market for your product and identify your competition. It can also help you determine pricing models, distribution methods, and other potential competitive advantages you can leverage as you enter the market.
Consider funding and success metrics
Take some time to identify your startup costs and think through how you plan to fund your business. Even if your online business will just be a side gig, for now, do yourself a favor and think through the business and sales metrics that you should be tracking so that you know if you’re heading in the right direction.
Review those metrics regularly, comparing what you forecasted with your actual sales. You can do this with a set of spreadsheets, but a business dashboard can help you stay on top of your finances, and if you use a system like QuickBooks, you can even automatically pull in financial information so you don’t have to add it manually.
4. Set up your website
With your business plan in hand, you can now look to get your website up and running. But this won’t be as simple of a process as setting up a preview landing page. There are a number of decisions to be made regarding hosting, platform and design to effectively represent your business. Your website, especially for an online business, is the greatest representation of our business and needs to accurately reflect your products, services, and mission.
Here’s what you need to consider when setting up your company website.
Third-party platform, eCommerce marketplace or build your own eCommerce site?
An eCommerce site is the most direct form of online business you can start, compared to a business that uses a third party platform or marketplaces like Etsy, eBay, Amazon, or Airbnb.
When you build and host your own eCommerce site, you will be selling your goods and services directly to your customers, without a “go-between.”
Hosting your own site
You retain control. The best part about a direct eCommerce site is the level of control you have over your store. You’ll be able to customize virtually every aspect of your eCommerce site, including the look and feel of your store. But this flexibility can make the process of getting started more complicated, too.
Focus on user experience. Your biggest considerations with an eCommerce site will be setting up your website to offer the best user experience. Choosing the right web design is crucial, as is making sure that your shopping cart software is well-suited for your business. Be sure to check out the various shopping cart options available—from Shopify to X-Cart and many more.
Do you need to build from scratch? Also keep in mind that depending on your particular business, it may or may not be necessary to build (or pay someone to build) a site from scratch. Especially when you’re in the early stages, options like Squarespace and Shopify simplify the process of setting up an eCommerce site by providing templates that don’t require much if any knowledge of HTML or coding.
Using a marketplace
There are more and more third-party eCommerce marketplaces available, like eBay, Etsy, Amazon, and even Airbnb or Fiverr, depending on your product or service. Building a business through one of those eCommerce marketplaces can simpler, since you’ll have to make fewer decisions, and you won’t have to build your website yourself—you’ll use an existing template.
However, one way or another, you’ll end up paying to use that third-party platform. Some sites charge by the number of product listings you use each month, and others, like Airbnb, charge you a service fee when you accept a booking.
Evaluate the pros and cons. The fact that your customers will have to visit the third party to buy from you has benefits and drawbacks. If you are interested in renting out your vacation property, using Airbnb’s platform means that it will probably be easier for anyone to find you when they search for lodging in your area because of Airbnb’s growing popularity.
But it’s also easier for consumers to compare similar products, which makes your ability to differentiate yourself more important. For instance, if you decide to use Etsy to sell handcrafted cutting boards when a potential customer searches for cutting boards on the site, they’ll wade through potentially hundreds or thousands of relatively similar listings.
Focus on what makes you stand out. If you’re using an eCommerce marketplace, pay particular attention to the quality of the images you use on your page. Good product photography can set your listing apart. But remember, hosting your own eCommerce site isn’t a free pass for using mediocre images either. Either way, customers will rely on images to form an opinion about your product or service’s value.
Pick the right platform. Have you ever tried to sell a $10,000 fine oil painting at a farmers market? It’s not entirely impossible, but it’s pretty rare. Pay attention to whether the marketplace you’re considering attracts people in your target demographic.
Also, keep in mind that there isn’t really one platform that works for every type of business. Take the time to research the best one for you. If you’re selling art or crafts, look for a platform that is used by other artists. If you’re selling used comic books, look for a platform that attracts lots of shoppers looking to buy used comic books. And read the fine print. Almost every platform has its own list of prohibited items.
Decide on a name
Deciding on your business name and registering your domain name should be done in tandem. The last thing you want is to find out that one or the other (the domain you bought or the name you chose) is registered to some other business.
There are clear benefits to having a domain name that’s the same as your company or product name. You want to make it as easy as possible for people to find you when they search for you online. The same is true when you’re naming your storefront if you’re using an online platform like Etsy or eBay.
Build your own site
In some instances, it will definitely make sense to build your own site. If you’re building an actual online product, like a SaaS product, your team probably already has the skills necessary to build your marketing website.
If you’re simply using the web as a platform to sell something analog (clothing or a subscription meal box, for example) or a service like consulting, design services, or even vacation rentals) you might benefit more from using an existing platform, or at least a templated eCommerce option, so you’re not starting from scratch.
Hiring a web design firm is always an option. Either way, remember that it’s never a bad idea to build out a minimum viable product (MVP) site first. Meaning, you don’t have to build a 100 percent perfect site right out of the gate. Test your hypothesis that your product or service is marketable using a lower cost, simpler option at first.
Make it mobile-friendly
It’s still possible to build websites and elect to use templates that aren’t mobile-friendly. You can pretty much broadly assume that it’s a bad idea. However you decide to build your online presence, don’t skip making it mobile-friendly.
If your site is not optimized for mobile, your users will have a less positive experience when they try to find you from their phones, but Google will also penalize you in search results, meaning you’ll be harder for new customers to find organically.
Pay attention to image quality
Poorly lit or sloppily composed images on your site don’t do anything to build your credibility. Whether you’re selling products, ideas, or experiences, using high-quality images will make a difference.
If you’re selling products, either hire a freelancer to do the job right or invest in the equipment that you’ll need to take and edit high-quality photos. If you’re not sure you can afford professional images, check with local colleges to see if there are students looking to learn and build their portfolios that cost less than well-established professionals.
And don’t fall into the trap of settling for terrible stock photos. You know the ones. The super corporate looking or 1997-esque images won’t be doing you any favors, especially if you’re entering a more crowded market.
Think about blogging
Content marketing (blogging) may or may not be part of your initial marketing plan. The key here is to retain optionality. If you’re building your site from scratch or using an eCommerce template through Squarespace or someone else, make sure to build the site in such a way that adding a blog wouldn’t be a major reconstruction.
Consider monetization and affiliate partnerships
Monetizing your eCommerce site through affiliate partnerships and on-site ads is something to consider.
If you do decide to incorporate third-party ads on your site, start slowly, especially if your site is minimalist at first. You don’t want prospective customers to be confused about what you’re actually trying to sell on your site.
Don’t set it and forget it
When you launch your site, if it’s self-hosted, set up Google Analytics, or look into whether your third-party solution can offer you monthly insights on how well your site is performing. Use that data to test small changes to your site that might have an impact on your sales.
5. Make it legal
There are a few steps you’ll have to take to make sure your business is legal. While generally speaking, the same rules apply to online businesses as brick-and-mortar businesses, there are a few subtle differences.
Read up on online business regulations
The most important distinction when it comes to doing business online versus in person is online business law. These laws regard the distribution of your customer’s personal information, as well as other privacy and intellectual property regulations. The SBA offers suggestions for staying legally complaint and offers free business counseling to help get your questions answered.
Register your business
Decide how you want to set up your company’s legal structure. Lots of businesses opt to form an LLC, but do your research to figure out which is best for you. State-specific requirements will, naturally, vary state by state. Visit your local secretary of state office’s website for more information on compliance at a state level.
Learn about tax obligations for running an online business
Do you operate your business from your home? If you run an online business, it’s likely. As such, you may be eligible for certain tax deductions. You’ll additionally be required to pay income tax, so before setting up your online business, it may be a good idea to consult with a lawyer and make sure that you’re all covered going forward.
Make sure you’re familiar with your state sales tax requirements, but also your online sales tax obligations. One of the best things you can do is make sure that your shopping cart solution is configured properly so that it automatically collects the right amount of sales tax depending on your customers’ location.
Maintaining your online business
Ultimately, starting an online business is similar to starting a business with a physical storefront. You’ll still need to validate your idea, do business planning and you’ll benefit from making sure you understand your tax obligations from the start. Just don’t underestimate the importance of putting together a functional website and getting it in front of your target market.
If you need some inspiration when working on your own business plan, you may want to check out some of our online store sample plans. You can even download a free business plan template to fill out as you work through some of the business plan examples.
If you’d like more assistance, you might want to check out our business plan template available through our software, LivePlan. You can also check out LivePlan’s business plan consulting, which will give you a professional business plan written by an MBA in five business days