How to Start an Online Business

Small business owners

We've grown accustomed to doing just about everything online—from shopping and holding business meetings to attending school or visiting the doctor. Faster internet, a boom in online spending and widespread acceptance of remote work have made starting an online business from home easier than ever.

An online business means low overhead costs, flexible hours and the ability to work in your pajamas. But before you quit your day job, do some research to see if your idea can make a profit.

Starting a business can be a risky endeavor, but you'll be in good company. Over 1.3 million new businesses launched in the third quarter of 2020, according to entrepreneur consulting company Growthink—an all-time record. And a survey conducted by freelancer website Upwork in late 2020 reported 36% of the U.S. workforce had freelanced in the past 12 months. Keep reading to learn how to get started.

Decide on a Business Idea That Fills a Need

The right online business idea matches your skills and interests with what people want to buy. There are two basic types of online businesses (selling a product or selling a service) and two basic markets (consumers or businesses).

Popular online businesses that sell products may try to find buyers for handmade crafts, commissioned art, used items (such as vintage clothing or collectibles) or new products you purchase and resell.

Popular online services include freelance writing or editing, website design, graphic design, photography, virtual assistant services, tutoring, coaching, personal training, accounting/bookkeeping or teaching skills (such as giving music or art lessons).

Your options will be limited only by your own abilities and market demand. How do you determine the latter? To assess whether there's a market for your business idea, conduct market research.

Complete Some DIY Market Research

Before you spend time and money launching your business, do some research to make sure it's a good idea that has a customer base. If they fit your target market, friends and family can provide initial feedback; you can show them product samples or ask how much they'd pay for what you're selling.

Your loved ones want to be supportive, of course, but they may not be totally honest out of fear of disappointing you. That's why it's important to do some outside research. Ask yourself the following questions, and answer truthfully:

  • Will this business fill a need in the marketplace? It can be hard to break into a competitive market unless you're offering something truly unique. There are hundreds of companies selling iPhone accessories on Amazon, for instance, and it could be quite difficult to stand out.
  • Who is my competition? What makes my business different and better? Perhaps you have unique expertise, a one-of-a-kind product or a compelling personal story.
  • What is my target market? Is it big enough to support my business? The more narrowly you can define your target market, the better. Selling to "mothers" is too broad; selling to "suburban moms ages 20 to 30 with children under 5 and high disposable income" is better. Use data from the SBA, Bureau of Labor Statistics, National Bureau of Economic Research, and the Census Bureau to research potential markets.
  • How will I make a profit? Writing a business plan can help you estimate the cost of providing your product or service and the price you should charge to make a profit. This doesn't have to be a full-length business plan; however, creating a "lean" business plan or "business model canvas" can't hurt. (You'll find plenty of templates online.)

You can get free advice and assistance with market research and other aspects of starting an online business from SCORE or your local Small Business Development Center (SBDC).

Start Small and Build From There

You don't need your own website to start an online business. Whether you sell products or services, there are dozens of online marketplaces where you can sell your wares. These marketplaces already get tons of traffic; many also offer marketing, sales and payment tools that can make running your online business easier. Once your business gains traction, you can always build your own website.

If you sell products, consider these marketplaces:

  • Etsy to sell handmade, new or collectible products to consumers.
  • EBay to sell collectibles, used products and new products to consumers or businesses.
  • Amazon to sell products to consumers or businesses.
  • Nextdoor or Facebook Marketplace to sell new or used products to local consumers.

Are you offering freelance services to businesses? Sites such as Guru, PeoplePerHour, Fiverr, Upwork and Freelancer let you sell a wide variety of services, including writing, coding, web design, virtual assistant, marketing, accounting, legal services and more.

There are also industry-specific online platforms, such as Chegg or Wyzant for tutoring services; Udemy or Skillshare for creating and selling online courses; and 99Designs or DesignCrowd for graphic designers.

Last but not least, you can sell just about anything on Craigslist.

When choosing an online platform, ask:

  • Is the site popular with your target market?
  • Is it easy to use?
  • Does it provide any tools to help promote and run your business?
  • How much does it cost (fees, subscriptions, commissions, etc.)?

The business you run doesn't have to start out as a full-time commitment, either; in 2020, 15.8 million Americans had a "side gig" or part-time business. Eventually, you may be able to transition to running the business full time and living off the proceeds.

Find Ways to Market and Advertise Your Business

Marketing your business is key to getting customers and doesn't require a lot of time or money. Try these ideas:

  • Set up a social media presence for your business on the platforms your potential customers frequent. For consumers, that's probably Facebook, Instagram, YouTube or Nextdoor; if you're targeting businesses, use LinkedIn. Paid advertising on social media can also be an affordable way to target specific audiences.
  • Answer questions people ask on LinkedIn, Quora, Nextdoor and Facebook groups to get noticed and promote yourself as an expert.
  • Ask satisfied customers to refer others who might be interested in your product or service.
  • Ask customers to sign up for marketing emails from your business. (Be sure to comply with FTC regulations.)
  • Get publicity by connecting with bloggers, online experts or other influencers to test or review your products or otherwise promote your business to their audience.
  • Buddy up with other freelancers to refer business to each other or share projects. For example, if you're a web designer, you could work with a graphic designer and a copywriter to make stellar websites.
  • Network both online and off. Joining associations, local business groups or online business groups is a great marketing tool, especially if you sell to businesses.

Succeed With an Online Business

No matter how small your online business is, open a business bank account and get a business credit card. Separating your business and personal finances simplifies bookkeeping and taxes and demonstrates you're a real business, which will be important if your business grows and needs a business loan. If the business credit card reports to the business credit bureaus, paying your bill on time and maintaining a low balance can help build a good business credit score.

As a new, one-person business, your personal credit is also a factor when applying for a business loan. Set up free credit monitoring to conveniently keep an eye on your credit score. After all, you're going to be plenty busy with your new online business.