Why NOT to Start an eCommerce Business – Part 1
In working to help develop eCommerce websites for small businesses, I have seen a few successes and failures over the last 12 years. There are myriad articles to be read on how to start an eCommerce site, and how to market your eCommerce site, but there aren’t many articles on why NOT to start an eCommerce business!
Below are the first 5 reasons why you should think twice about starting up an eCommerce business. These are a few key areas that, in my experience, offer the greatest potential for failure if not properly identified. Conversely, if you excel in each area, more power to ya!
Simply put, many people decide to pour their life savings into a eCommerce business because they think it’s cool and hip (which it is), and it will be an easy way for them to make money (nothing is easy!). However, without experience in retail sales, and web technology, your chances for success dwindles to nearly zip.
It’s true, you can surround yourself with knowledgeable people and put their experience to work for you, but that costs lots of money. If you don’t have a background in retail sales or technology, you need to define your value to the company and how that will aide in creating a successful business.
With thousands of turn-key, template website solutions out there, it’s getting more and more difficult to differentiate your business from a sea of competitors. What will make you different compared to the thousands of other sites competing for the top 10 positions on the search engine result page? Why would your visitors and customers share your website with their friends? What makes them come back?
If all it took was $25 a month, and a drop-shipping agreement with a product supplier, wouldn’t there be a lot more successful entrepreneurs? Think through how you will truly differentiate your business-it’s going to take a lot more than a template website and a variety of products.
Here are some areas to focus on:
- Competitive/low prices
- Resources/education materials to inform your customers
- High demand products
- Excellent customer service
- Fast shipping
- Varied product selection
- Newly released products
- Working/professional design (no broken graphics/layout)
- Unique and actionable content
- Large pictures, videos and informational descriptions
Referencing point 2 on competition, having a budget of a few bucks a month isn’t going to cut it when developing an eCommerce business. You might have been able to shoestring it back in the 90’s, but with the new SaaS (software as a service) ease of entry, anyone can start a webstore with a fist of dollars and a dream. This means that you will need to invest more money into differentiating your business.
There are many variables to look for when forecasting your budget for an eCommerce business. It’s much more than the initial website design, programming, and hosting. Looking past the small domain name fee’s, SSL certificates, and payment gateway charges, you need to focus more on your employees, your site content (pictures, product descriptions, videos), and your marketing.
The real expenses start to pile up when buying inventory, developing marketing campaigns, and building your product catalog. Don’t rush into building an eCommerce business without budgeting properly, or knowing how much it’s going to cost to be successful. I’ve seen many cases where budding entrepreneurs invest nearly all of their money in the initial website build out, and then have little to no dollars to invest in marketing and talent.
If you’re not a manufacturer, choosing what you are going to sell is nearly as important as choosing your supplier. Without great vendor relationships, you could end up with just a few of these issues; limited availability of products (out of stock/back ordered) and limited product variety, receiving orders that you cannot fulfill, and facing customer service issues with returns and lost shipments.
The web businesses that do well stock their own inventory, or most of their own inventory, and drop ship a small portion of their product catalog (the number of products they can’t keep on hand). There’s a plethora of “drop shippers” out there that will fulfill your orders, but you give up a lot of control when you choose this route. Unless you have great relations with the drop shipper, or amazing software that syncs up your systems, make sure not to be at the mercy of your drop shipper.
If you’re a start-up, and plan on drop shipping all your products, you have a great challenge ahead of you! It’s quite easy to startup a new web site with some turnkey software, and link up with a drop shipper to send out your products. However, how do you differentiate yourself from the thousands of other sites selling the same products? Can you offer better service (difficult when you don’t have control of the shipping), better prices (depends what you negotiate with your drop shipper), seamless returns, etc…
Unless you have an epic plan and strategy for drop shipping all your products, you would be better off setting up an affiliate site, and earning money from referring visitors to other websites.
If you look at some of the most successful web business, you will see they all have one specific thing in common, regardless of what they sell: it took time for them to become successful. This means that after investing either a few hundred bucks, or tens of thousands of dollars, you need to plan for the time it takes to get traction.
For instance, it will take time to; get recognized and gain rankings in the search engines and shopping comparison sites, build your email subscriber base, recognize which PPC keywords are profitable and which are not, develop a strong affiliate base, build your social media profiles with fans, get reviews for your products, get customer interaction through contests and testimonials, learn which products are hot, and which are not, price products correctly, price the shipping of products correctly, etc…
While the development of your site may take a few months, or nearly a year, that is not the end-game. Once launched, it will take time (maybe years) to develop your groove and build your following. The better prepared (financially and mentally) you are, the better chance you will have at success.
Any weakness can be overcome with some time and elbow grease. However, it’s better to know beforehand how much time and elbow grease you’re going to need before you begin your eCommerce journey!
Next month: the remaining five reasons Why NOT to Start an eCommerce Business!
Looking back, what are some of the mistakes you made before plunging into the eCommerce world? Post your comment below!
Future Tracy says:
Nice reverse angle article Louis, in our training we try and give as many practical tips as possible to not be deluded into thinking "we'll get a template website and drop ship" easy route. Look forward to the remaining 5. Tracy @ http://www.fc-training.co.uk
Louis Camassa says:
Thanks Tracy! Good to see you offer training to help those just starting out!
John Lindberg says:
I am in the efulfillment business and as such I have been lucky enough to work with hundreds of ecommerce merchants over the last ten years. Based on my practical experience, I wholeheartedly agree with your advice. Online merchandising is to a great extent a numbers game in that it normally takes about 50 unique webstore visitors to generate a single sale and that sale really needs to be in the range of $100 to $200 for the gross profit to cover all of the costs involved.
The trend toward free delivery forces even low volume shippers to invest in sophisticated package processing hardware and software plus subscribe to UPS, FedEx and online postal accounts like endicia.com and stamps.com in order to bring the cost per pound and per parcel to a competitive level. There is hope as I have seen one amazing success story after another, but it is true that the ecommerce business is just as demanding and difficult as any other industry.
John Lindberg - President
EFULFILLMENT SERVICE INC
Steve @ten23media says:
Great article Louis. My very first mistake back in '99 was thinking that the website I built myself was attractive. I was so wrong :-) I think it's very important that if someone is not a designer or creative person that they hire a designer when starting up. This takes capital as you mentioned. I personally believe it's fine for a small business to start with a template, but only if the template has been tweaked a little. Most beginners won't have the knowledge of CSS, programming, etc... so they'll need the funds to hire a developer/designer.
Thanks for the post! The idea is quite authentic, I think. Anyway, the experience in business ( and in any domain of life, of course) is important, but if you don't have one, it's not a reason for giving up.
some many e-merchants started from scratch (or, at least, they say they did), without any special knowledge about the industry, but they succeeded.
Water wears away the stone. So be commited and don't give up.
I haven't started an E Commerce business yet. Hoping to. It's to bad there isn't a site that tells all the Web Sites that have failed, or E Commerce sites that have failed. I mean small business sites mostly. I myself through doing some of my own research believe that for that little guy social networking is the best place to start. Web Surfers like to communicate. They like to discuss topics that there interested in. Anything, from buying musical instruments to driving fast cars, and writing there own reviews, just check out amazon. Forums are a good bet for starting a business to selling products. But it is the social aspect that makes it interesting.
Louis Camassa says:
Thanks for the feedback, it's good to hear from everyone!
squidly, I like your idea of having a website of all small businesses that fail. Would be nice to see their reasons for failure as well. Sometimes it helps to know what not to do, as well as what to do!
Great blog! Another reason NOT to start an ecommerce business is the immense amount of time it takes to manage the process, even if, you are outsourcing many task. I have the experience of working with many startup companies, and am currently working with a startup ecommerce business as a consultant.
I grimace when I hear people say I going to be an entrepreneur or put up a web site. Many of these people have not thought through the amount of work it takes to produce a quality product or manage the process from development to marketing through fulfillment. You need a commitment, dedication, time, a solid work ethic, patience, and capital.
Bret Williams says:
Great article, Louis. While everyone wants to get into e-commerce, there are definite hurdles to success.
We've found a growing number of entrepreneurs who have a great product, niche or brick & mortar and want to go "online," but are overwhelmed with all it takes to succeed. For these folks, we figured out to create a "Managed" program where we run their online business for them. Over time, we expect some will take it over as they learn more about how e-commerce works, but, as you know, Louis, just keeping an online business "exposed" takes a lot of coordinated effort.
Again, great article!
Great article! I especially like the line:
"If all it took was $25 a month, and a drop-shipping agreement with a product supplier, wouldn’t there be a lot more successful entrepreneurs?"
At Shippd, we caution entrepreneurs to be very skeptical of the pre-built e-commerce store.
We help e-commerce retailers with their "epic plan and strategy for drop shipping all your products" because the vast majority of entrepreneurs vastly underestimate the amount of infrastructure, effort and relationship building required to build an e-commerce business, especially one largely built on drop shipping.
Realistically understanding the challenges is the definitely the first step in the journey!