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Old 09-25-2004, 08:37 PM   #1 (permalink)
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Location: San Francisco
Ebay Businesses

A highschool friend of mine studying business at the University of Arizona called me the other day with a business proposition. He basically wants to hop on the ebay ecommerce bandwagon and start our own company. He's pretty up to date with web page production, and I've done over 30 sucessful ebay transactions so I know how dealing with different people via email works.

My question is, for those that 1)know something about starting up small businesses and 2)know something about running a business via Ebay, how realistic is it that two dedicated 21 year olds have potential to make things work out? I figure that I can find out all of the details on my own, however he prompted me with a business plan that outlines all the technical work he found (and thinks) is necessary.

We've decided to take our time with it and not hop into anything, and to only begin when we feel comfortable knowing all that we can so there are limited surprises. This is a serious post and I'm seriously considering at least looking into making this work out. What I'm wondering is if any of you that know about small businesses or ebay business can review the attached business plan that he outlined below. Maybe taking note on a piece of paper will help you remember important comments to things that he says, for example the validity of his statements on how wholesalers work.

Thanks for any insight that you can offer. I'll copy/paste the legnthy plan below for any of you that can offer the extra time. It'l probably take 10 minutes to get through. I'm going to go ahead and begin my own research, i just figure having a separate reviewer to make comments would help greatly. Any comments are much appreciated.

Thanks again.
-Tim

PS: I'm currently studing at a community college and am applying to the school of business at University of San Diego for business admin this coming spring. This stuff is quite interesting to me and isn't just 'wild idea' that we thought of


Strategic Business Plan

Dear Tim,

I have gone a head and laid out some of the things we need to get done. Read this letter well because I have outlined the actions we need to accomplish in order to get our eCommerce business up and running. First off, I personally think this business plan will work pretty well if we work together and get the nuts and bolts running, and stick to them. I have been doing a lot of research on startups and reading a lot of web e-books and articles online about the do’s and don’t and its really not that hard. I’ll make sure to include all the urls that I have read and ones that I think you should take a look at as well. So here we go!

1.) Establish a legal Business Name

First off ,we have to establish a legal business name and company type through the state of our choice. Personally, Arizona’s department of revenue is our best bet because tax id likenesses are cheaper then in California. I’ll tell you about this in a sec. IN order for us to sell products online and not have to pay state sales tax for our business we MUST file our Business Name.

https://www.aztaxes.gov/default.aspx

I’m going to take of this some time this weekend or next week. Basically we need to come up with a good name that appeals to our traffic “customers” that see our name. I have a few ideas but we’ll talk about this email when you receive it, and call after you have read it over.

I’m pretty sure that the cost of acquiring a business licenses is only about $50-$100. So I’ll take care of that. Like I said we will have to pick an official business name that's recognized by our state government (Arizona). Our choices are:

A.) Corporation: give us more room to sell and is higher ranked among protection and retail use.

B.) Fictitious Name (or "DBA"): This is a simpler way to register your business, but it does not afford you the protections that a corporation does. This doesn't cost as much as a corporation. In Arizona, this is called a DBA (Doing Business As; ), and is obtained from that same web site I listed above. I will take care of all this! The fee would be something like $35 on averages something like that.

Once we have taken care of this, witch will take no longer then a day’s time, when I actually sit down and open up the site with my credit card! We will then have to obtain a “Tax ID #” This is not hard at all it is basically the way the government knows that we have paid our state revenue office our fee for our business licenses.

2.) Obtain a "Tax ID"
In almost every State you are required to have a Tax ID. Some call it a Sales and Use Tax Certificate, some call it a Seller's Permit, etc. It's the same thing. It allows you to collect Sales Tax on sales you make within your own State, and protects you from having to claim income. WE will get this id number once we have filled out the info on the Business licenses site that I listed before. Arizona’s department of internal revenue is really one of the better state government sites, because it will let us do every thing electronically, so the chances are that I won’t have to go down to the chamber of commerce in Tucson.

Once we have registered a business name, and cleared ourselves of any state taxes and obtained a legal tax id, witch is very much needed in order get access to whole sale inventory venders; we can open a Business Bank Account on Pay Pal.

https://www.paypal.com

3.) Open a Business Bank Account
We will have to set up the account so we can both access it and it must be under the name of our business. This is not hard, I think I already have two accounts and I’m sure you have a few as well. Once we go through the steps of doing this we will have to apply for Paypal credit, meaning that we will have a Paypal Business credit card that will not be used for anything other then to supply the Wholesale Vendors with a reference to have so we can access and open and close product sales; after we have listed it on eBay.

In order to make a sale the consumer will send us his/her money, and we will have to use this $ in our Paypal credit card account to pay out the referenced vender we established with. In turn they will charge our card that was on file and send out the product to our particular buyer. After we pay the wholesale vender, we will have a profit based upon the economics of this business (I’ll outline that next). With the money we make we can:

a.)Keep the money in the account till we reach a goal that we both agree on,
b.)Transfer out the money after every sale based upon our agreed percentages.

Personally, A is a better idea, therefore we have more $$ to work with on reserve. Linking to our personal accounts in the accounts section in Paypal is easy because all we’ll do is set up our individual personal accounts and transfer whatever money we make from our sales to those correct personal accounts. I’ll outline profit percentage later, as well, but I think you’ll think it’s fair.

Ok getting there! The fourth step will be to start a new eBay Account which will suck, but we will have to because it will have to be in the name of our new Business. The down side of this is that we will have no acquired feedback so our reliability will not be established to our buyers.

4.) Opening a Business eBay Account
This account will be very easy to set up. We will just have to go through the process of opening a new account and our password should be something we can both use, and remember.

5.) Economics and Drop Ship venders

OK I’m sure you always are thinking about good old economics because I sure as hell never pay attention in my econ classes, but this is how it works. In no way is this a get rich quick thing. But if we do it right it will earn money. To start off we will have to establish who our Drop Ship Wholesale venders are. In order to do this we will need to apply to a great website called http://www.worldwidebrands.com.

This Drop Ship listing site is the real deal. Its not one of the million scams out there, the services that they have to offer are great. And personally my buddy in FIJI uses it all the time, and he has made over $2200 in a month, however it took work. The way this site works is that you pay for the rights to access wholesale venders. This is very useful because it is hard to get good venders that not everyone is using and is legitimate.

http://www.worldwidebrands.com/WWB/freepre_index.asp

Once we have established the rights to browse these huge lists, we contact the companies of the wholesale venders, and establish a credit account or flat out account by name and business. Typically there is no application fees and products are listed on each of the wholesale venders cites or by catalog.

We then establish numerous contacts, via emails and phone calls or whatever. We will then have the services and products needed to start up sales. Personally, Mass Emails in Microsoft Outlook will work fine if we compile a list of potential wholesale venders, and send them all a standard email regarding establishing an account with them to do eCommerce business. However we will need to mask our mailing list so that the venders don’t know that we sent a mass email, this is easy in Outlook. Start a mailing list and address the TO: to the name of the mailing list witch will be say “Potential Wholesale Vender.” This name will be linked to only one email address maybe say mine. And then the rest of the say 100 contacts will be in the BBS: field so that when we send it out, it will go to all the contacts but they will not be able to see that we sent a mass email. The only thing they will see in the To: Field would be “Potential Wholesale vender.”


We will then need to establish some research and analysis on possible products as well.
(I will outline this next). When we have the products in mind that have a high percentage of sales (ie) the practical top products for maximum profit, we can work out how much we will earn.

For example, if we see that selling plasma screens have a profit margin of more then 15% then this is good. We can get this by using tools in research to look up the lowest selling prices that have sold on eBay. Take the lowest price you collected on a product in your list that has survived all your Research, and still looks good. Calculate your estimated wholesale cost, then subtract that from the lowest price. If you don't see at LEAST 15% profit, don't bother.

http://www.worldwidebrands.com/WWB/kh_freeebook15.asp

To find the cost of goods sold, we will want to factor all the prices of our product. For example, an item that costs us $10 at wholesale, plus a $1.50 drop ship fee, actually costs you $12.24, not $10. Why?
·Product cost at wholesale: $10
·Drop Ship Fee: $1.50
·Merchant Account transaction fee for a $20 sale ((20x2.2%)+.30) = $0.74
·Total = $12.24
·At a $20 sale price, that product earns you a 39% profit (1-(12.24/20)=39).
These are the basics of finding out what we want to sell, and how the market will work for us to make money in our business. If you have any questions on these steps let me know its not that hard to understand, and I think that we could really make use of some good products that I have in mind. (ie) Sleeping bags, camping goods, Conair hair dryers, porter-cable drills, construction equipment and tools, Disney software, and other brand names that will attract people’s attention.

IN order to even get to the economic side of sales we have to do a lot of research to actually find out what products we would want to sell. Personally I think this will be the hardest thing about starting our business.

6.) Product S&R (Statistics and Research)

Some of the key factors that we will need to look at are these types of questions:

·Where is the market, what is it looking at or for?
·What are the Demographics?
·What Season is it?
·Where to get the product at Wholesale?
·Who is the competition, how much, and why?
·What style of advertising is necessary?
In order to find answers to these questions we will want to take advantage of a few tools that may help us. For example, a great tool that I have come across is a program that looks at eBay and compiles all the information on a product that is sold on the site. The program browses other eBay listings by user, category, price, and highest rated item. This will help us find our margin and see if the product is a good product to use. The program is called The Market Research Wizard, and can be found at:

http://www.worldwidebrands.com/mrw/free_trial.asp

There is a bunch of read me information on these types of tools at:

http://www.worldwidebrands.com/mrw/mainbody.asp

I would take a look at some of these and let me know if you understand how we might use them because this would be a lot of what you might be doing to increase our profits.
Once we have decided to get our business up and running we may want to talk about who will do what and what percentages we will split.(I’ll outline what I think is fair in the Profits section of this business plan.)

7.) Development

Once we have developed all the above material and are up and running we will want to design our product spec sheets. This will mean that we will want to look at and few ideas in order to attract our customers. I think our best bet is to design a nice HTML template for our products that will be inserted into the eBay product auction lists. The template will be nice once we make a solid advertisement for the product that we are marketing, because we can use it for all our products and just change around the product pictures and specs. HTML is also more professional then the generic eBay listing as well so I can take care of this quite easily.

For the marketing aspect of our products we will really not want to buy extra highlighting or any of the other stuff that attracts people to our products. I think if we have a solid HTML listing and a good catchy descriptions that attract people, customers will want to click our product before the others that we maybe competing with.

If you have any additional ideas or ways that we may market to our customers feel free to let me know, for these are just a few ways we can efficiently market our goods.

8.) Customer relations

This aspect of the business will perhaps be your job as well. We will want to keep a great relationship with customer base. This means that when customers have questions on products witch is bound to happen in tons of emails once we have lots of listings on eBay. Simply we will want to reassure them that we are doing our best to get the services to them and whatever is necessary.

We will also want to make sure that we do not run into any wholesalers that backorder our goods. For we will run into big trouble if we are running on credit and sell a product to a customer and they pay us and the products is not available for several days or weeks. This would most likely give us a bad name and hurt our feedback, witch is very important in order to be reliable and trusted on eBay listings.

9.) Profits

If we work together as a team I’m positive we can make some pretty nice profits. Ideally we will need two people for this business, because its a lot of work for one personal specially since both of us do other things and will not always be there to constantly monitor our products. Therefore, I think its fair to present a Partnership with percentage margins of the following:

Manager CEO- 60%
Co Manager – 40%

Any additional time spent working on this business and other percentages can be worked out when the time comes.

AS far as work load goes, I feel that I can take care of starting up the business and getting the materials together for us to start developing HTML for our products. However, researching for possible products and Customer relations, along with any thing that needs to be taken care of during this process could be taken care of by your efforts. I will help our with research as well when ever one of us doesn’t have time.

I hope you find these conditions fair and if you have any conflicting views on these terms please let me know.

10.) Readings and Resources

·http://www.worldwidebrands.com/WWB/kh_articles.asp

·http://www.worldwidebrands.com/EBook...ss%20RIGHT.exe

·http://www.worldwidebrands.com/wwb/ebiz_index.asp


·http://boss.streamos.com/wmedia/wsra...3/segment3.asx

Thanks for reading this plan I outlined, if you feel you’re interested in becoming a partner and working towards making some good money that can be done quite easily if you work together and set up a few goals.

Sincerely,

Ron
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Last edited by -Ever-; 09-25-2004 at 08:42 PM..
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Old 09-25-2004, 09:46 PM   #2 (permalink)
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For a few years I was an assistant in a Small Business Development Center located at a major university. The services, advice, suggestions, etc. provided are free. Look in your phone book under SBA (small business administration) or look for a Small Business Development Center at a nearby college. These people are there to help you with the questions that you have expressed. Good luck!
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Old 09-26-2004, 12:21 AM   #3 (permalink)
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Location: missouri
I am 26, and run my own company
some points to think about

-wholesalers- you do not have to pay to hook up with a wholesaler- I laugh at those that do, as the services that you are paying the "wholesale provider" are available often for free - for example, several of my distributers will drop ship at no extra cost

the small buisiness bible , if it were written , should include the passage- Partner: he that stabs you in the back and takes your money, while saying that it is your fault...

I have known personaly six small buisinesses that went under specificly because
of partnership disputes - I personaly know none that work well with partners- and only one that is barely getting by- so be very damn careful who you partner with- does not matter if its a friend, brother, or anything else- its a killer waiting in the dark

it basicly seem that the idea is to list products that you think will sell, then if they sell have em drop shipped to the customer- at face it seems like a good idea, but considder that listing fees on ebay may not be all that great, and having done some selling on ebay i can state that the market is glutted- with everything you can possibly think of to sell- and you cannot compete with the non buisiness guy out there who just wants to clean out his closet- and just happens to have what you are selling (he shows up a lot) if you have the capital to survive for a while it may work, but, expect it to take a long time... and remember, in god we trust, all others pay cash......
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Old 09-26-2004, 12:35 AM   #4 (permalink)
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update- after reading the site info, it is obvious that they are selling you info that you could find yourself- ie they are in the game of charging for free stuff- however, they are quite upfront about it, and the fee is low- I got my suppliers the old fashioned way, and it does take time and effort, and can be damn frustrating- they also claim to update their lists regularly, which is good, and might help- they claim not to charge any update or monthly fees- so this may well be worth your while to get- I do know that people motivated can succeed, as I and others that i know have done so, but as to the idea that you are looking at, who knows....
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Old 09-26-2004, 08:52 AM   #5 (permalink)
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Location: San Francisco
Thanks for the comments guys, I'm taking a lot of this in. And thanks for looking into the link, Fire.

Yeah I know what you mean about Ebay being flooded with products. As I said though, we've got some money behind us and are going to take things slow, so besides Ebay listing fees, I think time, good feedback, customer help, and good ads might prove successful, at least every now and then.

Thanks again guys, any more comments will be appreciated
-T
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Old 09-26-2004, 08:33 PM   #6 (permalink)
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Threads move fast in the general forum!

Bump
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Old 09-26-2004, 09:29 PM   #7 (permalink)
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Don't forget about Paypal fees...they charge you every time there is a transaction.
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Old 09-27-2004, 01:56 AM   #8 (permalink)
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Location: Tri-state.
To be honest, I would not jump into a business plan with this individual. He seems to think it is as easy as 1-2-3, which if you'll notice are very basic items that should not be applauded for individual completion. You should consider them under one category like "Establishment of Business."

In addition (and this was the first thing I noticed), your friend uses 'witch' instead of 'which'. If you are looking for a competent business partner, you have not met him in this friend.

Regarding the business plan itself, I suggest finding a way to truly make yourself stand out. This method of "drop-ship & sell" is not a new idea and certainly if you begin to attain any level of noticeable success a larger competitor will find a way to erode your margins (this is, of course, pure intuition). The reason why I feel that your business is vulnerable is because it is not unique in any way. Since it's not unique, it's reproducible and in a world of, say, 3 billion working-class citizens, you can imagine that the changes of you being edged out by somebody smarter/more clever/more efficient is quite high.

In whatever path you choose, good luck!
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Old 09-27-2004, 08:27 AM   #9 (permalink)
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Thanks for the more abstract point of views, Macmanmike. You've got a good eye, beyond making the business work, this friend has a past of making kind of irrational decisions. I do feel that people can change though, and he's really getting his act together at U of A, however you were still able to pull out some things to be weary of in his writing. I too noticed that he thinks it's 1-2-3 as well.

Thanks again guys, any more comments are very welcome.
-T
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Old 09-27-2004, 02:39 PM   #10 (permalink)
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I agree with everything said so far.

"Partnerships are tough"

"Not a unique business plan"

But I think it is critical that it be a true partnership - 50/50.
This goes to so many levels. It is not a partnership unless both are equally committed and at risk. If he wants to be the 60% then just say no thanks, 'I'll be the employee and you pay me'. He'll say 'but I don't have any money'. You say 'Yep, that's why this should be 50/50'. You need me, I need you. I have found that any "partnership" even proposed at anything other then 50/50 didn't work because somebody thought they were more important than somebody else.

I have started and ran 4 different companies. If I couldn't do it myself and hire employees, I didn't do it.
You will find lot's of other people to say the same thing.


Good Luck, I know you will come to a good decision, whatever that may be.
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Old 09-27-2004, 09:51 PM   #11 (permalink)
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Doing business with family or friends is a horrible idea in any case, no matter what anyone else might suggest -- the risks of interpersonal problems is far too great.

Just walk away now if you value his friendship at all.
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Old 09-28-2004, 03:16 AM   #12 (permalink)
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I echo the other sentiments, and this particular partner would make me a little nervous... He speaks in significant generalities, which is bad when presenting a "Strategic Business Plan". He should KNOW how much a business license costs, or at the very least how many personal bank accounts he has (danger Will Robinson, danger).

Also, I would think that estimating and building a business plan with a 39% margin expectation is setting yourself up for dissapointment. Even retail, which has significantly operating expenses, don't make anywhere near 39% margin for the most part. And people shop at eBay (and online in general) for two reasons - to find the ultra cheap price, or to find something they can't find at their local retail. The first reason means operating at around the 15% to 20% margin max (depending on the product you're selling, of course). The second reason is far more work trying to find that specific product, but once you do you can then make your higher margin. The perfect option is a mix of the two. Find a fast moving, hard to find item that you can make a good 30% to 40% margin on - but good luck with that! Everyone on eBay is looking for those items.

Are eBay business viable? Absolutely! A group of friends of mine just broke the $5 million a year in sales this year, selling almost exclusively on eBay. But it took them years to get to that level. Years spent building relationships with vendors, and finding the right mix of product at the right price. It sounds like in this business plan, your friend is counting on turning a profit pretty much immediately. What happens when after the first year he's only made about $200 net profit? Does he get discouraged and bail, leaving you with the mess to clean up?

Also, you mention that "I do feel that people can change though, and he's really getting his act together at U of A". Are you sure you want to be the one that finds out whether he's changed or not, especially in a business venture?

Just my two cents. It can be done, and done very well, but it's alot of work that it sounds like your friend may not realize.
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Old 09-28-2004, 04:26 AM   #13 (permalink)
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As others have said, there's nothing unique about this business model. It feels a little to me like it's copied and pasted from a generic business model you might find on the web. That's not really a problem in and of itself, though--if it's worked for others, it can work for you.

The trick here is product differentiation. You want to find a market niche that isn't getting adequately served, and then serve them. Some bunch of people (certainly NOT as large as the general market) who have specific interests that aren't readily satisifed in the market as a whole. Then become the conduit between those people and the products they're interested in.

Start by looking at your interests. Are you a musician, for instance? What do you know about the availability of musical instruments or sheet music, say? Is it hard to find guitar music by obscure 80's hair bands? Well, there you go. Maybe there's a whole world of Ratt tribute bands out there looking for a resource. The feasability of that niche play is what you'd learn by doing market research--something notably lacking in your friend's presentation.
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