Why Most Online Retailers Fail

We’ve all heard about that “friend of a friend,” who made it big by quitting her day job and becoming her own boss. While the idea of calling all the shots may sound appealing to a disgruntled nine-to-fiver, most people fail to consider the whole picture. Most of those unhappy workers who quit their day jobs and dive head-first into the first online opportunity discover that, with little knowledge of what they are doing, there is scant hope for success.

Eight out of ten new businesses fail within the first 18 to 24 months, according to many sourcesAs with any conventional business, if you do not plan, budget or smartly invest in an online business from the start, you will struggle to make profits and ultimately fail.

While there is no way to guarantee your online store will succeed, what can you do to minimize the chances of failure? Start by avoiding some common mistakes:

Expecting Instant Gratification

Many entrepreneurs fail to recognize they need to build a long-term business. They expect to make mountains of cash overnight without any effort. As a result, a lot of newbies quit early because they haven’t seen a huge profit right away.

Forget about instant gratification and understand that, as with all disciplines, success comes only after you have mastered your trade. Expecting success to happen overnight will only discourage you from proceeding when it doesn’t arrive the next morning.

Assuming Basic Business Knowledge Isn’t Required

Advances in technology have made it easy for anyone to launch an online business. There are a variety of e-commerce platforms, storefronts, marketplaces and shopping carts available that allow you to easily sell products. You may assume that it’s simple to set up and operate an e-store -- with no business background required. However, without a general knowledge of fundamental business principles and at least the basics of online marketing, you will likely fail. 

Taking on a 'Field of Dreams' Marketing Strategy

If you build it, they won't necessarily come -- not until they hear about it. 

A new online business must devote roughly half of its resources, including sweat equity and dollars, to building a solid customer base. The challenges that brick-and-mortar companies face in “being found” are even greater in the cluttered online world. The ability to have your inventory discovered by qualified buyers is more difficult than ever, and those that deeply understand digital marketing principles, advertising, SEO and affiliate networks will drastically outperform those that just scratch the surface. 

Poorly Managing Inventory

This can be one of the most significant problems new e-commerce operations face. Buy too much inventory, you can cripple cash flow; buy too little inventory, you can miss out on sales and disappoint customers.

Ordering products is often not as simple as you might think. Many vendors have distinctly different lead times, meaning that it might take one supplier a few days to get a reorder to you, while another might take a few weeks. Building a reliable supply chain and developing a consistent sourcing strategy is one of the most important first steps to realizing profit.

Not Understanding Website Usability and Testing

Even the best business plan cannot overcome a poorly designed website. A successful e-commerce site must be secure, usable, have great search and be extremely mobile friendly. Anything less is unacceptable.

Everyone reads about the increased use of mobile devices on the web, but it is shocking how many online merchants still haven’t translated this knowledge into their own website designs and usability tests. Take the time to test and measure your web pages, modify where necessary, and then rinse and repeat. This process never stops, because you should be in pursuit of constant optimization and improvement. For example, how do your customers respond under different scenarios? Invest in measurement techniques and inspection processes across your business – and then act on them. 

Not Having Visibility Into Product Trends

There are tools on the market to understand supply and demand, and you will need these to develop a competitive sourcing and pricing strategy. Never underestimate the fact that an informed seller will outperform an ignorant seller every minute, every day, for as long as the ignorant seller actually survives -- which is usually not that long.

The top sellers in the world invest heavily into gaining marketplace visibility, and while the world is a big place, the 80/20 rule still applies in e-commerce, with typically 80 percent of a merchant’s revenue coming from 20 percent of its customer base. So the question becomes: How do you know what your 20 percent want next when you don’t have visibility into product trends and demand data? 

Like most things in life, an e-business takes time to grow and succeed. Be prepared to learn the trade, just like all successful merchants before you. It takes a doctor many years to learn the field of medicine, and it takes a musician many years to master an instrument, with sacrifice and practice along the way. Building an online business is not rocket science, but it should be respected and learned just like any other professional discipline.