A research project completed by Forbes, Huffington Post, and Marketing Signals, found 90% of all eCommerce (online only) businesses fail within the first 120 days of launch. The research polled the failed leaders and asked them to define the top 10 reasons why they think the business failed (see the top 10 below).
This statistic comes as no surprise because online retail (the eCommerce channel) is the most complicated business channel in history.
Why is the eCommerce channel so complicated?
There are two reasons...
1. Engagement is Rules-based:
In physical retail, you have salespeople who can be naturally charismatic, build rapport, and sell products based off of that. In online retail, every aspect of rapport building and selling is rules-based: technology is bound by rules.
2. Requires Skilled People:
The eCommerce channel requires specialists working holistically together to produce a common outcome. To design, operate, and drive an online channel requires specialist skill sets: there is a need for a strong knowledge base in the foundation principles of eCommerce.
Without this, a business will be plagued with incorrect decision making, poor resource management, mismanagement of the various technologies in play, and the incorrect utilisation of specialist third party vendors.
This is where a specialist eCommerce learning program can add value. However because many individuals in eCommerce suffer from the Dunning Kruger Effect, this need for training does not materialise in many organisations.
This is why Comma Consulting offers the eCommerce Academy, a customised learning program to upskill individuals who want to become eCommerce leaders.
When reviewing the top 10 reasons below, it's important to be aware of the mis diagnosis that has come from the leaders of failed online businesses. While they perceive the issue is one thing, in fact the true issue comes back to the above two elements of what makes the eCommerce Channel so complicated.
Keep this in mind when reviewing the rest of this article.
The Top 10 Reasons for failed online businesses
1,253 failed business owners took part in this research which found 10 common reasons for failure...
- Poor online marketing - 37%
- Lack of online search visibility - 35%
- Little to no market for their products or services - 35%
- Running out of cash - 32%
- Price and costing issues - 29%
- Got outcompeted - 23%
- Retail giants dominating a large share of the market - 19%
- Lack customer service - 16%
- Poor team - inadequate knowledge of how to drive eCommerce - 14%
- Product mistiming - 11%
The above percentages do not equal 100 because those who took part, could select more than one reason.
The remainder of this article looks at each of the top 10 to tease out the underlying issues.
#1. Poor Online Marketing (37%) and #2. Lack of online search visibility (35%)
The top two "excuses" comprise a large chunk of the reasons for failure. The research had these specific comments to say about online marketing and lack of visibility….
A staggering 37% said that their failure could be attributed to an inability to compete or deliver online marketing, with 35% saying a lack of online visibility was the main factor.
To be successful in online marketing requires two fundamental best practice principles working together….
- Being targeted and visible in Google for the right types of consumer buying intent
- The construction of highly relevant consumer journeys to match the buying intent
Point #2 is known as “Customer Experience Design”: the ability to create relevant experiences so as to align the journey to the need.
For example, if a retailer sells “noise-cancelling over-the-ear headphones”, they must activate the online marketing campaign to be visible when consumers search for this term. And then, send the consumer to the part of the site designed for people who need/want “noise-cancelling over-the-ear headphones”.
If a retailer gets one of these things slightly wrong, it will not be successful in acquiring this consumer. In this context, the power of a retail brand does not help a retailer.
New research proves consumers are more loyal to their own need than to a brand.
Intent beats identity
This approach is known as the Pull Marketing Strategy.
When the above business owners say online marketing was "poor" the issue is more around the people who drove the online marketing.
Lack of online search visibility (SEO):
When it comes to the second part of this excuse, Google has changed the SEO game and has amplified its reward of free visibility to those retailers who can engage with people with intent-driven needs.
If a retailer cannot engage, it will not benefit from free visibility in Google.
Side note: It's difficult to gain any type of free visibility within 120 days of launching a new online business. Those who use this as an excuse do not understand how Google works.
#3. Little to no market for their products or services - 35%
This is an unusual excuse when considering the reality of a startup...
1. New start ups normally conduct adequate research to determine if there is a market for a product. Was this not done?
2. For a business to fail within 120 days, it would be difficult to determine if this has come as a result of there being no market for their product.
Since the online marketing was considered an issue, the business would not have benefited from qualified consumers engaging with the products or service.
Even if you gave the benefit of the doubt to a failed business owner, keep in mind one thing, niche works online. Niche = a product and/or service that meets a highly specialized segment of the market. If the online marketing was working to standard, it enables precise targeting.
Combine precise online marketing with amazing online experiences and you have dramatically improved your chances.
A great example of this in action is a travel bag company called Nomatic.
This is a niche online-only retailer focussing on travel bags and has gone up against such juggernauts as Samsonite, Eagle Creek, Travelpro etc.. Added to this, the Nomatic price points are well above their competitors. And yet this travel bag brand is flourishing.
Nomatic's online experience surpasses them all with great story-telling and rich and relevant product content making it very hard to come away from the site without purchasing one of their products.
#4. Running out of cash - 32%:
Burning cash is a legitimate cause for business failure but the wider issues stem from the call outs mentioned above. It's easy to burn cash if the online marketing is not working, poor traffic is coming to the site, resulting in little to no sales.
#5. Price and Costing issues - 29%
Costing issues is commonly a business spending too much to acquire a customer. The margins cannot sustain a “high cost per customer acquisition” ("cost per acquisition" is the measurement of how much marketing dollars is needed to acquire a single customer).
And as stated earlier, a high cost to acquire is the result of poor Pull Marketing conduct and poor online experiences which need to be driven by the right people.
Social = high cost to acquire
One of the more costly methods to acquire customers is when too much emphasis is put on Social strategy. This is a common trap startups fall into.
Some startup brands state their business was founded on a "Social strategy", but what they don’t tell you is the cash burn it took to gain that momentum.
Put simply, Social tactics are fun and sexy but not as effective as Pull Marketing done right.
Why is this the case?
Social targeting is based on profiling. For example, Facebook and Instagram are in the business of selling profiling data. Just because you know a person’s interest does not mean you can predict a need.
Pull Marketing is founded on being visible in Google at the precise moment a consumer defines a specific need.
Profiling would suggest the target for a Baby retailer would be to primarily target the mums but actual intent-driven research shows the larger market is in friends and surrounding families: grandparents, aunts etc...
The same misleading attempts in profiling can be found with gamers and the assumption it's mostly made up of young men.
Marketers who try to reach their audience solely on demographics risk missing more than 70% of potential mobile shoppers.
The reason Pull Marketing is successful has come as a result of the fact that every person holds a super-computer in the palm of his/her hand. As soon as a need arises, they pursue it on their terms.
And they won’t go to Facebook to pursue a need, they go to Google.
#6. Being “Outcompeted” – 23%:
Translation: Other retailers converted more effectively than the failed business.
Every startup goes into "acquisition mode", it comes down to the tactics being used and the standard of execution of these tactics.
This is another example of having the right people in the right positions doing the right things for the startup.
#7. Retail giant dominating a large share of the market – 19%:
The beauty of online retail is every business is on a level playing field. This notion of a “retail giant” is a convenient excuse for business failures.
Look no further than disruptive online retailers such as Warby Parker (online prescription glasses), and Casper (online bed retailer), who went up against retail juggernauts and took over that market by focusing on the delivery of customer-centric experiences and highly targeted online marketing strategies.
Both of of these online only retailers now have physical locations and are dominating.
#8. Lack of Customer Service – 16%:
This is a legitimate issue and should be much higher than 16% on the "excuse scale". One of the bigger issues is the lack of accessibility of real people who can assist in the recovery of consumers suffering from poor online experiences.
Customer support is an issue because it's perceived as a cost when it should be thought of as part of the sales and loyalty function.
Customers who experience value-enhanced service interactions are far more likely to stay — whether the barriers to switching are high or low
For those online retailers who are not sure what great online experiences should look like, the most effective method in de-risking a business launch is improving employee accessibility and be ready to react when people need your help.
Then record/document every interaction between the consumer and your support employees and make changes to the business based on these interactions.
#9. Poor team 14% and #10. Product mistiming – 11%:
It's comical when a business owner blames the team they brought into the business.
But earlier comments remain relevant to this point. There are a low volume of top performing eCommerce/Digital practitioners around the world. Online only startups need eCommerce superstars to run the show.
The perception of product mistiming is a byproduct of all the other issues called out: poor online marketing, competitors, people, free visibility issues etc...
The real common issues that make life difficult for online startups are low standard of site engagement (user experience) and Order/Inventory Management. These two functions are the bedrock of successful online businesses.
Many of the other excuses have people at the root of the issue even though people are not mentioned until #9.
The purpose of this research is not to make these owners look to be failures, but for others to learn from their mistakes. While some comments may appear harsh this is the business world we live in.