How to Start an eCommerce Business
Understanding What it Takes to Run an eCommerce Business
At efelle, we get a lot of calls from people who are looking to start an eCommerce business and are looking for some direction. With 15 years of experience working with eCommerce startups, we have learned a thing or two about what works and what doesn’t. While we want to support our potential customers, we also want to help you realistically assess your new business' viability. In this article, one of our Digital Strategists, Jason Shindler shares six tips and considerations you should take when
eCommerce Business Tip #1: Admit Defeat!
I’m joking, of course; that would not be a good way to start anything. But, it is useful to know what you are getting yourself into: 90% of startups fail in the first 5 years. So to succeed, your business needs to be in the top 10%. Most startups we talk to are so excited about starting a business that they have blinders on -- they are resistant to any facts that dampen their enthusiasm. Likewise, if you embraced this statistic, you would likely not start a business.
A useful attitude is somewhere in the middle. You can call it “The Teddy Roosevelt Approach.” Our country’s 26th President suffered a crushing loss early in adulthood, his wife and mother died of typhus on the same day. One biographer referred to the rest of his life as being accelerated because he was constantly being chased by the inner demons of this horrible loss. If you think of your business as being chased by that 90% statistic, you’ll be more likely to succeed.
eCommerce Business Tip #2: To the Capital!
After learning about Teddy Roosevelt above, you might be thinking that this tip has to do with the government. If so, you’ve got the wrong Capitol. To start a business, you’ll need capital -- sufficient money to properly fund your idea. For some businesses, startup capital expenses will be millions or even billions of dollars. Some will be considerably less than that. A mistake we see often is businesses that start with a certain amount of money in their bank account and then try and build a business around their checking account balance.
If you were to apply that logic to buying a car, you would take the $1,000 in your bank account and look for a car. You probably would not find a car that meets your minimum requirements and the outcome would be poor. The same with building an eCommerce business, you need to find out what the expenses are first, then make sure you have sufficient capital to fund that business.
Common Startup eCommerce Business Expenses (plan for 6 months):
- Branding, logo, etc.
- Website design, development & hosting
- Marketing & Advertising
- Staff to process orders
- Inventory
The good news is you can grow your bank account balance, just often not the way people think.
eCommerce Business Tip #3: Have a Party
A party itself would probably not aid in starting a business, but getting together with family and friends may help.
The first place that people often go to fund a business is to a bank -- of course, they have the money right? They are usually disappointed to find that most banks won’t fund most startups. Why? Because they know the statistics that 90% of businesses fail in 5 years and they don’t want to lose 90% of their money.
So after striking out there, most business owners approach family and friends to help with the startup capital expenses. They are far more likely to be excited about your business because they know and believe in you! It can be uncomfortable to approach family and friends asking for money, but it is a skill that you’ll need to properly fundraise to succeed. It also won’t be the last new skill you’ll learn starting a business.
eCommerce Business Tip #4: Be Unique
I ask every potential client the same question: what makes you different? If you are reselling products that another company makes, doesn't it seem likely that other businesses will be doing that too? With eCommerce, you are competing against anyone else on the planet, including Amazon, the most valuable company in the US. Why would someone buy from you instead of someone else?
What makes you different is what's called your value proposition. It's what makes you attractive to your potential customers - it's an innovation, service, or feature intended to make a company or product attractive to customers. Put simply, when asked why someone would buy from you, this is "the why."
If you don’t have a ready answer to this, that’s a big concern. Here are a few ideas:
- Our business will be cheaper than anyone else. This sounds great, but keep in mind that there’s always going to be someone who will want to get the sale for even less, sometimes even at a loss. Being the lowest-cost provider is a potential business model, but it is also a way to lose a lot of money.
- Our business will have the finest quality products. This works only if you are selling an exclusive product or if your brand can provide value that others can’t. Think of high-end products that aren’t much different than their lower-end counterparts. People are willing to pay more for products that make them feel a certain way.
- Our business will excel at pre-sales customer service. This can be hard to leverage online -- because customers by default are browsing without your input. Businesses that do this prominently feature a phone number, chat, and other ways to interact with knowledgeable staff.
- Our business will excel at post-sales customer service. Businesses that do this feature testimonials, reviews and other positive post-sales feedback from clients. Though, this is something that is generally only available after you have been around for a while, generating those positive experiences.
eCommerce Business Tip #5: Don’t Just Drop in!
Dropshipping is becoming increasingly popular. This is because many businesses think that they have found a useful shortcut in dropshipping. What dropshipping entails is that your supplier keeps all of the inventory and only ships items that you have sold, and then ships them directly to the consumer.
On the surface, this saves a lot of startup capital, because you spend far less on inventory costs, including a warehouse and the cost of buying the inventory upfront. But dropshipping has a cost too: it means that you’ll make less money on every sale because your supplier is indirectly charging you for the inventory costs. The goal in every product business is to maximize the amount of profit you make on every sale. Dropshipping decreases your potential profit.
That said, dropshipping works well for expensive items or rarely sold items, so it is something that can be part of potential business, just not something you’ll often want to do for most businesses.
eCommerce Business Tip #6: Super Market Sweep!
Back in the 90’s, there was a game show called Supermarket Sweep -- the contestants on the show competed to buy the most products they could throughout a supermarket within the time limit. When your site launches, you’ll be doing your own sweep and find the most potential customers as quickly as possible as well.
It isn’t as easy as pulling items off the shelf and putting them in your shopping cart like in the show. You’ll need to develop a robust marketing plan to get the word out about your business to potential customers. The plan often includes:
- Digital Search Advertising with Google and/or Microsoft
- Digital Display Advertising with Google, Microsoft, Facebook, etc.
- Remarketing with Google, Facebook, etc.
- Email Marketing
- Search Engine Optimization
- Social Media Posting
- Blogs & Other Content
Don’t just rely on building a website and hoping that millions of people will find it -- develop a plan based on the above options and then execute on it. Be sure that any execution is constantly evaluated based on data to know what works and what doesn't.
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