Practical Ecommerce

8 Reasons Why Ecommerce Businesses Fail

Starting an ecommerce business can be fast, relatively easy, and not very expensive. But with something like an 80-percent failure rate, creating a successful online business is more challenging than some entrepreneurs imagine.

Although each new business is unique, there are common contributors to ecommerce failures. Understanding these possible pitfalls should help you to avoid them, beat the statistics, and have a successful ecommerce business.

1. No Real Investment

It is possible to open an online store for just a few hundred dollars. But that in no way means that a few hundred dollars is all that you will need to invest.

Like any new business, a fledgling online store may require several infusions of capital and a significant amount of labor.

Brick-and-mortar retailers are often the worst about adequately investing in an online store. If you already have a physical store and are adding an online shop, think about that new ecommerce business like a new location. It is going to need a similar investment in time and at least a portion of what you would invest in money.

Even relatively small retailers will happily invest $50,000 or $100,000 into a physical store, but decline to spend $5,000 for an online one which may actually have greater sales potential.

2. No Cash Flow

At the most basic level, cash flow is the movement of money into and out of a business. New ecommerce companies can get into trouble when they don’t have enough cash to keep operating. An example of this is when an entrepreneur invests all his cash in inventory and there is no money for marketing — so sales don’t rise and the business is stagnant.

To avoid cash-flow problems, try to spread out expenses, so that everything is not due at once. Look for the opportunity to pay for inventory on terms of 30, 60, or 90 days. Don’t over invest in advertising or would-be search-engine-optimization gurus. Also spend or reinvest based on actual revenue, not projected sales.

3. Poor Inventory Management

Depending on the business model, inventory management can be one of the most significant problems new ecommerce operations will face. Buy too much inventory, and, as mentioned above, you could cripple cash flow. Buy too little inventory and you might be missing out on sales or even disappointing customers.

What’s more, ordering products is often not as simple as you might think. Vendors may have distinctly different lead times, meaning that it might take one supplier a few days to get a reorder to you, while another supplier could take a few weeks, so that you would need to place reorders at very different times and at very different inventory levels.

Freight costs, associated with getting inventory to your business, can also be significant.

4. Too Much Competition

The Internet is a land of opportunity for even the smallest of businesses. But almost no online startup can survive in the face of significant, established competition.

This is most often a problem when new ecommerce stores seek to sell the very same products that are offered by much larger retailers.

Walmart can be serious competition for new ecommerce businesses.

Walmart can be serious competition for new ecommerce businesses.

As an example, it could be very difficult for a new ecommerce store to try to sell Microsoft’s Xbox, which is already available at hundreds of online retailers, including Walmart, Amazon, Best Buy, GameSpot, Newegg, Toys”R”Us, and many more.

Simply put, it will be difficult — or at least relatively more difficult — to sell mass-market products than it will be to sell niche or unique products. So find your niche.

5. A Bad Website

Even the best business plan cannot always overcome a bad website.

A modern ecommerce site must be secure, functional, have great search, adapt to mobile devices, and load very quickly. Anything less is unacceptable.

What’s more, there are many excellent ecommerce platforms from which to choose. Many of these require very little technical expertise, so there really is no excuse for having a bad site. (I addressed the many choices of platforms earlier this year, in “Navigating 2014’s Crowded Ecommerce Platform Market.”)

6. Poor Product Photography

Online shoppers cannot physically inspect the products you sell, so they will need a strong visual representation of those products to help them understand it, want it, and buy it. Thus, poor product photography is one of the cardinal sins in online retailing.

Use successful online sellers as the standard for your own product pictures. If the product photography you’re using is not as clear, focused, and clean as what you would find on sites like Zappos, L.L.Bean, Suitsupply, and Best Made, those photos are probably not good enough.

L.L.Bean is an example of a retail with excellent product photography.

L.L.Bean is an example of a retailer with excellent product photography.

7. No Website Traffic

Few things will kill a retail, or even a wholesale, business as quickly as having no shoppers. In the ecommerce context, website traffic is the flow of shoppers into and out of your store. If you want to make sales, you need traffic.

A fast way to get traffic is with pay-per-click advertising. But it can be expensive, so make certain that you understand it before investing a lot.

A much slower, but ultimately more powerful, way to drive traffic is with content — i.e., content marketing, social media, or on-site product merchandising.

8. No Patience

An ecommerce business takes time to grow. Too often new business owners imagine that they will earn profits immediately. But that is not typically the case. Don’t be surprised if it takes several months to earn even meager profits.

Armando Roggio
Armando Roggio
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Comments ( 15 )

  1. Gatis November 7, 2014 Reply

    Fully agree with the author, as many think that in e-commerce can quickly earn a big money with small investment. If there are such cases, than they can be counted of one hand fingers.

  2. Jason November 7, 2014 Reply

    Great article. In the SMB space that I focus on I find there is an extreme aversion to spending money on marketing. For whatever reason “If you build it they will come” seems to be the strategy of choice for far too many stores.

  3. Krish TechnoLabs November 9, 2014 Reply

    Great article and really interesting to read, as with any business the main priority is great customer service and making a profit. Making a e-commerce store takes great care and lots of pre-planning and most of all the idea of your store has to be unique.

  4. Ecommerce Income November 10, 2014 Reply

    The above are among the principal reasons I hear from starting online store owners why they are failing.

    What I find the worst reason to fail is not the unwillingness to invest money in an ecommerce business, but the unwillingness of starting ecommerce entrepreneurs to invest in themselves, in their knowledge. I would recommend people to read blogs such as this one and my own blog, as well as (e-)books, etc. The best investments are investments in your own knowledge!

    I do believe, from my own experience, that it is possible to start an online store bootstrapping. I have published an article on bootstrapping and starting budget – just so that people (contemplating) starting an online store have a rough idea of what everything costs. Find it here: http://www.ecommerceincome.com/starting-online-store/starting-budget/

  5. Nancy Wolff Leary November 11, 2014 Reply

    Well said. While eCommerce sounds like an easy revenue stream, it requires significant preparatory work. This post offers some additional specifics: http://onlineamplify.com/2013/04/08/5-reasons-you-wouldnt-buy-from-my-online-store/

  6. Chelsea Hanson November 11, 2014 Reply

    As an e-commerce store owner, I appreciate your candor…thank you!

  7. David Trounce November 13, 2014 Reply

    Great, honest post, Armando. i had my start in online business with an e-commerce store. I found it increadibly satisfying. Every one of your points is essential. Leave one fo these out and you will struggle..

  8. marty November 22, 2014 Reply

    Good post as always Armando

  9. Lauren November 26, 2014 Reply

    Another great article. Really good practical points!!

  10. Jared January 17, 2015 Reply

    It takes more hard work to succeed online than offline, because of the tough competition.

  11. joel January 27, 2015 Reply

    Well said! I’ve just tried to help a small local store with eCommerce, and reason #9 should be business owners who merely think having a site is enough to build a sales pipeline online. I finally just realized they solely wanted more foot traffic and didn’t really care about their site.

  12. Dave Morton March 28, 2015 Reply

    Hello Armando,

    I’ve had an online store years. I can’t seem to get good product images. ( but some are excellent, and from the manufacture )

    I try hard to shoot them myself, but are poor.

    Are there companies that are cheap, that can do this for me, that is affordable?

    Many thanks,

    Dave Morton
    PrecisionProducts.us

  13. Scott September 3, 2015 Reply

    “almost no online startup can survive in the face of significant, established competition.” <— this is the biggest problem, the search engine don't give most websites a chance. The established are safe, and the new remain unknown.

  14. Octavia B July 12, 2016 Reply

    This article is very timely. I am trying to grow my website, http://www.trojansnacks.com. It’s nice to know some of the reasons why eCommerce businesses fail so that I can avoid doing so myself. What’s really hard with young businesses is lack of cash-flow; On top of that many of us are started our business on shoe-string budgets without assistance from banks. Fear not failure, can’t succeed if I don’t play.

  15. Mo September 1, 2016 Reply

    Thanks for sharing, simple and informative.

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