How to Start an Online Business That Actually Has a Chance to Succeed
Most of the successful stores in our survey reached $100,000 in revenue in under a year, and spent less than $25,000 to get there. If it’s taking your business longer to achieve the same result, does that mean there’s something wrong with your store? It’s likely. But make sure to look at your metrics first. Are your customers very satisfied? If they are, you may be an exception to the rule.
There are two early milestones any new online business needs to achieve to have a chance of building a successful company. The first is selling products that people are interested in buying. The second is finding an efficient marketing channel to attract customers to buy these products.
According to our research of over 15 thousand online stores, when a company achieves these milestones early in their development (within the first six months), it dramatically increases their chances of success. If that doesn’t happen, there’s a good chance they will fail.
Anson Belts & Buckles is an example of a company that sells desirable products (what we call Product/Market Fit), but struggled to find a scalable and profitable marketing channel to promote them (Product/Channel Fit). In most cases, that’s a deadly combination. Here’s how their resilience and perseverance paid off where others fail.
In 2009, when David Ferree founded Anson Belts & Buckles with his dad, the world was a very different place, at least in terms of online shopping. Most people were still skeptical about putting their credit card information online. Influencer marketing, today a fad among ecommerce entrepreneurs, was in its infancy. In early 2009, David sent a sample of his belts to an upcoming YouTuber named Antonio Centeno. He got it and loved it. But it wasn’t until much later that this small gesture paid off.
Anson Belts & Buckles specializes in selling what they call the “micro-adjustable belt,” a new type of belt, designed and produced by them, inspired by what they saw in Asia. Their buckles don’t require holes and don’t leave a mark. The day I interviewed David was the first time I had given a second thought to belt buckles, and it was fun to talk to someone who’s so passionate about it.
They had high hopes for their product, but sales were low in the beginning. Their first break came along when a competitor went on Shark Tank – the TV show where entrepreneurs pitch their ideas to potential investors – and pitched an exact copy of their product. David was smart enough to write a blog post explaining how their belts were superior, which was repeatedly found by people who saw the show and searched Google to find out more about it. This was a good idea – it gave them a nice little bump in sales – but it wasn’t a sustainable acquisition plan, since the interest generated by the TV episode soon faded away. So he tried sponsoring a radio show, Google ads, and Facebook Ads, but nothing gave them the sustainable. growth they needed.
In 2013, drawing from the lessons he learned sponsoring a radio show the year before, David decided to bet on online Influencer Marketing as his main marketing channel. It was an expensive and risky bet, as Belts & Buckles became the main sponsor of the now very popular Antonio Centeno’s YouTube channel, focused on men’s fashion. Every time Centeno featured their belts on the show, which is watched by many thousands of YouTube viewers, sales almost immediately spiked.
In order for Influencer Marketing to work as a scalable, repeatable marketing channel – David explained – they had to sponsor, on average, three to four videos per month on various channels that focus on fashion, clothing and accessories for men. This strategy increases the chances of their target market seeing their belts at least three times, which is, according to studies, the minimum required for people to recognize a product.
Finally, after years of hard work, he had landed on an acquisition strategy that was sustainable and scalable: YouTube Influencer Marketing. “It wasn’t cheap, but it was worth every penny,” said David. “We learned that our product needs to be shown in detail to convey its quality. Centeno took the time to explain the benefits of our belts while holding the viewer’s attention.”
Today, Anson Belts & Buckles sponsors several different YouTube channels. Most of their marketing budget is spent on Influencer Marketing, complemented by Retargeting Ads and Google Adwords that reinforce their strategy.
Almost all of the successful entrepreneurs surveyed (89%) said it took less than a year to achieve that goal. More than half (63%) got there in under six months.
I found out about Anson Belt & Buckle’s story when I sent out a survey asking successful store owners in our research sample how much time it took them to get to $100,000 in yearly revenue. Their answers surprised me. After I interviewed David I was ready to write a whole chapter about how our generation’s struggles with focus affects our attention spans and saps our perseverance because we don’t have the patience, like previous generations did, to take time and stick with our our businesses through good and bad times. But as it turns out, almost all of the successful entrepreneurs surveyed (89%) said it took less than a year to achieve that goal. More than half (63%) got there in under six months.
This, however, wasn’t the case with David’s Anson Belt & Buckles. It took them over three years to arrive at the $100K magic number and even then, their sales grew slowly in comparison to the majority of successful stores using Compass. “Every customer we talked to loved our product.” said David when I asked him about why they persevered. “That’s what kept us going.”
Most young companies aren’t able to stay in business for very long under the conditions faced by David and his team. It becomes increasingly expensive to keep the business running if it takes too long for the sales graph to point upward.
I then asked the successful ecommerce entrepreneurs in our survey: “How much did you spend to get to the $100,000 revenue?” I was trying to learn if the saying “You have to spend money to make money” was also true for ecommerce businesses. Not quite. Almost three-quarters of the respondents (74%) estimate that they spent less than $25,000 to reach that goal. Nearly half (45%) spent less than $10,000.
Anson Belts & Buckles was right to keep on going even though they had relatively low sales numbers, but our survey shows that’s not always the best course of action. For every case of entrepreneurial perseverance that pays off, there are hundreds of companies that don’t make it, despite the tenaciousness of their founders.
So how do you know if you should give up or keep going when sales take a long time to pick up? What if you’re at the end of your first year in business, have spent $25,000 or more and are still far from from the $100K mark? How do you proceed? Luckily, you don’t have to wait until you’re broke to find out. There are clues in your data that can help you evaluate your business to determine if the reason you’re struggling is lack of a good product (in which case, I recommend you to re-think your business idea) or a failure to identify an efficient marketing channel to promote it.
These data clues are often called “Product/Market Fit” metrics. This criteria helps you evaluate if there’s a market for a particular product. Stores that achieve Product/Market Fit are ones that offer:
Products their customers can’t live without,
- A great shopping experience, so customers come back to the store over and over again and
- Great value to their customers while remaining profitable
- Our research shows that these three criteria can be empirically measured through five metrics you can check today:
Bounce Rate: The percentage of users who visit a page on your website and then leave before taking any action is the Bounce Rate. A high Bounce Rate (usually above 57%) means that your site is not giving the right first impression, probably because it’s disconnected from what the visitor wants.
High bounce rate doesn’t necessarily mean that your business is a lost cause, though. A user may bounce because of poor design or slow page loading time. Try fixing those issues first, then re-evaluate. But if your potential customers keep bouncing from your site, it’s a sign that you’re not meeting their expectations.
Time On Site: Once visitors get past the first page, you want them to spend as much time as possible on your site. Spending time on a website is often a sign that people are having a good experience. According to our analysis, a good average time on site is above 120 seconds. If your average time on site is much lower than that, it could be an indication that your visitors aren’t seeing value in your online store’s products.
Pages Per Visit: This is the average number of pages a user visits on your site during a single visit. A high number of pages per visit (around 4) indicates that people are interested in what you are selling.
Returning Visitors: Returning Visitors tracks the percentage of visitors that have been to your online store before and have chosen to come back. According to Compass’s studies, if the percentage of returning visitors is above 20%, that’s a good indication that people like what they see.
Must-Have Score: Send customers a survey with one simple question: “How would you feel if our store was no longer available?” Your clients can respond “Very disappointed,” “Somewhat disappointed,” or “Not disappointed.” This survey, created by Sean Ellis, is designed to verify if your customers would miss you if you were gone. If 40% of your customers respond “Very disappointed,” you have a clear indication that your store is a must-have and you should persevere.
If any of the metrics above are below average, try putting yourself in the shoes of your customer, brainstorm ideas on what can be improved, and test solutions until you see those numbers improving. If the metrics still don’t indicate improved performance, it’s probably best to reconsider. A new store, a new angle, or even an entirely new set of products may do the trick.
Companies that achieve Product/Market Fitness and Market/Channel Fitness (those who find an efficient and scalable marketing channel to sell their products) in under a year have a better chance to succeed. Most starting entrepreneurs believe that having a good business idea involves only the product part, leaving marketing “for later.” A good business idea isn’t “I’m going to sell micro-adjustable belts online.“ That’s incomplete. A business idea that has a better chance of success would be something like: “I’m going to sell micro-adjustable belts online, promoting them via fashion YouTube influencers.”
About the author: Ramon Bez is a growth marketer who has worked for Compass (former Startup Genome) for two years. He has combined data from both their researches into his upcoming book, Ecommerce Genome, due to launch in 2019.