How to Start an Online Business

Looking to start an online business? This practical guide has advice from ecommerce experts, including plans and structures that will lead to your first sale.

Table of Contents

Chapter 1: Idea

This is a step-by-step guide for entrepreneurs who want to create, launch, and scale an ecommerce company today. We cover 7 key core areas (idea, sourcing, funding, building a store, growth, operations, customer support) filled with actionable advice and insights from experts doing millions in revenue.

We created this guide to cut through the noise and gimmicks. We are sick of “56 Ways to Grow Your Revenue”. Instead, we will show you how to find the right manufacturing partner and how to price your product so you have enough profit margin. You know, what actually matters.

You will learn about the industry terms and acronyms, software products we use, the marketing tactics that drive results, and more. Welcome to How to Start an Online Business by Alluxo.

Let’s get started by finding and validating the right business idea. Too many entrepreneurs jump into incorporating a company and branding first. We will explain why this is the wrong approach.

Photo of a retail store with a "yes we are open" sign.

Chapter 1: Idea


Key Question: Can you build momentum without investing money?

In this guide, we will cover incorporating a business entity, getting a federal tax ID, opening a business bank, and more. But those all come after you validate your business idea.

Too many people jump in too fast without actually understanding the problem that they are solving. Don’t look for a team first. Don’t incorporate a business entity. Don’t talk to investors.

That is not the first step. And, frankly, if you go down that path you will waste months and tens of thousands of dollars.

The first thing on your mind needs to be – is this a real problem that other people face and how do I find it out today or this week? Here’s our framework for ideation and validation.


Writing Down Ideas


The first thing on your mind needs to be – is this a real problem that other people face and how do I find it out today or this week? Here’s our framework for ideation and validation.

Having trouble finding an idea? Don’t start a business because you want to. That’s not a good enough reason.
Focus on a real problem that you face. The things that really bother you.

Solving your own problem is a great way to build a company because you know what it takes to offer a better product or service.

Here is how Karen Daudjaja, Co-Founder & CEO of Blume, solved her own problem. She was going to business meetings and had multiple cups of coffee a day, so she wanted to find a better drink alternative.
The whole podcast is great but the conversation from 0:47 to 14:44 focuses on the problem and how she sourced her first product.

Once you have a few ideas, you need to create an experiment that (1) you can run for free or for cheap that will (2) provide results in a matter of days. Experiments that cost $10,000 and take months are out of the question.


Competitor Research


Another thing that first-time entrepreneurs ignore is rushing into trying to figure out the product or marketing without surveying the market.

Good competitor research will save you thousands of hours, because it allows you to focus on a niche that has a problem.

Competitor research includes searching across Google, LinkedIn, Amazon, and forums to find what other products exist.

If you want to make a better running shoe, start with the giants in the industry.

How are they positioning themselves? What are the problems or gaps in the market? Why doesn’t everyone just buy Adidas or Nike?

Think about search terms that will help you uncover specialist brands. For example, searching “best running shoes for marathon” led to Runner’s World and FleetFeet, uncovering brands like HOKA, Mizuno, Brooks, Karhu, and Saucony.

Google search engine results page for best running shoes
When evaluating what is out there, you want to look for high prices, bad reviews, or both. If the established brands have low prices and lots of 4-star and 5-star reviews it will be very tough to compete and make a profit.

Building Experiments


If you don’t have 1-2 good ideas, go back to the beginning and start over. Keep writing down ideas, day after day. Focus on problems, not on what’s cool or trendy.

Once you have 1-2 ideas that you want to validate, then it’s all about experimenting and following the data. This is the fun part… Creating quick experiments that will get you real data from potential customers.

The goal of every experiment is to get actionable feedback from buyers, not from friends or family.
What is an example of doing this poorly? Hiring a professional agency for $25,000 to create a logo, color palette, and brand guide before you feel comfortable showing one person your idea.

Don’t do this. Seriously.

You only want to invest resources after you are sure that you are selling the right product to the right audience.

What are examples of doing this well? You should get results within a few days and it should be cheap even for you to run the experiment multiple times back to back.

Here are a few examples of experiments:

  • Create a free Surveymonkey account and write a 5-6 question survey to find why people are dissatisfied with the current offerings. Share the survey until you have 50 responses.
  • Use Sketch or Figma to create a quick mockup of your product idea. Create a landing page (2-3 paragraphs of text, 1 image, 1 email capture form) and see if you can get email addresses in exchange for more info about this idea.
  • Build a landing page using Unbounce and see if you can capture people’s email addresses.
  • Build a fake online store using Shopify and see if you can get people to add items to their cart.

Here is how Zoia Ali, Co-Founder of The Girls Company, solved her own problem. Her and her co-founders interviewed hundreds of women at their college and built a prototype out of their existing clothing before moving forward with their new heating pad.
The entire interview has valuable insights, but the conversation from 5:47 to 31:13 is particularly relevant to this topic.
If the responses are positive and generally in agreement, move forward. If not, run another experiment. Keep doing what you’re doing now (school, work, whatever) and running these experiments until something clearly works.
If you want people to sign up for your mailing list or fill out a survey, keep going until you have at least 100 people who have completed your task. If you cannot get this done, think of running a new test or switching to a new idea.

Our next section is about product sourcing, but before getting to that we want to touch on all the administrative work that can be ignored or done in the wrong order.


Incorporation, Legal, and Admin Work


When getting started, people tend to spend way too much time on things that don’t actually move the needle forward. Conversations about the company name, domain name, type of incorporation, and so on can drag on for weeks.

All the while, you’re wasting time by not talking to your potential customers or recruiting the smartest people that you know.

We will briefly touch on what you should be doing here – and crucially, when you are ready to actually incorporate the business. Let’s go down the list.


Company Name


Spend very little time here. Companies change their branding all the time, so get started with something simple and be open to changing it down the road.


Domain Name


Do not buy an expensive domain name in the beginning. Period. You should never be spending more than the standard GoDaddy price of $11.99.

Personally, I always go with a ‘.com’ because it’s the industry standard. And if the ‘.com’ for your brand name is taken, add a prefix to it.

Let’s say your company is called Brand, these are some examples: shopbrand.com, trybrand.com, joinbrand.com, drinkbrand.com, eatbrand.com, wearbrand.com.

Some of the biggest brands in the world started this way, including Facebook (thefacebook.com) and Dropbox (trydropbox.com).

Once your company scales, and if you decide to keep the same branding, you can always buy the more expensive version and reroute your website traffic. This is not difficult and should not become a roadblock for you.


Logo and Color Palette


Do this yourself. Seriously. Watch a few YouTube videos and pick up easy-to-use design software like Figma or Sketch. There are also plenty of logo creators from the likes of Shopify, Canva, Wix, and Squarespace.

The initial logo can be very simple. For Alluxo, I created a bar graph with three bars and centered them in a circle. As for colors, I suggest starting with 3-4 brand colors. We chose a dark navy blue as the brand color and a few shades of blue and gray to round things out.


Incorporation & Business Bank Accounts


Until you start generating revenue, you don’t need a business entity. That’s my advice. I wasted my money and rushed into it too soon.

If you are starting an ecommerce brand in the United States that’s generating revenue, I recommend starting an LLC in the state you live in.

There is no reason to jump straight to a Delaware C-Corporation and pay all the extra fees (state filings, tax minimums, registered agent, and foreign corporate designation) at first.

You will then need to get a federal tax identification number, also called an employer identification number (EIN). This is free from the IRS’s website.

With an LLC and an EIN, you can now open a business bank account. We recommend Mercury as it’s fast, easy, and they don’t charge any fees.

More chapters coming soon! Follow us on LinkedIn to see when new chapters are launched: https://linkedin.com/in/safamahzari

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