My first attempt was a web hosting business. I was offering a variety of packages for different sized businesses but realising that it is very difficult to get people to switch to a different hosting provider, I had to offer a USP. Hosting packages, even back then, were very cheap so I wasn’t able to offer something better in terms of price. At the time I was using a hosting provider and reselling their services to my customers. Although expensive, they offered excellent support if anything went wrong. I was keen not to move away from them and lose the support but because of their high prices, there wasn’t much margin that I could put on top of my prices to leave much profit for me.
I was working full time so couldn’t even offer proper telephone support. I remember sitting in my car, whilst I was at work (at my proper job), talking to a lady about her web site and how I could help her. The conversation dragged on for ages so I was desperate to get off the phone and get back to work, worse still was that it was the height of summer and so as not to give my position away (she probably assumed I was sitting in my big corporate office), I couldn’t even start the car to turn the air conditioning – it was a very hot, long and stress inducing sales pitch!
With all of these issues in mind, I decided to offer a free custom-built web site with the hosting packages. This was, in hindsight, a terrible idea. It takes a long time to built a web site for someone and because I was essentially offering this for free (the customers were only really paying for the hosting), I was only making £2 a month profit per customer. Obviously this wasn’t a scaleable or very profitable business model.
In addition, I was buying reseller hosting at £20 a month so I wasn’t making any money until I had at least 11 customers. If I had 10 customers paying £2 each a month, I covered my hosting costs. If I had 11 customers paying £2 a month each, I made a massive £2 a month profit after taking away my costs. As I approached my reseller account limit, I would have to move up to the next, more expensive plan, meaning my outgoings would increase even further. There was a very small ‘sweet spot’ where I would have enough customers to cover costs whilst not going over my reseller package limit and effectively starting again from a profit point of view.
Why it wasn’t a waste of time
Building confidence
At the time, I was working a full time job as a senior manager with around 50 staff beneath me. I was earning a good salary, enjoying my job but I wanted more and an online business was the only way that I could see that I could build something successful in my spare time.
Despite being at a high-level in my proper job, I wasn’t very confident selling my own business. I used e-mail marketing to get in touch with customers at first, which was fine but as soon as they wanted to speak on the phone, I crumbled. I used to go and hide away to speak to customers because I didn’t want anyone to hear me on the phone. It was ridiculous, at work I would speak confidently on the phone all day. I’d deliver presentations to rooms full of 200 people but that was different – I was an expert in my field. I knew it and the people I worked with knew it. Now I was a one-man-band, claiming to be good at running a hosting business. I had a major case of imposter syndrome. It’s amazing the tricks your brain can play on you.
I didn’t feel like I knew what I was doing and from any one seeing me, they would probably feel the same. I was just a guy working at home on a laptop and a mobile phone. I didn’t have a fancy office, a business address or even any customers. I was just a pretender hoping someone would buy what I was selling.
Understanding profit required
Each customer that I obtained generated a lot of work upfront as I would need to build them a new web site. Of course stealing customers from other businesses is very easy if you are not worried about your own profit or the amount of work involved but in the real world, there are a limited number of hours in the day and you have to pay your bills so setting a good profit from each of your customers is essential.
I quickly realised that £2 a month profit was just not worth the hours of work required to obtain and set up each new customer account. Years later when I set up my first web site design company, I priced my packages much higher. Initially I offered four packages at £10, £15, £25 or £35 a month depending on the size of site that the customer wanted. As the business developed, I came to the same realisation again – the £10 a month package simply wasn’t worth my time and effort, so I dropped it and just offered three packages. The £10 package was essential to get my business up-and-running because it allowed me to obtain a good number of customers quickly and therefore I could show other potential customers that I had a portfolio of sites that I had already built which gave them trust in me and my business. It also gave me a relatively quick income – obviously it’s easier to sell something for £10 than it is for £15 – so these initial customers kept me afloat as I grew the business. Once I was in a good enough position though, I removed the £10 package from my site and only offered the more expensive ones.
This was an important part of my business set up though. Having the lower cost package at first allowed me to get my business off the ground. Crucially, when I reached the tipping point and decided to scrap the £10 package, I just stopped offering it to new customers. I didn’t increase the charges to my existing customers though as I suspect a lot of them would have cancelled and then left me in a difficult position. By just removing that package from my site, any new customers would have to pay me at least £15 a month and because I had a large portfolio of customers which they could see on my site, they assumed that lots of other people were paying the same price. This gave new customers confidence that it was a worthwhile price to pay for a business web site.
Sometimes we are so obsessed with getting customers and an income we massively under sell ourselves. That’s what I did with the hosting business when I just made £2 a month per customer. I was so desperate to succeed that I offered a ridiculously cheap service just to make sure I was ‘successful’ but actually I wasn’t successful at all. There’s no point working that hard for that many hours for such a tiny income.
Once I had learned that lesson, I used it to work out how to build my first web site design business. I had to work out the pricing for the different packages I would offer, work out how much I would like to earn each month and then from that I could work out how many hours a week I would need to work. If the hours were too high, I needed to increase my package prices or lower my earning expectations.
This was a useful exercise in planning, time management and lifestyle choice.
Technicalities
For the hosting business I chose to use the Magento content management system. At the time, it was used by a few web sites that I had used myself and liked the design of. It was a popular choice for many online stores and integrated fairly easily with PayPal so I decided to use it for my own site.
It turned out to be an awful system. It was very difficult to customise, it broke every time I tried to upgrade it and it just wasn’t very flexible. It was an online shop system which I was trying to use for something else. It wasn’t designed to do what I was trying to make it do.
After hours of time wasted trying to bend it to my needs, I eventually realised that having a web site that looked like a professional hosting company was important, it wasn’t as important as having a site that would be easily found in Google, was user-friendly from a customer’s point-of-view and was actually reliable.
This was a true case of style over substance. The web site theme that I had chosen looked like something a ‘real’ hosting company would use and it was easy to set up to take payments but it lacked most of the necessary functionality required such as being good from an SEO point of view. In other words, the site was great once a customer found it but finding it was the difficult part.
When I came to start my first proper online business, I made sure to do my research properly and find a system that suited all of my and my customers’ needs.
Conclusion
The lesson I take from these experiences is that it doesn’t matter too much what the first version of your business / product is like. In my case I had a full time job so I wasn’t rushing to make money, it was purely a learning experience which did help me when I started up properly. If you are thinking of starting a business, I would try to do the same – start off as small as you can, test the product / service and refine until you get to a point where you have something that is useful and of value that you can sell.
You can build the business as a side project until it is large enough for you quit your ‘proper’ job and focus on it full time.
