Published Date :
May 3, 2018
As I sip my coffee early morning and turn to page 3 of the economic times, I find a section dedicated to ecommerce start-ups and the rounds of funding they close! Everyday! Having started my own ecommerce startup, www.funsexyyou.com, in late 2010, we were the first to sell our own brand of lingerie online. Having the first mover’s advantage, in a hot space with a strong advisory board of industry stalwarts and the right connections to deliver our pitches to, then what went wrong? I saw myself sitting in investors’ offices every week. Updated business plans, hardworking founders, willing investors- the mix wasn’t enough to get us the required amount of funding. So let’s look at the key lessons learnt:
- Ecommerce is an investment heavy model: I hear novices make comments like ‘Start a website, that doesn’t require too much money- no electricity, no rent, and no store staff!’ – This is purely a myth. The sum of the cost of customer acquisition can be compared to monthly rentals of a posh store in south Mumbai. To get traffic onto the website and ensure conversions, you need to spend on non-organic advertising. There is no escape. If you don’t have the initial seed in cash or the risk taking appetite to spend that money for at least 6 months, do not launch your own ecommerce website
- Proof of concept: Any investor would want to invest after seeing a proof! By proof, I mean numbers. We aren’t in Silicon Valley yet, where ideas and teams get funded. If you don’t have the initial capital to set a working model, with showing interesting sales’ numbers then don’t waste time by launching your own start-up.
- Marketplace v/s own brand: As a start-up, concentrate on what you do best. If technology and ecommerce is your strength, then capitalize that! Use technology to answer consumer needs and tailor your offerings by launching your marketplace- of course with a unique proposition. Eventually, one could offer home grown brands to increase per piece profitability. Whereas, if product/ service is your strength, then get onto other marketplaces and taste the ecommerce wave. Ride on their marketing spends, and learn the consumer likes/ dislikes. Eventually, once familiar and after having set the right team, think of launching your own ecommerce venture.
- High Risk, slow returns: So are the karts and deals a profitable business model? Not yet. The growth trajectory required to compete is exponential . Today’s ecommerce companies that are based on the marketplace model, are flaunting gross merchandising value numbers (sum of sales value) which is not the revenue, forget profitability. Do not get carried away! Ecommerce is a long haul. One starts seeing profitability, only with repeat purchases. The customer acquisition cost is recovered over the customer’s lifetime. Basis per piece profitability, and the number of times the customer actually buys, is when one would see a break-even and eventually profits, for the acquisition costs spent early on. Hence the big-wigs aren’t profitable yet, as they are focusing on acquiring new customers, day in and day out while projecting profitability in the long drawn future.
- A failed start-up too looks good on your resume: Do not attribute this to the current ecommerce boom! Its true that founders not only invest time, effort and money but also sacrifice their meaty jobs, family, sleep and mental peace. It’s their first love! They eat, drink and breathe their start-ups. After all of which, if it does fail, then too its great. All the knowledge, lessons learnt, experiences had are irreplaceable. From hand delivering orders to meeting a top-notch investor, from ensuring lower customer acquisition costs to protecting IP, from handling interns to hiring your dad’s age professional veterans- one learns it all. It’s that lesson of a lifetime that no formal education can ever provide!
Having said that, brands and businesses still work best with online presence as it aids discoverability. Consumers often research online and buy offline and hence Omnichannel models work really well.