3 Ways To Succeed In Online Business

By | Angel Investing, Startup Lawyer, Startups | No Comments

online business ownership conceptThere are three primary methods for succeeding as an e-commerce business owner. Of course, there are pros and cons to each. And, depending upon the assets you have, risk tolerance, and other personal factors, perhaps one or two of these options aren’t the right path for you.

1. Startup Founder

The most popular method is to found or co-found an online venture. To succeed, it requires years of dedication and lots of sweat equity. The money available in the early years will come out of your own pocket or through the small amount of revenue the company generates as you ramp up.

Because your labor is the primary driving force behind the startup, it takes less money to get it up and going. However, bootstrapping as a founder has a high failure rate too.

2. Acquisition

If you have some money saved up or can get access to it from other sources, you may decide to buy an online business that’s already profitable and continue to grow it as the new owner. This is a proven method. And I’ve created a course that shows U.S. entrepreneurs how to buy an online business that’s already successful. This is a popular option for those who leave a white collar job and want to own a business instead of becoming an employee again.

Of course, a downside to this option is that it does require money to invest on the front end to make the purchase — your assets and/or other people’s money (OPM). If you’re broke and don’t have friends/family willing to invest in the acquisition, it’s probably better to stick to the first method and found your own business and grow it by bootstrapping.

3. Angel Investing

If you qualify as an accredited investor, you may want to consider the third option of becoming part owner of one or more startups as an angel investor. With this method, you’re essentially placing calculated bets on founders/co-founders and their ventures with the expectation that there will be a profitable payoff down the road when the startup gets acquired or goes public in an initial public offering (IPO).

As an angel investor, it’s unlikely that you’ll have control of the company’s direction. In fact, it may be a strictly passive investment or one where you provide advice when asked for by a founder.

You may invest directly as an angel. However, many newbies choose to invest as a limited partner in an angel syndicate where a more experienced investor is the syndicate lead. A good place to learn more about these types of investments is AngelList.

Although the payoff can be huge if you’re lucky enough to invest in an online startup that becomes a decacorn ($10 billion+ valuation), understand that’s not the normal outcome. For this reason, many angel investors spread their money across multiple startups with the expectation that out of every 10 startups selected, 6-7 will fail within 3 years, 2-3 will break even, and 1 might generate a return on investment (ROI) that exceeds the losses from others by being acquired or going public.

Startup Founder Follies: Failure Leaves Clues

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startup founder failures

Whether representing a client or looking at angel investing, a startup founder’s failure track record is an important indicator of how things will go in the future.

On the plus side, many founders learn from their mistakes. Because past failures serve as important lessons on which to build a solid venture this time. For example, optimism about the current startup’s growth potential doesn’t tread into delusions that a seed venture is worth billions now.

However, there’s a dark side to founder flops. Whether it’s ego, stupidity, or a combination of the two, some entrepreneurs bounce back from their startup’s failure by doubling down on making the same mistakes that sunk the prior venture.

Now repeating the same fatal mistakes twice as fast is productive only in the sense that the train wreck happens faster each time. And with a little luck, this means less victims of the founder’s actions.

Yet it’s easy to get seduced by a serial failure who goes down this path because the founder hones his skills of bullshit as a means to market each new startup to investors, employees, and the public…while blaming others for prior screwups.

When evaluating a startup founder’s track record, don’t take the founder’s words at face value without due diligence. The amount of such research, of course, depends on your level of risk tolerance for your time, money, energy, and reputation.

Just recognize that some people learn from their mistakes. Others never do.

Your role is to identify who you’re dealing with now. And like success, failure leaves clues.