Starting an eCommerce business can be exciting, but it isn't always the right move for everyone. If you're considering starting your own eCommerce business, there are some important considerations to remember before you take the plunge.
In this article, we'll explore 10 reasons you shouldn't… yes, we said should not start an eCommerce business, so you can make an informed decision and avoid costly mistakes.
We'll also provide tips on assessing the risks and considering the potential implications of starting an eCommerce business.
Reason #1: Lack of Experience and Knowledge
Lack of experience and knowledge is a major risk associated with starting an eCommerce business.
Even if you have the ability to create attractive websites, designing a successful e-commerce store requires knowledge of product branding and marketing, customer service, accounting and taxes, and digital security.
Without the necessary experience and knowledge, competing in the eCommerce marketplace can be difficult. Additionally, you may encounter unexpected problems or not understand the nuances of running a successful business.
Being honest about your lack of experience and knowledge in running an e-commerce business is important.
If you’re feeling overwhelmed or lacking in confidence, it’s best to consider additional training or seeking out experienced advisors to help you get up to speed on the necessary skills.
Researching and educating yourself can help you avoid common mistakes and give you the best chance of success.
There are outlets for people to hire others who have experience and success running online stores. Basically, you would build it and then turn it over to another person to operate, market, and promote, and you would split the profits.
Yes, this can be risky, but it is an option if you're still dead set on propping up some online real estate in the form of a store.
Reason #2: Financial Considerations
One of the most important considerations before starting an eCommerce business is financial. Even the most successful e-commerce businesses can take years to profit, and it's important to have enough cash on hand to cover startup costs and expenses.
Consider these stats from LinkedIn Pulse: “90% of eCommerce companies fail within 120 days of starting up. Only 78% of eCommerce companies survive the first year of doing business.”
You will continue to spend money while you wait for your business to become profitable. This could include web hosting costs, product costs, advertising and marketing costs, and other expenses associated with running a business.
Additionally, you should consider the cost of hiring employees to help manage your business and any legal or financial advice you might need.
If you don't have the funds to start an eCommerce business, you may need to apply for a loan or look for investors. It's important to think carefully about this decision, as taking on debt can be risky.
You should also consider how much time and effort you are willing to invest in the business, as it will require much dedication and hard work to succeed. It's important to weigh the risks and potential rewards before making any major commitment.
Reason #3: Lack of a Solid Business Plan
A solid business plan is one of the most important considerations before starting an eCommerce business. Without a business plan, getting lost in the sea of details in starting and running a successful business is easy.
Without a plan, it’s difficult to set goals, understand the resources needed, and make important decisions about the future of the business. Without the guidance of a well-thought-out plan, you may struggle to manage your business and achieve success in the short and long term.
Another problem with not having a business plan is that it can limit your ability to access funding. Investors and lenders look for a well-crafted plan to understand the potential of a new eCommerce business.
This can be difficult to do without a plan and can be the difference between getting the investment you need or facing rejection.
Furthermore, a solid business plan can provide the guidance needed to launch and ensure your venture is successful.
A solid business plan will provide valuable information on moving forward and help ensure your vision is executed as intended.
Without a business plan, you won’t be able to access the resources you need to succeed and will be likelier to fail.
Reason #4: Unclear Revenue Model
The revenue model is one of the biggest considerations when starting an eCommerce business. Many entrepreneurs don't consider the time and effort to set up a profitable business and overestimate the potential returns.
Not every product will bring in a steady income stream, and not every customer will purchase. The average store offers a catalog of products where only 15% are purchased routinely. That means that 85% of the products could be stale.
Additionally, it can be difficult to maintain a successful cash flow without a clear revenue model and an understanding of how to make money from your products and services.
Not all revenue models are created equal. You should be aware of the different ways you can monetize your business and make sure you understand the full implications of each one.
You must research the competition, plan for potential risks, and decide on the best path forward.
Reason #5: Competitors and Market Saturation
Competition and market saturation are two factors that need to be researched before starting a business. If already established businesses exist in your niche, carving out a market share could be difficult.
It could also be difficult to attract new customers, as they may already be loyal to established brands. Additionally, market saturation can lead to lower margins, as businesses are forced to compete on price to attract customers.
On the other hand, it is possible to succeed in a competitive market. Many businesses have built successful and profitable businesses despite intense competition.
Many times with a powerful brand, strong influential push, or large marketing spend.
But, it is important to understand that the barriers to entry are higher, and you may have to invest more in marketing and branding to establish yourself.
Reason #6: Challenges with Building an Online Presence
Building an online presence is one of the biggest business challenges. You must ensure you have a website or online store that customers can find and trust.
You must reach potential customers and draw them in while earning their trust. This can be a complex process and requires careful planning and execution. You don't need an online store of your own to sell successfully.
Many success stories exist where people have sold on Amazon, eBay, Etsy, and other online marketplaces.
Regardless, staying competitive online can be a major challenge. You need to stand out from the competition and differentiate yourself from other eCommerce businesses.
You must ensure your marketing strategy can reach potential customers and effectively promote your products and services. This is not an easy feat and often requires significant research and resources.
Finally, managing customer relationships and providing good customer service are essential. You must be able to respond quickly to customer queries and complaints and ensure customers have a positive experience when dealing with your business.
This can be difficult to achieve and requires time and resources to manage.
Reason #7: Difficulties with Shipping and Fulfillment
One of the biggest difficulties of running an eCommerce business is managing the shipping and fulfillment process. For smaller businesses, shipping and fulfillment can be costly and time-consuming.
You'll need to purchase or rent shipping and packaging materials, determine the best shipping rates, and ensure your customer’s orders arrive on time. You’ll also need to ensure that each package is packaged correctly and safely so it doesn’t get damaged in transit.
Shipping and fulfillment can become even more complicated if you sell many products. You'll need to learn how to store, pack, and ship each item and process returns and exchanges.
Additionally, you'll need to stay up-to-date on the latest shipping regulations and ensure that you comply with them.
All of these tasks can be time-consuming, and if you fail to stay on top of them, it could have a negative impact on your customer satisfaction.
You can choose dropshipping, which means you don't handle the fulfillment, shipping, or returns, but that doesn't absolve you of the responsibility to effectively communicate with your customers and ensure your suppliers are aligned with the needs of your business.
Dropshipping can bring advantages to your online store, but there is a lot to learn before launching a dropshipping store.
Reason #8: Unforeseen Technical Issues
One of the primary reasons you may want to think twice before starting an eCommerce business is unforeseen technical issues.
Many online stores rely on complex systems and technology, including security, fulfillment, web hosting, and payment processing.
Any issues with these services, such as outages, delays, or security breaches, can disrupt your business operations and cause irreparable harm.
Furthermore, the cost of maintaining and updating these systems can be significant. In addition, you may be responsible for unforeseen costs related to fixing technical issues on the backend, such as lost data, fraudulent activities, or other security threats.
Another issue to consider is the ever-changing nature of technology. Staying on top of the latest trends and developments is important as new systems, platforms, and tools are released.
This can be costly and time-consuming, especially for businesses with limited staffing and resources.
It can be difficult to predict the long-term impact of new technologies and how they may affect your business. As such, you may have to invest in costly upgrades or unexpected technical solutions to remain competitive.
Ultimately, the potential for unforeseen technical issues is one of the key risks to consider before starting your eCommerce business. It's important to assess the complexity and cost of maintaining and updating technology, as well as to plan for potential changes in the future.
With the right strategies in place, you can be better prepared to manage any technical issues.
Reason #9: Security and Data Protection Concerns
Security and data protection are two critical components of ensuring online success. Any eCommerce business, regardless of size, is vulnerable to cyber-attacks and data breaches.
It is essential to have strong security measures in place to protect customer data and prevent hackers from gaining access to your systems. Even with the most robust security measures, there is always a risk that data can be compromised.
You should ensure you understand the security implications of running an online store, and if you are uncomfortable with the risks, it may be best to look for another venture.
If you're not convinced, consider these statistics from Zippia. “An estimated 30,000 websites are hacked each day.” Or that “cyber attacks happen once every 39 seconds.” Let alone that “cybercrime was an estimated $6.9 billion dollar industry in 2021.”
Data privacy is a significant concern for many customers when making purchases online. You must have the right measures to protect customers' data and ensure it isn't shared without their consent.
You need to be familiar with all applicable laws and regulations in the countries where you operate.
As an eCommerce business owner, you will be held responsible for any data breaches or violations of data privacy laws. If you do not feel comfortable managing these risks, it may be best to avoid starting an eCommerce business.
Reason #10: Legal Compliance Requirements
Legally compliant eCommerce businesses must adhere to a range of laws and regulations. Before launching an e-commerce business, understanding this range of requirements and compliance is vital.
For instance, businesses must comply with consumer protection laws that protect buyers from consumer fraud and deceptive practices, data privacy and security laws that protect customers’ data, and taxes and other financial reporting laws that apply to most businesses.
Additionally, if you’re selling products to customers across state lines, you must comply with numerous state and federal laws on sales tax.
Businesses must also comply with any applicable industry-specific or Federal laws and regulations. For example, if you’re selling food or pharmaceuticals, there are special laws and regulations you must comply with.
Understanding the full legal compliance requirements is important before launching a business. To ensure compliance, consult an attorney or legal advisor and research applicable federal, state, and industry-specific laws.
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Tips for Evaluating the Risks of Starting an Ecommerce Business
Tip 1: Consider the Investment
Running an eCommerce business can be costly, so assessing the financial risks is important before you start. Consider your financials, savings you have, assistance from others, and if a partnership model makes sense.
It’s also important to consider the cost of marketing, advertising, and customer service as you get started. The average startup online store will need $20,000 or more to gain traffic before any sort of SEO rankings kick in.
There are multiple different options for financing as well as revenue share models, partnership models, etc. Get creative if you feel you need to, but keep personal and business finances separate.
Can you afford the upfront and ongoing expenses of running an online store?
Tip 2: Consider the Time Commitment
Running an eCommerce business can require a considerable amount of time and effort.
From designing and setting up the website to sourcing inventory, fulfilling orders, and providing customer service, there’s much to consider when managing an online store.
Make sure you have the time and resources to devote to running a successful eCommerce business before you start.
The average new online store owner can expect to spend 10-12 hours daily for the first 6-12 months. Some startups will spend upwards of 14-18 hours most days. Is that a commitment you can make if needed?
Tip 3: Understand the Competition
When entering a crowded market, it's important to understand what other businesses are doing and how they differ from yours.
Not only will this help you position your product or service better, but it'll also give you an idea of how much competition you’ll be against.
Research the competition to understand the market better and ensure you have the resources to compete.
Top heavily saturated eCommerce business niches
- Women's clothing and fashion
- Consumer electronics
- Jewelry and accessories
- Shoes and footwear
- Seasonal products
- Fitness products
- Everyday need items and consumables
- Houseware and decor
Many niches are heavily saturated, so understanding which has less competition is critical unless you have significant marketing resources.
Tip 4: Consider the Legal Risks
There are several legal risks to consider when starting an eCommerce business.
These include intellectual property concerns, privacy issues, accessibility issues, security risks, and compliance with regulations like the General Data Protection Regulation (GDPR) and California Consumer Protection Act (CCPA).
Before starting, understand the legal risks of running an online store. Make sure you have all the necessary policies in hand and vetted by a business attorney.
Here are the must-have eCommerce business policies before launching.
- Data use policy
- Shipping and returns policy
Consult with an attorney or legal advisor to get started or use an appropriate online service for the documents and get an attorney to verify.
WTA Recommends & Uses – LegalTemplates or LegalZoom
Ecommerce Business Considerations Wrap-up
Starting an eCommerce business can be a great way to enter the market and reach customers worldwide. However, before starting an online store, it is important to research and consider various factors.
Like most things, running a successful online business has highs and lows and wins and losses. Make sure you are okay with the reality of being a business owner.
Whichever path you decide, take the time to acknowledge what led you here in the first place. If you have an entrepreneurial spirit and mindset, the right opportunity will present itself, and you'll know when it's the right time to invest in yourself.
Have you started an online business, ecommerce store, or another ecommerce business model? Let us know your tips, and we'll add them to the list and attribute them to you.
Please provide your name, email, and a link to your online business for credit.