When I started talking to my friends about starting an on-line store, one of them said "Why don't you just sell stuff on eBay?" I thought that was kind of funny. Surely, there are lots of people selling stuff on eBay who consider their activities a hobby, but there are also lots of legitimate businesses selling there as well. What my friend really meant was, "Why go to all the trouble of starting a company?" Good question.

Getting a sales tax license and local business licenses (which may also include getting permission from the local zoning authority and neighborhood homeowners association if we're talking about a home-based business), getting business insurance, registering a domain name, signing up with a web hosting company, selecting shopping cart software, setting up a web site, paying sales tax and self-employment tax, writing store policies, advertising, and processing returned items are all things that one has to consider when starting an e-commerce business.

On the other hand, you don't have to do any of these things to sell on eBay! So, why go to all this trouble?

For me it came down to these questions.

1) Did I want to start a legitimate business or just a hobby?
2) How would I acquire the products I was selling?

These questions are closely linked together. If you are going to get products to sell by going to Saturday morning garage sales each week, you are probably talking about a hobby (although if you make too much money doing it, the government may still classify it as a business for tax purposes). However, if you are going to get products from wholesalers, despite what others may want you to believe, real wholesalers will only sell to legally registered retail businesses.

Of course, there is also the option of making your own products to sell, but this would be difficult unless you already have some particular skill as a craftsman. Closely related to this would be to do some kind of freelancing, but to me this sounds like a business that would be very uncertain and have a lot of ups and downs.

At one time I had thought about writing shareware. However, from what I understand many people who do this get frustrated when they find they cannot make much money, because there are so many people using their software without registering.

I think the thing that really makes shareware a difficult business is that one person (or a small group of people) are trying to design, develop, market and sell a product all on their own. They assume all of the risk. If the product won't sell for whatever reason, all their development time is wasted.

The guy going to garage sales and selling on eBay has to do three things: acquire products that he knows will sell for a profit (which right away requires a lot of time and expertise), store those products someplace (probably in his basement) until he can sell them, and then advertise them on eBay (or whatever other venue he chooses). Once again, if he has problems with any part of this process (maybe his basement floods and destroys his merchandise), success isn't forthcoming.

On the other hand, when you have goods which go through the traditional manufacturer-wholesaler-retailer chain, each party can concentrate on what they do best and take only a portion of the risk.

The manufacturers can move their products out of their factories quickly and let the wholesalers store the inventory. The wholesalers can concentrate on acquiring and storing inventory and let the retailers worry about marketing and customer service. Finally, the retail business owner does not have to worry about manufacturing and can store less inventory.

Anyway, I am not the garage sale kind of guy. I would rather pick a product type that I am interested in selling and find a wholesaler that has a warehouse full of products that I can sell. That way I can spend more time developing and marketing a web site, and less time pounding the pavement looking for stuff to sell.

As an added bonus, because of the extra effort and upfront investment involved, my customers will know that I am somebody who plans to be around for a while. Also, I can provide other information and services to my customers that go beyond the auction-at-a-time relationship.