8 Pitfalls To Avoid When Starting An Internet Business

I’ve been thinking lately about starting another Internet business. I’m not actually going to (right now), but I was considering my future and also what I might do hypothetically if today I decided to dedicate myself to a new project.

Over the past years of running an Internet business and studying information marketing and strategic business development I’ve come to realize there are some important things I would not do again – some pitfalls I would avoid right from the get go if possible. I suggest if you are just about to start your own Internet business or are at the early stages of developing your plan, that you heed my advice and avoid these Internet business pitfalls.

1. Don’t start a business teaching how to make money online.

This is the number one rule. Unless you are currently making millions online using innovative techniques and you have plenty of built up credibility and contacts to leverage for testimonials and endorsements, you won’t succeed teaching how to make money online. There are too many Internet marketing gurus already and the marketplace is saturated. The only way to differentiate yourself is through personality and social proof, and only well established marketers who already have had Internet business success stand a chance.

I’m not saying it’s not possible to be the next Internet marketing guru, but if you do decide to chase that goal you are facing stiff competition and a very jaded consumer. It’s won’t be easy to prove that you are different or any better than the other thousands out there proclaiming to have the next guaranteed formula for success online.

The same goes for bloggers too – don’t try and teach how to make money blogging unless you already make good money from it and can teach something new and different from the many other bloggers out there teaching how to make money from blogging. Earning your first $100 AdSense cheque does not qualify you as an expert. Sure you no doubt have some value to contribute, but if you want to base your business around your skill you better be really good at it or at least be very honest with what you are proclaiming to be or to offer.

2. Choose non-Internet related niches

This is not a hard rule but you will definitely make your life easier if you choose a niche that isn’t Internet related. Like point one, if people already do it online chances are the market is saturated. The markets that have untapped potential are those were the existing offline successful businesses don’t leverage the web…yet…or the opportunity lies in taking an offline business model and enhancing it by using the web as a distribution method or marketing channel.

If you come across a high-demand offline business model that has yet to be marketed online you can jump in and be first to market and establish yourself as the online expert. The best part – your prospects won’t have already been bombarded by online marketing techniques so even the most basic marketing efforts will likely result in tremendous rewards simply because you are first in to a virgin marketplace. These markets are not jaded from over exposure to Internet marketing so you don’t face as much sceptical resistance.

Of course if you do pick non-Internet related niches there better be a reason you can succeed at it. You need to be leveraging your strengths and for some of us (me included) it’s often difficult to find strengths that are not Internet related. Which leads me to point three…

3. Don’t focus on making money

In the past I’ve confused the enjoyment gained from building a business with the rush of making money. If the only thing you look forward to about your business is the money you will make or currently earn, it won’t last. It won’t last because you will only succeed until a better competitor enters the market and takes your money away (and takes your enjoyment as a result) or your business won’t grow because you are not actually leveraging anything you are good at. Making money is not a skill – it’s an outcome as a result of a skill.

You must base your business on two factors – market potential (a hungry consumer) and your strengths. If you don’t do this you will fail, or at best be mediocre.

4. Don’t enter a tiny market

One major pitfall is finding a hungry market but then realizing it’s tiny. There is nothing worse than fighting with competitors for the small handful of customers available. You can try and stick it out and hope you will be the last business standing or be bought out by one of your competitors (or the other way round) but this is not the best premise to be in business for. Be wary of fooling yourself that the market will grow and your business will grow along with it. That might happen, but don’t struggle for too long living for tomorrow’s growth potential if it’s not really there.

5. Watch out for tiny margins

Equally dangerous as a tiny market are tiny margins. If you study pricing and market differentiation you will learn all about premium pricing and discount volume pricing. I’ve discussed pricing and perception points before and no doubt your pricing structure will be one of the most difficult areas to formulate as you go into business. It’s a sticking point for me that I tend to develop and change over time, as hazardous as that may be (see this article for my pricing story).

The one pitfall you have to watch out for is basing a business on a margin that is tight or misunderstood. Ultimately you don’t know how much a margin you can make until you start selling something, so don’t plan too heavily upon making a specific margin, plan for variations. Long term efficiencies and changes to your market positioning can help increase your margins, but there are no guarantees. Early on be especially wary of margins as you will have an inclination to blow a lot of money on marketing and if you marketing costs outweigh your margins, and you can’t sustain your business growth without the marketing, you don’t have a formula for success. Creative marketing can help you through this of course, but just make sure the numbers eventually go to positive given a spread of potential margins (standard deviation anyone? – I can’t believe I’m thinking of my old business statistics class – I hated that subject).

6. Look for leverage points

If you want big time success and explosive business growth you need to find points of leverage. You won’t be successful on any grand scale without leverage because your output will be limited to how much you can do yourself.

Leverage can be a way of using the marketplace to magnify the size of your business (for example many to many business models or user generated content) or through joint ventures or host beneficiary relationships. Leverage is about thinking beyond a solo-mentality and finding ways to use other resources to meet your goals quickly.

Although not strictly leverage by definition, just the act of taking on outsourcers or employees to increase your output is a great start and is the path to a leverage mentality, which leads me to point seven…

7. Avoid self-employment thinking

Most people who leave a day job to start a business begin with a self-employment model. This means you create a job for yourself and add all the other responsibilities that come with business ownership, and lose the benefits that come from employment at a company (remember this article? – Do You Want to Run Your Own Business?). This is fine as a starting point (although you can avoid it from day one) but you must learn to start thinking about business building, which means separating yourself from roles that don’t build your business.

The biggest culprit to blame for self employment thinking is cash flow, or lack of it, since most new businesses have limited financial resources and as such the owner must do everything since they can’t afford to bring in other people. It’s important when deciding what business to start that you see how it is possible for you to stop doing the day-to-day business fulfillment roles (delivery of services/products, support, sales, etc) in the future. If you can’t automate, outsource, or hire people to do these roles, then you don’t have a business model, you have a job model.

8. Be aware of your own limitations

As sad as it might sound, most of us are only truly good at a few things. We can be sufficient at many things, but generally each of us only have a few gifts that can translate into business success. Before starting a business make sure you know what your talents are and how they translate into skills you can use to build a business.

Most of the things I do every day to manage my business leverage skills I have that I would call sufficient. I’m not great at them but I can spend some time and get the job done. This includes things like writing copy, technical jobs like server management, software installation and basic graphic design. Then there are other jobs I do that are routine, areas where you really can’t excel at, they just need to be done and I have to do it.

All of these activities take me away from what I should be doing – leveraging my time on the high value activities that use my talents – things like writing this article now. It’s taken me a while to realize that an important goal in my business is to set up systems and people to do the things that for me are largely a waste of time. These activities are important still – my business wouldn’t succeed without them being completed – but they don’t leverage my talents and I need to have people with talents in those areas handle them.

Don’t worry if right now you are not sure what your talents are but be aware that your goal eventually is to distinguish what you are exceptionally good at and stop doing what you are not good at. Don’t fool yourself into thinking you are the best at everything because A) it’s not true and B) this will lead to solo-minded thinking, which I’ve already mentioned will stifle your business growth.

Yaro Starak
Leveraging Coffee Shops