Jan 23rd 2011 Issue
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E-commerce: Launching for $10K or less

Charles Cain - Jan 23rd 2011

Combining tea and technology

Know when to break the bank

When business is more than $$

The most common question that is never directly asked is: "How can I launch an online tea retailer for $10,000 or less?" The questions I usually get are a little less more circumspect, but it all comes down to wondering whether it is possible to build a successful business with limited resources. I've answered this question several hundred times over the past few years. The answer depends on an accurate measure of available resources and YOUR definition of success.

Allow me to begin at the end by offering three common definitions for success:
1. Success is a profitable business from which I can draw a salary and that, when I am ready to retire, can be sold for a profit.
2. Success is a self-sustaining hobby. While I can't draw a competitive salary, it covers its own expenses and gives me a little spending money at times.
3. Success is a hobby that allows me to express my own creativity, meet interesting people, and gain a sense of accomplishment regardless of the financial results. In other words, I don't really need to work.

I would answer the "can it be done" question in terms of odds. If your goal is scenario #3, then the only danger of failure is that the sales and/or customer feedback will be so lacking that you feel worse after investing your time and money. I'd say you have a 90% chance of "success" with a $10K investment or less.

If your goal is scenario #2, it's critical that you do a good job with web and packaging design, but you really SHOULD be able to build a part-time side business that covers it's own expenses and kicks a little back into your pocket. Let's say 70% chance of success.

If your goal is scenario #1, you have less than $10K to invest, and you expect to draw a competitive salary from your business in the first year, your chances for success are less than 10%. I'm very comfortable estimating that less than 10% of the tea websites out there are paying their owners $50,000 a year (and most of these invested A LOT more than $10K). It's also safe to say that less than half of all tea websites are paying their owners minimum wage for their time.

The second step is to properly analyze the real investment you can make. It's not just about cash, though that certainly helps. If you can work for a year for free, and have solid technical skills, that's a significant investment. If you know someone who can build the site for you, that counts too.

In all honesty, if you have less than $10,000 in cash to invest and need your operation to cover your living expenses in the first six months, your odds are A LOT better in Las Vegas. Play roulette and you have a 47.37% chance of doubling your money. (Since 2/3 of small businesses fail in the US, maybe Vegas isn't such a bad idea.)

Most new tea websites that are launched with solid designs, typical e-commerce functionality, average tea prices and backed by strong word-of-mouth advertising and aggressive community involvement deliver a couple transactions a day. I can't count the number of people I've talked with that have had this same experience. Average sales of $30 and 2 sales a day comes out to $1,860 in sales per month. At 50% margin (after packaging, shipping, etc.) the site makes $930 per month to cover initial investment, your labor, and all overhead.

In the past week alone I've met with three entrepreneurs who have been doing this for at least a year, have good e-commerce websites, good product in great packaging, a range of wholesale customers selling their branded teas. None are anywhere close to paying themselves a "living wage".

A hobby that pays for itself is a great hobby, but turning that hobby into a paying full time job will require a pile of cash and a good marketing strategy as described in Getting Started: E-Commerce.

At the end of the day my advice would be to go for it! Jump in and make it happen. Just don't quite your day job. If you work hard and are creative and aggressive you should be able to build an operation that pays for itself and gives you a tremendous sense of accomplishment. Building a business is a lot more fun and more rewarding than spending the US Average of 34 hours per week watching TV. If you're also lucky, you may break out from the pack and find yourself sitting on the next Adagio.com. :)

Adagio Teas