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Ecommerce

13 Honest Reasons why Ecommerce Businesses Fail

 

If ecommerce is such a large and fast growing sector you may wonder why ecommerce businesses fail.

There is a general misconception that running a successful ecommerce business is easy. Simply build a website, list some products and watch the money come rolling in. Right?

Harsh reality check. Ecommerce is hard work. Business owners that make a lot from ecommerce have to put in the hours and show great patience as they wait for their company to grow.

Disclaimer

While researching for this article I have seen a consistent statement that 97% of ecommerce companies fail, however, there is no source next to any of the blogs that make this claim (which makes me suspicious about it).

It is fair to assume that this could have easily been a made up statistic -or- more likely something that was repurposed as click bait that may have related to a failure on a sub-topic perhaps Usability, SEO, or simply not making a return within a set duration.

The same claim will not be made here without knowing it to be fact. I care a lot about delivering factual information. The adoption of sourceless statistics can be very damaging to a sector. I know from personal experience that most ecommerce companies sadly do fail – this information comes from working with so many over the years, and playing a part in researching ecommerce heavily for the past 9 years of my life.

The purpose of this article is to try and help you as a business owner avoid those risks.

 

Why Ecommerce businesses Fail

1. Lack of Investment

There is often a difference in how investors see offline vs. online serving their business. Owners understand offline stores are expensive to set up, no one ever thinks of this form of retail as being cheap. 

Ecommerce is not perceived with the same value for a few reasons. Mainly the wide availability of low-cost templates, applications that offer to have your setup for next to nothing. While on the surface they seem like brilliant options it’s just not appropriate for serious retailers.

Key Focus: If appropriately respected and invested in the greatest potential in generating sustainable income comes from online

 

2. Focus on the showcase, rather than the product

We all want our websites to look their best, lush graphics, nice animations, and modern styling. With Ecommerce you need to convey upfront that you are a buying destination. Working as a designer I see this mistake a lot, you could have a fantastic looking website that loses you money due to visitors not registering that you sell products.

why ecommerce businesses fail

Pricing, shipping links, my account, banners that talk about delivery, and ecommerce unique selling points all help a customer know what it is you do, so don’t hide it all just for the sake of a minimal design.

Key Focus: Make it obvious what you do. You sell products. Show it.

 

3. Thinking Ecommerce is only about the website

I need a new website. While ecommerce is about selling online that doesn’t make it purely about a website. It’s a business! not a website, it includes researching, sourcing, buying, marketing, staffing, fulfilment, and more. Good ecommerce is about being technical and even more a case of understanding business fundamentals. Buying cheap, selling high.

Key Focus: If you don’t weigh the offline elements of your business with the same importance as the online then you are at risk of being surprised.

 

4. Internal politics and the battle between offline and online teams

Great companies stamp out separatist attitudes within their ecommerce teams. Granted, Digital and traditional marketing are different, however, if you don’t have your team working towards the same goals, what you can find is the start to fight against each other. Offline teams become resentful of the digital progressions in the business. Digital teams get upset that ad spend is not going into measurable methods such as AdWords, facebook Ads or Bing Ads.

Key Focus: Work hard to keep your company unified. Ecommerce is challenging enough as it is without effort and energy being wasted on politics. Instil the attitude that the company works best as a team.

 

5. Terrible product information

You are looking to buy a new jacket, you find a great website but you can’t really see what it looks like. There isn’t enough detail.

Is it waterproof? Windproof? Flexible and warm. Regardless of what you are looking for, if you don’t find a clear description of what it is then you are going to look for an alternative.

Many start-up ecommerce businesses don’t grasp this and rush descriptions. We can always come back at the end and rewrite this (only you never do).

When a buyer has the intent to buy you need to ensure they find enough information for them to make the decision on your website or marketplace page.

This rule extends to product images. Always show the utility of the product. If the jacket has inside pockets, an adjustable hood or any other features that are worth highlighting then ensure you pull these out with the use of video, images, and content.

Key Focus: Be as informative with your products as you possibly can. Do not waffle but write as much useful information about it as you can.

 

6. Forget to automate

You are taking a lot on workwise, you might have a team that’s costing you every month in wages, pensions, and benefits. Your staffing cost is always the biggest cost in business. Ecommerce lends itself to correcting that through automation. If you automate elements of your business you can work with a team member less, or better still you can deploy that resource into other tasks that cannot be automated. Increasing your productivity and profits and the same time.

If I am able to automate 30% of my business while you are trying to do it manually I have a massive competitive advantage over your company.

Key Focus: Look into the automation possibilities. Don’t just focus on generating more revenue, always be observant and open to methods and tools that can make your life easier.

 

7. No market research on product viability or demand

This one is a big mistake that can lead to warehouses full of unsold stock. You know that selling online can make you money, you think you have a good product, you got a good deal but there’s an element you forgot to look at. Your homework.

  • What is the size of your market?
  • How many businesses are you in competition with?
  • Do you know your competitors’ margins?
  • What is the demand for your product?
  • What competitive advantage are you bringing?

I’ve seen businesses forced into a fire sale just to clear space in their warehouses – to much dead stock = a dead business. You have to do the background checks and make sure that everything you buy is likely to see you make a return. Better to have 50 sure things, than 1000 non-viable products.

Key Focus: If you can’t beat the current sellers or the data your are looking at is screaming not viable you can’t even consider it.

 

8. Security not taken seriously

Back to basics. You wouldn’t leave your shop door unlocked at night. Websites do it all the time.

Ecommerce businesses with no SSL Certificates, Unpatched Magento websites, No firewall, Bad Passwords and a general lack of caution surround many who sell online today. Look it’s understandable, you don’t get taught about web security in school but if you don’t prioritise it or find someone to team up with that will ensure you are covering your bases you are at risk of becoming a statistic on why ecommerce businesses fail.

why ecommerce businesses fail

If you own a business you need to ensure you are protecting yourself at all times. You are only part of the problem, the bigger concern is that you have potentially a database of thousands of customers details. Rarely will you store cards, but if you are storing emails and passwords… how many people do you know that use the same password for everything? That’s an issue for you if hackers get into your website.

The ecommerce website may also be your only source of income, or at least make up a sizeable percentage. If your website goes down, apart from tarnishing your reputation and trust with the customer, you are also hearing silence as the tills stop ringing. Without cashflow how long will your business last?

Key Focus: Don’t scrimp on hosting and security, it’s pennies you pay in comparison to what you make, so take it seriously.

 

9. Having no Cash Flow -or- Cash Buffer

All businesses are at the mercy of cash flow. You need money to pay the bills, the staff, buy stock, and shore up against unforeseen problems that hit your business. Having no cash flow will destroy your chance of success. This is the main reason any business will fail. The owner over-invests and leaves themselves open when trouble comes along.

The better strategy is to save, invest, earn and reinvest. Do you remember when you first wrote your business plan, you put down 1-year, 2-year and 3-year projections? In many cases, you expect a loss in the first few years of operation. Then as things pick up in year three you come out of the investment dip and start to break even, possibly you even have a small profit. That attitude is quickly forgotten if you have a run of good months.

Don’t get sucked into this position. You are doing well you buy a nice car, maybe treat yourself. Your business needs you more. You are better to play the long game and wait until the business is consistently supporting itself before you start to take money out. Build a cash buffer, as you would with your personal account. Why do you have savings? to protect and cushion you on the event your car breaks down or your cooker stops working. We all do this, but in business, there are many out there that throw caution to the wind and the spend it as quick as it comes in.

Key Focus: Pay the business first, yourself last. Focus on building a strong financial pot to fall back on. When you go through dry spells with sales the cash buffer will keep you in business.

 

10. Too many Competitors

I want to sell you the iPhone. I guarantee my business will now fail.

No way the iPhones a great product I hear you declare. You are correct and there is certainly demand for it, however, you are a small fish in a very large ocean. If you try to sell a mainstream product you will fail. You are up against Apple, John Lewis, Argos, Tesco, Asda, and many more massive players in this market. You can’t beat them on customer service because they have a very mature business with a customer value proposition that would cost you millions to replicate.

The major brands will also not allow you to undercut the retail price for their product so all you can hope for is to sell it at the same price you see elsewhere.

Margin percentages are important here, you could only afford to buy 100 products, whereas a retailer on the scale of Argos could easily buy 100,000 products. They use this massive buying order to drive down the price per unit. Which gives them a better margin.

Key Focus: Think hard about what you are selling, who else is selling these products? Can you make a compelling case about why you are the better provider of the good? If so by all means invest. If not, look for another winner.

 

11. No traffic or marketing strategy

You have a fantastic Website, you have looked at the list above and you are not making a single mistake. Good for you, that’s actually a big deal as it puts you in the minority position and increases your chances of making a return.

Having a well-designed professional website is a great conversion tool but you also need traffic to complete the buying cycle.

You can generate traffic with SEO by writing helpful articles. That is what I am doing here. I am sharing what I know to help you, but as a side effect, this helps my website get found.

The issue with only doing SEO and content marketing is that it takes a minimum of 6 months to see any return.

Remember you have only just opened your store. There are competitors out there that could be offering the exact same products you are and they already have a head start. SEO and Content marketing are brilliant, honestly, keep doing that but keep in mind that’s a long-term investment.

In the short term you need traffic now, and more importantly, you need to generate a return on your initial outlay.

There are two ways of doing this:

  1. Sell through Ecommerce Marketplaces – I wrote about the pros and cons of selling on marketplaces two weeks ago. Mainly marketplaces help when you lack a market for your product. That’s what they offer, so you can start selling today, you don’t need to sit around and wait for your SEO footprint to grow. You need to keep the SEO and Content Marketing activities going but don’t let this stop you making some money while you’re building it.
  2. Advertising on ad networks – Google AdWords, Bing, Facebook Ads, etc. You are going to lose a piece of your margin, but building up a customer database to email your offers to. Getting your name out there is more important so advertise that you exist. Even when you are making a great return never turn off this revenue source. People get greedy and perceive these little percentages as a threat. Without this type of service though your website will struggle to gain traction in the first 6 months to three year period.

 

12. Select the wrong platform for growth

If you are serious about Ecommerce consider your platform. If you are always going to be selling small handfuls of products your not going to need a large solution like Magento. Remain mindful that a small product range will also mean a meagre return. You should be looking to diversify and build your offering up as you make more revenue. If you are looking for automation, better security features, more extensions and options you should be looking into Magento.

why commerce businesses fail

  • Magento – can be set up to automatically feed into marketplaces, taking the legwork out of it. The bigger companies all use Magento for its flexibility.
  • Bespoke* – Ecommerce companies may decide to use bespoke solutions. This leads to development and growth slowing down in most cases as you become stuck in a bottleneck.
  • WooCommerce or Shopify* – Good for small businesses with low product numbers, possibly drop ship companies but business owners hit a ceiling when they reach a certain size.

* These solutions are just not designed for power sellers.

Key Focus: The top performing companies all use Magento and there are some very good reasons for that, which I am sure I will be covering at some point in the near future.

 

13. No Patience

Did you get to the end of this article? You might have what it takes to make a success of ecommerce. Patience.

Having the mindset to wait for growth, to make one tactical move at a time and build a sustainable company takes a really large amount of patience.

We all want the quick win, sell this and you will be a millionaire in no time. That’s just not going to happen. Everyone that wins in ecommerce is sticking it out and fighting the good fight every single day. They leave time for SEO to kick in and for the brand name to get out there into the market.

Don’t be lured into promises of quick wins, if you are making money from your ecommerce business look at optimising it. What about building other methods of selling that same product? could be marketplaces, could be through discount voucher websites.

Many options are left open for your business. Just ensure you take your time with it.

Key Focus: Rome wasn’t built in a day, Empires take the time to build. Ecommerce businesses are no different.