7 Reason why Most Ecommerce Business Fail

I was speaking to an old friend who recently has closed his business down. This really got me thinking about why some ecommerce businesses succeed and why others don’t. I have compiled the top 7 reasons why I believe businesses — whether they are ecommerce or bricks-and-mortar — fail.

1. No plan, or poor planning – Due to lack of planning, business owners fail to include all the necessary components of running a business. More time is needed to do a thorough due-diligence process (customer research, competitor research, product demand). It needs to be as comprehensive as possible and include as many expenses and revenues that may, or may not apply, but if you put it down on paper, you’ve at least thought of it and, hopefully, did a full-on research. Not having a clear target market or customer base is a the result of poor planning. If a business is planned carefully, then the entrepreneur can focus on what needs to be done and followed, and not get easily distracted by the many opportunities of shiny pennies out there.
2. No distinction from the competition -being another “me-too” company. Business owners need to develop or have a unique core competency or unique products or services. If your product line is market goods/common commodity, then you’ll be forced to compete on prices alone. Cutting your margin razor thin is not a business strategy.
3. Wrong reason to get into business in the first place – Michael Gerber says that most business owners are technicians suffering from entrepreneurial seizure. Many times, when you inquire why business owners get into business, their frequent response is “I want to be my own boss,” or “I want to call the shots, I want to be in charge of my destiny.” Many start their businesses because it’s their personal dream, but lack true commitment to see it through, or some lack family support. A friend of mine recently got laid-off from his job of 11 years. He wants to start his own business because he’s tired of having someone else dictate when and how he’ll put food on the table. However, his wife wants him to find another job, give up on his dream — without her support, there is even less commitment of resources such as capital investment and time. Owning a business ain’t all fun and glamour if you’re not used to working hard, and until the wee hours of the morning, as needed. You’ll be in for a rude awakening, and your tough boss before will look like an angel compared to the new boss–you – being a slave driver.
4. Lack of processes and systems to run the business – Many business owners are reactionary instead of proactive. Many react to what’s on fire, and too many are so busy putting out the fire that they don’t have time to take on the role of being the much needed visionary for their business. Your business starts owning you, instead of the other way around. We can borrow from the big companies’ play books. While some lack agility, they more than make up for it in their stern commitment to adhering to their processes and systems. They have a way of doing things, everyone must follow the rules, no exception, and that is why most big companies are great at maintaining and running companies.
5. Slow to adapt, or refusal to adapt or change – Business owners are just people, and most people are set in their ways. They refuse to change. Some do come around, but sometimes too late. I’ve always said that the most flexible person wins. What entrepreneurs have over big businesses is the ability to be flexible and nimble — as entrepreneurs, we need to maximize this advantage more.
6. Growing out of control; expanding your business too fast – The business is taking off like a rocket, so the business owner is super excited and starts making plans and executing plans for expansion–opening a second location, opening a new ecommerce site, or moving to a bigger warehouse. Growth is a wonderful thing, but if a business grows too fast and cannot handle the growing pains, it could lead to the demise of the business, or a lot of heartaches and sleepless nights. Additional money is diverted towards this expansion instead of re-investing in the current business that is still growing, and still needs fine tuning. Processes and systems need to be mastered before you take on more than you can chew (so to speak). Employees are stressed and overworked, thus leading to insane levels of chaos and instability, thus leading to poor customer service.
7. Not enough capital investment coupled with poor cash flow management – The single, biggest, reason why businesses fail. This ties in with reason #1; business owners plan around what they have saved up to start their business. Let’s take my friend, for example. He’s planning on investing $15,000.00; this is all he’s got and what he thinks his wife will most likely let him use up without much protest. My concern is what happens when he burns through this capital and revenue hasn’t kicked in yet? For some businesses, $15K should be enough, but again, that all depends on your forecast revenue and expenses. Given the difficulty in today’s economic climate, procuring financing from the banks just isn’t in the cards. Entrepreneurs would be wise to ensure that, not only do they have enough capital to invest in their business, but that they don’t get into a situation of betting the family farm.

By: Shirley Tan