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Why you should start your online business now

Posted on 5 Mar 2012 at 10:16

Forget the economic doom and gloom, says Kevin Partner, now is a good time to start an online business

I consider myself a realist, but the media’s current negative reporting of the economy is driving me nuts.

The other day, BBC Radio 5 Live interviewed an entrepreneur who in 2010 had set up an online business selling waterproof socks (I kid you not), and was reporting a 40% increase in sales during his second year of trading. He was greeted with disbelief – “but that goes completely against the narrative!” said the journalist, completely misunderstanding how business works.

First, percentages in isolation are almost meaningless: 40% up from next to nothing might still be chicken feed. Second, since economic growth is more or less flat at present, for everyone who loses a pound of turnover, someone else, somewhere must be generating an additional pound.

For everyone who loses a pound of turnover, someone else, somewhere must be generating an additional pound

Third, any new business should expect increased turnover in its second year unless economic conditions worsen; this guy started when the economy was already terrible, so relative to 2010 he’s doing well.

Let’s just step away from the scaremongering and look at the facts. Our economy today is roughly the same size it was before the credit crunch, which equates to a small real-term reduction in average company turnover, but there are dozens of ways to improve a business that could more than compensate for such a modest fall.

Reasons to be cheerful

I understand that some enterprises are hit worse than others, but that’s equally true in good times. My e-learning company NlightN Multimedia was in decline long before 2008, despite a booming economy, because its business model was no longer profitable.

On the other hand, my candle kit company – which I started during the downturn – is benefiting from a current resurgence of practical crafts. This is the “law of averages”, that if some markets are declining in a stagnant economy, others will be doing better (waterproof socks, for example).

There’s actually never been a better time to start an online business, so here are “reasons to be cheerful” for online businesses in 2012:

Reason 1: It’s never been cheaper to run an online business

I’d prefer a booming economy, but there are hidden advantages to hard times. Online providers are forced to innovate in order to compete, offering greater value in the products or services you use to run your business and cutting your costs.

Take web hosting: a few years ago, you were faced with a stark choice between overcrowded but cheap shared services, or leasing a dedicated server for roughly 20 times the cost.

Today, low-cost hosting is perfectly adequate for most non-tech businesses, and the advent of virtual private servers (VPS) makes it possible to have much of the power and resources of a dedicated server for a fraction of the cost – a viable option for any company with more than a couple of websites.

I became a VPS fan last year, when I launched a Facebook app that racked up tens of thousands of plays in a few hours. A VPS is just what its name suggests: it looks like a dedicated server, but you can specify what proportion of the real, underlying hardware you want to pay for.