PracticePeople In PracticeWho wants to be an internet millionaire?

Who wants to be an internet millionaire?

The internet explosion is giving everyone a chance to become amillionaire - or so it would seem. All you need to do is set up awebsite and investors will beat a path to your door. A few shortweeks later, you are floated on the Stock Exchange and richer thanmost nations on Earth.

Not surprisingly, it’s not quite so easy. Yes, it is possible to becomeabsurdly rich, but this involves hard work and big risks. Lots of peoplewill lose fortunes rather than make them.

All the same, we are confident that some people reading this articlewill become internet millionaires. But you’d better hurry – the longeryou wait, the less your chance. Most of the obvious ideas are alreadycovered and traditional bricks-and-mortar businesses are waking upto the web, so there is plenty of competition.

Opportunity knocks?
But there are still opportunities. When the telephone was invented,nobody thought people would get rich using the phone to take ordersfor pizza delivery. Similarly, we have only scratched the surface ofthe potential to do business and make fortunes on the internet.

The rules for starting an ebusiness are the same as for any other.You need a good idea, funding, business sense and hard work. Luckalso plays an important part.

To make big money, you need to go at it in a big way. But even if youaren’t willing to take a big risk, you may still find setting up a modestweb business is fun. Tools are available to quickly get a web storegoing in an area you enjoy – perhaps selling your own handicrafts,setting up a parts exchange for vintage cars and motorbikes, orselling books about some favourite subject.

If going it alone is too big a challenge, you might be able to convinceyour employer to start an online division selling their existingproducts. The tax incentives introduced in the recent budget shouldmake this more attractive. If you can convince your bosses to putyou in charge, ask for share options – if things go well, this couldmake you rich.

Whether you start in a small or a big way, here are the principal stepsin setting up an ebusiness:

Think of a good idea
Make sure it will suit the web
Figure how to earn money
Get a good domain name
Set up your site
Get the right content
Collect the money
Deliver the goods
Market your site
Do deals
Cash in quick
Raising external finance
Ruby Tuesday

Think of a good idea
If you can come up with something original, then great. But the ideadoesn’t have to be totally original. You could just as well launch intoan area that is already covered if you can see a way of doing itbetter or getting more customers.

Make sure it will suit the web
Internet customers are likely to be fickle because they lack thepersonal contact inherent in most businesses. A good internetbusiness offers a simple service that can be delivered usingtechnology and does not rely on loyalty. Although some people preferto buy things online, they are the exception and the novelty will wearoff.

So, a good ebusiness gives people a reason to use it. This might bebecause it’s cheaper or more convenient.

Figure how to earn money
You might believe that you can attract loads of people to a site andthus sell advertising. Think again. An ebusiness is only ever likely tomake a profit if it is either providing a service that people will pay for,or is providing a service that puts buyers and sellers in contact andtakes a commission from this (some affiliation programs offer five percent). Advertising will bring in some revenue but it’s unlikely to beenough.

Get a good domain name
You can buy a domain name (your address on the web) for as little as£20, but most of the good ones have been registered already. If youwant something catchy, you may find you have to buy it fromsomeone who has already registered it and that could costthousands.

Set up your site
Depending on how serious you are, creating your site can be deadeasy or really complicated. At the simplest, you could just use thefree web space offered by ISPs, but this is really only suitable for ahobby, not a business.

The next step up is to rent a package that lets you set up a simple’web store’ to sell a few products – this costs about £25 a month.The off-the-peg web store may work if you are selling something thatis specialised and can never get into large volumes. Web storesaccount for a small proportion of ebusinesses.

If you want to become a millionaire, you will need a serious softwarehouse or web development company to build your site. This couldeasily cost between £50,000 and £200,000. Having to spend this kindof money means getting outside backing. Web companies areperceived as being well funded, so lots of companies offering webdesign are charging top dollar for less than perfect work. Choosecarefully who you deal with and take up references. Study sites theyhave built for other people and give them a detailed specification towork to.

Get the right content
The most important consideration is ‘what will bring people to mysite?’. People may just come to buy something, but the chances arethey can buy whatever it is elsewhere. Content is King. This can beadvice, a directory of useful links, free giveaways or a collection ofarticles on a particular subject. Make sure you have copyright on, orpermission to use, any material you publish or you will soon find alawyer on your tail.

Money spent on content is never wasted. There are countless othersites out there who may want to buy some of your content to add totheir own. This can become an important source of revenue, providedthe other sites are not direct competitors.

Collect the money
If you are selling things on your site, you’ll need some way of takingpayment. Although electronic cash systems are in development, theonly reliable way to collect money over the internet is through creditor debit cards.

To be able to charge credit/debit cards, talk to your bank aboutsetting up some kind of merchant account. They will introduce you toone of eight or so online credit card capture services. These servicesperform the credit card transaction in return for a commission (whichmay total around 4.5 per cent) and handle all the securityprocedures. Unless your company is bonded with a bank, however,you will may not receive the money for up to 120 days – this givesthe customer a chance to dispute the transaction.

Deliver the goods
Another thing to worry about if you are selling goods is processing theorder. The dream is that the website the customer sees will linkdirectly to the ‘back-office’ operation which does all the orderprocessing and despatch. Achieving this is the Holy Grail ofecommerce.

Most high-profile web shopping sites are not integrated: when youplace an order, it arrives at the company office as an email, which isprinted off and the details are manually entered into an existingcomputer system. This is inefficient and tends to make webbusinesses unprofitable.

If you start with a simple web store, it will not be able to cope if thebusiness takes off, so you should be prepared to do a lot of theback-office work manually.

Market your site
A great idea and great organisation is no use if people don’t knowabout it – there is no passing trade in cyberspace. If you wantanyone to visit your site, you have to tell everyone about it. The firststop must be the five major search engines; AltaVista, Yahoo, Lycos,Infoseek and Excite. Each will have a link marked ‘add a URL’ or ‘add asite’ which will take you through a form where you give details of yoursite to be included in the index. There are some services offering todo all this for you, such as www.registerit.com, which is free. Manyothers will offer to promote your site for a fee – you’ll have to decideif the service is worth the expense. Also, try to get on reviewedindexes such as UKPlus.

To become a millionaire, you will without doubt need to invest inserious marketing to tell people about your site and convince them topay you a visit. The big websites are spending fortunes on promotion,including costly television adverts. In fact, marketing a site can be farmore expensive than developing it. Many internet startups plan tospend 70 or 80 per cent of their budget on marketing and promotion.

Do deals
As part of your marketing, you should start looking out forcomplementary sites that you can do a deal with, allowing them topost an advert or put a link on your page in return for putting anadvert or link on theirs. Some big sites will try to charge you a hugeamount for an advert, but you’ll soon find out how good the internetadvertising market is by the large discount they will give you and thedesperation in their tone.

Cash in quick
If your site is successful, you can hope to get rich by selling thecompany. Don’t worry if it isn’t making a profit: in the crazy world ofinternet economics, a high-profile company that is making big lossescan still be sold for a fortune.

Selling shares in the company is called an initial public offering (IPO).This doesn’t come cheap – it could cost about half a million. But thisshould be nothing compared to the valuation of your company.Although this projects your paper wealth into the stratosphere, youmay never get a chance to spend it. Most IPOs see less than 15 percent of the value of the company converted to cash, and the moneywill either be needed by the business or grabbed by the venturecapitalists. If the City sees the management selling too early, theywill drop the company like a stone, so it may be years before you cansell your shares. Good luck, and drop us an email when you’ve madeyour first million!

Raising external finance
You will almost certainly need external finance to get a seriousinternet business up and running. It may seem odd, but if you areaiming to become a millionaire, the first thing you’ll probably have todo is get someone to invest a fortune! Although getting money is noteasy, it’s not as had as it might seem. There is more money flowingaround in the venture capital business than there are good ideas.

Before approaching venture capitalists, build as much of your businessas possible using private capital. As a general rule, the later youinvolve the venture capitalists, the better the deal you will get.

The best source of external finances is friends and family. But beforeyou blow your Granny’s life savings, you must warn potential investorsthat there’s a big risk you will lose the lot. With house prices risingquickly, you may be able to borrow against your home. This shouldfocus your mind on the risks – if things go wrong, you could end uphomeless.

The first thing to do when raising external finance is to prepare abusiness plan. This could easily run to 100 pages. However, no-onewill have time to read this at first, so you must also produce aone-page ‘executive summary’ containing the key points so potentialinvestors can browse your idea. You should also have some kind ofdemonstration available to prove the technical side of your idea.There are many software packages to help you put together abusiness plan and even an online Business Plan Wizard(www.dcfor.com).

There are a lot of spivs hovering around the venture capital business,so beware of getting involved with anyone who does not have a solidreputation.

The big firms such as PricewaterhouseCoopers, Ernst &Young, KPMG and Arthur Andersen have corporate finance teams whomay be able to help. If they take you on, they will not normallycharge you anything unless you are successful, in which case theywill charge you a lot. Never pay an upfront fee to anyone whopromises to raise venture capital for you.

Companies that are members of the British Venture CapitalAssociation (www.bvca.co.uk) have all signed up to a code ofconduct which offers you some protection. The best known companyis 3i, the world’s largest venture capital company, with extremelydeep pockets.

Ruby Tuesday
Another source of introductions is First Tuesday. Since 1998, theFirst Tuesday Group has organised get-togethers for buddingentrepreneurs and venture capitalists, but tickets for these eventsare hot and you must enter into a ballot.

Don’t underestimate venture capitalists. It may appear they areprepared to put money into anything internet, but they areexperienced at maximising their returns and minimising their risk. Theyonly fund a small percentage of ideas, so expect lots of leg work andlots of disappointment.

Rather than just raising investment, you could tie up with anincubator scheme. These one-stop shops for cyber-entrepreneursoffer everything from business consultancy and site building to raisingventure capital. But in return they want a big piece of the business.

Whatever source of funding you go for, always get your own legaladvice before signing anything.

Related Articles

Is inefficiency stealing your time and money?

Accounting Firms Is inefficiency stealing your time and money?

6m Emma Smith, Managing Editor
CIMA elects new president

Institutes CIMA elects new president

6m Emma Smith, Managing Editor
Transparent currency trade: How to achieve costs visibility

Governance Transparent currency trade: How to achieve costs visibility

6m Emma Smith, Managing Editor
Introduction to KPMG UK’s new leadership team

Accounting Firms Introduction to KPMG UK’s new leadership team

6m Emma Smith, Managing Editor
EY appoints head of UK Infrastructure Asset Intelligence practice

Accounting Firms EY appoints head of UK Infrastructure Asset Intelligence practice

8m Emma Smith, Managing Editor
FRP Advisory expands operation with new office, partner appointments

Accounting Firms FRP Advisory expands operation with new office, partner appointments

10m Emma Smith, Managing Editor
Magma Group announces merger, partner promotions

Accounting Firms Magma Group announces merger, partner promotions

10m Emma Smith, Managing Editor
MHA MacIntyre Hudson advises on management buy-out

Accounting Firms MHA MacIntyre Hudson advises on management buy-out

10m Emma Smith, Managing Editor