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How to start a low-risk web business

Posted on 14 Apr 2009 at 11:01

While the potential reach of a website is often a huge advantage, the benefits of localisation shouldn't be forgotten. Tradesmen such as builders, plumbers or electricians aren't going to turn a profit by chasing jobs from Cornwall to Cumbria, but a well-targeted local website (such as the as-yet non-existent www.leedsdecorator.co.uk) could drag in more business than advertising in local newspapers, for example, as we'll see when we look at search-engine optimisation on p113.

The thousands of IT professionals who've been laid off nationwide needn't let their skills go to waste, either. Web-hosting companies such as Fasthosts offer reseller packages, which allow people such as web designers, developers and IT support professionals to sell their own-branded web-hosting packages to their customers (download our guide to doing precisely this from www.pcpro.co.uk/links/175syob). A web designer could, for example, offer a complete hosting and email package to his clients, and then take a slice of the hosting profits as well as the fee for designing their site. "A web designer can offer a completely managed service, one-on-one with their customers, and can charge quite a premium," claims Fasthosts' chief marketing officer, Steve Holford. "If they can buy a website from us for £50 a month then charge customers £5,000 a month [for their one-on-one service], then great."

The financial risks of reselling are limited: 61% of resellers invest less than £500 in setting up their own hosting operation, according to Fasthosts, yet 80% turn a profit within the first year. "You can create your own web host with your own brand and website, and customers never need know you're a reseller," said Holford.

Fasthosts is currently waiving the £50 fee for the first six months for new resellers, reducing the financial risks even further.

Whatever type of web business you choose to run, the crucial factor is that you can demonstrate the company can turn a profit sooner rather than later. Banks, venture capitalists and angel investors are increasingly unwilling to take a punt on a website that can attract legions of visitors without any clear method of wringing cash from them. "Unless you're Twitter or another site able to demonstrate inordinately swift user growth, there needs to be a revenue model," said Alicia Navarro, founder and CEO of London-based start-up Skimbit.

Web businesses make money in one of three ways: selling goods or services, through advertising, or via subscriptions. Your business model could encompass one, two, or even all three of those, but it's vital you identify and accurately calculate those income streams beforehand. Google can afford to throw web services at the wall "and see what sticks", you almost certainly can't.

Raising the cash

While outside investment and business loans are doubtless harder to come by in today's climate, there are other sources of funding out there for adventurous start-ups. A recommended first port of call is the Government-run Business Link website (www.businesslink.gov.uk). This provides a comprehensive directory of the various EU, Government, and other grants and funding schemes available to small businesses. Enter your postcode and details of your business, and the grant finder will provide a list of the different schemes available to your startup or contact details for your local Business Link branch. A London-based IT website, for example, could qualify for up to 30 different grant schemes.