Testing Your Business Idea

eBay has provided a wonderfully convenient testing ground for specialized retail businesses. And the cost of this research is practically nil!

For those thinking of starting an Internet-based business, you’re lucky to live in an age and country of immense possibility. You can launch from home with little capital. You can even test your idea part-time before quitting your day job. The task of launching will require some imagination, research and the willingness to adapt to a market, but it doesn’t require nearly the risk business start-ups required in the recent past.

Launching a business used to be a monster task. When I started a publishing business in the mid-1980s, launching an enterprise involved raising capital, finding investors, buying equipment, leasing office space, hiring employees, developing a marketing plan, creating and implementing sales strategies, developing fulfillment operations and filling out tons and tons of paperwork. If you did everything right and ran into a streak of good luck, you had about a one in four chances for success.

The 1980s were a good time for business start-ups compared to earlier periods when the prospects for small business success were dim indeed. There was a point in the early 1970s when business academics predicted the end of small business. With the development of chain retailers and with the mass manufacturing of consumer and industrial goods firmly in the hands of large corporations, there was little room in the American economy for a small company.

Then came the niche market. Whether it was gourmet food products, natural fabric clothes, or special interest magazines, consumers showed a willingness to buy highly specialized products that fell into corners too small for large manufacturing and distribution. Enterprising niche marketers were able to identify and serve specialized groups of fly fishers, hot sauce collectors and heirloom-seed gardeners who were willing to pay a premium for specialized products. An explosion of small niche companies sprang up to serve these high-end consumers.

The key to niche marketing was highly specific expertise. In most cases, proprietors of niche businesses were fellow enthusiasts who were part of the niche community. These entrepreneurs knew how to find their customers and knew how to serve them because they were one of them. Yet these small companies still had the burden of creating catalogs and building shipping operations, not to mention investing heavily in direct mail lists and postage.

The Internet has magnified the niche trend. Suddenly the cost of reaching the special-interest community has been drastically reduced. Instead of creating a storefront or direct mail catalogs, specialized retailers can launch Web stores. There is more competition in an Internet niche than their was in the catalog niche, but the cost of competing effectively on the Web is considerably lower than competing with catalogs and pricey mailing lists.

Plus, you can do it from home. Plus, you can test the business before you commit full-time to the idea.

eBay has provided a wonderfully convenient testing ground for specialized retail businesses. Thousands of small entrepreneurs are using eBay to find customers and build communities of niche consumers, all without buying mailing lists that are 98 percent useless at best. I saw this firsthand over the summer as my thirteen-year-old son used his babysitting money to buy and sell video games.

Many of the game retailers were entrepreneurs who had Web sites displaying full lines of goods. They would buy games in quantity, sell them in eBay auctions, then invite their customers to their Web sites for additional sales. The cost of obtaining a potential customer was virtually nil. All they needed were a few products to sell on eBay and a few more products at their Web stores.

The beauty of testing a business idea on eBay is you don’t even need the ability to take credit cards. You can ask your customers to use PayPal (www.paypal.com) to transfer dollars (without transaction fees) from their checking account to yours. You can trade in collectible-like used products, buy cut-out products or purchase new goods in large quantities to sell below retail price. You can do it from home part-time. If it works, you’re in business. And your odds for succeeding now are better than even.