Seen from the outside online business seems complex. It must require lots of technical wizardry right? You’ve got to be the next Mark Zuckerberg to get any sort of online business up and running surely? Well: no. Not really. Today we’ll look at how online business works and why it’s not really much different to how “normal” businesses work.
How online business works : business as usual!
Online business works in exactly the same way as any offline or “normal” business works. Basically you, the business owner, create something of value. Generally it’s a product or a service but there are other forms of value available too. You then take your value out into the market and sell it. The market is all the people who want to buy from you. If your product or service is deemed valuable by the market and the price is right they’ll buy it. Then you just have to make sure that the difference between the price you sell at and the cost required to produce the value is high enough to make your business worthwhile: this is your profit margin.
That’s business in a nutshell:
- Produce something of value
- Sell it to those who find it valuable
- Make sure that the price you sell at is more than the cost of producing the value.
OK that’s business. But how does online business work?
Exactly the same!
The core fundamentals of what a business is and what a business does do not change when brought online.
An online business is still a business
Business fundamentals still apply regardless of whether you are operating online or offline.
Most of the time businesses do a bit of both anyway. So the term “online business” is meaning less and less. Very few businesses are truly offline today. And many online businesses operate in the “offline” world in some way : for example shipping the product to a customer.
Lines are blurry. Online business is business. Talking about a “real” (ie. offline) business is very late 1990s – early 2000s!
However there are still certain negative connotations with online business. If you tell someone at a networking event that you run online businesses these will tend to be looked down upon by people with “real” businesses.
10 to 1 it’s an older male telling you your business. Ignore him.
This is a hangover from earlier times and is rapidly diminishing. And rest assured that the days of having an offline-only business are past!
Business First
If online business IS business then we know to know our business fundamentals.
Too many online business gurus sell the dream of passive income, automated sales, waking up in the morning to see a phone screen full of money being sent from around the world.
All of this happens. And it’s great.
But first you need to put in the work to build a business. Just because it’s online doesn’t mean you can skip the hard work and just rake in the cash.
This is why our online business teaching starts with business first.
The BATON model is Business, Audience, Tribe, Offer and Network.
What comes right at the beginning? Yup – BUSINESS. Business comes first before all the fancy online wizardry.
Once we understand how online business works we know we have to first last down a solid business foundation. Just like any other business.
This means working out who our customer is, working out what value we can provide the market, verifying that the market exists, researching competitors, locking down our niche, developing products in a lean and sustainable way, gathering feedback from live users, running cost effective low risk experiments to lock in our product-market fit and so on and so on.
Lots of work? Yes. It is. But it is crucial foundational work to do before jumping in the deep end and spending lots of money chasing a business idea that has no market.
Want to learn about business but are not sure where to start? I definitely recommend Josh Kaufman’s Personal MBA as a great starting point. And I’m saying this dropped dummy amounts of cash on a “real” MBA from a top-10 US business school. Not bitter…
Business Tools vs. Business
A lot of people head online looking for an online business idea to start. They don’t particularly care what it is as long as it makes money.
Maybe they’ve heard that Fulfilled By Amazon (FBA) is hot right now. Perhaps Kindle publishing? What about drop-shipping? Or becoming a tiktok influencer.
The flavour of the month changes over time and there’s always something new and shiny to chase.
Careful though that you do not mix up TOOLS with actual BUSINESS.
FBA is a tool. It is not a business.
Kindle publishing is a tool. It is not a business.
Drop-shipping is a tool. It is not a business.
All of these tools can be extremely helpful tools for a business. But they are not themselves businesses, however well the online marketing gurus sell them as being so!
Because tools are often mistaken for businesses when someone wants to find out “how online business works” they are more often than not referring to a specific tool. “How does FBA work?” “How does Kindle publishing work?” or “How does drop-shipping work?” These are valid questions! Just don’t make the mistake of thinking it is the same question as asking “how online business works”.
How online business works : wrapping up
A few important points to remember.
- Online business IS business, plain and simple. Distinguishing online from non-online business is old fashioned and unhelpful.
- Start with working out your business first before worrying about the digital marketing aspects. If you get the fundamentals of the business wrong the online aspects don’t matter.
- Do not confused online tools with online business. Tools are used inside a business. They are not the business.