How to Start an Online Business in 8 Steps

In many ways, the internet has leveled the playing field for small business owners everywhere. Online businesses are relatively easy to start, without the kind of up-front costs a brick and mortar business demands. However, this relative ease doesn't mean that you can simply jump in and hang out your shingle.

As with any business, you need to establish a strong footing for your online business. While the steps outlined below don't necessarily have to be completed in order, their objective is to provide you with a foundation that's solid enough to bear the weight of your future business growth and success.

1. Assess the viability of your new business idea

Just because it's easier to start an online business doesn't mean no costs are involved. As with a physically based business, the first step to take with your online business is to assess your idea's feasibility.

The most brilliant online business ideas can be unsuccessful if your product or service has no market. Even if you've hit on the solution to a problem that plagues many people, you're just throwing money away if the problem turns out to be one that most people don't care enough about to spend time or money solving.

With this in mind, you need to evaluate your online business idea. The following are just a few of the questions you need to ask yourself:

• Does your product or service solve a problem that enough potential customers have?
• Does your product or service provide a cost-effective solution to that problem?
• Are people willing to spend money to solve the problem?
• How costly will it be to reach the people in need of the solution your product or service offers?

How to perform market research

In order to evaluate your online business idea and answer these questions, you’ll first want to conduct market research. From a broad perspective, you want to identify your target audience, understand the problem they have, and determine whether or not your business can be the solution. 

Here are several research methods to try: 

• Keyword research. Start with basic Google searches related to your business idea, including similar products, services, and key phrases. Pay attention to the search suggestions and related queries, as these often reveal customer concerns and what they prefer to engage with. For a deeper dive, you can also use tools like Google Trends to track interest in your niche over time. 
• Competitor analysis. Study successful online businesses in your target market, including their product offerings, pricing strategies, and marketing tactics. Look for gaps in their services that your business could potentially fill, and consider whether competing with them is realistic.
• Monitor social media. Nowadays, it’s crucial for businesses to track trends and conversations across Facebook, Instagram, TikTok, and other popular platforms. Pay attention to frequently asked questions, pain points, and the general sentiment towards existing solutions and brands. 
• Surveys and interviews. With some planning, you can create short, focused surveys using free tools like SurveyMonkey or Google Forms. Ideally, you can share them in relevant online communities (such as a Facebook group) or with your network. Likewise, you should also conduct informal interviews with potential customers to better understand their needs and preferences. 

Ultimately, you want to confirm your business idea addresses a genuine market need and at least has the potential to stand out among the competition. 

2. Develop a business plan

Once you know your idea is feasible, it's time to put together a comprehensive business plan. Even if you don't plan on obtaining funding for your business, at least not initially, having a business plan is valuable because it lets you spot any potential bumps down the road and plan for future growth and profitability.

The work you did in step one gives you a good base from which to develop your own business plan, and multiple resources are available online to help you put together the core elements of a solid plan, including the following: 

• The vision. Your business’ purpose and long-term goals (usually known as an executive summary)
• Market insights. Your target audience, competition, and industry trends 
• Growth strategy. Your approach to marketing, sales, and customer retention 
• Financial roadmap. Your projected revenue, expenses, and potential funding needs 

An effective plan will help you to identify your market further, clarify your objectives, provide a marketing roadmap, and assist you in making the kinds of decisions that may mean the difference between success and failure.

3. Choose a business name

Choosing your business' name is an important step in the startup process. Because your business will primarily function online, your chosen name must be available for registration as a business name in your state and within the digital space.

This means you will need to check whether the name you want is available as a:

• Business name in your state
• Domain name
• Username on each of the social media platforms you plan to use

If your chosen name isn't available as a domain name or social media username, consider different permutations of the name, and remember that many domain name extensions beyond the original ".com" are available. Additionally, it's important to check that your name and domain name aren't impinging on any registered trademarks.

4. Decide on your business structure

The business type you choose will dictate the legal and tax requirements you need to meet. Most small business owners choose from the following structures:

• Sole proprietorship. This is the simplest form of business structure, but its lack of limited liability offsets its simplicity.
• Partnership. While this form of business structure might appeal to you if you are embarking on your venture with a partner, your liability is unlimited, like a sole proprietorship.
• Limited liability company (LLC). An LLC offers limited liability without the additional complexity of incorporation, making it one of the most popular small business structures.
• Corporation. Like an LLC, a corporation provides limited liability, and while it's more complicated to both setup and maintain, it may be a good choice depending on your circumstances.

It's always a good idea to consult an attorney to determine the appropriate business type for your new business. Because each structure has different tax requirements, you may also want to consult a tax professional. 

5. Take care of all the legal tasks

Like a brick-and-mortar business, you will need to file all the appropriate business-formation documents and other paperwork to ensure your new business has a solid legal foundation. This includes:

• Registering your business with the appropriate government authorities
• Obtaining all the required permits and licenses
• Meeting all federal and state tax requirements, such as applying for state and federal tax ID numbers

Since these requirements vary on a state-by-state basis and the nature of your business, it's important to do your research so you meet any applicable requirements. Again, it's often helpful to consult with an attorney with experience in business startups in your particular industry to make certain you're on the right track.

6. Build your website and choose your sourcing and fulfillment methods

An online business's website is as important as the physical location of a brick-and-mortar company, and you should put as much care into this part of the startup process as you would if you were location and lease shopping. Here’s how. 

Decide how to build your website

You have several options to create your website, including the following: 

• Website builders. Platforms like Shopify, Wix, and Squarespace offer user-friendly interfaces and templates to build a website and set up hosting. 
• Content management (CMS). CMS platforms like WordPress offer more flexibility and plugin options to customize your own website, though they’re not quite as user-friendly. 
• Custom-built sites. For many online businesses, hiring a website developer to help build your site makes sound business sense, as they can build it exactly to your preferences and give your brand a premium look.

When looking at how you will build your website, consider available payment processors (such as through Square, Apple Pay, or PayPal), their fees, and whether they meet your customers’ preferences. 

Choose your domain name and hosting platform

Next, you can register your domain name with the website builder you use or another service like GoDaddy or Google Domains. The web host you choose is an important consideration as well, provided you build a custom site. You can have a top-notch website, but it will do you no good if your host has too much downtime or if the speed of browsing your site is too slow.

In addition to checking out reviews online, consider asking your personal and business network contacts. Other online business owners, in particular, can provide invaluable information about a web host's reliability. 

Plan your sourcing and fulfillment strategy

Depending on the products or services you'll be offering, you will also need to evaluate and choose your sources of supply and inventory, as well as how you will deliver your product or service to your customer. Again, a number of options are available. 

Given the importance of having inventory on hand—or a good on-demand provider—and a reliable method of fulfillment, spending adequate research time on this aspect can mean the difference between success and failure.

7. Develop and implement your prelaunch marketing strategies

It's important to market your online business while you're working on each of the previous steps. Your business plan will provide you with the information you need to develop effective marketing strategies for your potential market. Then, you’ll need to choose the right channels to reach your customers, such as: 

• Content marketing. Create and share relevant content on your website to attract and engage your target audience, whether through blog posts, videos, or podcasts. 
• Social media marketing. Build brand awareness on social media platforms to drive traffic to your website. Be sure to tailor your content to each platform’s unique audience, features, and algorithm.
• Email marketing. Use personalized and targeted email campaigns to keep your audience informed about your launch, promotions, and new offerings when they come out. 
• Paid advertising. Invest in targeted ads on platforms like Google Ads or social media to reach a wider audience quickly. 

No matter what strategies you go with, it's important not to skimp on implementation. By building up your target market's anticipation of your launch through social media and various advertising methods, you will be paving the way for a successful launch.

8. Test and launch your new business

Before launching, you should test every element and feature of your online business to confirm the customer experience is where you want it to be. 

Start by testing your website on various devices (desktop, tablet, and mobile) and browsers to verify compatibility. You should also confirm everything functions, including the navigation and menu items, product pages, payment processor, and other relevant features. Once you’re confident everything works as intended, you’re ready to launch. 

While you won't actually be "cutting the ribbon" the way you might with a physical business, you'll be doing so metaphorically when you make your website live and announce to the world that you're open for business.

This announcement can be made in a variety of ways, including:

• Social media accounts
• Your email list
• Online ads
• Traditional ads

During the launch phase, you will reap the benefits of the work you did during your prelaunch marketing.

Of course, your work will have only just begun, but by going through these eight steps, you will have built a solid foundation for your online business.

Laying the groundwork in this manner means you can devote your time to running and marketing your new business rather than dealing with the various fires that might arise if you've neglected any of these important steps along the way.

Why start an online business?

There’s arguably never been a better time to start an online business. E-commerce sales are projected to account for over 20% of all retail sales in the U.S. by 2027, compared to less than 15% in 2022. Besides the expected growth, starting an online business comes with numerous benefits, including the following: 

Flexibility

Unlike traditional businesses with fixed hours and locations, an online business allows you to set your own schedule and work anywhere as long as you have an internet connection. This flexibility also extends to your work environment—you can operate from a home office, a coffee shop, or even while traveling. 

Low startup costs

Starting an online business is usually less expensive than opening a physical location, as you don’t necessarily need to pay for rent, renovations, or repairs. With lower overhead costs, you also have more flexibility to allocate resources where they’re needed most, whether that’s building your business website, purchasing software, or padding savings in your business bank account. 

Global reach

With an online presence, you’re not restricted to local customers or traditional business hours. Your website is “open” 24/7, allowing customers from different time zones to visit at their convenience. This also means you can tap into niche markets that you otherwise couldn’t reach locally and expand your customer base. 

Scalability

As your business grows, it’s generally easier to accommodate the increased demand without proportional increases in physical infrastructure or staff. Likewise, if you need to downscale during seasonal fluctuations, you won’t have as many associated expenses or long-term assets to maintain. 

Automation and tools

You can find numerous tools and programs that can handle everyday tasks associated with running your online business, including inventory management, order fulfillment, and customer service, among others. As you become more familiar with the operations and implement these tools, you can improve efficiency while freeing your time for more important matters. 

Useful tools for starting an online business

Depending on your business model and needs, you might consider using some of these tools to help start your online business: 

• All-in-one e-commerce platforms. Platforms like Shopify or Squarespace allow you to build a website, launch an online store, and set up various features all in the same program. 
• Marketing tools. It’s helpful to set up accounts with tools like Google Analytics, Ahrefs, or Mailchimp to track analytics and manage marketing campaigns. 
• Task management tools. The early stages of launching a business can feel overwhelming, so you might use productivity software like Asana or ClickUp to keep your projects on schedule. 

Before investing in any tools for your business, you first need to launch it—and why not handle this step online as well? From filing necessary paperwork in your state to securing a federal tax ID (EIN), we’re here to help you get your business online in just a few clicks. 

FAQs

How do I build an effective website for my online business?

To build an effective website, focus on user-friendly design, clear navigation, and mobile responsiveness. You can either use a website builder or hire a professional developer for more complex designs. It’s also a good idea to reference successful online business websites you’d like to model after. 

Can you start an online business with no money?

Yes, it’s possible to start an online business with no money, including graphic design, writing, and other freelance services. You can usually find free or low cost online courses to build your skills in these areas. However, expect to invest time and effort to grow your business. 

Can you sell online without a business?

You may be able to sell online without a formal business through marketplaces like Amazon. However, most online businesses must have licenses to operate, so you should check with your county, state, or the Small Business Administration to confirm what you’ll need. 

What challenges of starting an online business should I prepare for?

You should prepare for challenges related to earning customer trust and establishing a name for your business. You may also face technical issues or struggle with scaling operations as you grow. Still, the exact challenges ultimately depend on your business type, strengths, and weaknesses. 

Belle Wong, J.D., contributed to this article.