That title seems pretty simplistic, doesn’t it? But hear me out: It’s a lesson a lot of CEOs and founders need to hear. Between the explosion of Amazon and the growing influence of crowdfunding sites, it’s a lot easier now for someone with an idea to take it to market and get sales and traction.
A great deal of these brands have success right out of the gate—sometimes massive success. But they always hit an inflection point maybe a year or two years in where their revenue stagnates.
Maybe the market is saturated. Maybe sales are down because another vendor came onboard and is doing what they do cheaper. Whatever the reason, it’s time to find new avenues for selling, which often means going directly to the consumer. Here’s where it gets tricky.
The appeal of marketplaces is that you don’t have to do all the hard work yourself, right? But as these marketplaces become more competitive, companies are having to roll up their sleeves and figure out things like marketing strategy, supply chain, payments, and taxes on their own so they can sell directly to their customers.
What was once fun and exciting becomes a stress point. It turns out e-commerce is not as easy as they thought it would be.
A lot of founders are unaware of how difficult e-commerce can be and just how much competition exists in their space. In a world where everyone seems to sell their goods online, we’ve lost sight of the process’s complexity and the scope of what’s necessary behind the scenes to make it happen.
You have to figure out cash flow for buying product, then determine how to get it to you, then plan how to hold on to it (tying up cash flow for as long as it takes to sell). All the while, you’ve got to make sure you have enough capital to make a mistake and still survive. On the supply chain side of things, outside of the ecosystem of Amazon, you become responsible for figuring out your own shipping system, negotiating your own carrier rates, weighing which service to use, and setting shipping prices.
On the digital side, figuring out how to execute a quality e-commerce website is key, but there is also massive competition. Other brands in the same space are typically more mature because they’ve been there longer. Businesses are getting good at running e-commerce websites these days because they have to compete with the Amazons of the world.
Many founders who have been relying on a marketplace website up to this point and then striking out on their own are realizing that they’re more of a product inventor. They’re realizing that what they really need is a technical CTO (or the capital to outsource and support that work). They’re out of their depth, and it shows.
Survival of the Fittest
If you hope to get into e-commerce, you’re going to need a game plan. Think less about what you’re doing now and more about what you want to be doing in two years. Do you want to go all-in with a marketplace and lean on them for everything? Or prepare for direct to market sales from the beginning? Maybe you should go pure distribution and let someone else sell it?
Just remember that there are risks to all those options. With a marketplace, there is always a chance you’ll get pushed out by a cheaper product. The marketplace itself may create a private label product that puts you out of business on their site. It’s also not as easy to get into places like Target and Walmart anymore, as they’re being forced to shrink their stores and curate their product offerings accordingly.
Overall, it seems the brands with a high price point or high-margin product are the ones that survive. If a founder starts their journey hoping to make an 80% profit on their product, but that drops to 40% in these early stages of growth, they can still hang on. If they start with a goal of 40%, however, they’ll be underwater in no time.
The market viability of your product takes a big hit when you can’t support all the infrastructure that’s needed to run a successful e-commerce business. Pricing correctly from the start is a major factor.
Some of the other major factors in e-commerce success are customer service and shipping times. Amazon has set the bar, and that bar can feel impossibly high. If you’re not doing Next Day shipping (or Two Day at the slowest), you’re not going to be able to compete.
Consumers these days want to think of a need and then be holding the solution to that need in their hands a few hours later. On top of this, they want it to be affordable.
Perhaps you have a unique product with a unique selling proposition. That’s great! But you still have to meet the e-commerce standards people expect. This means not only keeping up, but constantly improving.
A few years ago on Christmas Eve, my wife needed cupcake frosting. I ordered, and Amazon delivered it Uber-style via Prime Now in less than three hours! I was able to track the package every step of the way.
The speed was beyond anything I have ever seen. If you’re going to succeed as an e-commerce retailer, you’ve got to be ready to do that.
The target is moving every day. Amazon is building its own logistics network now because UPS, FedEx, and others don’t have the infrastructure to support demand. This is the reality of e-commerce.
There are so many small things people don’t consider about selling products online because all they see is the forward-facing aspect of it. We’ve all come to expect instant gratification, but have no idea what goes on behind the scenes to make that possible.
If you’re launching a product and hope to sell it online, do your homework. Because seriously, e-commerce is HARD.
This article first appeared on linkedin.com on March 7, 2019