Business Failure: What Causes eCommerce Businesses to Fail Early

Billy BeardBlog, Business, Ecommerce4 Comments

Ease of doing business works like a sales pitch for those who are thinking of going into eCommerce. People are fed this idea of having easy access to all things fundamental to start your online business. Your market is broader, suppliers and service providers are everywhere, marketing tools are available, and all other things that any business would need are accessible online. You will not be burdened by having to search for all of those manually.

There are eCommerce platforms that you can set up an account in and you can choose which marketplaces you want to sell your products to. In eCommerce, you are not required to have a brick and mortar store and be physically present in the areas you do business in. So, minus the physical toil and labor and capital intensive endeavors, eCommerce would be very enticing especially to small business owners.

eCommerce is a lucrative business

You probably have heard about small business owners making it big through eCommerce and expanding globally. They’re in Amazon, Alibaba, Shopify, Lazada and all other eCommerce platforms. Judging by their stories and the number of sellers in these platforms you can tell that eCommerce is indeed a lucrative business. But is it all that matters? Is it enough to just jump in and go with the trend?

If you’ve been reading through many articles on how to start your own eCommerce business, you would have come across a lot of discussions that say 90% of eCommerce startups fail at its early stages. The figure may or may not be confirmed as some say 30%, others 50%. Regardless, one thing is certain, businesses can fail at its early stages.

Early stage of the business is crucial

Just because you think eCommerce is way easier to start than a physical business doesn’t mean that you can be less diligent. The early stage of your business will set the direction of where you want your business to go and how you intend to do it. This stage is where all ideas are developed, studied, tested, assessed then implemented.

There would be a lot of trial and error in doing your business. You could make a lot of mistakes that can be addressed so you can continue or be the deciding factor not to.

But if eCommerce comes with a lot of auxiliary services and tools that can help you grow your business, why do some businesses still fail so early?

Reasons why businesses fail at the early stages

You cannot just leave the success of your business to chance.  You have to be thorough about it if you intend to grow, expand and sustain it.  As part of setting the direction of your business, you must know the different reasons why businesses fail at the early stages.

1. No business plan

More often than not, this part is skipped and completely disregarded.  For some, eCommerce is a tried and tested business model and all you have to do is to get on board.  For others, crafting a business plan will take a lot of time and effort and could just delay your chances of already earning income.

But, did you know that a business plan may save you a great deal if taken seriously?  As this is an output of your due diligence, all the methods, strategies, processes that can help you grow your business can be evaluated thoroughly.  Also, this can help you get financial assistance in banks and other institutions as they require business plans.

Your business plan must include: 

  • Your vision and mission
  • Market feasibility analysis (to include products to sell and the marketplace)
  • Industry analysis (competition, threats of new entrants, etc.)
  • Financial analysis (financial projections, ratios)
  • Identified risks and mitigating factors
  • Manpower requirement
  • Investment and Financing requirement
  • Developmental and growth strategies

2. No defined market for the products or services

While this forms part of the business plan, emphasis must be made on your market.  Even if you have the best product out there, if you don’t have the right marketplace for it, it will not sell.

Consider the demand.  For the marketplace that you wish to sell to, is there a demand for your product?  If none, is there a chance that you can create a demand for your product? These are just some that you need to address so you can properly define your market.

Check also product timing.  Is it correct timing to be selling padded jackets during summer?  Or, swimming goggles during winter? Can you generate a higher sales volume if you sell summer essentials at a reasonable discount during winter?

If you can define your market, then you can think of strategies on how to get your products to sell.

3. Lack of online marketing effort  

By the name itself, eCommerce, definitely, it would require online presence.  Presence here doesn’t only mean a static form, much like a billboard or a store front.  It has to be an active, consistent presence especially during the early stages when you still need to build your customer base.  You need to generate traffic and lead it to your landing pages where you introduce your brand and the products you sell

You are given different marketing platforms such as social media, websites, email marketing.  But if you do not maximize the potential of these tools to get you the traffic that you need, your carts will never be used.

4. Low rank in search engines

If you lack the online marketing effort as stated in #3 above, of course it follows that you will rank low in search engines.  The lower you are in the ranks, the lesser your potential market will be.

You have to ensure that you stay relevant to your target customers.  You need to publish content, be specific on the keywords that you use, learn Search Engine Optimization (SEO) and use that to your full advantage.  

5. Unfamiliar with competitors

You have to be on the lookout on the strategies and ploys of your competitors.  Since eCommerce is a very lucrative business, each seller would want to have the bigger share of the pie.  Competition can get drastic and sometimes, plagued with dirty tactics. If you do not know who you’re competing with, their movements, their strategies, chances are, you can get out-competed.

Learn about the strengths and weaknesses of your competitors so you can also craft your plan, adopt best practices and avoid similar mistakes. 

6. Uncompetitive pricing and costing

Price and cost are not ballpark figures on which you anchor the final price of your products.  You cannot just price your product based on how much your competitors price theirs.

You also have to review all costs from research & development, manufacturing, shipping, advertising and all other relevant costs.  In that way you can see if you can set your final price higher or cut-down on some cost. The key here is to be efficient in your costing and keep your prices competitive.

7. Poor cash flow monitoring and management

It was said that in eCommerce, you will not have to build a rather large capital to start.  That’s the reason why a lot are going into it as investments, such as maintaining a physical store or office, warehouse, logistics team and the like, are not anymore necessary.

But even if you are awash with cash, if you do not have a proper cash flow forecasting and management, you will eventually find yourself in a tight cash position.  Signs that you are having cash flow problems would include not being able to settle your bills and your debts and eventually cannot finance your operational requirements.

In this scenario, your business is running the risk of going down the drain unless you inject additional capital.  But thereafter, if you still do not manage your cash flow well then it will just be another vicious cycle that can spell the collapse of your business.

8. Untrained management and marketing team

The eCommerce environment will need a different level of management and marketing skills.  The fundamental principles might be the same as the regular trading business but there are strategies and processes that are unique to eCommerce.  And, those are skills that your management and marketing team must learn and develop.  

You must invest in a trained workforce or if they are untrained yet, equip them with the tools, workshops, training seminars and courses.  

9. Poor customer service

The old adage that “the customer is always right” has been contested many times.  There are customers that are right in certain situations so you go ahead and satisfy their needs.  But there are customers that will never be satisfied no matter how hard you try.  

Even if it has been proven that they are not always right, you have to remember that your customers play the most, if not, a very important role in your business.  Excellent customer service may include giving out rewards for your loyal customers; personalizing your services or customizing your products for your customers; engaging them through a feedback mechanism such as the use of rebate cards; offering a simple return or refund policy.

There are many things that you can do to improve your customer service.  The more creative and personal you become, the more chances of getting their loyalty.  

10. Lack of focus

The things you have to do can overwhelm you.  And, sometimes you feel that you need to do everything.  As the business owner, you have to focus on doing the tasks that will create an impact to your business’s financial position.  The tasks that you have to do must already involve closing deals with suppliers and potential customers or distributors of your products.

Others still keep that mentality of getting things done by doing them yourself.  You can train your team to do the other necessary but menial tasks such as product listing, doing and creating product photos using the best options for photos & videos, posting on the website,etc.  You, on the other hand, must focus on the more strategic tasks like looking for customers, sourcing suppliers and service providers.

Focus can also be on growing and sustaining the operations of your business especially at the early stages, rather than starting another venture and going into partnerships with firms or individuals for an entirely different project or projects.  You should avoid spreading yourself too thinly that you will not be able to manage well your businesses. So, focus.

Strive to succeed

There is no guaranteed formula for success in business. But, this should not be used as an excuse not to try or start. Dig deep into your reasons for starting an eCommerce business and hinge your motivation to them.

We hope that this can help you in going through the early stages of your business. And, if there are some things that you would like to add to the list, please let us know in the comments below.

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Tags: business, career, corporate, e-commerce, ecommerce, entrepreneur, guide, tips

4 Comments on “Business Failure: What Causes eCommerce Businesses to Fail Early”

  1. David Smith

    Good content on eCommerce business failure!
    This article is really very beneficial for all business owners and marketers.
    As I’m staring up my eCommerce business I need to make sure we take care of these causes. You have done a great job.
    Thank you so much for sharing this article.
    Looking forward to your further tips on similar topics Thanks…

  2. Adam

    Really nice article Mike. I would really add that it’s important to really not rely on one source of traffic for your sales / marketing. The best approach is to have a blended approach. So, this could be using search engine traffic, paid traffic from say Facebook or Google Ads, along with using ambassadors or affiliates too. Previously businesses I have had ended up with traffic drying up because of an over reliance on one traffic source.

  3. Pingback: Business Plan: Why It’s Important and How To Write One

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