In my last post, “5 Reasons eCommerce Makes a Great First Business,” I indulged in a gushy e-commerce lovefest. Unfortunately, when you dig a little deeper, blemishes appear underneath the flawless facade. E-commerce is my top choice for a first-time business owner and a GREAT low-risk model, but it’s unfortunately NOT an impenetrable fortress of business acumen and success. I’ll outline a few of the hurdles, and then explain why they shouldn’t deter you from building your own profitable business:
High CompetitionThe Problem: Selling an existing product online — especially via drop shipping — causes you to face a fair amount of competition, especially compared to creating your own product.
Why It’s Not a Deal Breaker: For a first-time business owner, many operational variables are required for success (e.g., marketing, quality service, etc.). Ensuring that viable product demand — arguably the most crucial element for business success — exists allows you to focus on other critical aspects of the business, increasing the likelihood of success. For the first-time entrepreneur, I believe accepting a bit more competition to ensure proven market demand is a wise trade-off.
Unless you’re going into the extraterrestrial estate-planning business, you’re going to face competition regardless of the niche or field you’re in. Increased competition usually (though not always) means a larger market and more potential profits, hence the larger number of people fighting for a piece of the action. So, assuming you have a solid strategy for differentiating yourself, this shouldn’t be a deal breaker.
Low MarginsThe Problem: Again, it’s much easier to sell an existing product than it is to build one yourself, so margins for e-commerce are almost always lower than those for software and other digital products.
Why It’s Not a Deal Breaker: If you take one thing away from this post, it should be this: If you try to compete on price, your e-commerce business will almost certainly be DOOMED. You may have loads of sales and tons of happy customers, but you will never turn it into a sustainable, profitable business. Why? Because there will always be some schmuck with awful service and a miserable-looking site who will undercut you on price.
To be successful, you MUST differentiate yourself in some other way. A prime example is Crutchfield, who specializes in audio equipment. There are a ton of online businesses selling the exact same products, but Crutchfield is able to charge a premium because they have an incredibly helpful and informative site.
This is a crucial topic that is beyond the scope of this article, but one which I’ll cover in detail in a future post. It’s also a topic covered extensively in my eCommerce Training video series. For now, suffice it to say that differentiating yourself based on something other than price is KEY to e-commerce success.
It Takes TimeThe Problem: If you’re starting an e-commerce business to pay off the mobster next door by the end of the month, it’s time to leave town. E-commerce is NOT a get-rich-quick business. It takes time, often years, to build a profitable business.
Why It’s Not a Deal Breaker: If this was a deal-breaker for you, you had very little chance at any kind of business success, online or otherwise. All significant business success takes focused effort over an extended period of time. Get-rich-quick schemes do NOT work. They make one person rich: the guy selling the system.
That said, e-commerce will take more time to become profitable than, say, an e-book you write over the weekend. Sure, you might make a few dollars the first couple of weeks, but your chances for turning it into a full-time, highly profitable business are much lower. Our goal with e-commerce is to build a highly automated, profitable business. We want to trade a lot of up-front time and effort now for a highly automated income stream down the road. Like all good things, it takes time — but it’s definitely worth the investment.
Non-Tech Business ValuationsThe Problem: We’re all familiar with the tech rags-to-riches stories. Facebook, started by a guy in his dorm room, is now valued at between $50 billion and $100 billion. Recently, the photo-sharing app Instagram — just 18 months old– was bought for $1 billion. Insane. As fun as these kind of outcomes are to dream about, it’s going to be difficult to buy the Yankees with the profits from a niche e-commerce site. If world-changing wealth and prestige are your goals, and you’ve got a great income already, e-commerce may not be your best bet.
Why It’s Not a Deal Breaker: Our goal isn’t to take a high-risk bet in hopes striking it uber-rich. Our goal is to generate an automated, passive income stream that has a high probability of success and brings more freedom to our lives. This could mean the ability to quit a job, start another e-commerce site or launch a venture with a higher risk-to-reward ratio (but that doesn’t generate much cash flow). For all these purposes, e-commerce is ideal.
Not Perfect, but GoodSo e-commerce isn’t a magical unicorn that will fly us over the rainbow to success and riches. Far from it. It is, however, a proven, low-risk model for generating sustainable passive income, making it a great choice for first-time online entrepreneurs.