How to Setup a Lean Online Store Startup

The “Lean Startup” is a business approach that aims to change the way companies are built and products are launched. It was created by Eric Reis after the failure of his own startup, due to not understanding customer wants, and overspending on their initial product launch. Learning from his mistakes, the goal of a “Lean Startup” is to build a minimal product or product line and gauge customer feedback before investing in something that people don’t want.

They say: “Fail Often, Fail Fast”, and that is some important lesson to bear in mind as you will probably fail at the beginning- that is your outset, and from here you can only improve and start a tedious process of learning- It is OK to fail as long as you learn from that.

Taken as a lesson learned; How can we apply lean startup concepts to the ecommerce world?

1. Validate first, Build later
There are two prominent business strategies employed when starting an online retail business. The first approach is to sell items that other people selling as well, and focus on competitive advantage later (i.e. Price, service, etc.). The second approach is to sell items that are unique or self-made, assuming that no other retailer can sell the exact same item. As a result, the competition strategy changes, and price is not the most important variable.

The easiest for way to test how a product will perform is the “apples-to-apples” baseline. In most cases, the product mentioned is already in demand, but the online retailer thinks they can sell it better than other online stores. If they offer better pricing, customer service, inventory depth, design and clear item descriptions and images, they will most likely grab a certain market share among retailers that sell the same product (and it can be as low as 0.01% of market size, as the online retailer market is huge and the diversity of sellers is high. You’ll be surprise to know how niche markets can be tremendously successful.) I used to run an online shop that sold persian rugs and served UK clients solely, you might wonder how much volume can a single shop that sells niche products can do. Well for quite some time, that store generated over 6 digits in monthly revenue, and i was gaining 10% of its sales.. Not bad for a side gig.

Like is the foregoing case, the marketing strategy should be validated first. How would one go about doing this? The best place to start is by designating and selling through a specific marketplace.

Market Research
On the your first version of the site,  tell your friends, family and additional networks about your new adventure and gage their interest. If you are low on time, you can also use Gumroad to accomplish this task in less than 5 min. Will they buy what you sell? If not, why not? Try to determine which variable(s) are impeding on the sale (i.e. Price, item description, popularity of item, etc.).

The next step is to gain insight about your products on a larger scale. Would other people buy from you? List your item to a significant marketplace to test your pricing and overall offering. eBay or Amazon would be the easiest and fastest validation (my personal preference for quick validation is eBay). Additionally, list your item in auction format for high visibility and better traffic. If you get anything above 10% conversion rate (out of 10 listings/ads at least 1 was sold), then you’re ready for the next step.

Marketplaces like eBay and Amazon are the best way to validate your product’s potential because they require little time and resources. Most importantly, consumers visit these sites to find something specific that they are already looking to buy, so in essence, they are already a pre-sold.  On the flip side, as a seller you need to dedicate less time & resources on setting up store from scratch, connecting to payment gateways, start search engine campaigns, etc.. You just use the marketplace huge traffic (and more importantly, people that come in there for a main particular reason- shopping for somethign they’re looking for- a pre sold client) to get people to buy your items.

An alternate, resource-intensive approach is to introduce a new product into the market. Not that it’s impossible, it’s just much harder, and more costly. Zappos founder Nick Swinmum got his start by taking pictures of shoes from real stores and uploading them to a basic website to see if people would buy them online.

2. Check Your Value Proposition
Assuming that you are competing against other online retailers who sell the exact same products, you have to consider what makes you different. Why would people want to buy from you? What is your unique value proposition?

For example, you can choose to have a flexible return policy (Costco), fantastic customer support (Zappos) or a brand ambassador to drive traffic (Gary Vaynerchuk and his ‘Wine Library’).

3. Setting Your Minimal Viable Product.
Comparing the startup MVP (Minimum Viable Product) to a store, you could say that the most basic store would be a good place to start.

At the bare minimum, your store should have the basics of an online store; some products you sell, an easy checkout process and contact information.

Later on you can add more products, categories, promotions etc.

4. Split Testing
First step is to understand what the current state is. Collect basic metrics such as – how many visitors you have, what are the top selling products, what is the conversion rate (by product, customer profile etc).

Once an you identify the processes that you want to look at, there are set of KPI’s (Key Performance Indicators) and benchmarks available in the industry that you can measure and compare against.

In our case the KPI’s would usually be:
– Monthly visitors on site
– Monthly traffic growth
– Signup to Newsletter
– Conversion rate on site
– Facebook/pinterest/other fans
– Revenue generated in sales
– Average order value
– Upsell rate on site
– Average profit per sale
– Customer retention / number of repeated purchased per year

5. Pivoting
Once you’re done with the customer validation process, you’ll want to take the A/B testing conclusions and start slicing and dicing the complete offering and seeing what exactly works out and what doesn’t. (Phase 1- get ready to sell, phase 2- sell to visionary customers, phase 3- develop positioning, phase 4- verify- for more details )

The best way to go, is to go to the extreme of one side in order to know if you’re on the right direction (i.e: get certain banner moved to the left corner to test, and then test after a week with all the way to the right- then decide on placement.).

Pivoting will also find more inventory to sell, trending items in your category etc (Terapeak is a great tool to conduct the research, though it’s focused on eBay, it will still give you a very good indication of market trends for a certain item, then also use google ad planner, google insights, and google trends, in order to get a “rough feeling” about market size/demand for a particular item.
Having a great selection while knowing what to sell and knowing the magic price that customer will be comfortable with- that’s a key asset to hacking the way to sell your items.
Then you can continue, to tweak in your look&feel design of your store, Conversion rate optimization techniques (which includes: site speed performance, clear images & description, call to action buttons, etc).

All in all, It is in the moving “fast-validating quick” approach. If you tried to validate and it didn’t work, move to the next muse/niche/etc. If you move fast enough, you will be able to make several trials & errors and get to your ideal niche in a one month timeframe. The guidelines above will give you some anchors to start from, but the execution is everything, and it’s all in your hands.