In this issue

Firstly Seasons Greetings to everyone.   It has been a  demanding year at Textor and I have not got these newsletters out as often as I would like.  However I am rushing this one out so I can catch you before you rush off for the holidays. 

Have a great break.

This month:
Your instant business plan
What goes into a business plan for an ecommerce website
Business intelligence
Search engine positioning is dead
News from the web 
This month in the internet world

Your instant business plan

"I have this great idea.  I need you to sign this five page non-disclosure agreement before I can tell you what it is.  But I will want you to design the site for me and write the software."

Actually the five page NDA is the first warning sign, but you sign it anyway and it turns out that the guy wants to sell, say, collectable model widgets online.  He doesn't have money and he needs you to give him a fixed price so he can get the funding sorted out. 

A formality of course.

This comes up in different guises over and over again.  You will spend days working stuff out, giving free advice and preparing a quote, only to find the idea didn't make sense and the funding was never going to be there.

So you need a quick way of working out if this is a serious idea or not.  If it is, maybe you can offer delayed payment, or reduced payment for a percentage of the company or a profit-share. 

The instant cash flow forecast

Cash flow forecasts are the difference between very large numbers.  One of them (costs) can be worked out to to the penny, the other (sales) is a wild guess.  The profit figure is therefore very unstable and very dependent on the sales figure and the direct cost associated with those sales.  The fact that your entrepreneur has worked both out to the nearest ten pounds just means that he/she is more delusional that most of their breed.

First you need the estimated cost of each sale, so a quick trip to a competitor's site is called for.  Then we find out that model widgets run at around £20-40 each.  So assume the average is say £30.  Find out the margin on them from your entrepreneur - he should know that - say 33%.

Next we need to get some idea of marketing costs. For an e-commerce site we have a place to go which will give us some idea of this.  Google pay per click.  This is by no means the only way of getting business but is the only one that you can quantify in advance.  So let us start here.

You need a Google adwords account.  Log in and click on tools, then the keyword tool. Type your entrepreneur's product (model widgets) into the form.  You see that he will be paying 30-50 pence per click.  These figures tend to be optimistic so I would assume the top figure 50p.

Conversion rates on your entrepreneur's website will vary depending on the product and the time of year. But 4% is a fairly reasonable figure. 

So 1,000 clicks will cost £500 and will get you 4% of 1000 = 40 sales.  At an average of £30 per sale that is £1,200 revenue.   

for every 1000 visits to the site
We receive £1,200
PPC costs £500 
less the cost of the goods  £800.

Less fulfilment costs, overheads, profit and interest taking us well into negative territory.

It doesn't look good.  

Now there is obviously a lot of guesswork in all this.  If it was closer than this - even just breaking even, you would want to go in more detail.  Next month I will devote a newsletter to the gory details of business planning. 

However this exercise is something you can do on a napkin while the guy is selling the ideas to you, and will often reveal that the plan is either a complete non-starter, or has potential.  If it doesn't look like a basket case, it focuses you on the key numbers that need to be right for the plan to work.

So you turn to the future millionaire and show him some basic figures. Here is how it  goes:

I am working on a conversion rate of 10%

Check out the fireclick index for industry conversion rates. The industry-wide conversion rate is 2.2%. 

I am not spending all that money on pay per click I am going to...

Fill in the '...' with viral marketing, public relations, organic search, social networking, and so on. 

While you are talking you have probably assessed whether your entrepreneur really understands what makes the web tick.  If his expertise seems to come from discussions in the pub, treat this with some scepticism.  The marketing methods that work for my clients all cost real money:

• Pay per click
• Magazine advertising
• Mailed catalogues

According to my economics professor, in a perfect market, the cost of getting a single sale with any medium should be the same.  This is because business will migrate to a low-cost medium and demand will drive up the price.  Of course this is a long way from a perfect market but hey - you have to start somewhere and PPC is at least quantifiable.

My average sale is going to be more

Fine - hard to argue with this, but if he is charging significantly more than the competition his conversion rate will suffer.

And so on and so forth

Very often you will find the guy is manipulating the numbers to get a right answer rather than researching the best available numbers and plugging them in to see what the answer is. 

If your antenna detects that this is going on then then run a mile.

Business Intelligence 

Search engine position is dead.

Question. What is my position on Google for some keyword? 
Response: Who are you and what have you been doing on the web lately

Check out the fascinating interview with Bruce Clay.  The future of search engine optimisation looks different - very different.  Google will change the results based on your history, your location, and even what other sites you have been visiting. So two people searching for the same keyword will get different results.  If that is the case what does search engine position mean? 

Bruce predicts this for Q1 next year. 

He also predicts a return to the google dance, which has been moribund for some time, as Google starts experimenting.  He thinks that will start including new factors in its search related to how interesting your site is, measured by things like video on the site, Flash and so on.  So some Flash may even help your positioning in the future - if there were some way of giving meaning to the word position.

Watch the interview - 10 minutes well spent.

News

Internet Explorer has a security hole and there is an emergency patch.  This a sory which is not totally unfamiliar.

WiMax is a wi-fi system which can be applied city-wide.  Potentially 70mb speeds without a telephone cable to your home.  You can be up to 30 miles from the nearest cell tower.   Sprint has announced a low cost router and is installing WiMax widely in the states.  Pretty soon I can see WiMax being built into your laptop so you just open it up and surf as tens of meg.  Will the infrastructure of the Internet take it?

Mobile devices will be the main way to connect to the Internet in future.  Hmmm ... where have I heard that before. 

Google has taken its Chrome browser out of test mode and declared it live.  I have been using it for a while and I think it is great.  Fast startup and it works well. 

Are you having difficulty in serving legal papers to someone? No problem in Australia, just post them to their facebook site!