When should you NOT take the e-commerce route for your business?
With digitisation brimming out of every industry’s bucket, every local store / eatery / business is expected to go online in a few years’ time. At least that’s how it’s presumed. But we need to be careful and not substitute e-commerce for digitisation. And there’s always a right time — if at all a business is meant to go online.
A friend of mine started a brand of inner wear in India. His father was into the inner wear selling business (used to pick from manufacturers and sell to retailers) for a lot of years and knowing the margin of the brand well, the younger one wanted to start a brand of his own. Aggression led him to want to start an e-commerce business right away. But it wasn’t a good idea. How was he to manage the logistics — both the initial website setup and maintenance costs and hundred other operational nuances? Facing tough competition from established e-commerce players with big budgets, how would he compete and bring his brand up there? His energy should have been spent on establishing his brand in the market through the retailer network his father had built over the years. If he wouldn’t leverage what he already had as an advantage in the business, he will lose a big opportunity. He did the same: spent time penetrating that market through the help of that network. And he is gaining success: retailers are selling his brand already. He will come to e-commerce, but later.
Take for instance, a designer’s boutique. Say it does really well compared to its competitors with just two people staff to support the designer at the store. But it might be a very bad idea to think of “expanding” and “take the next leap” through the e-commerce route. Why?
Because, in most likeliness, the charming personality of a designer is currently able to sell clothes much better than a successful agency’s online campaigns. The extremely strong power of advocacy marketing in her case might die because if her existing clients also shop online, they are now very less likely to recommend her to their friends than they were when they kept visiting her often. She will slowly kill her recall value. She will also run a lot of costs managing the online portal and especially managing the logistics — packing, delivery, and make an effective business at this stage. Not just this, she will expose all her designs to other competitors. Currently, she needs time to handle her physical store(s) and also spend time designing more clothes and getting them in production. E-commerce is not the way for her at this stage.
She should probably focus on earning more revenue, opening a few more stores, have a good bank balance and when she feels that she is self sufficient to suffer the initial financial consumption of an e-commerce startup — in short, be her own investor, or at least be in a position of confidently repaying a loan with her existing business, she should venture in.
Another example could be a brand that sells some niche range of products. It might be making good profits since the products are niche and must be selling at high margins. But an online catalog might make it very easy for someone else to start a competitive line of business. It takes away the exclusivity of the brand — in short, it takes away the most important USP that is the reason for the brand’s success. Should it still consider venturing into e-commerce?
It’s really easy to come to a conclusion:
Think of your resources — both financial and otherwise. Think of the competitors’ resources. Think of what you expose on going online and how important it is for you to maintain secrecy in a few particular domain(s). Think of how indispensable it is for the business to go online. Think of the main reason your products sell. A brilliant way would be to talk to your existing customers (if you have them); then decide; because there can be nothing worse for your business than ruining customer relationships. Understand deeply what makes a person buy your product / service and then take a call. Every business is not made for e-commerce.
A Business Model Canvas can certainly help. Ever tried it?
It will give you clearly the list of key activities you need to execute your e-commerce business. You should feel sure that, given your current situation, you will have the time or resources to execute all of them.
It will clearly speak about the customer relationships you need. Focus on the most immediate relationships you will need to get cash flow coming in and make sure you will have the time to execute them.
It will tell you the various channels you will need to reach out to your customers — for sales; interactions; delivery; etc. Can you obtain and sustain those resources comfortably through the revenue you are already earning?
It will tell you clearly about the cost structure. Think if you are running into the risk of high fixed costs and less variable costs. Will you be able to sustain those costs?
You can do a SWOT analysis — you should be ready to tackle the threats you see there from day one (though in most cases, the threats will be unseen). If you see the opportunity worth taking the risk, dive headlong. Otherwise, step back.
At each step, know what is indispensable for the business. If there’s anything indispensable you won’t have the resources to execute, it is probably not the best time to jump in!
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