Online Business vs. Offline Business: Pros and Cons

By on December 27, 2007

Online vs. Offline Business

There are many types of businesses and different channels to reach your customers. One of the first steps you need to take when starting your business is what type of operations structure you want to use.

There are three main types of operation structures: Brick and Mortar, E-Commerce and Brick and Click. In this post I’ll discuss these types of operation structures and some of their pros and cons.

Brick and Mortar

The traditional approach to starting a business is by opening up a physical location where customers come and purchase your product or service.

Pros: Depending on your product or service, a physical location can offer a lot of advantages.

  • 1. Develops a sense of trust or authority with customers by showing that you are financially stable enough to have a store or office. Even though consumers are familiar with websites they can still be cautious of web only companies. With service companies it adds an element of professionalism.
  • 2. Customers still like to shop before they buy. Having a product on display that they can touch and examine helps the customer to commit to a purchase.
  • 3. Walk ins – As much as many of us web savvy businessmen would like to believe there is a large % of people who simply find products and services the old fashioned way. Instead of Googling what they need they’ll see it while driving or have a friend tell them about a store they visited. If you are in a high traffic area you can get a large number of walk ins. It’s the equivalent of getting to another person’s site by following a link or using Stumbleupon.

Cons: Although there aren’t many cons to having a store there is one major one.

  • 1. Cost – The biggest problem with renting or owning a brick and mortar business is the cost. Commercial space ranges from $12 – $40 per square foot and maybe more in malls. Along with the high cost is the 2-5 year contract that most locations want you to sign. If you business does not go as planned you may be stuck regardless.

E-Commerce

There are a lot of different ways to make money online but I’ll simply list some of the ways to make money and discuss the pros and cons.
Ways to make money online – Content based websites, Products, sell someone else’s product and Affiliate marketing.

Pros: The main benefits of E-Commerce are the ease of entry. Don’t be fooled by how easy it is to start a business online because it’s easy to start but just as difficult to succeed in as any other business model.

  • 1. Relatively inexpensive – For someone who knows how to make websites or is willing to take the time to learn the cost of starting an online business are rather cheap. Your monthly costs are less than $25 per month when just starting out plus whatever marketing budget you set. This could be as low as $25 up to $100,000 per month. A lot of e-commerce businesses spend millions a year marketing their services.
  • 2. Customers – it is also less expensive and easier to get visitors to your store or in this case website. If you do some basic SEO you can start getting visitors to your website rather quickly. However, converting visitors to customers is another issue.
  • 3. Options – There are endless options when choosing your business online. You can sell scrap booking materials, have a service based business, sell affiliate products or create content based websites that are monetize through the hundreds of different monetization options.

Cons: Although starting a business online is easy it is difficult to become successful and it is work just like any other profession.

  • 1. Too many people are lured to online business by the dreams of getting rich quick. Although there are millions to be made and lots of people are getting rich and sometimes quickly, it is naïve to think that you will do so without hard work. If you look at any of the successful internet entrepreneurs they all share two common characteristics.
    A. They are analytical and are strategic in their efforts. B. They work very hard or did. They may not be working hard now but when they first started I guarantee you they worked their asses off.
  • 2. Distractions – It is easy to get distracted or lost in all of the options available to internet entrepreneurs. Find something that is profitable and scale / duplicate it. Don’t hop endlessly from one hot new thing to the next. Find your niche and mine it for all it’s worth.

Brick and Click

This is basically a hybrid of Brick and Mortar and E-Commerce. This is a wonderful business model and allows you to take a successful online business offline or vice versa.

Pros: There are too many Pros to list but I’ll try.

  • 1. Allows you to solidify your brand. If you were smart when you started your business, you created a brand. Creating another channel for your brand only expands your market share.
  • 2. Second Chances – If you don’t sell something offline you get a second chance online when a customer sees it again. Or maybe your customer finds it online but isn’t sure until they come in and takes a look at the product.
  • 3. New Customers – If you were successful online and you think that your product will convert well to offline then you are expanding your already successful business. You will reach a whole new consumer base that may not have known about your product. You were able to test it online first with less risk and are now taking it mainstream.

Cons: I can think of just one.

  • 1. If you are offering a crappy e-book that you sell on business or webmaster forums to noobs this probably won’t convert well at the mall.

Examples of each model

I’ll use the movie rental business as an example.

1. Brick and Mortar: Hollywood Video only has store locations.
2. E-Commerce: Netflix offers to mail you movies you’ve selected to add to your library from their website. Although they have warehouses and such they don’t have a physical location where a customer can come and rent a movie.
3. Brick and Click: Blockbuster Video offers you store locations and a video rental service, like Netflix’s, that sends you rentals in the mail from their website. They’ve even tied the two channels wonderfully by allowing you to return the online rentals to the store location in exchange for free rentals.

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Adam Toren

About Adam Toren

Adam Toren is an Award Winning Author, Serial Entrepreneur, and Investor. He Co-Founded YoungEntrepreneur.com along with his brother Matthew. Adam is co-author of the newly released book: Small Business, Big Vision: “Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right” and also co-author of Kidpreneurs.