I have been watching Chef Gordon Ramsey’s “Kitchen Nightmares” program recently. Chef Ramsey owns a dozen world-class super-profitable restaurants worldwide. He knows how to run a restaurant business.

His show documents how he helps other people fix unprofitable restaurants. I am always amazed that I notice things that could be done better that Gordon Ramsey completely ignores. He sometimes completely ignores incompetent employees.

But there are several elements that he always focuses on. These are the elements that apparently matter for any successful restaurant. He focuses on:

1. Cleanliness and sanitary food handling and storage.

2. Freshness of food.

3. Taste of food.

4. Decor.

5. Speed of service.

6. Passion of owners.

Because he is a chef, you might assume that he would focus on the stature, reputation, education and expertise of the chef. He doesn’t. He has worked with completely untrained young people as “chefs” and turned the restaurant around.

I actually suspect that he only looks at the decor and the speed of service for the sake of the TV show. The show almost always redecorates the dining area as part of the retreading. That makes good TV, but from watching Chef Ramsey and his focus, it really appears that he doesn’t care that much about decor. You also seldom hear customers comment about the decor.

The same goes for speed of service. Although he simplifies menus to improve service time and harps on fixing systems in the kitchen to get food out faster, you really don’t see massive focus in that area either. And many episodes show that even the people who are unhappy about the speed of service completely change their mind and say, “This was worth the wait” when they get quality, fresh, tasty food.

The passion of the owners is really only important to Gordon Ramsey because it affects how clean they keep the kitchen, how willing they are to buy and prepare fresh food, and how committed they are to prepare high quality food that is tasty.

It always comes back to those first three items in a successful restaurant. Everything else is secondary. If you have a clean kitchen, buy local, fresh food, and prepare it well so that it tastes yummy, your restaurant will be successful.

People will put up with attitudes from service staff. People will accept high prices. People will even forget about the long wait when they taste something truly fresh and delicious. So where’s the focus?

To borrow a cliché, “It’s the food, stupid!”

What is the focus in an Internet business? You have to decide that for your own business model. But there are a lot of things that people focus on that simply don’t seem to matter:

1. Fancy graphics on their web site.

2. Twenty different payment methods.

3. Easy communication, so people can chat with customer service reps forever without every buying anything.

4. Easy refund processes.

5. Coupons and discounts.

All of those things can impact an Internet business, but they aren’t core areas. They don’t increase sales or earn customer loyalty in an impressive way.

With an Internet business, it is the product–just like it is the food with a restaurant. If the food is tasty, people come back. If the product purchased from an Internet business satisfies the buyer, they will come back.

So, what’s the focus for an Internet business?

“It’s the product, stupid!”

If you don’t forget that, your Internet businesses will thrive, just like Gordon Ramsay’s restaurants (and television career).

Profit is the goal of any business entity, but I am amazed at how few Internet business owners even understand what profit means.

I often offer consultation services for new or struggling Internet businesses.  One of the first questions I ask them is if they are profitable yet.

It is a simple question with a yes or no answer.  But I hardly ever get a yes or no answer.  The person I am working with simply doesn’t know what the word “profitable” actually means.  So they answer based on their vague definition of “profitable” which in their mind is a subjective concept.

Profitability is certainly not a subjective concept.  It has a very solid and widely accepted definition and I am not the only person who will ask you that question.  That means you must know the answer.

In addition, it is your goal to attain profitability and then to maximize the value you return to the shareholders of your business.  Your goal in creating the business was to improve your customers’ lives in some way, but the business keeps score on your ability to meet that goal using “profitability” as its only measure.

Let’s define profitability so you can confidently know if your Internet business is profitable.  You will also then know what factors are used in calculating profitability so you can adjust those factors to make your Internet business profitable faster.

Profitability is simply your revenue minus your expenses.  If your revenue is higher than your expenses, then you are profitable.  If your revenue is less than your expenses, then you are not profitable.  It is as simple as that.

Profitability has absolutely nothing to do with how much cash you have in the bank.  You can have a profitable business with zero cash in the bank and you can have 10 million dollars in the bank and not have a profitable business.

Profit has nothing to do with what you owe to creditors.  Your business can be 100% debt free and have 10 million dollars of cash assets in the bank and still not be profitable.  It can also owe 100 million dollars to creditors with no assets to cover those debts and still be a profitable business.

Profit has nothing to do with assets or liabilities at all.

It also has very little to do with cash flow.  You can sell 10 million dollars worth of products every single day and not be profitable.  You can sell one product a year for $10 and be profitable.  While it is impossible to be profitable without some cash flow, amount of cash flow has absolutely nothing to do with whether you are profitable or not.

Assets, cash-on-hand, liabilities, net worth, cash flow and revenue are all important metrics in a business, but every single one of those metrics can be changed at will if you are profitable.

If you are having cash flow problems because you need to spend $10 million to fulfill a new large order that you won’t be able to bill until six months in the future, then you can get a bridge loan if you are profitable.  If you aren’t, then a lending institution is going to wonder if you are going to spend $10 million to earn $7 million like you have in the past due to your record of not being profitable.

If your business has more debt than assets, then you can fix that if you are profitable.  Over time, you can pay down those debts.

Profitability is everything.  And it is very simple to calculate.  You simply subtract your expenses during any particular period of time from your revenue.

A loan is not revenue.  Receiving payment from a customer for a product order is revenue.

Expenses in an Internet business can be trivial.  Beyond domain registration, hosting and payroll, many Internet businesses have no expenses.

Do the calculation.  You will need to do it anyway to make the tax man happy.  Find out if you are profitable or not without all of the distractions of the cash flow, asset and liability numbers.

If you have an accountant, simply ask for last month’s Income Statement.  If the number at the bottom of that report is positive, then you are profitable.  If it is negative, then you are not profitable.

By the way, the term “the bottom line” comes from that very exercise.  The bottom line of your Income Statement (also sometimes called Profit/Loss Statement) is your profitability.  It is on the bottom line of the report.  And it is the bottom line in any Internet business or any other business for that matter.

As part of your financing song-and-dance presentation, you had to present some market testing data. Every investor wants to know that there is a market for the product you propose before they invest.

A market is simply a group of people. It might be a group defined by gender, age, interest in a particular subject, or residence in a specific city.

Market testing is simply the process of finding out what the market wants and needs and how your product or service meets those wants or needs.

The first thing that pops into one’s mind when we think of market testing is probably focus groups or surveys. They imagine hitting the mall and randomly asking a group of people to try something and then tell them what they think.

While these methods can be useful when performed by an expert, they run a high risk of gathering data about what people want the surveyor to think about them rather than what they actually think about the product. There are advanced techniques to organize surveys and focus groups to avoid these problems, but it is important to hire a professional firm if you go this route.

A better route for Internet businesses is to test online. Are you trying to decide on whether your product should be red or blue? Put up a web-page with a picture of your red product and your blue product and make your visitor click the picture or caption under the picture to proceed to the next page. Be sure to have software that switches their left and right or top and bottom locations so that isn’t actually being measured instead. Then send some PPC traffic to the page as though the product already existed. You can review your logs to see how many preferred the red over the blue.

Try to never ask “what if” questions in surveys. Instead, ask “which” questions in an environment that feels like the prospect is actually on his way to ordering the product. That will always give you the best results.

Sometimes you will need to estimate the total size of your market. The demographics of Internet users in English-speaking countries is now just about the same as the demographics of the overall population. That means you can generally use industry market data from non-Internet sources and apply it to the Internet.

There is a great deal of resistance to change in some areas though. Several companies have attempted to start Internet grocery stores. That hasn’t worked very well. The idea seems very solid and everyone is part of the “grocery buying” market, but people are more comfortable hopping in the car and driving to the grocery store than they are in ordering on the Internet and having it delivered.

However, when you call it something else, it becomes very successful. Schwans has run a home delivery service for premium ice cream and an ever expanding line of gourmet food items since long before the Internet. Their Internet site is converting a whopping 50% of visitors into orders. Amazon also added a gourmet food line and has done very well. Their grocery section has suffered though. Simply the word “gourmet” vs. “grocery” makes all the difference even when we are talking about a block of cheese or some frozen pizza mini-bite snacks.

Your investors need to know that YOU know your market. So, by all means, get to know it by market testing. Don’t just ask your prospects what they want. Try to sell it to them and see what they actually buy (even if your site ends with a page saying “this product not yet available” right when you get to the checkout process).

A business is a group of people. Before you start doing business, you must select your team.

A lot of the criteria for selecting your team will be based on your business model and your own strengths if you intend on being a member of the team yourself.

Your available capital (initial funding) will also affect your decisions for your initial team composition.

Most successful Internet businesses obtain financing. This is because ideas can’t be protected by copyright or patent. That means the only real way to protect your idea is to corner the market by being first and growing extremely quickly.

So one very important person to add to your team first is an expert in obtaining investment capital. This person will have experience in writing marketing plans and business plans. They will have contacts in the financing industry. They will have worked for several companies and successfully obtained at least one round of financing for every company in their past.

Be sure that at least some of their experience is in obtaining first round financing. Some experts specialize in launching new companies. Others specialize more in finding new financing for companies that have already exhausted funding from all of the angel investor sources.

This expert will help you identify if you are the right person for the next most important team member to hire or if you also need to hire your “genius.”

I use the word “genius” because a lot of angel investors use that term. Almost all angel investors look for two personalities to exist in any successful Internet business. The first is someone who knows business acumen. Usually, they will accept your funding expert as that person since he obviously knows enough business acumen to put together the business plan and get it in front of angel investors.

The other personality they look for is someone who has a “vision” and will be the driving force of the business. The realization of this “vision” is what they are investing in. This person is probably you, but you will decide that together with your funding expert. If it isn’t you and your “vision” is fuzzy or you aren’t personally capable of accomplishing your vision, then a “genius” is required. This is someone who can get behind your vision and can technically make it happen. It is often a programmer.

Many Internet businesses skip these steps because they think they can’t afford them. That is not a good reason to skip them. These steps are the steps that are required for you to be able to raise the capital you need to start your Internet business.

Both of these initial team members will cost you absolutely nothing. When you formed your corporation properly as we covered in a previous part, you created the method of paying these two team members. You will be paying them in shares of stock in your new business.

Typically, an angel investment expert will want an initial 10% share of your business if they really think it is a great idea and believe in your ability to execute it. That number can go up to 50% if they believe you will need to add a “genius” to your team.

The funding will also be paid for with shares or options to buy shares in your company. If you need to add a “genius” to your team, then you will generally need to pay them a combination of a salary and stock options or actual shares. So you hire them contingent on obtaining financing and simply use their name as your “genius” when you pitch angel investors.

If you look at the top 100 Internet businesses on the Internet, you see only 1% or 2% who skipped funding. Microsoft is the most notable. Bill Gates had adequate funding from his family and from an early partner. In nearly every other case, this is the route to a successful Internet business.

Don’t skip it!

I just finished watching a video of another TED Talk. In the video, behavioral economist Dan Ariely shows some very interesting research experiments.

The video may leave you wondering if you’re actually in control of your own decisions. A few of the experiments mentioned could even relate to email opt-ins on websites. You might just get a few ideas from this video…

By this time, you have already decided how you can help others doing something you enjoy. You have also figured out the best business model to use to provide your product or service to the customer.

Now it is time to actually create the business. This is a critical step to understand and 98% of new businesses get it completely wrong.

They don’t find out until it is very late in the game and a tax attorney, CPA, business development attorney, accountant or other professional points out their mistake and tells them how much it has cost them.

So the answer is to go to those professionals right now; right? I have to recommend that to protect my own legal rear end. But now that I have recommended that you see your tax professional, accountant or business attorney because that is what I’m supposed to do… I need to tell you that I have always found them completely worthless at the very start.

This is something that I have always had to handle. It is very easy if you understand the basics, so let me explain those basics to you.

What is a business? Under the law it is a person. If you don’t know what I am about to tell you, you will likely end up structuring your business as an alter-ego of yourself. In other words, YOU are your business. This is usually the very worst of the possible options especially if you are a resident of the United States.

In the United States, businesses are sued on average of once every four years. If your business is profitable and has any recorded assets or if your business is simply an alter-ego of yourself and you personally have assets (such as a home or car), you can expect to be sued more often than once every four years. The suits will generally have no merit, but will cost so much to defend that you will end up settling. You will lose your personal assets in this process.

You can also be personally charged with a crime and go to jail for something you couldn’t even imagine was against the law. For instance, it is against the law to refuse to sell to Israel. International shipping costs are prohibitive and customs forms are a real hassle so many businesses refuse to ship international orders at all. It is a smart business decision. However, it is against the law and the penalty carries jail time for individuals who refuse to ship to Israel. If you properly structure your business though and the business commits an obscure crime such as this one, the penalty is generally a fine for the business since a business can’t be jailed unless that business is just an alter-ego of an individual natural person.

So how can we properly structure our business to keep from losing our personal assets in a law suit or going to jail for committing a crime that we had no idea even existed?

Every state in the United States and every country in the world allows for the creation of a business entity that is a separate person under the law. In most states, these legal persons are called “corporations” or “limited liability companies.” In some countries they are called “anonymous societies.” In any case, they become a legal person in the eyes of the courts of the world. You don’t need to create this new legal person in your own state. In fact, that is generally not recommended for an Internet business with no local employees.

Instead, you get to choose which government’s rules are most advantageous for you. You get to pick the tax rate for your company. You get to choose the enter set of laws that will govern your company. That’s pretty cool; right?

Fortunately you don’t have to investigate the laws of every country on earth to make your decision. Others have already done that for you. Most states and countries just don’t have a very attractive set of laws for doing business. So people don’t even consider them.

For instance, in the United States, there are really only three states worth considering. Those states are Nevada, Wyoming and Delaware. Delaware has an excellent set of laws for companies who are traded on the stock exchanges. Most of those companies switched from a different jurisdiction to Delaware right before they went public though so you really don’t even need to think about Delaware for now. Just know that if you ever want to sell stock in your company on the three major exchanges in the United States that you will probably be moving your company’s legal registration to Delaware.

So that leaves Nevada and Wyoming. You can ask any CPA about the relative advantages of each one. Nevada has absolutely no income tax. They make their income from the gambling industry. They also have a very easy to comply with set of very clear laws for corporations. Wyoming has been competing in an attempt to be even more attractive than Nevada. Once you ask your CPA to help you choose between those two states for your corporation or LLC, they will be more equipped to help you. An open ended question about “how should I structure my company” will usually be met with an endless set of questions that you don’t know the answer to yet.

But you don’t even need to register your business in the United States if you are a U.S. resident. In fact, it is usually better not to do that. The United States has some of the most draconian laws that apply to it’s own citizens and residents that simply don’t apply to foreign corporations. The same goes for Europe. If you are an EU citizen or resident, you will often find that the best place to register your corporation will be outside of the EU. Often, Nevada actually ends up being the best choice for an EU resident whereas a U.S. resident should generally avoid registering their Internet based business in the United States for various reasons.

So where would a U.S. resident look? There are 195 some odd countries in the world. How do you find out which countries have the best laws for your Internet business? The Internet is the answer.

Other people have already gone down this track. They have already figured out that 170 of those 195 countries have no interest in being good places to start a corporation. The way you find the other countries is to search the Internet. Just type “incorporate” or “incorporate offshore” into Google and you’ll find dozens of companies who specialize in setting up your Internet business in the right country. They will each list several countries, but you will notice that it is the same 25 countries listed over an over. You will also notice that the advantages for about 20 of those countries are almost exactly the same. Only the cost is different.

The companies who specialize in helping you incorporate in the right jurisdiction will have a paragraph or two describing the advantages of each of the countries where they register companies. Read those paragraphs and narrow it down. Then talk to your CPA and make a decision.

You won’t regret taking this step. The alternative is potentially losing your house and car in a bogus law suit, losing your entire company or spending time in jail. Or more commonly, your tax accountant tells you the great news that you have to write a $60,000 check to the IRS and casually mentions that if you had structured your company correctly from the beginning that you would be paying much less in taxes. In any case, don’t wait until something bad happens before you structure your business correctly. The time to do that is now.

Jack Keifer says Xingla Pro 4 will be released in early June. If you’re looking for software to help get links back to your blogs, I’d be sure to stay tuned to Jack’s blog. I’ve been using Xingla Pro for a while and it has done wonders.

Here is the link to Jack’s post:

http://www.jackkeifer.com/a-look-ahead/

In part 1, of this series, we selected a problem that you could solve in a market that you would enjoy working for your new business.

Now we need to select a business model. The buzz word “business model” has been so abused that many people don’t even really know what it means anymore. But it is important to know an it is important to select a viable business model for your new business.

What is a business model? It is simply how you are going to conduct business and the method that you will profit from that business.

The simplest business model and the one that is easiest to understand is the model of creating a product and selling it to customers. It is easy to understand, but it also requires that you be capable of doing a lot of different things very well — and that is very unlikely for any entrepreneur.

It means that you must be an inventor, engineer, writer, production expert, manufacturer, shipping expert, packaging expert, excel in customer service, and be an expert in copywriting.

Now, it is common for entrepreneurs to be an expert in several areas, but it isn’t very common for single person or even a single company to be able to focus simultaneously at being excellent in every area.

To select the best business model for your new business, you should start by asking yourself if you and your team are best at innovation, efficiency or customer service. These three areas encompass the common ways that new businesses set themselves apart from the competition.

If your team is best at innovation, then you probably don’t want to focus on a business model where you manufacture products. You want to choose a business model where you innovate new solutions and have another company that focuses on efficiency manufacture those products.

That is all it means to select a business model. Your business isn’t going to do it all. It is going to fit in between a number of vendors and a number of customers in a unique network. That entire network of vendors along with your new company will be solving customer’s problems. Selecting a business model is simply the process of deciding where your business will fit in that network best.

What tasks will be performed outside your business? Since it is an Internet business, you won’t be able to accept cash directly from your customers. That means that you need to decide how your customers will pay and what company will be involved in accepting money from your customers.

You should also consider the possibility that the best business model for you may not actually entail you having customers directly at all. Maybe your customers will perceive that they are customers of another company and your actual customer is that company. This is called a B2B or “business to business” model. You are a business that is supplying products or services to other businesses who eventually help a final customer that you will never know.

Several business models have become very prominent and successful on the Internet. Others have become very popular, but they failed miserably. That was the cause of the dot com bust in the 90s.

A lot of businesses focused on solving the customer’s problems without charging them. Instead, they copied how television had worked before the Internet became popular. They thought they could earn their revenue from advertisers and provide the solutions directly to the customers for free. That didn’t work. It failed miserably for thousands of Internet businesses.

But it still does work for a select few Internet businesses. Consider it, but also know that many have failed with this business model.

Then study the business models of the most successful businesses on the entire Internet.

For instance, Google is still extremely successful by providing free services (their search engine being the most prominent) and earning their income from advertisers.

Yahoo does the same. Even Microsoft earns a significant amount of their income using this business model.

Ebay takes a different approach and they are very successful. They provide the marketplace, but do not innovate, manufacture, copywriter, ship, or do any of those other things associated with the traditional business model. They just focus on efficiently helping buyers find sellers.

Amazon has a similar business model although it isn’t as obvious to most people. The fact is that most of the products listed on Amazon are provided by manufacturers and distributors of those products just like eBay.

But Amazon does ship. In fact, they have really focused a lot on the methods to ship most efficiently and warehouse items in the best locations.

They also specialize in presenting information in the best way possible to increase sales. This is usually done with professional copywriters and ad agencies at many companies. Amazon uses ad copy provided by the distributors of products and the customers. Then it scientifically tests how to best present it to increase sales. They also scientifically test how to best introduce complimentary products in their vast catalog.

In every case of a very successful Internet business, the correct business model was chosen to really accent the strengths of the company.

Don’t skip this step. It is critical. Honestly study your own strengths and the strengths of your team if you already have a team. Choose the very best business model for solving the eventual customer’s problems and utilizing your strengths.

You don’t have to do it all and you shouldn’t. Amazon doesn’t invent new products. They don’t manufacture products. They just sell them and ship them very effectively.

Google doesn’t sell anything. They provide a free service and allow advertisers to sponsor it.

There are an unlimited number of possibilities for how to structure your new business. It is an important decision so don’t take it lightly.

If you’re like me, you spend most days using the internet, and you are likely a member of several websites that require you to use a user name and password. The thing is… I hate having to remember passwords! Another frustrating aspect is that most often, websites will require you to create some really hard to crack password for security purposes. Of course, when making it really hard for a hacker to crack also makes it difficult for you to remember!

I’ve found a solution. Check out the software called LastPass. It’s available as a free add-on for IE and Firefox. Using this software, you will only have to remember your one main password. Then, LastPass will automatically remember all of your hundreds of other passwords that you use to log into websites on a regular basis. The best part is, you can have LastPass log you in automatically without even having to think about what your user name and password is.

So what? Your browsers can often do that automatically, right? Sure, they can… but your browsers can often be attacked by viruses which can find your saved passwords. LastPass prevents you from having to save users names and passwords in your browsers, and will store them elsewhere securely.

The other benefit is that you can install LastPass on another computer, and you’ll be able to access all of your user names and passwords from anywhere! So far, it’s been a tremendous time saver for me. No more hiding those passwords under your keyboard on that Post-it, right?

Thought I like LastPass, it isn’t the only software out there that can do this. There are similar programs out there. Feel free to search around for one you’re comfortable using. The amount of time and frustration I’ve saved has been phenomenal!

This is the first part of a weekly series on how to start and run your own Internet Business. It really isn’t as difficult as you might expect to run your own Internet business. As we get into this series, you will see that there are so many different kinds of businesses that you can run via the Internet that there is a business for every personality type.

We will start from the very beginning and cover everything from products to services and several methods of being paid via the Internet.

Let’s start with selecting the product or service you want to offer. Remember that you won’t be stuck with whatever you select. You can always add more products and services later. You can also stop offering any product or service at any time. It is your business. You are in complete control.

Some people will suggest that you choose something that you enjoy. While I think that is great advice in general and will help keep you motivated, it is really more important to choose something that helps other people. The ease of attaining success in an Internet business is directly related to how many people you can help and how much you help them.

So instead of thinking about what you enjoy doing, it is better to focus on a problem that needs to be solved. Entrepreneurs get into the habit of noticing problems in their everyday life. When they feel like complaining or they hear someone else complaining about something, their ears perk up. Instead of commiserating like most people, they jump into solution mode.

They ask themselves what could be done differently that would have eliminated that problem. How much would people pay to have that thing done differently? How many people want the problem solved? How much money do they have in disposable income and how much of that would they be willing to spend to solve the problem?

To a successful entrepreneur, a problem is an opportunity for a new product or service. A truly successful entrepreneur has figured out how to solve a problem that plagues a lot of other people, but has solved it in a way they the entrepreneur enjoys.

This may come automatically. For instance, maybe you love to write. A lot of people hate writing, but need to write for various reasons. Maybe they need advertisements written. Or maybe they need content for their blog or web-site. It’s a perfect fit. You should probably offer a writing service.

Or maybe you know how to design fancy web-sites and you love to do that. A lot of people don’t have those skills and hate playing with HTML code even if they did have those skills. That’s a perfect fit.

Most people don’t have such a perfect fit though. They can’t figure out how to do what they really enjoy while solving the problems of other people at the same time. That is key to a successful Internet business, so I’m going to tell you a cool trick to find your niche.

It is a very simple process. You know what you enjoy. So you set up a free blog on blogger.com or wordpress.org with that topic in the name of the blog. So if you really like skydiving, you try to get skydiving.blogger.com or skydiver.wordpress.org or something similar. Then you post a single blog entry with the following question:

What stops you from enjoying skydiving more?

Then invite them to leave a comment with their answer. You can try other wordings for the question. The point is that you enjoy the topic (skydiving in this case). You want to hear about the problems. Ask a question that invites your audience to complain about something.

Now run a campaign on Yahoo advertising to drive some people to your new blog. Your ad should have the same question in the text so when you pay for a click, you have someone who is likely to answer the question.

After you have several answers, you will see a pattern. Go into entrepreneur mode and decide on a great way to solve that problem. Maybe you already have a solution because you are a skydiver and you had that problem yourself before you found an answer.

You can now write an ebook with the solution. Or you can record an audio or a video. Or you can offer a service if that solves the problem better. That is what successful happy entrepreneurs do. They solve problems on a topic that they enjoy.

We will continue this series next week with another important tip about running your own Internet business.