Who wants to be an internet millionaire?

The internet explosion is giving everyone a chance to become a millionaire - or so it would seem. All you need to do is set up a website and investors will beat a path to your door. A few short weeks later, you are floated on the Stock Exchange and richer than most nations on Earth.

Not surprisingly, it's not quite so easy. Yes, it is possible to become absurdly rich, but this involves hard work and big risks. Lots of people will lose fortunes rather than make them.

All the same, we are confident that some people reading this article will become internet millionaires. But you'd better hurry - the longer you wait, the less your chance. Most of the obvious ideas are already covered and traditional bricks-and-mortar businesses are waking up to the web, so there is plenty of competition.

Opportunity knocks?
But there are still opportunities. When the telephone was invented, nobody thought people would get rich using the phone to take orders for pizza delivery. Similarly, we have only scratched the surface of the potential to do business and make fortunes on the internet.

The rules for starting an ebusiness are the same as for any other. You need a good idea, funding, business sense and hard work. Luck also plays an important part.

To make big money, you need to go at it in a big way. But even if you aren't willing to take a big risk, you may still find setting up a modest web business is fun. Tools are available to quickly get a web store going in an area you enjoy - perhaps selling your own handicrafts, setting up a parts exchange for vintage cars and motorbikes, or selling books about some favourite subject.

If going it alone is too big a challenge, you might be able to convince your employer to start an online division selling their existing products. The tax incentives introduced in the recent budget should make this more attractive. If you can convince your bosses to put you in charge, ask for share options - if things go well, this could make you rich.

Whether you start in a small or a big way, here are the principal steps in setting up an ebusiness:

Think of a good idea
If you can come up with something original, then great. But the idea doesn't have to be totally original. You could just as well launch into an area that is already covered if you can see a way of doing it better or getting more customers.

Make sure it will suit the web
Internet customers are likely to be fickle because they lack the personal contact inherent in most businesses. A good internet business offers a simple service that can be delivered using technology and does not rely on loyalty. Although some people prefer to buy things online, they are the exception and the novelty will wear off.

So, a good ebusiness gives people a reason to use it. This might be because it's cheaper or more convenient.

Figure how to earn money
You might believe that you can attract loads of people to a site and thus sell advertising. Think again. An ebusiness is only ever likely to make a profit if it is either providing a service that people will pay for, or is providing a service that puts buyers and sellers in contact and takes a commission from this (some affiliation programs offer five per cent). Advertising will bring in some revenue but it's unlikely to be enough.

Get a good domain name
You can buy a domain name (your address on the web) for as little as £20, but most of the good ones have been registered already. If you want something catchy, you may find you have to buy it from someone who has already registered it and that could cost thousands.

Set up your site
Depending on how serious you are, creating your site can be dead easy or really complicated. At the simplest, you could just use the free web space offered by ISPs, but this is really only suitable for a hobby, not a business.

The next step up is to rent a package that lets you set up a simple 'web store' to sell a few products - this costs about £25 a month. The off-the-peg web store may work if you are selling something that is specialised and can never get into large volumes. Web stores account for a small proportion of ebusinesses.

If you want to become a millionaire, you will need a serious software house or web development company to build your site. This could easily cost between £50,000 and £200,000. Having to spend this kind of money means getting outside backing. Web companies are perceived as being well funded, so lots of companies offering web design are charging top dollar for less than perfect work. Choose carefully who you deal with and take up references. Study sites they have built for other people and give them a detailed specification to work to.

Get the right content
The most important consideration is 'what will bring people to my site?'. People may just come to buy something, but the chances are they can buy whatever it is elsewhere. Content is King. This can be advice, a directory of useful links, free giveaways or a collection of articles on a particular subject. Make sure you have copyright on, or permission to use, any material you publish or you will soon find a lawyer on your tail.

Money spent on content is never wasted. There are countless other sites out there who may want to buy some of your content to add to their own. This can become an important source of revenue, provided the other sites are not direct competitors.

Collect the money
If you are selling things on your site, you'll need some way of taking payment. Although electronic cash systems are in development, the only reliable way to collect money over the internet is through credit or debit cards.

To be able to charge credit/debit cards, talk to your bank about setting up some kind of merchant account. They will introduce you to one of eight or so online credit card capture services. These services perform the credit card transaction in return for a commission (which may total around 4.5 per cent) and handle all the security procedures. Unless your company is bonded with a bank, however, you will may not receive the money for up to 120 days - this gives the customer a chance to dispute the transaction.

Deliver the goods
Another thing to worry about if you are selling goods is processing the order. The dream is that the website the customer sees will link directly to the 'back-office' operation which does all the order processing and despatch. Achieving this is the Holy Grail of ecommerce.

Most high-profile web shopping sites are not integrated: when you place an order, it arrives at the company office as an email, which is printed off and the details are manually entered into an existing computer system. This is inefficient and tends to make web businesses unprofitable.

If you start with a simple web store, it will not be able to cope if the business takes off, so you should be prepared to do a lot of the back-office work manually.

Market your site
A great idea and great organisation is no use if people don't know about it - there is no passing trade in cyberspace. If you want anyone to visit your site, you have to tell everyone about it. The first stop must be the five major search engines; AltaVista, Yahoo, Lycos, Infoseek and Excite. Each will have a link marked 'add a URL' or 'add a site' which will take you through a form where you give details of your site to be included in the index. There are some services offering to do all this for you, such as www.registerit.com, which is free. Many others will offer to promote your site for a fee - you'll have to decide if the service is worth the expense. Also, try to get on reviewed indexes such as UKPlus.

To become a millionaire, you will without doubt need to invest in serious marketing to tell people about your site and convince them to pay you a visit. The big websites are spending fortunes on promotion, including costly television adverts. In fact, marketing a site can be far more expensive than developing it. Many internet startups plan to spend 70 or 80 per cent of their budget on marketing and promotion.

Do deals
As part of your marketing, you should start looking out for complementary sites that you can do a deal with, allowing them to post an advert or put a link on your page in return for putting an advert or link on theirs. Some big sites will try to charge you a huge amount for an advert, but you'll soon find out how good the internet advertising market is by the large discount they will give you and the desperation in their tone.

Cash in quick
If your site is successful, you can hope to get rich by selling the company. Don't worry if it isn't making a profit: in the crazy world of internet economics, a high-profile company that is making big losses can still be sold for a fortune.

Selling shares in the company is called an initial public offering (IPO). This doesn't come cheap - it could cost about half a million. But this should be nothing compared to the valuation of your company. Although this projects your paper wealth into the stratosphere, you may never get a chance to spend it. Most IPOs see less than 15 per cent of the value of the company converted to cash, and the money will either be needed by the business or grabbed by the venture capitalists. If the City sees the management selling too early, they will drop the company like a stone, so it may be years before you can sell your shares. Good luck, and drop us an email when you've made your first million!

Raising external finance
You will almost certainly need external finance to get a serious internet business up and running. It may seem odd, but if you are aiming to become a millionaire, the first thing you'll probably have to do is get someone to invest a fortune! Although getting money is not easy, it's not as had as it might seem. There is more money flowing around in the venture capital business than there are good ideas.

Before approaching venture capitalists, build as much of your business as possible using private capital. As a general rule, the later you involve the venture capitalists, the better the deal you will get.

The best source of external finances is friends and family. But before you blow your Granny's life savings, you must warn potential investors that there's a big risk you will lose the lot. With house prices rising quickly, you may be able to borrow against your home. This should focus your mind on the risks - if things go wrong, you could end up homeless.

The first thing to do when raising external finance is to prepare a business plan. This could easily run to 100 pages. However, no-one will have time to read this at first, so you must also produce a one-page 'executive summary' containing the key points so potential investors can browse your idea. You should also have some kind of demonstration available to prove the technical side of your idea. There are many software packages to help you put together a business plan and even an online Business Plan Wizard (www.dcfor.com).

There are a lot of spivs hovering around the venture capital business, so beware of getting involved with anyone who does not have a solid reputation.

The big accounting firms such as PricewaterhouseCoopers, Ernst & Young, KPMG and Arthur Andersen have corporate finance teams who may be able to help. If they take you on, they will not normally charge you anything unless you are successful, in which case they will charge you a lot. Never pay an upfront fee to anyone who promises to raise venture capital for you.

Companies that are members of the British Venture Capital Association (www.bvca.co.uk) have all signed up to a code of conduct which offers you some protection. The best known company is 3i, the world's largest venture capital company, with extremely deep pockets.

Ruby Tuesday
Another source of introductions is First Tuesday. Since 1998, the First Tuesday Group has organised get-togethers for budding entrepreneurs and venture capitalists, but tickets for these events are hot and you must enter into a ballot.

Don't underestimate venture capitalists. It may appear they are prepared to put money into anything internet, but they are experienced at maximising their returns and minimising their risk. They only fund a small percentage of ideas, so expect lots of leg work and lots of disappointment.

Rather than just raising investment, you could tie up with an incubator scheme. These one-stop shops for cyber-entrepreneurs offer everything from business consultancy and site building to raising venture capital. But in return they want a big piece of the business.

Whatever source of funding you go for, always get your own legal advice before signing anything.