If you are a classic start-up, let me ask you this: are you a Mayfly or an African termite queen? Before you wonder whether I am about to discuss the laws of natural selection, ponder the following tidbit. While the life cycle of the Mayfly lasts up to just 24 hours, the African termite queen is in it for the long haul, living an industrious life that typically lasts 50 years or more.
Ok, so you've got the point. Translated into business lingo, this metaphor begs the question: why are so many e-commerce businesses born and why do so many die? Just like the Mayfly.
While addressing an audience of prospective entrepreneurs, I am often asked why most start-ups tend to be about software, the Internet and related businesses. While I can understand the frustration of entrepreneurs who want to set up businesses that are not related to IT, the fact is that tech businesses offer a greater likelihood of creating large businesses with lower investments and smaller gestation periods.
E-commerce is a special breed of tech business, and it has probably attracted more entrepreneurs than any other kind of business. Here's why.
Setting Up An Ecommerce Business Is Ridiculously Easy
Here's what an e-commerce business needs:
> A website (some would argue that even this is not necessary and you could sell on marketplaces)
> Products to sell
> A means to accept payment
> Physical delivery of the product
There are many plug-and-play e-commerce website builders available online. There are also services that will help you set up a complete e-commerce website with a few clicks. These services also allow you to use their payment gateway and logistics.
As if that was not enough, some even allow you to populate your e-commerce website with their catalogues. I am not exaggerating when I say that an e-commerce business can be set up within a couple of hours. And the cherry on the top is that most services offer free trial periods. If you want greater control over your software and are technically inclined, you can use free open-source software that will instantly set up your e-commerce website.
There is a problem, though. Setting up a business is only the first step; acquiring customers is a whole different story. That is where the woes of e-commerce entrepreneurs begin. If they are ready to remain tiny, they could waddle around by creating a presence in social media, and trying their hand at some rudimentary SEO. But attracting hordes of customers is difficult, if not impossible.
Purchasing Revenues Gives The Semblance of Scale
A large part of the Indian e-commerce industry is primarily driven by money from investors, and secondarily by revenues. In a scenario where growth is perceived as more important than profitability, it is possible to purchase revenues. This is done by splurging on online and offline advertising. Such advertising increases your revenue but lowers your profitability.
Luckily, investor restlessness is now causing most e-commerce majors in India to rejig their strategy and get profitable. The success of the recent Just Dial IPO has also encouraged Internet businesses to prepare to list on the bourses. But this will be difficult without profits.
Scale And Profitability Seem to Be Inversely Proportional
The reason Flipkart is closing product lines and also setting up a marketplace is that it needs to leverage its scale to turn profitable. As an e-commerce set-up, you will invariably face the dilemma of scale vs profitability. If you try to grow quickly, you will have to make investments that will not be easy to recover. And once you start focusing on profitability, top-line growth will slow down or fall!
Differentiating Yourself Is Really Difficult
It is difficult to differentiate one e-commerce business from another in the same domain. Of course, there have been several attempts: same-day delivery, unique products, dramatically lower prices, better user experience, personalised products, volume discounts, and what have you. Some portals have even gone so far as to send you a whole lot of similar products, such as party outfits, whereby you can try them all and purchase only the ones you like, no questions asked. The problem is competitors rapidly offer the same 'differentiator', thereby making it worthless.
Investors Cannot Seem to Decide Their Attitude Towards E-Commerce
Every week, I hear private equity players predicting, 'doom', 'consolidation', 'long-term bearishness' and 'shakeout' when talking about e-commerce businesses. But I also hear of series-C investments and sustained high valuations. The investment world does not seem to be clear about where e-commerce is headed. Of course, everyone is agreed that as an aggregate, more retail spends will move online. But the fate of individual players remains unpredictable.
Verdict
So returning to my original question on the life cycle of e-commerce start-ups... The ease of setting up an e-commerce business encourages so many of them to take birth. Alas, scaling issues, profitability and an uncertain investment climate sounds the death knell for a majority of them.
The author of this article, Ajeet Khurana, is the Guide to Ecommerce at About.com. An angel investor, trainer, author, entrepreneur and digital marketer, he is a member of the screening committee of Mumbai Angels, one of India's oldest angel networks. He is on the board of Rolocule Games - a gaming product company that successfully avoided getting into the services business. You can reach him on LinkedIn and Twitter.
You can send your feedback on smementor@moneycontrol.com or simply post comments below
Anda sedang membaca artikel tentang
The Fatal Life-Cycle Of E-Commerce Start-Ups
Dengan url
https://untukkesehatanda.blogspot.com/2013/07/the-fatal-life-cycle-of-e-commerce.html?m=0
Anda boleh menyebar luaskannya atau mengcopy paste-nya
The Fatal Life-Cycle Of E-Commerce Start-Ups
namun jangan lupa untuk meletakkan link
The Fatal Life-Cycle Of E-Commerce Start-Ups
sebagai sumbernya
0 komentar:
Posting Komentar