MBA2147 Why Ecommerce Is One of the Hardest Businesses to Start & Grow + Free Ride Friday

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The February 2025 Nielsen report. About 80% of the friends and family that come to me or talk to me about starting an online business, they think about starting an e commerce business. The other 20%, usually it's software. And this is natural. People understand business and commerce as selling physical goods. They're used to it because that's how they buy things, whether it's online or in person in a shop. I think I'd like to sell things and their immediate thought is I should sell things online in my own ecommerce store. They often think, how hard could it be? Because I've bought things online all the time. There's so many businesses out there that do this. I'm here to tell you it's probably one of the hardest online businesses to start and grow and I'm going to explain why. The number one reason e commerce stores are hard, are difficult, are challenging is because of overhead costs compared to other types of businesses that lend itself to scale, whether it's software or coaching or courses or digital products. E commerce, on the other hand, have ongoing costs, expenses that you need to shell out for from day one. And that of course, is your inventory, the actual product you're selling. Very rarely does anybody start an e commerce store and they are selling one or two products, one or two SKUs, unique items in their store. Most people, when they have an E commerce store are going to have a minimum of 10 to 15 products. This means you need inventory of these products. And if your product is something that requires different sizes like clothing or shoes, I know this because I had a clothing line, then that's even more stock. And then you factor in colors and fabrics. That's another thing. So regardless of what your product is, there's inventory you have to buy to make sure you are ready to sell these products. Now, I'm not talking about drop shipping. I'm not talking selling other people's products. I'm talking about your own products, products that you manufacture or products that you produce. Now, a lot of people think the costs are purely the cost of the goods that you have to, you know, pay for so that you can sell them at a profit. But that's just the beginning. You have the cost of the actual product. Then you have the packaging of that product, because you have to deliver it in a presentable package. I'm not talking about the shipping package. I'm talking about the actual packaging, like the box your iPhone comes in. Then you got to factor in storage and stocking. This is a huge expense a lot of people don't think about. How are you going to store and stock your products. There's different companies that will do this for you. Send your inventory with SKUs with identification that are already packaged, and they will put it in their warehouse and they'll pick and pack it even, which is another cost, by the way. When you get an order, it integrates with your website. But there's a cost involved. Many people, they kind of try to skip this cost by storing things in their own home or garage. But then you have the cost of labor. You have to. Or somebody else has to pick and pack each order and send it out. Then you have the shipping costs. Yes, you're going to charge for shipping in most cases, but there is a cost of labor and time to pull that off. All of these costs increase the level of risk because you're taking money out of your pocket with the hope that people will buy. You could put all these costs aside, and then you have a totally different cost. And it's called the cost of seasonality. Most ecommerce stores, they can't sell the same products forever. For example, I had a clothing line. I couldn't sell the same shirts year after year. I had popular shirts or, you know, signature shirts for my brand that I reproduced because it was kind of synonymous with our brand. But I had to continue to produce new styles because it's a new season. So every minimum six months, I had to come up with new product. That means my old inventory basically loses value. I can either sell it on clearance or even just sell it at cost. Many times I had to just donate everything because it cost me more money to store it and to have it inventoried. It would actually save me money if I just took my remaining inventory and gave it to charity. Think about that. You're selling the products that you paid hard earned dollars to sell, but you didn't sell them and therefore you got to get rid of them. Because keeping them is costing you money. You're now starting to see the picture. So what can you do if you are starting an E commerce business to prepare for this, to do this better to save some money. Two things. Number one, do not sell things that are competitively priced. I sold custom tailored clothing for men, meaning the clothing that people bought from me was unique. No one can actually get the same shirt somewhere else, Macy's or Amazon. It was custom tailored to them and therefore I could charge a premium. That way I don't have thin margins. I can afford to not sell out all my products by having a higher price point. My ecommerce store didn't sell anything less than $100. Everything was 100, 200, $300 a piece. The second thing is that when you have a demand for your product, a product that's unique, that people actually want, they will be patient with you in terms of how quickly they get it. So for example, with our product, the turnaround time is about two weeks and they were willing to wait two weeks because they can't get it anywhere else. It's unique and therefore I can have a shorter window of production to sale. I can keep low inventory, and if I run out of inventory, I can produce more and they can wait. A lot of people were fine with this because I set up expectations on the website. This allows me never to have overstock and waste money. Let's get into another category that a lot of people don't talk about with E commerce and that's customer acquisition. Getting customers to buy your products is incredibly important in any business. It doesn't matter if you're selling courses or software or physical goods. You have to have a way, a repeatable system to acquire customers. Some people use content marketing or SEO or they use paid ads or they do webinars to market. And with E commerce it can get really expensive because a lot of people sell to so many different kinds of people. The wider your audience, the harder it is to market, the more expensive it is to market because you're trying to talk to everybody. So my advice when it comes to your ecommerce store is try to niche as much as possible. Because if you niche down, you know exactly who you're talking to, you know exactly who to go after, to advertise to, to email to market to, and turn into a customer to acquire them. For example, in my clothing line, my e commerce business, I sold dress shirts. So I really targeted professional men, but not only professional men, not only any professional man, but professional men that were tall or big, that couldn't buy a shirt at a department store because their arms were long, they had long necks, long torsos, they needed it to be custom tailored. So this niche is even down. Then I made sure that my product was premium. That meant it was up market, it was upmarket niche. I also made sure that my clothing was all natural fibers. So people that had allergies or had issues with synthetic blends would come to me and see the advantage of paying a little bit more. So because my dress shirts cost $200 plus, when I ran Facebook ads, when I ran digital ads, it was easy for me to find a demographic that was earning a certain income, was of a certain age, that was interested in certain things that would lend itself to my ideal avatar. So it really made it easier for me to market to this person because I knew exactly who they were. They were very niche. I also knew that my customers knew other customers that were like them. So I had viral marketing, meaning I had referral marketing. I gave them store credit if they referred a customer because I knew the other tall people. Other people that had this problem knew other people like this. Now, e commerce is not always all heart. There's a lot of tools out there like Shopify that make it simple. So you really have a lot of options. There's a lot of great email marketing tools for e commerce like drip and klaviyo. So there is an advantage with ecommerce because it's popular that there are some tools and solutions for you.

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Now, we talked about the starting part. What about the growing part of a business? You can get some traction with some initial sales with your e commerce business, but that's a whole different ballgame versus growing the business, taking things to the next level, going from $10,000 a year to $100,000 to a million dollars a year. And the reason why e commerce is harder than others is that the way to scale e commerce business is a little bit different than a digital software business, a course business, a coaching business can't just do more of the same. It's actually very much like a physical business. If I wanted to grow and expand a pizzeria business, I would open up new branches in different neighborhoods, different locations. After I have about 10, 15 locations, maybe I'm thinking about franchising or have people license my product or recipe for the great pizzas I make. So using this example, E commerce stores follow a similar model. If you want to expand your e commerce store, you got to expand your market. You got to expand where you actually have a presence. This is why a lot of e commerce stores that make it big, they know that they actually have to get into physical stores. They actually have to get in front of more people. So they might rent out a little display in their supermarket or a little display in a department store that's local to them. And they might do that over and over in different towns. They'll have a few products there on stock and they'll restock it slowly. But they make a huge emphasis on the product packaging that hey, order online. They even incentivize people to order online. They get discounts so they buy it from the store and then they learn, oh, I can just reorder this thing online. So many e commerce businesses grow by having a physical presence in different stores. You might have seen this or heard about this on Shark Tank. People sell physical products on Shark Tank all the time and they get into different stores or different markets and then they sell on their online store as well. So the physical presence in stores is a marketing activity more than it is a sales activity. You then might want to think about licensing your product to be sold in other stores, online or offline. This is how a lot of physical product businesses scale. Beyond being a six figure business. It's very hard for you to hit a million, 2 million, 10 million off your own e commerce store with no real outreach, with no physical presence in the world or any kind of partnerships. And if you think about it, this makes total sense. Think about any physical product you bought online. You either knew this product beforehand, you bought it before you had it in your hand. You bought it at a store like something you bought from Amazon, like toilet paper. Or you've seen a similar product in person before and therefore you see this online. You're like, hey, I'll pick this up. There are exceptions, of course. Clothing, shoes. But you have a frame of reference. The point of being in physical stores or other stores or licensing your product is giving people the awareness of your product, but also for them to have a frame of reference. So when they go online and see your products on your store, it's not totally unfamiliar. They are primed to be a buyer. Well, there you have it, guys. I hope that helped. I just wanted to outline some of the challenges you may face if you start an e commerce business. Hey, I ran an E commerce business for several years and despite the challenges, I enjoyed it. I loved having a physical product business and it's still something I'm proud of till this day. Well, that wraps up today's lesson. But today's episode's not over. It's Free Ride Friday. Let's see who won this week's free ride. The handle on Apple podcast is TVunk23. TVunk says so. Relatable. Five stars. I've been a listener of the show for a long time and love the show. Can't believe the timing of today's episode about being sick. I've been struggling with this exact thing all week. Thank you for your vulnerability. Love your show. Well, thank you TFunk23, for that amazing review. Your mission is to email us@omar100mba.net so I can hook you up with a lifetime membership to the Automated Webinar challenge over@webinarnasia.com AWC. It retails for $500, but you just won it for free. If you want to win a free ride, just leave us an Apple Podcast rating and review and you enter our weekly random draw. Listen in on Friday, just like today to see if you won. It's that easy. Before I go, I want to leave you with this. Every business has its own challenges. Every businesses will have things you need to consider and look out for. And it's roadblocks and it's puzzles that you have to solve. What gets you through it is your love for the product, for the service, for the audience you're serving. So before you choose what kind of business, think about who you're going to serve. These are the people you're going to deal with every single day for the rest of your life or the rest of the business's life. So choose your audience wisely. Thank you so much for listening and I'll check you in Monday's episode. I'll see you then. Take care.

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