How to beat the odds and succeed in eCommerce
There seems to be a story every day in the financial news about an eCommerce start-up that began in someone’s kitchen, how they built it from scratch and did everything themselves, quickly rising to great success.
It’s easy to fall into the trap of thinking that if they can do it why can’t we? In reality these are the exception not the rule when it comes to what it takes to scale a successful eCommerce business. For every unicorn that bootstrapped their way through, there are 1000s if not millions of founders who fail to scale sufficiently. In fact, it’s estimated there are 12-24 million eCommerce websites right now across the globe with more launching every day, but less than a million of those generate more than USD$1,000 in annual sales.
Many founders have a great idea, spend years investing in product research, formulas and IP to come up with a viable market fit only to find themselves stuck, ceaselessly chasing the breakthrough moment. They know they should be scaling, have an amazing team driving revenue and conquering the world but somehow, they have ended up with an ever-growing list of tasks and are bogged down in the day to day running of the business. They are everything from Sales and Customer Service Director, Head of Marketing, New Product Development, Operations and CTO. Instead of finding investors and looking for new product and market opportunities to expand, they are working in the business not on it, and the dream of scaling feels more and more out of reach.
The size of the opportunity
While failing to scale is common there is no question that the opportunity eCommerce presents to entrepreneurs is gigantic.
- 95% of all US purchases will be through eCommerce by the year 2040 (Nasdaq)
- Globally eCommerce is valued at $4.9T (Statista)
- In 2020, 25% of Australian households shopped online every month (ABS)
- The global pandemic accelerated eCommerce growth dramatically in Australia with 2020 online purchases growing by 57% year on year in Australia vs a previous average of 14.4% (Australia Post & ABS)
These accelerated growth predictions for online retailing, have been fuelled by consumer behaviour driven by the pandemic abd resulted in the recent explosion in online sales. in that have It would be easy to view eCommerce as a modern-day gold rush. So with all this potential, why exactly do so few succeed? Just like the gold prospecting of old, the winners are the ones with the right tools, cash flow and skills, according to research by MarketingSignal the three most common reasons for eCommerce failure* come down to:
- Poor online marketing – 37%
- Lack of online search visibility – 35%
- Running out of cash – 32%
What it takes to win
There is no question that without the right online marketing you won’t bring customers to your eCommerce store and without traffic you can’t make sales. On average we spend 145 minutes per day engaging with social media, making this a crucial pllatform for putting your products in front of your potential customers. The data makes it clear that consumers are more likely to purchase when they engage with your eCommerce brand on social media first.
- eCommerce websites with a social media presence have an average of 32% more sales than those that don’t. (BigCommerce)
- 71% of consumers who have had a positive experience with a brand on social media are likely to recommend the brand to their friends and family (Forbes)
- 25% of US buyers consult social media before buying a gift for friends and family (nChannel)
- 85% of orders from social media are generated from Facebook. (Shopify)
This means to succeed you need to keep on top of an ever-evolving universe of social media advertising – but feeding these content monsters is a full-time job in itself that the majority of founders simply don’t have the time or skills to do on their own.
Consumers don’t just need to be made aware of your offer through social advertising, they also need be able to find your store through search visibility. This means investing in search engine marketing or pay per click ads, the most popular of which being google search ads and google shopping. Add to this the need to have a search engine optimised (SEO) website and the skills to optimise your results, the need for money to invest and expertise becomes apparent.
Excelling in these areas often comes at high cost and with founders prioritizing short term goals. Even with a small team to support them, eCommerce entrepreneurs become weighed down with the need to drive revenue every day, or become caught in a cycle of short-term promotional activity that leaves them fatigued by a never-ending swing from highs to lows in sales. While many business functions that are equally important and contribute to overall underperformance are left with a lack of focus, resulting in mid to long term failure.
Marketing vs Inventory
Finding the right agency to deliver results can be a huge drain on cash flow, leading to a constant trade-off between investing in advertising campaigns and investing in inventory and other critical resources required to scale, slowing an eCommerce business’s capacity to grow as they alternate between the two. The traditional agency model exacerbates this by eating up marketing budgets with no accountability for hitting revenue and a siloed approach leading to a poor return on advertising spend.
Hidden costs of an Inhouse Team
For those that prefer to avoid expensive margins and lack of control from agencies, the only other options are either build an inhouse team or manage this via outsourcers. There is a reason that the most successful businesses that have inhouse marketing teams are enterprise in size. From finding a profitable enough strategy and set of tactics to hiring a team that works well together and achieves set goals is an expensive and time consuming exercise to get right.
The Outsourced Fallacy
At first glance being able to hire a team of outsourcers means that owners can avoid HR costs and headaches of superannuation, holiday pay and tax liabilities, with the added benefit of (often) smaller margins charged on the same services as that of an agency. But Founders often pay a different price, combined by a lack of oversight on quality of effort put into the execution and a divided attention from other clients competing for the outsourcer’s time. Perhaps most damaging of all is the lack of cohesive teamwork between various executors. When the left hand does not know what the right hand is doing, it results in a lack of effectiveness that almost always slows down or stalls performance and growth. Not only does it increase the chances of costly mistakes or learnings avoided, it also lowers conversion rate as the customer journey is the first thing to get affected, leading to fragmented marketing funnels and disparate data leaks.
Spending to Fast
For those who manage to find the balance between marketing spend, inventory and investment in the business, the next risk they face is growing faster than they can afford. This may sound counterintuitive but a common cause of eCommerce failure is an inability to keep up with their growth, forcing them to plateau and preventing them from capitalising on their success.
Bypassing eCommerce failure
In answer to these challenges eCommerce Founders face in scaling fast, DigiVest created a revolutionary skin in the game model that subsides the cost of performance marketing, talent management and technology development, reducing the upfront demands on cash flow through a unique percentage of revenue and enablement fee structure.
By providing a performance engine of experts, technology and data, we free our founders to work on their business, while we get stuck into the details of day to day ecommerce execution. This results in increasing their eCommerce valuation and resulting investability, and allowing them to access pre-approved performance capital from our sister company. Giving founders the funds they need when they require a capital injection to fuel growth and scale to the next level, without having to dilute equity at an undervalued rate or buy into debt. all without having to dilute their equity or buy debt.
Discover how our revolutionary way to scale can help you beat the odds and deliver the growth at the right time and the right speed.
Australia Post, “Inside Australian Online Shopping 2021,”
Australian Bureau of Statistics, “Online sales, October 2020