- March 25, 2023
- by Melanie Evans
The rise of the internet and the increasing popularity of online shopping have led to a surge in the number of eCommerce startups. It seems like starting a retail business online is easier, in many ways, than it ever has been before.
Platforms like Shopify make website creation simpler and more affordable, and technically even branding and marketing are not as complicated as they have been for brick-and-mortar retail businesses in the past.
But despite the huge growth potential, eCommerce startups face a lot of problems, some of which are specific to the industry and some of which are typical of most startups. This post explores the top 10 challenges facing eCommerce startups today and offers insights into how they can be tackled effectively.
Selling Stuff Online Vs. Building a Retail Business
“Selling stuff online” and building an eCommerce business may seem similar at first glance, but there are fundamental differences in their scope, objectives, and long-term potential. Here’s a comparison of the two concepts:
Selling Goods Online
Limited Scope: Simply selling goods online usually refers to listing products on an online platform or marketplace, like eBay, Etsy, or Amazon, with the primary goal of generating sales. The focus is on individual transactions rather than the broader aspects of running an eCommerce business.
Short-term Perspective: Selling goods online often involves a short-term approach to making a profit, with less emphasis on long-term growth and sustainability. This could mean capitalizing on temporary trends or selling products opportunistically without a consistent brand identity or strategy.
Lower Investment: Selling goods online generally requires a lower upfront investment. Instead of building their own eCommerce platform from scratch, sellers can use existing marketplaces and their infrastructure, such as payment gateways and shipping solutions. It’s a good way, in many ways, to determine if you are cut out for the retail business at all.
Limited Control: When selling goods through online marketplaces, sellers have limited control over the customer experience, branding, and marketing. The platform’s policies, fees, and restrictions may constrain a seller’s ability to scale or differentiate their offerings. And of course, the marketplaces will always take their cut, limiting the number of profits you can realize versus selling your products “by yourself”.
Building an eCommerce Business
Comprehensive Scope: Building an eCommerce business involves creating a well-rounded online enterprise, which includes developing a unique brand identity, marketing strategy, and customer experience. It’s more than just selling products; it includes everything that goes into running a successful business, such as managing the supply chain, keeping track of inventory, and providing good customer service.
Long-term Perspective: An eCommerce business focuses on long-term growth and sustainability. This involves creating a scalable infrastructure, cultivating customer loyalty, and continuously adapting to market trends and customer preferences.
Higher Investment: Building an eCommerce business typically requires a higher initial investment. This includes the costs associated with creating a custom website, implementing a robust eCommerce platform, developing marketing strategies, and hiring a team to manage various aspects of the business.
Greater Control: With an eCommerce business, entrepreneurs have greater control over branding, marketing, and customer experience. They can customize their website, create tailored marketing campaigns, and implement customer service policies that align with their brand values and objectives.
Enhanced Growth Potential: An eCommerce business can leverage various growth strategies, such as expanding product lines, entering new markets, or offering subscription-based services, to scale up and diversify revenue streams. This provides greater long-term potential than simply selling goods online.
The Top 10 Challenges eCommerce Businesses Face Today
So, you intend to build an eCommerce business rather than just sell stuff online. It’s a challenge in general, for sure, but these are the top 10 challenges you will almost certainly be up against.
Finding the Right Niche
The eCommerce landscape is highly competitive, and finding a niche that’s both profitable and underserved is a daunting task.
Startups must identify unique products, services, markets, or USPs (unique selling points) to differentiate themselves from the competition. Having a “unique” product is not always the most important thing, but the way you present your products to your audience, and how you do it certainly is.
Research, market analysis, and an understanding of customer preferences are essential for pinpointing a niche and products that resonate with target audiences.
Customer Acquisition and Retention
Obviously, acquiring new customers and retaining existing ones is critical for eCommerce startups. The high cost of customer acquisition can be a significant burden, especially for new businesses with limited budgets.
Implementing marketing strategies, utilizing social media, and optimizing search engine results are essential tactics for attracting customers. Retaining customers also requires exceptional customer service, personalized marketing campaigns, and even loyalty programs that incentivize repeat purchases.
Supply Chain and Inventory Management
Efficient supply chains and inventory management can make or break an eCommerce startup. Startups must navigate the complexities of sourcing products, managing suppliers, and ensuring timely deliveries.
Effective inventory management means finding a balance between keeping enough stock on hand and keeping storage costs as low as possible. This can be achieved through real-time inventory tracking, accurate forecasting, and partnering with reliable suppliers.
With an increasing amount of sensitive customer data being stored online, eCommerce startups must prioritize cybersecurity. Consumers might be more used to buying online than ever before, but they still worry about security, and look to the retailers they do business with online to protect them.
That means that data breaches, even minor ones, can quickly lead to financial losses, damaged reputations, and loss of customer trust.
Retail startups need to invest in robust security measures, including secure payment gateways, data encryption, and regular vulnerability assessments, to protect their businesses and customers.
Website Design and User Experience
A well-designed website with an intuitive user experience is crucial for attracting and retaining customers. Startups must invest in user-friendly, mobile-responsive designs that enable seamless navigation and quick loading times.
Often it’s easy to assume that if you use an eCommerce web builder tool, like Shopify, you won’t need to worry about any of that. But that’s not the case. Web builders provide the skeleton of a web store, but it’s up to its owners to flesh it out. The images used, the page created, the navigation paths they ask their customers to follow to the checkout are all up to them.
Scaling the Business
As eCommerce startups grow, they face the challenge of scaling their operations to accommodate increased demand. Scaling requires additional resources, infrastructure, and staff, which can strain both budgets and management capabilities.
Startups should plan for scalability from the outset, leveraging automation, outsourcing, and flexible infrastructure solutions to ease the transition.
Global markets offer enormous growth potential for eCommerce startups. However, expanding internationally comes with its own set of challenges, including language barriers, cultural differences, regulatory compliance, and shipping logistics.
Startups must carefully research target markets, develop localized strategies, and establish partnerships with local suppliers and logistics providers to succeed in new territories.
eCommerce startups must navigate a complex web of regulations, from consumer protection laws to tax requirements. Ensuring compliance can be time-consuming and costly, but failure to adhere to regulations can result in fines, legal action, and reputational damage.
Startups should invest in expert advice, keep abreast of changing regulations, and implement robust internal controls to minimize compliance risks.
Cash Flow Management
Maintaining healthy cash flow is a perennial challenge for startups, particularly in the early stages of business. eCommerce startups must manage expenses, such as marketing, inventory, and shipping costs while ensuring sufficient cash flow to support growth.
Effective cash flow management involves accurate financial forecasting, diligent expense tracking, and securing access to funding sources if needed.
Building a Strong Brand
Creating a strong brand identity is crucial for eCommerce startups in a crowded marketplace. A memorable brand helps foster customer loyalty, but it can do a lot more than that in the commerce space.
The fact is that a lot of retailers sell what is basically the same product. It’s the way the company brands itself that makes the biggest difference, which, for an eCommerce business, leads to long term success and the establishment of a real, sustainable business rather than just ‘selling online’.
Branding helps differentiate between two businesses selling the same thing by establishing a unique value proposition, creating an emotional connection, developing a distinct visual identity, defining a brand personality, utilizing storytelling, providing a consistent customer experience, and managing brand reputation.
These factors contribute to a strong brand identity that sets a business apart and attracts customers in a competitive marketplace.
None of this has been designed to put you off from starting an eCommerce business. There really is money to be made out there. However, if you want to go beyond ‘selling stuff online’ and build a real eCommerce business, you need to be aware of, and ready to meet these challenges.
The Pearl Lemon Consultants eCommerce team works with eCommerce businesses on these challenges often and knows they can seem hugely overwhelming, to the point of considering giving up on the idea of building an independent eCommerce business at all. But before you do that, give our team a call, and let them explain how they can make these challenges less of an obstacle to success.