(FORTUNE Small Business) – Smart, cocky Kris Hagerman had a catchy idea for a publicity stunt to launch his new e-business. As photographers of the San Francisco press corps clicked away, Hagerman, then 31, ripped up a thick Yellow Pages in front of their cameras on that fateful day in 1995, promising that he had a service that would "kick the daylights" out of the old, paper business directory. His service, BigBook.com, would offer local merchants the opportunity to reach consumers electronically and interactively. It seemed a no-brainer. What advertisers would choose to reach customers in a clumsy paper directory when they could do so interactively?

But although Hagerman understood technology, he did not understand the retail advertising business. He grossly underestimated the importance of the relationships that Yellow Pages sales reps had developed with merchants over many years. Persuading the merchants to switch to a new way of reaching customers was harder than he had imagined. He was, he says, "pushing a rock uphill," and in the summer of 1998 he sold BigBook to GTE for very little money.

Suppress the inclination to smile over the fall of a dot-com billionaire-to-be. Concentrate instead on the lesson: Having a command of the technology of e-commerce can be dangerous and lead to self-deception and failure if it is not accompanied by expertise in the underlying business. But there is a reassuring corollary to that axiom: If you understand the business--whether it be exotic kite design or secondhand office furniture--it is not necessary to be a master of database-driven, Web-page creation and back-end fulfillment systems. There is a lot of technical help available for fumbling amateurs. Indeed, a wiser Hagerman has become part of that support system. Since the sale of BigBook, he has created the successful dot-com Affinia, a free Web service that lets small, enthusiast Websites create their own online store, choosing the products they want from 1,000 online merchants.

What follows are guidelines on how to think about e-commerce, whether you have already plunged in, are considering doing so, or are just curious. First, clear away two misconceptions: 1. Every twentysomething who has started a dot-com up to now is very rich; and 2. All the imaginable places for dot-coms on the Internet have been filled, except perhaps for those that will be staked out by traditional offline companies that are finally getting their acts together, such as Procter & Gamble, Sears, and Whirlpool.

Both impressions are false. As the Hagerman case demonstrates, a lot of young people have tripped. Moreover, there are plenty of big successes and small ones to come, and they are available to the brave of all ages. If you believe the numbers, Jupiter Communications, a research group based in New York City, estimates that the online retail-shopping market will grow to $78 billion by 2003 from today's $14.9 billion. Add in the universe of online business-to-business transactions, and e-commerce surpasses the $1 trillion mark during the same period.

Staying on the sidelines and waiting to see how e-commerce evolves over the next few years would probably be a mistake. It would be better to go online right away with a good product and sound business plan, even though it is not a completely refined and financed undertaking, than to wait for the perfect moment. Many have already learned this lesson the hard way. Look at giant retailer Toys "R" Us, which so far has been usurped on the Web by a newcomer called eToys. "The lesson of the Web is not how the big eat the small, but how the fast eat the slow," says Douglas Alexander, managing director of the Internet Capital Group, a Wayne, Pa., venture capital firm.

Failures are inevitable. Gartner Group, a technology consulting firm in Stamford, Conn., estimates that 60% of current dot-coms that don't have good customer service and marketing will "go dark" by 2003. There is no reason to quarrel with Gartner's forecast. But so what? Life has always been precarious, especially for small business. That doesn't change the fact that small business accounts for 99% of all business in the U.S. Small business is not going to be destroyed by a gang of Internet giants. "The good news is, big business' technology and business model is out of date and is not very adaptable to the Net," says James Breyer, managing partner of Accel Partners, a venture firm in Palo Alto, Calif. "This gives dot-com startups an extraordinary opportunity now."

What areas of e-commerce are most open to newcomers? Try this quick, finger-in-the-air test from Guy Kawasaki, a Palo Alto VC, to determine whether a sector is already under the control of a 500-pound gorilla and therefore best avoided: "If I say 'books,' you will automatically answer, 'Amazon.' But if I say 'watches,' and you can't name a gorilla in real time, then there is a chance for getting into that industry."

Beyond that, here are eight strategies that will help you think about how to succeed online.

DON'T OBSESS ABOUT RETAIL

Almost by definition, entrepreneurs are great innovators. Their challenge doesn't lie in coming up with a cool concept for an e-commerce business but in figuring out which of their ideas are worthy of digital pursuit. Today, casting for opportunity on the Internet is not just restricted to virtual retailing. Business-to-business cyberselling is exploding. By 2003, according to Forrester Research of Boston, the value of transactions on the Net among businesses will reach $1.3 trillion, which would make it 17 times the size the consumer market is likely to be. "If you have a unique, differentiated service offline and can get suppliers and experts to help online, you can build a great business," says Jonathon Guerster, a partner at Charles River Ventures, in Waltham, Mass.

E-steel.com, an online trading site for buyers and sellers in the international steel industry, seems to be proving the point. Michael Levin, former chairman of Precision Industrial Corp., a company with holdings in the steel industry, created the site to let buyers and sellers link with just-in-time speed and efficiency. Typical sales range from $3,000 to $4 million, on which E-Steel Corp. collects a 1% brokerage fee.

Levin, who brings 25 years of steel experience to his site, made certain that the language and customs of his online world imitate those of the traditional buying and selling habits of the offline world. "In a business-to-consumer market, you can change the rules as you go," he says. "But in our business, we deal with steel mills. We can't burn down the old forest to start a new one."

Good point. Business-to-business is very promising for those who have experience in a particular industry. But this sector is discouraging for outsiders. If you have not spent a lifetime in the nuclear fuels industry, it would clearly be foolhardy to jump into an online uranium brokerage.

SEARCH FOR AN UNEXPLOITED NICHE

Not all of us, however, have curriculum vitae to merit a foray into the B-to-B e-commerce field. Yet as consumers, most of us have an understanding of what at least a tiny part of the buying public demands. Avoid the temptation to go head-to-head with what appears to be a toothless dinosaur, such as the Yellow Pages. Steer around the Internet monsters like Amazon.com and Priceline.com. Find instead a little corner that the great predators have overlooked.

Brad Boyle, 39, and his wife Gia, 32, of Moab, Utah, did just that. With a mere $10,000, the Boyles created Walkabouttravelgear.com, an electronic shopping site for hip, laid-back adventurers like themselves. Looking for that hard-to-find toilet bag (a high-tech portable toilet) for a backpacking trek across Tanzania? Or maybe you want a towel you can squeeze dry for fast packing while being pursued by a bear on Kodiak Island? Walkabout is your site, as simple in appearance on your computer screen as Thoreau's hut.

The Boyles run their down-to-earth business out of their Fleetwood Pace Arrow rec vehicle, or "mobile command center," as they call it. They buy their stock from suppliers around the globe. They even ship it on their own using FedEx or UPS to ensure fast delivery. The Boyles live comfortably on commissions of close to $250,000 a year and feel no pressure to expand quickly.

BUILD A CULTLIKE COMMUNITY

Finding a niche like the Boyles did is imperative. But no matter how early you begin cultivating your business on the Web, rivals will soon follow, and you'll start rubbing elbows. To protect your stake you need to develop a community of loyal patrons. These are folks who not only shop on your site but also come to meet other like-minded individuals from around the world, chat with experts, and have fun.

To develop a fan base for your site, you really have to know your target customer. That's why two Wharton MBAs--David Scott, 29, and David Reid, 30--did extensive market research before creating NextPlanetOver.com, an e-store for comic book enthusiasts that's based in San Francisco. Your typical postpubescent comic book collector is single, with an income of $62,000-plus, and a big fan of Star Trek and The Simpsons. He shops for comics at least once a month.

To lure these shopaholics, Reid and Scott quickly built a community area within their site called The Pulse. At this hangout, registered members can chat with famous writers such as Batman creator Jeph Loeb and rate their favorite products. "We have some 10,000 registered members who come daily into the shop with $30 in their pockets and figure out what they are going to buy when they get there," Scott observes. "But before shopping, more than 15% visit The Pulse. For us, the community really has helped grow our business. Within the next nine months, you will see us diversify into toys, video games, and other products, all based on comic and Sci-Fi themes."

Be warned, however. The pressure to grow in a hurry can create a dizziness that leads e-businessfolk to forget what business they are in. Once that happens, steady community visitors can get turned off and find another digital outpost where they can hang out. That loss of focus is a major cause of e-commerce failure, says Jeffrey Tarter, editor of the technology newsletter Soft*Letter.

FIND A WELL-CONNECTED RABBI

Even the most grandiose scheme is not necessarily beyond the reach of e-commerce novices. In some respects, the outrageously ambitious might be easier to pull off than the modest. A few years ago, Seattle entrepreneur Tim Glass and three of his buddies got the idea to launch a national dot-com company for restaurant-meal delivery after seeing the movie The Net. In the film, Sandra Bullock orders a takeout pizza with the click of her computer mouse.

Thus the business that eventually became Food.com was born--simple in concept, staggering in scope. For this plan to work, thousands of restaurants across the country would have to sign up, and getting them would be expensive. Glass and his partners knew they would need venture capital. But how to find it? They decided they needed an "in" to the venture cap community, a champion, and they found it in Bill Jesse, a financial consultant from San Francisco. He introduced them to higher-ups at Accel Partners. The same James Breyer from Accel Partners liked the Seattlites' concept, and Accel invested $10 million in the venture in the summer of 1998, taking a minority interest.

"You need to have a good reference, or it's not likely a busy venture investor will look at your plan," admits Bud Colligan, a partner at Accel. But for the whole process to work, the plan must have a cogent two-page executive summary that spells out great prospects for your business, says Colligan, noting, "VCs only want to fund big opportunities." For the founders, the feast has been bittersweet. The bitter is that all of them have departed at the urging of their investors. The sweet is that the founders still own a lot of shares, likely to be very valuable when Food.com goes public.

LURE SOME BIG PARTNERS

Nothing gives a small dot-com credibility faster than becoming a partner with big offline companies that can help it grow. In 1997 Tim Gray and Raj Dhaka, two thirtysomething entrepreneurs who met at Georgetown University, launched WeddingChannel.com, a one-stop Website for prospective brides and grooms. "We knew that the two strongest players in the bridal space are Bride's magazine and Federated Department Stores," says Gray. "If we could get those two powerhouse players as partners, we'd have a strong competitive advantage."

Gray and Dhaka began a long, slow campaign to win them over. "When a big outfit like Bride's is looking to partner, it wants to be with someone who is going to be around, who is going to extend the brand, not tarnish it. We focused on building a really great product." They also built relationships, meeting with Bride's editors on press tours and even giving Bride's publisher ad space on its site for the magazine to resell to its advertisers. "They sold out and came back to us for more. It was a big success," says Gray. That trial relationship got things rolling, and ultimately they did a deal. Select content from Bride's is available on WeddingChannel's site.

That relationship helped win over Federated, which is a registry partner with WeddingChannel. "There's never one single piece of the puzzle to get a deal," says Gray. "Each relationship builds on the next one."

BECOME A GRASSROOTS MARKETER

If you're not ready to become an evangelist for your e-commerce business, get a corporate job. In today's competitive market, dot-com entrepreneurs have to grab customer attention any way they can. The founders of BigWords.com, a two-year-old college textbook retailer, display the creative thinking you need to get noticed out there.

When Matt Johnson, 24, dropped out of a premedical program at the University of Ottawa, he carried with him the memory of how expensive textbooks are. So he and three friends--John Bates, Leri Greer, and Jeff Sherwood-- started BigWords.com so students can buy discounted textbooks and avoid long bookstore lines when school starts.

"We try to be ninja marketers," says Bates, chief evangelist. To lure students to its site, BigWords takes advertising out in college newspapers and sends company operatives dressed in bright orange jumpsuits to romp around campuses and preach the BigWords gospel. The goal: to make an impression with stunts that students appreciate. Last August, they dropped 10,000 rubber balls with their logo from a 25-foot crane at the University of California at Berkeley.

BigWords also uses MTV talk-show host-prankster Tom Green as its commercial pitchman and has promotional alliances with other youth-friendly firms, such as Jamba Juice. The tactics have been working. During the fall '99 semester, the site had one million hits.

OFFER SERVICE WITH EVERY CLICK

Build a site that is both easy to visit and shows respect for the customer, and you'll boost your success rate, notes Robert Larson Hughes, managing director of RSM McGladrey, a consulting firm in Minneapolis-St. Paul. If you lose the customers' orders or fail to answer e-mails, you will die online. Some 75% of customers who start to fill their carts at Websites lose patience and leave before they check out, according to BizRate.com.

WeddingChannel's founders recognized that customer service is even more crucial for them than it is for most. Nervous brides and parents who are spending the family fortune on gowns, receptions, and the rest aren't about to put up with sloppy service. To build in great service, the company is pouring money into Internet telephony. "We're building a big customer-service call center, where people can connect by telephone directly from the Website and speak with a live consultant," says Gray.

ESTABLISH YOUR BRAND AS A PROBLEM SOLVER

Brands will be even more important in the online world than they are in the offline. In the real world, you can walk into a boutique and "kick the tires" on a product that catches your fancy. You can't do that in the virtual world, so people buy names they trust. But what if your name doesn't inspire the same confidence as BMW's?

WorldSpy.com came up with an ingenious way to imprint its mildly sinister name on the consumer consciousness. "There are so many dot-com companies advertising all types of things," observes Alan Clingman, 40, a co-founder of WorldSpy, "that it's very tough to rise above that noise." So Clingman and his partner, Henry Schachar, 46 (both former commodity traders), decided to make a brand name by giving away a service consumers were already hooked on but paying for: Internet access.

"To get on the Internet, users have to pass through our site daily," Clingman notes. "They'll collect their e-mail on our site, so there are many opportunities to have our name and presence felt."

It is particularly felt in WorldSpy's virtual mall, the centerpiece of its online gateway. WorldSpy showcases a variety of products, adds research from Consumer's Digest to assist consumers in making a purchase, and offers a 110% low-price guarantee. This makes online shopping as hassle-free as it gets.

WorldSpy seems to be doing things right. The site is less than two years old, and its traffic is doubling every quarter. Company revenues are expected to reach $35 million this year. Perhaps most impressive of all, WorldSpy has the right temperament for e-commerce. It isn't afraid to adapt quickly--and constantly.

To succeed in the fast-eat-slow game of e-commerce, adaptation is exactly what it takes to survive.