The simplest and most effective way to upsell customers is by establishing a relationship. When people make decisions, they usually do so after consulting friends and family. There are numerous psychological and evolutionary reasons that I don’t have the time to get into with this post, but let’s look at a few anecdotal examples. When people choose a college to apply to, it’s usually done with the input of family, intimate friends and a guidance counselor. When a woman at a bar is approached by a man, within a few minutes she’ll instinctively signal for her friend’s approval with her body language. If her friends don’t approve, they’ll give “the raised eyebrow look” or simply turn their back to the man and give him negative body language. Our need to ask for approval and consultation when making choices is done both consciously and subconsciously. The decisions we make are naturally biased to include the opinions of our peer group.

So if you really want to grow your business, if you want word-of-mouth buzz, increased conversions and customer loyalty, you need to work on developing more than just a customer/client relationship. To do so entails changing the way we think about our clients.

To change our relationship with our clients, we have to stop thinking about them as potential leads. Instead, we should think about how we can best benefit them without the need to get paid back. If the focus is on getting fair compensation for value that we give, then inherently the value of the transaction is degraded. If instead the focus is on giving as much to our clients as we can, they’ll then in turn value the relationship with us that much more.

They’re are numerous ways to give value to our clients, but the best way to do so is for FREE. What? Don’t people devalue things that are free? Not necessarily. If what we give away is of little value, for example a corporate sponsored water bottle at a marathon, then we associate little to no value with the transaction or the other party. If however, we give something meaningful, something above and beyond what people normally associate with “free”, then we’ll get a whole lot of customer loyalty. People will talk about how they got a “great deal” or know “this guy” that gives them special treatment.

Have you ever read Alice Schroeder’s “The Snowball: Warren Buffett and the Business of Life?” It’s a fantastic biography and I highly recommend it. There’s one passage in the book that I found quite salient to this topic. Every year, the little known investment bank (at least for non-financial people) Allen & Co. hosts a media conference at Sun Valley. The most highly regarded media and tech CEO’s, the Steve Jobs, Bill Gates, and Warren Buffetts of the world always attend. They might shun media conferences from bigger and more well known investment banks like J.P Morgan, but they almost always go to Allen & Co. The two main reasons they go is because a.) everybody who’s a bigwig goes and b.) the deeply personal relationship that Herb Allen’s, the CEO of Allen & Co., has built with them.

How can one guy build a relationship with the top industry leaders, including diehart competitors, across numerous sectors? Free surf n turf, babysitters and exclusive schwag like Allen & Co. Golf Polos. Most of that stuff costs Allen & Co. pennys. But the effect is powerful. The kids of the CEO’s always want to come back every year. And Warren Buffett, one of the richest men on earth, admitted that he relishes putting on the Allen & Co. polos.

So make a list of what you can give to your customers right now, that would cost them nothing to receive. Make it big. A couple of helpful hints on your blog, or a free newsletter is just the tip of the iceberg. Do you have a book, a video or some other form of content that you can give away for free? How about a sample version of something you’re selling? If your business is offline, make sure to include hand written thank you note. Sooner or later, you’ll repeat the rewards. It may not be in the form of direct income. It may be through word or mouth or new relationships which are often more valuable than money.

Before you start spending money to buy YOURBILLIONDOLLARIDEA.com, you should read over this checklist to ensure that you’re positioning yourself with the greatest chance of success.

1. Handle Your Personal Finances

If you spend more than you make, carry credit debt, and don’t save, then you shouldn’t start a business. Huh? Wouldn’t a business generate enough money to help me pay off my debts? The truth is, you will most likely adapt your personal habits to your business. You won’t be able to manage the cash flow of your business and will only end up exacerbating your financial problems. There’s a reason Warren Buffett’s license plate says “Frugal.”

Let’s do a quick exercise. Imagine yourself as a stock analyst and your personal finances as the financial statements of a publicly traded company. You’re analyzing various companies to determine whether or not they’d be good investment. During your analysis, you find that the company in question can’t generate enough income  or cut enough costs to be profitable and cash flow positive. In all likelihood, you’d recommend a sell rating. If that same company decided to start up a subsidiary, and you were going to analyze the prospects of the subsidiary company, an honest analysis would have to be skeptical at best given your previous analysis of management.

In short, developing a habit of paying off your credit cards in full every month is the first step to having a financial life. You will be guaranteeing yourself an immediate return of 11% – 24% in credit card interest rate fees. This is a higher rate of return than what you’d be able to make in the stock market or through the first months of a new business. And unlike investments, it’s guaranteed.

Although it can cause narcolepsy, I talk a lot about personal finance because it’s so essential to a successful business. If you want to be rich, and you don’t have a jump shot, then this is the one area of your life that needs to get handled immediately. I have numerous articles on personal finance, as well as links to books and blogs that I’ve found to be useful on my resources page.

2. Be Properly Capitalized

The majority of small businesses fail in their first year. Why is that? The simple answer is because they just don’t start with enough capital and as a result, run into cash flow problems. It won’t matter that you have the best idea in the world if you’re suppliers refuse to ship you inventory. If you want to learn more about why being undercapitalized is such a prevalent cause of failure, I recommend reading The E-Myth Revisited by Michael Gerber.

I put italics on the word “properly” because capitalization is just as much about quality as it is about quantity. You have to be capitalized from the right sources. If you have $10,000 in savings, and your business fails, you’ll have lost $10,000. But if you put $10,000 worth of charges on your credit card and you can’t pay that off within 30 days, except to be losing a lot more than $10,000 when you factor in the 11% – 24% interest rate and the hit to your credit score.

3. Make Sure You Have the Time

While startups have a variety of capital requirements, all startups require a lot of time. If you’re working 15 hours a day at an investment bank, you probably don’t have the mental energy to go home and do more work. If you do, then you’re either lying to yourself or you’re from Mars.

For the 9 – 5 crowd, you can definitely squeeze more hours into the day by changing your habits. This might mean using TiVo, waking up earlier, or batching chores like cooking into one day. (Body builders do that a lot as they try to eat 6 times a day. Imagine cooking 6 times a day! The dishes would kill me.)

4. Make Your Business Scalable

This is one of the main reason I prefer operating e-commerce product sites. If I ran a restaurant, and I wanted to seat more patrons, then there would be a lot of fixed costs to incur. It would take several months expand the floor space. Additionally, I’d have to hire more employees. Eventually, the most successful restaurants won’t be able to get any bigger without a lot of headache.

Even a lot of internet businesses don’t have the potential to be scalable. This is why selling on eBay, tutoring kids, or posting your services on craiglist are not viable in the long term. If you need immediate income, you should definitely look into any of those avenues. However, in the long term you’ll eventually run out of stuff to sell on eBay, run out of time to tutor and if you’re selling a service, have to hire more employees who could potentially take your clients with them.

On the other hand, a product based business is only confined to the size of the market. A startup can go from a hundred buyers to a million buyers very quickly if the market can support the growth rate.

5. Start with a Market, Not a Product

Speaking of markets, this is a simple, but often ignored rule. It seems intuitive, but if it were, nobody would make this common mistake. I first encountered this idea in Tim Ferris’ New York Times best-selling book, The Four Hour Work Week.

Basically, what I mean is that if you’ve developed a great product, for example a bike with three wheels to provide more stability, the product won’t necessarily sell if there’s no market. It’s a lot harder creating a new market than it is to create a product to fill the needs of an existing market. Instead, do your research to see if a market exists, and exactly how saturated it is, before trying to design a product.

You can use Google’s Keyword Tool to quickly estimate the size of a market by the quantity of search terms within that market.

6. Make Sure Your Idea Contains Offense and Is Defensible

By offense, I mean most entrepreneurs without relationships to angel investors and venture capitalists need immediate cash flow. The faster we can be profitable the better, so that we don’t keep eating into our startup capital. Again, most small businesses won’t be graced by angel investors or venture capitalists. The way venture capitalists work is that they try to get a 10x return on their investment in only a few years. Most of the time it won’t happen, but they will only invest in businesses where the potential is there. If you’re business doesn’t have the potential to scale, you will be ignored. Therefore, we need be self-sustainable as fast as possible.

When Warren Buffett invests in companies, he talks about the idea of having a “moat around the castle.” Ideally, you want to create something that can’t be immediately ripped off by imitators while retaining enduring competitive advantages. How do you do this on the internet, when everybody ysteals from everybody else?

The simplest way is to create a brand through compelling content and a superior customer user experience. You’ll build trust. Think about amazon. I could start my own online book company tomorrow but nobody would go to it as long as Amazon exists. A great way to start a brand for yourself is through a blog or an e-book.

7. Perfection is Unattainable, So Don’t Try

Your time is very valuable, and the perfectionist in you will try to waste it the smallest of details. I hated this personality trait in investment bankers and I continue to hate this personality trait in entrepreneurs. For entrepreneurs, I think that it’s a tactic we use to paralyze ourselves into inaction. This way, we put off the thing that we hate doing, even if it needs to be done, until tomorrow.

In most cases, having a solution that does 80 – 90% of what you want is good enough. By definition nothing can be perfect. I can’t tell you how many hours I’ve wasted trying to make one aspect of something perfect, only to realize that what I had before worked just fine, and in some cases better. Seeking perfection will only generate diminishing returns on your time.

8. Give Yourself Room for Error

Once you realize that nothing you do will ever be perfect, you’ll soon realize that everything you do will be imperfect. Trying to mitigate every little error can be just tedious as trying to create perfection on earth. Instead, give yourself room to screw up.

For example, let’s say that your product sells for $30, and that you thought it would cost $15 to acquire a customer via pay per cost advertising. It costs you $5 to manufacture and ship the product. In this simple scenario, you’d make $10 per sale minus a small amount of fixed costs.

But maybe you underestimated the cost of PPC advertising in your niche while overestimating your own click through ratio. After testing, you realize the cost of actually acquiring a customer is $27. This would be a recipe for disaster in a lot of e-commerce sites.

If however, you were both able and willing to mark up your product 10 times to $50, instead of 6 times to $30, then you could still use PPC marketing as a viable form of advertising.

On the other side of the coin, restaurants are notorious for having a slim profit margin. Out of every dollar a customer spends, only 4 cents becomes profit. The rest is eaten up by costs. There are numerous reasons to start a restaurant, such as immediate social value. But I would never start a restaurant to try to make money.

9. Prepare for an Emotional Rollercoaster

You’ll probably be very enthusiastic the first month you start your business. Then you’re energy will inevitably wane as you deal with the day to day tasks. Doubt will creep into your head. Pretty soon, you’ll feel slighted when friends good naturedly ask “how are things?” If you’ve hit a particularly rough patch, you might be tempted to punch your loved ones in the face when they look at you funny.

A day later you’ll have a huge sale, hear from a VC and feel like you’re life’s been saved. Hurrah! The VC will call back the next week and say that he dialed the wrong number. Ugh. But he still loves your idea. Hurrah! Just not enough to invest…

10. Set goals, Follow Them

If you’re not a goal oriented person, you’re going to have to be one. Being your own boss is difficult in many ways, least of which is motivating yourself to do work when you’d rather watch Hulu.

I saw a great Nike ad the other day, it simply had the words “Yesterday you said tomorrow.” This is what happens without goals. Set short, medium, and long term goals. Before I go to bed every night, I make a checklist of what I have to do the next day, in order of importance, so I don’t waste time meandering by on Facebook, Gmail and News sites when I should be doing work.

I also create weekly, monthly, and yearly goes. How do you know when you’re succeeding without goals? More importantly, how do you know when you’re failing?

The easiest way to create goals is to use technology. The founders of Google admit to using Google Calendar instead of secretaries. I use Mint.com to set my personal finance goals and Google Calendar to set my business goals.

Extra Credit:
Make sure your business idea is not one of the following: Funny T-shirt Website (inventory and design issues), a premium version of a free service (hard convincing people to pay), already been done (social networking), no chance for monetization (you need cash flow)

“That is the way we are made; we don’t reason, where we feel; we just feel.” – Mark Twain

Increasing conversion is one of the most mythical aspects of Internet marketing. Most entrepreneurs subconsciously have a vague notion about the idea of conversion. They say to themselves, “If I add ‘testimonials’ to my webpage, I think more visitors will actually buy my product.” Ah ha, that’s the secret sauce! They then go about writing customer copy. In a few weeks, they might have more a few more sales. But is that due to the new testimonials? What if the testimonials were placed before the checkout button rather than at the top of the page, would that increase conversion? Do I have to create A/B multivariate tests before I can actually record any results?

Isn’t there a simple solution, like one quick fix I can implement so my conversion rate goes from 1% to 2%?

Yes, but first you must WHY people are buying from you in the first place.

Here’s a formula I’ve created from my experience and through reading about other Internet marketers.

Conversion Rate = Perceived Value Of Offer – Anxiety & Friction

The perceived value of your offer or product is composed of numerous factors, and price is only one of them. For example, are your trying to solve a huge problem this person has or are you selling a subscription to Netflix? If I was going bald and you had a product that MATCHED my desire to stop going bald, that’s a lot more valuable to me than a discounted Netflix subscription.

The Perceived Value of an Offer

The perceived value of your offer is also determined by any incentives you might have. I had a promotion where long term customers would get 10% off their order. I then extended this “limited time” promotion to first time customers if they used a coupon code. By doing so, people thought they were “getting a deal.” The increase in sales more than compensated for the 10% loss in my gross margin. This is the reasons retail stores have “sales” every 5 days. It creates the perception of additional value.

Price is also factor, but not in the way you think it is. In a perfect market, conversion will go down if the price for an offer goes up. However people are not perfect animals. Let’s take an extreme example to illustrate my point. If you were going to have laser eye correction surgery, and the market price was $2,000, but one doctor was charging $300 would you want him to do the procedure? Doesn’t a red flag instantly go off? Don’t you feel more anxiety about the $3,00 doctor? After all, you may go blind, and for most people, vision is > $1,700 in savings.

There are many most instances where the customer WANTS TO PAY MORE. If you charge them less, conversion will go down. Most of the time, people don’t value something that’s free or cheap. Have you tested your offer to see if you can make more money BY RAISING PRICES? Now that’s leaving money on the table.

And most importantly, if you can CLEARLY COMMUNICATE your value, (clarity trumps persuasion in sales), then you can significantly increase your conversion rate.

Anxiety & Friction – Why Sales get Abandoned Like Redheads

I learned a quick lesson my first day as a salesman at Sears. I was selling vacuums and closing in on a deal. Now Sears doesn’t make much in the sales of a product, but they make a ton of money through “Extended Service Warranties.” Salesmen at Sears were evaluated not only on their revenue, but how many of these extended warranties they could sell.

As I was ringing up a customer, I went into my pitch about why he should buy a $30 warranty for a $300 vacuum. He stopped me midway through my reheard lines and proceeded to grill me on the manufacturer’s warranty. When I told him about the inadequacies of the standard warranty, that it was for only 30 days and that he’d have to bring it state lines to get it fixed, he turned around and walked away without hesitation, taking my commission with him. I had made the sin of creating too much anxiety without relieving it immediately. Suddenly he was overwhelmed with the notion that he was not getting the perceived deal he wanted.

In Internet Marketing, most sites have huge problems with both Anxiety and Friction. Unless you’re Amazon.com, most customers will be VERY weary about giving you their information. Identity theft is currently a $[xx] billion dollar problem. If you’re not a well-known brand, expect to lose numerous sales on the screen where people have to pull out their credit cards.

A very EASY solution to decreasing anxiety is to have the “We are Hackerproof, SSL Secured, VISA secured, MacAfee Secured, Nuclear Fallout Secured” logos right next to the submit credit card button. Placement is important. You want to alleviate anxiety the moment it occurs, not before and not after.

Friction on the other hand, has to do with the flow of your webpage and is harder to solve because it requires extensive testing. Every website I’ve seen has numerous problems.

For example, is your checkout page one daunting long form or is it split into 3 pages so that customers feel like are making progress? Do customers have to register a new account or can they make the sale as a “guest?” Is your page easy to navigate or is it too cluttered? Does your offer suffer from the “paradox of choice,” leading to confusion and inactivity by the customer? Are there opportunities for the user to click out of your website via irrelevant links to other pages during the sales process? Have you even asked yourself any of these questions?

If not, then start doing so. More than [xx]% of all sales are abandoned in the cart, meaning customers are ready to buy but hit “X” or the dreaded back button on their browser.

After reading all of this you should realize that there is a lot more to jacking up conversions that “just one thing.” But implementing most of my suggestions should take you 45 minutes and lead to massively increased conversions.

If you’re starting a new business, you’ll be faced with four choices for incorporation. The value of incorporation is extremely high while the cost is relatively low. If you’re trying to get a merchant account to do your own payment processing, being incorporated is a must. The four main types of incorporations are as follows:

• Sole Proprietorship
• C Corp
• S Corp
• Limited Liability Company (LLC)

You will almost never want to start a sole proprietorship because it provides no liability protection. If your company gets sued or falls into debt you’re responsible. End of story. On the other hand, you are not a multi-billion dollar corporation so you do not need to deal with the expenses of a C Corp.

So we really only have two choices for most entrepreneurs, S Corps and LLCs. This is where things get interesting. Here’s a table I created showing their relative Pros and Cons and why I think most businesses should probably incorporate as LLCs.

Those are the major differences. In my view, you don’t want to be wasting your time with having to elect a board of directors, dealing with minutes and all the other hassle that comes with S corps. Just start an LLC as it’s easier to run while providing the advantages of being a separate legal entity.

Where to Incorporate

90% of people should get incorporated in Delaware regardless of the physical location of their business. If it’s good enough got 55% of the Fortune 500 companies, it’s good enough for you. There are numerous reasons to get incorporated in Delaware. There’s a much faster turnaround time with paperwork than most states. The fees for incorporation are also cheaper. Finally, Delaware has a court system that is pro-business.

Keep in mind that even if you incorporate in Delaware, there’s still laws you may have to follow in your own state. For example, California has a code called “long arm statute” which basically tells says that you still have to abide by their laws regardless of where you incorporated

How To Get Incorporated

Using a third party incorporation company is by far the easiest and cheapest way to get incorporated. These companies are called “Registered Agents.” There are numerous companies you can find on the Delaware Division of Corporations website. Instead of inundating yourself with 100 choices and doing nothing, I’ll just share the company I use.

They’re called Incorporators USA, LLC (an LLC, imagine that) and for a few hundred bucks, they did all the heavy lifting for me.  They took care of my EIN, IRS tax stuff, certificate of incorporation, and act as my registered agent.

If you’re still confused about the process, checkout the IRS website. Just don’t get lost down a dark hole and end up doing nothing. Get it done and move on.

If you google “e-commerce websites” you’ll find somewhere between 1,000 – 10,000 different options. This can be so daunting that it often leads to the paradox of choice – you don’t do anything. Instead you end up hitting the back button to Hulu so you can watch the Daily Show. Fun, but not productive.

When I first started my e-commerce business, I decided that I wanted a fully customized shopping cart so that I could cut down on lost conversions. I first tried to get two different developers to implement everything I wanted. This ended in missed deadlines and mixed results. I thought that by customizing the process, I could get everything I wanted. Instead, I ended up feeling like my customized solution was trash.

Then I spent a couple of days researching what platform fit my needs the best and I came up with a solution. It doesn’t do everything I want. It does about 85% of the stuff I need it to do. And since I’m relatively lazy, 85% is more than satisfactory.

I’d wager that for 90%(1) of the people looking to start an internet business, an all in one solution is best. What I mean is that you’d want to get your domain name registration, website hosting, merchant account, secure and customizable shopping cart, ability to take visa/amex/mc/paypal, 24/7 support, anti-hacker trust logos, etc…. from the same company. It’s a lot less stress and that way you don’t worry about what you didn’t do, since they give you a package that takes care of everything right out of the box.

Out of all the options on the market, I think Yahoo Small Business is the way to go. They provide all those basic but necessary services at $40 bucks a month + 1.5% transaction cost on the revenue of each sale. Now if you were doing $100K+ in sales a month, then 1.5% is HUGE! You’d be better off diversifying your needs and saving more money in the long run. But for most people, it’s worth it. My first internet business in high school was run through Yahoo’s platform. They’ve since made numerous upgrades and additions, and I think they’re the clear choice if you don’t want to spend a week figuring out what merchants accounts, SSL Security Sockets, and all that other E-commerce stuff means. It takes about 30 minutes to setup an account. In a few days you’ll get all your how-to guides in the main and it’s really easy to integrate their shopping cart onto your webpage.

While the 1.5% transaction cost is fine for most small businesses, for me, it’s a deal breaker. So instead I have my own merchant account and payment gateway and opt to use a shopping cart platform. After looking at the choices on the market and testing a few out, I now exclusively use 1shoppingcart.com, which is owned by Web.com so it’s pretty damn secure. I choose them because I needed to do recurring billing along with mailing list management. They run about $30 a month with ZERO transaction fees.

The cart is very easy to integrate into your existing webpage (just copy past one line of code and tweak the shopping cart to match your page). Plus, I like that their shopping cart is simple and straightforward, a necessity if you want to ensure that people actually checkout instead of abandoning orders in the cart. Most sales are lost because of a complex cart (actually somewhere around 30%-50%) because they that require customers to give out way too much information. That’s a gigantic loss of revenue that can be mitigated through having a streamlined shopping cart so that consumers have less anxiety when checking out.

Based on my personal experience, I think you should avoid having a customized cart designed. For one, there’s no technical support when your cart goes down. The designer’s done as far as he’s concerned, unless you want to pay an expensive retainer. Oh yeah, don’t forget the cost ($350-$2,000)+ a year for high quality SSL security in additional to the development fees. You also have to trust in the reliability of your designer, somebody you’ve never met…

You should also avoid free shopping carts/platforms like the plague. The two most prominent are Zencart and OScommerce. Although they can work for some merchants, a huge downside is their lack of technical support. If you need help you’ll have to visit their forums and subject yourself to tbe mercy of nerds. I hate doing that. ZenCart & OSCommerce are usually easy to setup, but forget about doing ANY customization. The checkout process usually has numerous pages and forms to fill, leading to huge abandonment issues. In my experience, I was losing 50% of my sales through abandonment in the cart issues running Zencart. Pay the extra money and get a real e-commerce package.

Lastly, you can also try Google Checkout, Paypal’s checkout and other 3rd party that’ll use their merchant accounts for you, but I don’t totally recommend them. What I love is that they’re secure, easy to setup, and inspire confidence in the security of the transaction by their brand. But that’s where the love ends. First of all, I hate interrupting the customer experience and increasing friction to buy by redirecting somebody off my website. Consciously or unconsciously, the potential customer will think your business is untrustworthy and your conversion rate will go down. I would hate for that to happen to you. Unless you were my competitor. A third party payment processor can create unnecessary customer anxiety and abandonment of sales. They also have higher transaction fees (3-5%) to justify the fact that they are servicing your account for you. The only reason you might want to use them is if your credit is so bad that you can’t get your own merchant account, or if you’ve been blacklisted from getting a merchant account. But at that point, perhaps you should work on your personal financial situation before starting a business.

(1) Based on intuition and absolutely no scientific evidence.