Rainy day revenue - survival in online business

You've been working your site for months; burning the candle at both ends to promote and refine your online business. One morning you wake to your inbox full of sales orders or commission notifications. Kaching! Finally, success!

After a few days or weeks of this, you start to think about what you'll do with this new found wealth, after all, $x per day multiplied by 365 adds up to a fair amount of scratch. 

The dreaming begins. A new car? A boat? A house? A holiday house? Heck, just to get out of debt would be a start. It's a wonderful feeling to be able to not only dream this way but to discover that these things are truly possible to achieve.

.. but...

The reality of online business

The Internet giveth and the Internet taketh away; especially if the traffic you're getting is from organic search.. that is, the free listings provided by search engines. Your traffic may continue at that level for years, but it may also literally dry up over night. I was reading a study recently which stated small online businesses that don't have a bricks and mortar store get on average 2/3 of their traffic from organic search listing. Could your business survive such a loss?

Survival strategies

Running a successful site/online store purely via the grace of search engines is a white knuckle ride indeed. Probably one of the best bits of advice I can give to anyone who has stumbled onto high ranking good fortune is to save as much of that cash as you can and continue working like mad for a while. 

Build a nest egg up to at least 3 months of living expenses before you start spending too much of it on other goodies, and especially before you quit your day job - 6 months living expenses at a pinch if you can wait that long :)

During this saving phase, try to implement strategies to make your site more "sticky"; to encourage your visitors and customers to keep frequenting your site. Newsletter, blog, forum, competitions; these are all good options - particularly newsletters or a blog. Keep close tabs on your industry, don't let what the cash can buy you cloud your thoughts too much. You need to think about what you'll do should the free traffic suddenly dry up. Approach your cash management as if tomorrow your business will disappear.

Rainy day revenue streams

If you generate income through affiliate programs and you're offered a choice of large one-time commissions or residual (ongoing commissions), if the company is solid; go for the residual commission option - this revenue may be what keeps your mortgage paid if things go wrong and buy you a little breathing space.

My wise old Chinese accountant once told me back in the days when I was selling computer equipment something along the lines of; "you won't get rich selling products, sell services". This was at a time before the Internet really took hold in Australia and "soft goods" became commonplace. Still, he was correct - selling hard goods is a hard game - inventory to maintain (unless you're drop shipping), handling costs, tight profit margins. Software, information products and services is definitely a good way to go; so if you deal only with hard goods consider subscription services as a way of generating an ongoing flow of income.

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Debt, saving and investment

While things are good, still try to keep capital investment down if possible during this period and certainly don't become over-committed credit-wise. That rainy day revenue saving could serve you very well, both psychologically while you're still doing well and especially should you suddenly hit the skids. How frustrating would it be to run yourself clean out of cash during a slow period when maybe all you needed was to be able to hang in there for one more month?

By the same token, don't be too tight when it comes to reinvesting back into your business - growth is a good buffer against hard times. Determine a safe percentage of revenue to reinvest that still sees your bank balance grow and then stick to it.

Entrepreneurial spirit vs. safe play

I've been making a living purely online now for over 8 years and the web has been very generous to me - but I still have a "day" job in the online world. Often I wonder if I had jumped away from the job at particular points if I would have been able to pretty much retire by now. I'm not complaining about my income, I've been very fortunate; but there's nothing like a family and mortgage to throw a bit of cold reasoning water on an entrepreneurial spirit that can sometimes get a little heated :). And perhaps that's not a bad thing.

No doubt you'll come across rags to riches stories, and they do certainly occur - but the rags to riches to rags scenarios and the rags to even older rags occurrences are far more frequent.

Chasing your dreams is great, throwing everything on the roll of a dice can be exhilarating - but always consider what you can lose by doing so. It's the old gamblers saying of "don't bet what you can't afford to lose".

Get rich slow... and keep it :).

I wish you all good fortune!

Michael Bloch
Taming the Beast
http://www.tamingthebeast.net 
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