I have known so many online businesses that have burned brightly at first, but then fizzled out to nothing – but other’s I’ve worked with started small and then went on to big things. Why is that?
From Small Acorns
Over Christmas, someone sent me a link to this fascinating article/infographic/thing – www.businesszone.co.uk/image/why-startups-fail. At first glance it looks like someone ate loads of statistics and vomited into Photoshop, but if you spend a bit of time picking through it there are some very useful titbits about what the common features are of startups that succeed, and the ones that fail.
According to the research in that article, the businesses that tend to succeed are the ones which start small and invest in a strong, reliable foundation for their business before growing larger, whereas the ones which fail tend to be the ones that try to grow too quickly in the early stages of their existence.
All That Glitters
This is certainly borne out in my experience. A few years ago I put together an online store for a lovely couple of women who had great little businesses doing ‘jewellery parties’, where they would bring along a selection of jewellery to a party for people to try, and then the partygoers would order from their paper catalogue.
When they approached me I thought it would be a great fit to run the online store alongside the parties. That way they could send everyone to buy their jewellery online, but also it becomes much easier for the fans of the jewellery to spread the word and share the website with their friends. That way they could build a solid customer base and a good reputation before expanding further.
But no – the plan was to immediately shut down the parties and completely move the business online. You can see their reasoning – the potential online market online is much larger than they could ever reach locally. However, there is so much competition out there for online jewellery that it was almost impossible to get them onto the first page of Google for the keywords they wanted, and when they tried Adwords, their costs were massive. And after all this money and expense, they really didn’t sell many items at all.
Don’t Waste Your Money Trying to Compete With the Big Boys
Selling something like jewellery online is always going to be tough as there are so many people out there doing it.
Unless you have bottomless cash to compete with people like Tiffanies for online advertising space, your best bet is to try and build up a loyal customer base that you have some personal relationship with through things like parties, fairs and online forums.
Once you have a proven and solid income stream you then start planning on how to expand further.
The Perils of Going Worldwide on the Web
Similarly another business I worked with sold all sorts of DIY products. With their new online venture they were keen to sell all over the world. They felt pretty confident with this, as they were indeed stocking all sorts of unique and unusual items that were difficult to get in Europe and the US. However, after only a couple of months they changed their minds and asked me to restrict their shipping to the UK as soon as possible.
Why? Because the costs and hassle involved in selling internationally were massive. After the overcoming the logistical issues of working with couriers, you then have the problems of what happens if the customer returns the item – who pays for the courier costs to get the thing back to you? Do you offer out of your own pocket in order to try and please the customer, or do you force the customer to pay costs and risk having an unhappy customer bad-mouthing you all over the internet?
At least when you have these kinds of issues in the UK it’ll generally just cost you a few quid here and there to keep everyone happy – when you sell internationally these costs become massive and can take a decent chunk out of your profits. Although it’s tempting to go international, it’s a much better idea to get profitable with the minimum of hassle before moving into wider areas.
Success Can Come Cheap-ish
If you have giant piles of cash lying around then go for it with my blessing. You’ll have a chance of making yourself heard amongst all the large online businesses out there, and you never know – you could score big. But if you are a new business without endless funds, then you need to draw from the reserves you do have: reserves of time and patience.
Don’t try and go big straight away – first come up with a business plan to sell into a market you can reach cheaply, and also figure out how to develop a loyal customer base. From there you have a much better chance of going on to big things.
Next month we’ll explore how you can get the word out about your business without breaking the bank.