How To Start An Online Business: A Step-By-Step Guide

The internet has revolutionized the way we do business. With 90% of all American adults using the internet, any business that wants to succeed needs to have at least some online presence. Businesses that want to go the extra mile can even move the bulk of their business online, delivering benefits such as decreased spending on property and labor while potentially expanding their consumer base. Even businesses that operate primarily in the brick-and-mortar realm can augment their business model with an online storefront.

Of course, opening a new business online or adding a digital component to an existing business isn’t easy. Companies that want to break into the $2.3 trillion dollar e-commerce marketplace will have to do all of the groundwork associated with opening any business, such as finding a need and developing a viable business model. They will also have to build a great website and find ways of quickly and securely accepting customer payments online. Read on for information on how to start an online business from the ground up, including how to find the right niche for your business, plan out your operations, and how to build an online store that can attract customers and close sales.

Find Your Niche

The first step to starting any business is finding a niche that can be filled. Finding the right niche — one with plenty of demand and competition that you can reasonably beat — is necessary for many businesses to survive. According to Lifehack, finding the right niche consists of three parts:

  • Passion: Starting a business requires a lot of effort. The promise of a stable job or a paycheck will probably not be enough to motivate you when things get tough and you need to put in the extra hours to make your business succeed. In order to start a business and make it profitable, you will need to work in a niche that you’re passionate about. This passion will be your fuel during late-night work sessions.
  • Skill: It’s not enough to be passionate about your niche — you also need to be good at it. If there is a demand for some product or service, odds are that you are not the only person to spot it. You’ll need to be skilled enough in this area to beat out your competitors, whether that’s skill with the specific service that you’re providing or skill in operating a successful business.
  • Demand: Finally, there must be some demand for the product or service that your business will provide. It doesn’t matter how passionate or skilled you are; if you are the only one interested in your niche, then you’re not going to sell much of anything.

Finding the right niche in which to start your business is all about finding the intersection between these three points. You probably already know what you’re good at and where your passions lie. For many business owners, the difficult part of finding a niche is reading consumer trends and delving into the complexities of markets.

Identify Your Target Market

The first step towards understanding the demand for your future company is to identify a particular market that you’d like to operate in. Find out who needs what you’re selling — if anyone needs it at all. Defining your target market involves finding out what kinds of people are buying your product and what sort of need or want they’re trying to fulfill. In some cases, your target audience might be obvious. For example, it makes sense that mobility scooters would sell well to senior citizens who have difficulty getting around.

No matter how obvious you think your target demographics are, though, you should still look at every possible market for your company. It may be beneficial for you to use data about consumer habits — whether it’s already existing or you have to commission the research yourself. From the raw data, you can create customer personas — faux stereotyped consumers — each with a unique relationship to your product.

Personas should have qualities like age and gender, but also personality traits and lifestyle choices, such as ambition and career-oriented. These personas will help you to understand who you are selling to, and exactly what kind of product they want to buy from you.

Conduct Market Research

Once you have a rough idea about who could be buying your products, it’s time to understand them and their needs better. Remember, your goal is to create exactly the kind of product that your target demographics are likely to buy. That means understanding what they want and doing your best to deliver on that with a product or service, all while balancing the other considerations of product development such as labor costs, materials costs, and marketability.

Market research — including focus groups, demographic surveys, product testing sessions, and brand outreach — can help you to determine the size of the market, the need that your potential customers have, and what exactly they want in a product. Keep in mind that your customers may come from a variety of demographics, each with its own unique set of needs and that your product may have to find a way to meet as many of these needs as possible, within the other constraints of product development.

Analyze The Competition

If you’ve found a real marketing opportunity, then you likely won’t be alone in competing for their attention and their dollars. Whether that competition comes from older companies who already existed in this niche, other people who have just had the same idea as you, or copycats who see your product and try to provide something similar, you won’t be alone in your market.

As you get started on your own operation, it’s important to do as much research on your competition as possible. Find out what’s working for them and what isn’t. The end goal of all of your competitor research should be the answer the question: can I beat what they’re doing? If you can offer a better product, a lower price, or satisfy a pain point that your competitors aren’t reaching, then you can beat them for customers in this market. If you cannot, then it’s time to head back to the drawing board and figure out what exactly your goals and expectations for this market are.

Pick The Correct Business Type For Your Company

In the past, running a business — especially one with a storefront — almost always required some sort of brick-and-mortar location. Today, however, businesses have several options about how to get their products to their customers. Picking the right one for your new company is a matter of understanding your own business model, the purchasing habits of your customers, and the strengths of each platform.


When it comes to selling goods and services, e-commerce is the new kid on the block. E-commerce is simply any online transaction between a business and its clients. Of course, a label this broad can take many forms. There are six basic types of e-commerce transactions, including:

  • B2B (Business to Business): Transactions between two businesses. For example, a manufacturer and the raw materials suppliers.
  • B2C (Business to Consumer): Transactions between a business and a consumer. For example, a private individual who orders books off of Amazon.
  • C2C (Consumer to Consumer): Private trades between two consumers. In the real world, this includes things like garage sales or “for sale” flyers. Online, these transactions are facilitated by platforms like eBay and Craigslist.
  • C2B (Consumer to Business): The business/consumer relationship runs both ways. Consumers can sell things — often services — to businesses. An example might be a freelance programmer selling their time out to a company.
  • B2A (Business to Administration): Businesses and consumers both participate in online marketplaces, but so do public administration entities. Many government organizations will contract work out to private businesses, who can use the internet to collaborate with and accept payment from the government.
  • C2A (Consumer to Administration): Similarly, freelancers can also use the internet to work for public administrative agencies.

Depending on your company’s products and services, you will most likely be interested in B2B or B2C e-commerce, although it’s helpful to know about each type of e-commerce marketplace.

The greatest benefit of e-commerce is that you don’t have to pay to maintain a real-life storefront. This can save you on labor — since you don’t need an employee present to conduct business — and the costs of renting and maintaining your space. However, by moving your business online, you also miss the opportunity to accept walk-in clients. Instead, you will have to learn about the avenues for bringing traffic onto your website, such as on-page advertisements and search engine optimization (SEO).


Physical storefronts have been a necessity for businesses since the establishment of town markets in the older cities of the world. These days, however, merely having a brick-and-mortar location is usually not enough.

There are benefits to having a physical storefront. For example, consumers are more likely to make impulse purchases in a store, where they find themselves in the shopping environment. However, the convenience of online shopping stops many consumers from ever entering a store. Businesses with brick-and-mortar locations must have at least some online presence in order to ensure that they’re not falling behind their online-only competitors.

Services like in-store pickup can help to sync the online and in-person operations. An e-commerce store on your website can also help you to bring your brand identity online, using your reputation as an established business to beat out newer online-only competitors.

Virtual Marketplace

Doing business online doesn’t necessarily mean operating over your own website. Many businesses choose to operate in virtual marketplaces, shared spaces where many different sellers come to sell their products. Larger companies like Amazon and eBay offer online marketplaces where companies can sell their products without having to maintain their own websites.

Using a virtual marketplace can be very affordable, since you get access to a high-quality online sales platform that you don’t have to build and maintain yourself. However, you will likely have to pay a fee to the owner of the virtual marketplace for use of their space. You also won’t get the opportunity to develop and market your very own brand identity, since many consumers may go ahead and make purchases without more than a glance at the name of the seller on the virtual marketplace.

Choose Your Business Structure

No matter whether you build your own website, use a brick-and-mortar location, or sell your products on a virtual marketplace, you will have to register with your state and with the IRS as a particular kind of business. Different business structures are bound by different legal requirements and different liability and taxation laws. Some common business structures include:

  • C Corporation: The company pays corporate taxes and the owners are not personally liable for the company’s actions and losses.
  • S Corporation: The company passes on profits to its owners, who pay personal tax on that income. Owners are still not personally liable.
  • Limited Liability Company (LLC): Owners are protected from personal liability and profits are passed on to them. However, members of an LLC are considered self-employed and must pay self-employment tax on their income from the LLC.
  • Nonprofit: Owners in a nonprofit are not personally liable, but the company many not distribute profits. Nonprofits are exempt from corporate taxes, but they must meet strict requirements about their activities and how they handle their profits.
  • Sole Proprietorship: Owned by one person who pays personal tax on their income from the company and also has unlimited personal liability for the company’s losses.
  • Partnership: Owned by two or more people who have personal liability for the company’s losses. Partners pay self-employment tax or, in the case of limited partners, a personal tax on income from the business.

Even companies that operate online have to follow the law when it comes to opening and operating your business.

Sales Tax

Sales tax is a complicated subject for online stores. For companies who have a brick-and-mortar location, there is simply no question: you must pay the sales tax according to the laws in the state where you are located. However, for many years, online businesses were able to get away with selling things to out-of-state customers without paying any sales tax in the states where their customers lived.

In recent years, this has changed. Many states are passing laws requiring online companies to pay sales tax for sales made to consumers in their state. If you’re going to sell online, it’s important to understand the sales tax laws of each state where you have clients.

Licensing Requirements

States also have their own laws regarding licensing. You will need to work with the local government in the state where you are headquartered to figure out which licenses they require you to have for the kind of business that you are conducting. You will also need to apply for an employer identification number (EIN) with the IRS, no matter what state you are located in.

Build Your Online Store

The crux of any online business is your online store. It has to be easy to use, guide users organically to the products that suit their needs, and keep user transactions secure.

Set Up Your Website

For an e-commerce company, your website is everything. This is, for many of your customers, the only contact that they will have with your brand, your employees, and your product offerings. In short, your website needs to be good. It needs to look professional, make it easy for users to get where they want to go, and help them to feel confident about their safety and security when they make purchases.

Although many e-commerce business owners may try to create their own website from scratch, it really is essential to hire a professional web developer who can make your website look as good as possible. Remember the lessons you learned from your competitor analysis here. Your website should look at least as good or better than the websites of your competitors if you want to beat them in sales.

E-Commerce Platforms

If you’re selling things online, you will need an e-commerce platform. This is a tool or piece of software that fits into your website and handles things like sales and customer payments. This is probably a decision that you will want to make alongside your web developer, who will be implementing and managing the software on your website, so it’s important to work with an e-commerce web designer who has experience with one or more platforms and knows how to implement them organically for maximum sales and customer satisfaction.

Register Your Business’s Domain Name

In order to host your website on the internet, you will need to select and register a domain name that reflects your business. You can also trademark your domain name insofar as it represents your product and your brand. This will give you the legal power to go after people who “squat” on similar domain names or typos (e.g. vs This kind of squatting is an illicit marketing strategy sometimes used by competitors or even scammers, so it’s important to protect your domain name and your brand identity.

Prepare Delivery Methods For Your Products

When you have a physical storefront, customers are able to walk in, make a purchase, and walk out with their products. However, getting your products into the hands of customers as an e-commerce company can be a little more difficult.

You will need to work out and streamline a shipping model, partner with shipping companies, and ensure that customer orders leave your warehouse quickly and with accurate shipping information. Adding in features like integrated inventory management and consumer-end shipment tracking can help to streamline your own methods and create a better experience for the customer, making them more likely to return to your company or recommend your products to a friend.

Understand how to Accept Online Payments

Any business, whether online or in-person, has to be flexible in how it accepts payments. If a customer feels like you are unable to accept their preferred method of payment, they may just end up going to one of your competitors.

For online businesses, credit cards and debit cards are likely to be the preferred payment method. However, there are also third-party payment providers like PayPal who you should be able to work with. Some companies may even consider accepting so-called cryptocurrencies like bitcoin, depending on their customer base. Your e-commerce platform of choice should have the tools that you need to accept a variety of payments through an online payment portal.

Provide Online Security

Although the internet has given consumers awesome new buying power, it has also added new dangers. Consumer information, whether personal or financial, can be stolen through improperly secured online sales platforms. If consumers feel that your website may not be properly secured, they are less likely to hand over their personal information on a payment page and, therefore, less likely to make a purchase from you. It’s essential to make sure that consumer information is secured, so that it cannot be stolen by hackers or other malicious parties online.

Market Your Online Business

A great website needs traffic to be successful. Unfortunately, unlike physical storefronts, it’s not really possible for customers to walk-in after seeing the displays in your store windows. You’ll need to put in the work to get traffic. Once you have the traffic, you’ll have to rely on the quality of your website to convert some of that traffic into customers.

There are a number of digital marketing strategies available to help you bring traffic to your website. Marketing analytics can help you to figure out what strategies are doing the most work for your website.

Social Media

Social media has helped to connect people with one another in new and exciting ways. However, it can also connect people with businesses. Social media marketing is a great way to reach a very specific target audience with known interests and needs. Social media influencers can also endorse your products, giving their recommendation to thousands or even millions of followers, although these endorsements come at a price. In order to make social media marketing successful, it’s important for you to understand exactly what demographics are interested in your products, so that you know exactly who to direct your marketing campaign towards.


Many internet users find new websites through search engines like Google. So, by ranking well in search results for keywords related to your products and services, it’s possible to draw in more valuable traffic. However, search engine rankings aren’t easy to get — especially for highly competitive keywords. In order to rank well, you’ll need to optimize your website to be as appealing as possible to the search engine algorithms. You’ll also need to stay on top of this optimization as time goes on, since, once you’re on top, your competitors will be spending all of their time trying to beat you.

Offline Marketing

Offline marketing can lead to online traffic. For B2B companies, reaching out to potential clients by attending conferences and trade shows, setting up public speaking engagements, and giving product demos and consultations is a great way to get your name out there. Make sure to include your website address on your business card!

For B2C companies, old-fashioned billboards or newspaper advertisements can still be effective. Television ads are also a great way to get your website address in front of a lot of potential customers. It’s important for both your business name and website address to be catchy and easy to remember, so that customers can go home and search for it after seeing it just once in an advertisement.