Before I go in to what you need to be successful, let’s define some terms.

Resources: I’ve defined resources here as the amount of time or money you have. If you are starting a part time business with a few grand in the bank, you’re starting with low resources. The more time you have and the more money/people you have, the higher your resources.

Margins: How much you make per sale. With high margins, you make a high percentage of the sale price, and vice versa for low margins.

Demand: How much pull there is for your product. E.g. The size of the market.

Competition: Who you’re up against.

You’ll notice that the first two are internal (margins are set by the market, but you have control over them), and the second two are external factors.

Combine the first two, and you’ve got your internal limitations. Combine the second two, and you’ve got the “pull” of your product.

Let me explain “pull” a little more. If you were the only outlet that sold Nike shoes in the world, you would have tremendous pull. There’s massive demand, and you would have no competition. If you were to sell no name digital camera’s in the current market, there’s not much pull at all because of the massive competition. You can find this out using the Adwords keyword tool. Be careful to be very very specific.

If you’re starting an ecommerce business, join me in this exercise.

Classify yourself from 1-10 in each one of the metrics above.

Now consider these charts.

margins-resources

demand-competition

To be successful, I believe you need to match up (or better) in both charts.

That is, if you have low resources, you need high margins and low competition.

If you have high resources, you can deal with competition as long as demand is high.

If there’s high competition, you need to have high resources, or target a specific niche of the market.

The idea of the charts is that it lines up your internal situation with your external situation.

And a quick disclaimer: In the words of someone much wiser than me “You can quote me an exception, but I’m giving you the rule”

Related posts:

1. E-commerce, 3 months in. What I’ve learned so far
2. Charging the right price: Price optimization for freelancers
3. 8 questions in an ecommerce conversation