Episode 4: Starting An Online Business
The one skill you need to succeed
Should you start an online business? Probably not.
That is unless you have one very specific skill.
Niel Malan takes a look at six types of online selling businesses, and how to differentiate between the models that will leave you frustrated and empty-handed, and the one(s) that will actually give you everything that you’re looking for.
He also identified the common challenge that all these models have, and shares the one skill you need to be successful in online selling.
“Want to know more about how to start your own highly-profitable digital marketing business?”
Ladies and gentlemen, welcome to episode number four of the Elite Entrepreneur show, where today we’re going to talk about starting an online business.
If you’re brand new to the show, Elite Entrepreneurs are individuals who invest in their own education and who “elite” because they have unique skills; and that comes from a unique mindset – the fact that you’re listening to this show or watching the show right now means that you’re already an elite entrepreneur, because you’re investing in your own education.
Today we’re going to talk about quite an interesting topic which really will address the question: “Should I start an online business?”
Well, the fact is you shouldn’t! And the reason is because it’s got one of the lowest success rates of any industry on the planet.
Now you might be sitting there in shock thinking, “Niel, but don’t you teach people how to start online businesses?
The answer is yes, but I teach them how to start a very specific kind of online business.
So I wanted to give you a cautionary note that you don’t want to go and just jump into an online business because the difference between one online business and the next is dramatic.
So in this episode, I want to talk to you guys about is, is it true… I mean you’ve seen all the ads, you’ve seen the big promises, work from home, make money online, your time is your own, all you need is a laptop, you could travel, you don’t need a lot of money to get started, you can make a fortune. Is it all true?
Well, for the most part, it’s not. And I’m going to tell you exactly why in some instances it is absolutely 100% true. The purpose of this episode is to differentiate between the models that are going to leave you frustrated and empty-handed, and the model or models that will actually give you everything that you’re looking for, so pay attention.
When I just got started I heard the word “just” all the time. I’ll never forget when I spoke to a blogger, he said, “Oh that’s easy. Just start a blog and post a lot of content and you’ll start getting organic followers and then pretty soon you’ll have enough people where you can sell them something.”
I realized pretty soon just creating content required like half of my day. I’m a really slow writer, and to write good quality content required so much time. I’m ADD at the best of times and I started this blog on nielmalanlive.com and I think I got to like five or six episodes and that’s where it stopped. So it wasn’t just “just” creating a lot of content.
Someone else told me, “What you need to do is you need to ‘just’ post a lot of content on your social media walls; you know, your Facebook page and Instagram. And then you’ll start developing followers and people will start buying things.”
But it’s the same problem, “just” creating a lot of content required so much work that I couldn’t end up running the rest of my business and again I got distracted and I got sick of it.
Then someone else told me, “Listen, online is where it’s at, you know, online selling and selling physical products, e-commerce. Just start a Shopify store, only $29 a month and all you do is you just find a market and you just find products that they want to buy and put them together and ‘boom you’re gonna be rich.”
Well, it wasn’t “just” that process. It was a mammoth amount of tasks and I just couldn’t make any money from it, it was too hard. And it frustrated the crap out of me because I started thinking all digital marketers are liars, that they just tell you to just do this one thing, and this one thing just doesn’t fricking work and that’s so much harder than what anybody ever promised me that it would be.
I gave up. I got so sick and tired of these guys lying through their teeth about how easy it’s gonna be and how simple it’s gonna be and how I’m gonna enjoy the promised land by just following a formula.
Fortunately, I’m a couple of years down the drag and I’ve now tried everything and I know what works and what doesn’t work. So, to give you my best advice, I’m gonna start off by teaching you that there’re really six different models for online selling.
The first is physical goods, and that’s e-commerce. That’s Amazon, that’s opening up a little Shopify store and you decide to sell your vitamins or you decide to sell your mobile phones, or you decide to sell your brand of unique lip balm or whatever the case may be. You’re selling a physical product, right.
So, that’s the first category, e-commerce.
The second category has become quite popular and that’s to sell information products. You take your knowledge and you write an e-book or you create an audiobook or you create a digital training program of some sorts where you provide virtual coaching. That’s considered the information marketing industry.
The third one is to sell other people’s products. So, people who don’t have their own products or their own ideas and don’t want to go and find them, they can sell other people’s products and earn a commission. For example, people who sell the ClickFunnels program get commission on it, right.
The fourth one is where you sell advertising, advertising space. These are people who have blogs, who have websites or even podcasts, and they can allow Google or other advertisers to advertise their websites with Adsense. Or they can sell that inventory directly and they make money from getting thousands and thousands and thousands, hundreds of thousands, millions of people to their website, their blog, their YouTube channel, and then make money from sharing the revenue. Selling advertising, that’s your fourth model.
The fifth one is for people who currently have an offline business. I’m talking about hairdressers, chiropractors, I’m talking about furniture manufacturers and normal offline businesses. They would just want to generate leads for themselves. So their thing is not to sell other products than what they’re selling right now, they just want to get more leads to grow their own company, that’s a fifth model. That’s offline lead generation.
And the sixth model is to sell services to digital people. So when I mean services, I mean you develop websites, you create YouTube videos for people, you do blogging for them, you create articles for them and you run marketing services for people. That’s the services game.
So in summary real quick:
- Physical goods is e-commerce;
- Information products is the information marketing business;
- Selling other people’s products or services is affiliate marketing;
- When you sell advertising, that’s typically referred to as blogging;
- Generate offline leads for your current business;
- And lastly when you sell services.
Now all of those have pros and cons. All of them work if you know how to make it work. So I can’t say to you that one is necessarily better than the other one. What I can tell you is the most important question someone should be asking themselves is not “what business should I start”, the question is “what skills would I need to succeed at that kind of business”?
With e-commerce, you need to know how to create a Shopify store. You also need to know how to source the right products and you need to know how to match it to the right clients and so forth. You need to know how to get clients, how to get paying clients.
Now e-commerce is by far the toughest. And the reason is that if I sell this bottle of supplements for $30, it may cost me $20 to make the first sale and I’ve got the hard cost of the goods. So I’m probably gonna make a loss on the very first sale. In E-commerce, most of your first-time sales are not profitable and that’s because the transaction value is really low and you’ve got a physical cost, right, for the product. Now if you’re going to include free shipping as well, you’ve got the shipping cost on top of this.
So e-commerce is really, really hard. If you nail it, if you know how to do it, you can scale it very rapidly, right, you can build a very successful business. But it’s definitely the toughest one because the client acquisition is really expensive compared to what you make upfront. So, you need a lot of money to succeed at this business.
When it comes to information marketing products, the advantage of creating a course and selling it for $997, for example, is that you don’t have a physical cost of the product.
If I’m selling a course, once I’ve developed it I don’t have the physical cost.
Technology makes it pretty easy, you now get technology like Kajabi, for example, a learning management system where you can just put your course online and you can sell it.
The tough part about selling information is acquiring clients profitably. Less than 1% of people that will opt in for your lead magnet – your newsletter or your download or your webinar, whatever. Less than 1% of people will actually buy the product.
So if it costs $10 to get a lead and it takes 100 people before you make one sale, that’s a $1000. If you invest a $1000 in marketing to sell a $1000 product, you just break even. Unless you’ve got a series of products in the back end, you can’t make any money.
So client acquisition is what makes that product very difficult and it’s also very saturated, very crowded.
Selling other people’s products. You’ve got the advantage of not having to go through the effort of developing your own products. You can simply tap into other people’s funnels and other people’s offers. You can go to a place like Clickbank, for example, and pick up high-converting offers there, right.
Well, guess what the challenge is? You have to acquire a client profitably and that’s really difficult when you’re selling typically lower-cost goods. You only get a share of the revenue and you only convert single-digit percentages of traffic. So acquiring clients is the challenge.
This is the same problem for all these businesses. Client acquisition is the skill that you need to succeed at first before you can even consider starting an online business, because every single online business you can start requires clients, requires people that can pay you money.
You need to know how to acquire those clients, and that’s not that simple.
This is the part that the entire digital marketing industry downplays!
Start a course, they said. No no no no, learn how to sell a course first before you start a course.
Start a little affiliate marketing business. No no no no no no, learn how to acquire affiliate marketing clients first before you start the affiliate marketing business because then you’ll know you probably won’t start it to begin with.
So the skill is client acquisition. You need to know a digital marketing before you choose what products you’re going to sell online because then you can acquire clients cost-effectively.
Unless you can acquire clients with the profit margin to spare, what’s the point?
The cool thing is this: once you know how to acquire clients profitably, you can succeed at every one of those six models because for all of them, the single biggest barrier is client acquisition. If you can do client acquisition, you can succeed at them all. If you can’t, you can succeed at none, right.
So the first skill you have to master is client acquisition, that is definitely the most important skill for anything online. Whether it’s marketing your own business or whether it’s starting a digital online business.
Now, let’s just say that you figure out how to acquire clients profitably. You go through our Agency FastTrack program or you join someone else’s crew, it’s difficult to figure it out yourself so you typically need a mentor. But let’s just say you get a mentor and they teach you how to acquire clients. Which business model now shall you start out of the six?
I can’t tell you what the right thing is to do for you. You may love your physical product. You may be the manufacturer of the supplement and that’s why you want to sell it. I can’t say to you don’t do that, you know all of these things work.
What I can tell you is that my best advice for first-time entrepreneurs is to look at effective cash flow. I’m a pragmatic businessman, I’m an entrepreneur, and I understand that there’s one harsh reality that you will face every single day of your life and that harsh reality is cash flow. If there’s cash that’s flowing, you’re in business; and if there isn’t cash, you’re not. So I take cash flow very very seriously and I look at first-time entrepreneurs and first-time online businesses from a cash flow level… what does the flow of cash look like?
If you take an online e-commerce store for example. If you hold inventory, you need to have cash in inventory. You need to have cash to set up the shop. You need to have cash to acquire the clients at a loss and then make money on the second or third or fourth sale, right. So it’s not a cash-flow-friendly business, that’s the first problem.
The second problem is that unless you are exceptionally good at client acquisition, you could be selling a 100 units this month, a 1000 next month and 500 the month after that, and your personal income is going to be affected based on that flow.
Most of the online marketing and online business models have got some equivalent of that.
Personal income is very stressful if it fluctuates. If I’ve got a big increment this month and two bad income months the following months but I’ve got kids who go to school, I’ve got a bond, I’ve got cars, I’ve got a mortgage that I have to pay… my expenses are fixed. They’re not variable, they don’t fluctuate. Having an online business that provides me with fluctuating, unstable income is very stressful, especially for first-time entrepreneurs. That’s why I don’t recommend it.
There’s only really one business model that I’ve come across that provides you with a stable income, and that’s a business where you can charge a retainer.
Retainer revenue is where you provide a service to someone and they pay a flat fee for providing that service. For example people who develop websites, they get paid for a scope of work. They get paid for X amount of dollars for a five-page website, X amount of money for doing a video edit for someone. Generally, it’s quite hard to charge a retainer unless you’re providing an ongoing service that people get ongoing benefit from, and they don’t judge on how much time it takes. And that, my friends, leads me to the business model that I love and that I recommend to other people start: a client acquisition agency or lead generation agency.
Let me explain to you what an agency is. An agency is simply a person or a group of people who provide a service to someone else. That’s an agency.
So you could have a content agency. People who write content, they provide services to people who require content for their blogs, they run a content agency. You get people who do video production. They’ve got a group of people who create videos and they run an agency that produces videos for clients. Do you get the idea?
A lead generation agency is an agency that generates leads for their clients.
Why is that such a profitable business to run? Because all small business owners are looking for only one thing: they’re looking for more clients.
In case you haven’t yet, I suggest go and listen to the previous episode, go watch the previous episode of the Elite Entrepreneur show where I spoke about online marketing 101. I surmise that small business owners are looking for more clients more than anything else. They’re not looking for likes, shares, visibility, branding. They want more clients, they want more leads, they want more paying clients. They want more leads that will turn into more paying clients, that’s what they looking for. And right now there is a massive world out there of people that are looking for people to help them find more leads online. They’re looking for you, they’re looking for the lead generation agency.
So a lead generation agency is a person or a group of people that specialize in providing the service of generating leads for other people. The chiropractor says I want more chiropractic clients. The lead gen agency puts together funnel, runs paid ads and gets the chiropractor more client and the chiropractor pays a fee every month, a retainer every month of $1000, $1500, $2000, $2500 a month.
But next month they’ll pay it again and the months after that they’ll pay it again. Why? Because every month they get their extra 50 or 100 clients, you see.
How does this differ? Well, I need it to get a client once to get income all the way down the line, right. So if I do a good job that I provide leads to these people, he’s going to pay me next month and he’s gonna pay me next month and he’s gonna pay me next month. I don’t have this ongoing need for more and more new clients, I only need seven or ten paid clients.
Do the math. If you’re getting paid $1500 as an average – and that’s a low fee by the way – if you’re getting paid $1500 and you’ve got ten clients, you’re making 15 grand a month. That’s not bad.
By the way, you could make a lot more than that, but I’m just using an example here. But you only need to get ten clients; if you take into account maybe some clients don’t stay with you, you need maybe 15 or 20 clients. With an e-commerce store, we need 20 clients a day, 20 clients a day to make it profitable, or you’ll need 50 clients a day to make it profitable.
So what I love about the lead gen agency is every month your income is higher. Because you’ve got roll-overs from the previous months, and that’s what I like about it. A lead generation agency is by far, I believe, the best online business to start for the simple reason that it provides a retainer in a way the others don’t, and it gives you the skills to succeed.
You can practice on your clients, you can practice on your clients, you can practice on your clients, you can practice on yourself. And once you’ve got it down, then you can start your e-commerce store, you can start your blogging website, you can start your affiliate marketing thing. Because you’ve got the skills to do it! That’s what I recommend you do.
Now those of you who have been to my webinar and have gone through the digital webinar product, I know that I’m preaching to the choir but it’s important that you get this because I’ve noticed that some people go off on a tangent and then they want to go and try all sorts of cool new things… but they haven’t got the right skill.
Let’s not try and run before we can walk. Let’s get client acquisition done and let’s start an agency, either for providing services to other people or just for ourselves. If you run an offline business, learn the skills yourself or hire one of our graduates.
So guys let me know on our website, go to www.eliteince.com/4 and let us know in the comment section what do you think. What do you think is the best online business to start? I want to know from you guys, tell me. What have you tried in the past? What failed? What worked? Who have you tried getting services from and what was the results? I want to know what you think and what your experience has been at starting an online business.
Those of you who succeeded, I want to know what you’re doing, what you’re up to. So please let me know. Go to www.eliteinc.com/4.
Those of you who like watching the show on YouTube, remember to go to YouTube and hit subscribe; or if you like listening in a podcast, go to your favourite podcast channel and remember to subscribe. Those of you guys who like the multimedia experience, you can simply go to www.eliteinc.com /4 and subscribe there.
And if you’re ready to take the next step and you want to succeed at digital, if you’ve been following the show you want to take the next step, why don’t you book a complimentary 15-minute call with one of my team members. All you need to do is go to www.eliteinc.com/4, fill in an online form and you can have a chat with one of my coaches to see if there’s anything that we can help you with.
That’s it now. Thanks so much for tuning in. And I really value your time and I appreciate you and I look forward to seeing your comments online and I’ll see you for episode five.