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How to Start an Online Business from Scratch in 5 Steps

by | Last updated Oct 22, 2021

Making money online has never been easier than today. Many people start an online side hustle to have an additional stream of income, either to add to their existing full-time income or to have a backup plan in case they lose their job. Besides that, it’s a great way to make money while traveling the world since you can run your business from literally anywhere. In this blog post, we look at the most crucial steps you have to take when you want to learn how to start an online business from scratch.

Starting an Online Business Pros and Cons

Before you learn how to start an online business from scratch, let’s quickly look at the pros and cons so that you know what you’re getting yourself into:

Online Business Advantages

  • You can run it from home or while traveling and are not bound to an office.
  • You can start it anytime.
  • Most online businesses are comparably cheap to start.
  • Your income opportunities are endless.
  • There are countless potential business ideas you can start online.
  • More and more admin tasks and legal steps can be done online today.

Online Business Disadvantages

  • Sometimes communication is easier in person.
  • It can be harder to create a personal relationship with your customers or clients.
  • Constant availability makes it hard to take a break.

How to start an Online Business from Scratch

5 Steps How to Start an Online Business from Scratch

Alright, now let’s look into what you need to do to get started with your online business. Please note that some of these steps are interchangeable, depending on your situation. In any case, all of these steps should be done at some stage to start your business:

Step 1: Define and validate your business idea

You probably already have a business idea in mind. If not, there are plenty of ways how you can come up with a potential business model. Here are a few impulses:

  • What are you personally interested in?
  • What are you experienced in?
  • What are your strengths and skills?
  • What problems need to be solved?
  • Can these problems be solved online?
  • If you knew you couldn’t fail, what would you do?
  • What contribution can you make to society that you would be proud of?

There are countless online business opportunities out there. Here are just a few examples:

  • Creating and selling digital products (printables, online courses, templates, etc.),
  • Selling physical products (think of dropshipping as an online business),
  • Online consulting, coaching, tutoring, or mentoring business,
  • Offering your skills as a freelancer,
  • Flipping domains or websites,
  • Creating and monetizing a blog or vlog,
  • Making money with social media (think of sponsorships or affiliate marketing)

If you need more inspiration, check out these online business ideas you can start on a small budget!

Once you have decided on a business idea, write it down in detail. What is your business going to be about and what it is not about? Look at similar business models to get inspiration and learn about the setup and processes involved.

Also, having a great business idea is not enough. Only because you like the idea doesn’t mean that everyone else does. Make sure you validate your potential business early in the process so you don’t waste any time on something that is doomed from the start.

How to do so? Here are a few ideas:

  • Do the research and make a competitor analysis.
  • Survey potential clients to see if there is enough demand.
  • Check your competitor’s customer reviews.
  • Exchange with people in your industry and founders of similar businesses.
  • Survey your target customers, e.g. via social media.

How to start an Online Business from Scratch as a Beginner

Step 2: Write a business plan

Writing a business plan is a lot of work but you must have a well-thought-through base.

And yes, an online business often requires flexibility. You shouldn’t stick too much to formalities or think your pre-defined plan needs to be implemented no matter what. Staying agile is crucial.

However, if you need funding for your business, your investor or bank will very likely want to see a business plan. On top of that, it also helps to identify potential risks or weaknesses that you haven’t thought about before. 

That’s why I highly recommend you to sit down and think about the following aspects of your business before you jump right into it:

Define your profile

Write a clear company description and define your products or service. What are the unique selling points? If you have many products or services, can you categorize them? 

Define your mission, the vibe of your company. Who are you and what do you want to achieve? What problem do you want to solve? What makes you unique?

Conduct a market analysis

Show that you have a solid understanding of your industry in general and the competitive landscape. How is it going to develop within the next 5 to 10 years? You can use tools, such as Google Trends, to get a better idea of it. 

Also, understand and define your target audience. Estimate the size of your market, think of demographics and psychographics. 

Who exactly is going to buy your products or service? Create a so-called avatar, an ideal customer persona. What is the financial situation of that person and what exactly is he or she interested in?

Create a marketing and sales plan

Make a plan on what marketing methods you will use – social media, paid ads, print marketing, influencer marketing, etc. Also, decide on a branding strategy and make a plan on how to stay consistent with it. Create a strategy for your online presence. As an online business, this is obviously essential. 

What are your sales funnels? Can people buy your product only on your websites? Will you work with retailers? Do you want to sell on Amazon? Can customers book your service via phone or WhatsApp?

Think about your pricing strategy. What margin do you need and how much do you need to charge per article? 

Writing a business plan for an online business

Human Resource 

Although there are many great online business ideas that you can start alone, you will need help at some stage of your business, e.g. IT professionals, marketing managers, or administrative assistants. This is either due to time restrictions or simply because you don’t have the knowledge or skills to do everything yourself. 

Make a plan for what kind of people you need to hire. What skills do they need to have? Think of tasks like website development, customer service, or ad managers. 

Even if you are only a small team at the beginning, you should create a management plan or at least the structure of the company to keep an overview. 

Create a financial plan

Calculate how much money you need in the very beginning before you launch your business. Do you have enough savings to cover your expenses or will you need to apply for credit? 

Calculate how much money you will need to break even and make sure you have enough to survive until then (don’t forget about things like taxes or permits). Also, find out how much money you need to make regularly in the future to cover your expenses and to make a profit.

Set your goals and milestones

Set the main goals that you want to achieve with your business. Make sure to define them in a SMART way (Specific, Measurable, Achievable, Relevant, Time-based). 

Set milestones on how you get there. Check your progress regularly, e.g. once a week, and make adjustments to your process if something is not going according to plan. 

Once you’re done with it, great! But as said before, your business and the environment are going to change all the time. Just to mention a few aspects:

  • New aggressive competitors appear, 
  • The legal situation changes,
  • You need higher funding than expected, 
  • A new sales method comes up that seems to be promising for your products or services.

That’s why it is important to re-evaluate parts of this plan regularly and to make adjustments when needed.

Step 3: Fulfil Legal Requirements

Now to the step that is probably the least fun in the entire process of starting an online business. Nevertheless, it has to be done.

Of course, this step strongly depends on the country you are registering your business in and your business structure. That’s why I can only give you the basic points:

  • Get a tax consultant straight from the beginning to find the best option for you.
  • Decide on the best legal structure for your business (e.g. Sole Proprietorship, Limited Liability Company (LLC), Corporation, or Partnership).
  • Register your business in a country that works best for your needs. Since it’s an online business, you have many options (think of taxes, required licenses, regulations, etc.).
  • Get all the necessary licenses and permits you need for your business.
  • Check for industry regulations you have to fulfill.
  • Make sure you don’t violate any copyrights.
  • Consider registering a trademark for your brand to protect it.

Writing a business plan for an online business

Step 4: Organize Financial and Human Resources

As mentioned before, online businesses are comparably cheap to start. But that doesn’t mean it comes for free. Even if your business idea can be implemented with only a few hundred dollars, you will sooner or later need more money to scale it. 

So the question is, how to fund your business?

If you have enough savings to cover all of your expenses until you break even, that’s awesome! That makes it much easier. If not, you have to come up with ways to finance your business.

To give you some ideas, here are the most popular ways: 

  1. Bank Loan: For this, you need to have a solid credit history, a very detailed business plan, and be able to explain how and when your company is going to make a profit. Also, be aware that these loans are usually very pricey. So be prepared for high-interest rates. 
  2. Family or Friends: Making business with family members or friends can be tricky. Never ask for money without a proper plan on when exactly and how you are going to pay it back. Your friends might be easy about it but if your business fails, you risk great personal relationships. 
  3. Credit Card: If you want to use your credit card, please be careful with it. If you fall behind on your payment, it will ruin your credit score. This can lead to some serious financing issues in the future. 
  4. Crowdfunding: You can register with an online crowdfunding platform, e.g. Kickstarter, Indiegogo, Patreon, or gofundme, and present your business idea and what exactly you need money for. You don’t have to pay the money back but you could offer an incentive for people to donate. Let’s say you want to write an eBook then you could offer to hand out this book for free for everyone who gave more than $10. 
  5. Private Investors: Instead of going to your bank, you could also try to find a private investor, a so-called angel investor. Maybe another business would be interested in seeing yours succeed because of potential future collaborations? Or think about TV shows like Dragon’s Den. Maybe it’s worth applying. You could also do your research and find high-net-worth individuals who have been known to support start-ups and pitch them directly. 
  6. Microloans or Peer-to-Peer Lending: As the name says, these are fairly small loans, often between $500 and $10,000. An advantage is that your credit history doesn’t play an essential role. What interest rate you have to pay depends on several factors, such as how much money you need and when you can pay it back. The easiest way to apply for such a loan is on lending platforms, for instance, Upstart, Funding Circle, LendingClub, or Perform.
  7. Government Funding: This depends on where you live. Some countries offer funding programs to support start-ups or solo entrepreneurs. In the long run, this will help reduce the rate of unemployment and boost the economy. 

On top of your funding, you also need other people to help you with your business. Of course, most online businesses can be started by one person only. However, when scaling your business, you probably won’t be able to do it all by yourself.

That’s why it’s important that you get help when needed. The money you invest in human capital can soon pay off. Think of experts, like developers, customer support, sales manager, marketing assistants, logistic manager, and so on.

Getting Funding for an online Business

Step 5: Bring Your Business Online

You probably have a name for your business in mind by now and maybe also a brand concept. If not, this is the time to sit down and think about it:

  • Is your business name easy to pronounce and recognizable?
  • Are there any other companies with that name or something similar that could cause confusion?
  • Is a domain available for your business name?
  • What colors represent the vibe of your business best? (Check out the color meaning can affect your business)
  • Do you have high-quality images of your products or your services (or of yourself)? If not, get a professional photographer or buy suitable stock images.

If you want to create an online shop, I highly recommend Shopify. This is super easy to use and you get everything you need, including beautiful storefront templates. Click here to get a 14-day free trial with Shopify!

If you don’t need a store on your website, you could also set up a site and use a layout theme, such as Divi, to get a drag-and-drop interface that makes it extremely easy to create your website.

If you want to work as a freelancer and are only looking for a portfolio site where you can show your skills, previous work, and services, check out these free portfolio website providers.

When creating your web presence, also keep in mind that it should reflect your mission, vision, and entire vibe, that you should have written down in your business plan.

Also, make sure to put your customers or clients in the center and how you can help them. The website should not be about you. It can sometimes be tricky to phrase it in the right way. If needed, get help from a professional website- or copywriter.

Social media is also great to bring attention to your online business and helps with your branding. Make sure you adapt your message to the target audience of each channel. In the beginning, try to focus on one or two channels. Don’t try to be active on Facebook, Instagram, Twitter, TikTok, YouTube, and Reddit at the same time.

Launch Your Online Business

As you can see, there are plenty of things to consider when you want to learn how to start an online business. However, all the work can pay off as your income opportunities are pretty much endless.

Plus, you have all the time in the world. Start your online business as a side hustle and work on it in the evenings and weekends. In the beginning, it’s a nice side income. And once it has grown, you can even make it your full-time income and run in from home or anywhere you want and enjoy a flexible work schedule.

Denise Mai

Denise Mai

Founder of Digital Nomad Soul

Hi, I’m Denise – a travel addict and remote work enthusiast. I have been traveling the world since 2008 and explored, worked, and lived in more than 80 countries. To me, there is nothing better than the freedom and flexibility that comes with a location-independent lifestyle.

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