How to set up a new e-commerce business so that it succeeds.

January 6, 2012 5:52 AM

Can I make a decent living by setting up an e-commerce business? And what are the critical success factors I should look out for?

Hive mind.

Firstly, the background.

I have children, and I have bills. As such, I need to make a living.

I'm currently an independent SEO consultant. I'm fortunate enough to be pretty experienced, and work for some large well known e-commerce businesses, which makes it relatively rewarding, both financially and intellectually. But it has downsides, and the bottom line is that I just don't want to do it forever. (That's a separate subject, and not what I'm asking about here).

I know this might sound self indulgent, especially at a time when not everyone has a job, but hey, we're all different... but a full time salaried job isn't what I want to do forever, either. Lots of reasons there - commuting (and seeing less of children), making someone else wealthier instead of me, I'm approaching middle age and I've done my fair share of working for the man, etc.

And so, after lots of careful reflection, I've decided to try and start a business myself. I'm thinking seriously about trying online retail. I know very well how competitive much of it is, but over the years I've built up so many skills around customer acquisition, user experience, conversion etc. that I really want to try using those skills on something of my own.

A central part of my current thinking is that I want to start with low risk and low capital, primarily because I can: I'll be doing most of the planning, design and build work. I want to build something organically, starting fairly small, and see how far I can go. Things like selecting a suitable e-commerce platform, looking after legal, stock, fulfilment etc. - these are all things I can either manage personally, or I'm comfortable I can oversee the development of correctly.

But there are some things that I'm not so sure about.

1) Can I make a reasonable living by doing this?

This might sound like a dumb question, but it's really not.

My search skills mean that I've been able to look at search volumes in particular categories, estimate what proportion of traffic (based on experience) I might be able to win after a period of time, estimate what proportion of that I might be able to convert, estimate what margin per transaction I might make, etc.... but it's all highly approximate and theoretical.

What I'm wondering is: can anyone actually tell me from experience that this type of small, organically grown e-commerce business can realistically produce a reasonable living?

(By reasonable living I mean something roughly comparable with a web professional's income - not great wealth, Cristal for breakfast, etc. )

FWIW, I have looked - hard - to see if I can find research or data on this. But in the UK (which is where I am, and where I want to sell to), this information just is not really available. If you are anything other than a large company, the financial information that you are obliged to report tells one almost nothing, frankly, about whether those companies are profitable or not, or by how much. (I've bought reports from Companies House and looked at this carefully). Sure, I can see how much profit XYZ mammoth e-commerce company with 5000 employes makes... but that's just not relevant, either. I've worked for several e-commerce businesses, but again they're all just too big to be comparable to what I want to do.

2) Does anyone have experience of critical success factors for this sort of venture?

Although capital risk might be low, if I'm going to invest a lot of time into this, I want to give myself the best possible chance of achieving my goal. And I know how many start up businesses fail.

Clearly product selection is vital. I could write paragraphs more on this, but I don't want to make this longer than it already is! I'm looking at markets where at least some of the current players aren't particularly big, so I have a chance of taking them on (in terms of the sophistication of their offering, and economies of scale), and I've heard what seems to me to be very good advice about ultimately choosing a product you care about (at least a bit!) The problem, of course, is that finding something I'm interested in, where there's some hope of competing, and where there are reasonable levels of demand, seems to be very, very tough. FWIW, the best thing I've found so far is a sub category within Toys, but I do worry about whether I might end up in too small a niche.

What are others' thoughts about products selection in this sort of circumstance?

And has anyone got any experience they can share on any other critical success factors for this type of project?

In summary: I'm not saying (or I hope I don't seem to be saying) please give me the magic formula to setting up a successful business! I'm saying, can others give me some reassurance that such a plan can work, according to my success criteria? And what, from experience, must I get right?

I'm sure that I can and will learn lots of things the hard way - e.g. when actually doing this - but as I've said, I just want to give myself the best chance of success.

Thanks very much for reading this all - and thanks in advance for any advice.

posted by Hartham's Hugging Robots to Work & Money (10 answers total)

Online retail?

So you want to compete with Amazon.com and eBay? Or whatever their British equivalents are?

Retail businesses, whether physical or internet-based, are capital-intensive businesses with thin margins. You will need to stock up on inventory, manage shipping and logistics, all the ancillary accounting associated with same (VAT, etc.).

That's not a one-man undertaking by any means, at any scale that would make it worthwhile to you. It's a pretty significant undertaking, with lots of competition, as you indicate.

I don't understand how your experience in search engine optimization translates into having the knowledge to successfully run an online retail store. But don't let that stop you.

The best thing for you to do is to network with fellow entrepreneurs. What sort of entrepreneurial communities are there in the UK? Here in the US, we have lots of different meetups, at least in the major cities, and ideas incubators, that serve as sort of informal networking and mentoring groups for startups of all types to feed off each other, get ideas, support, venture capital, etc.
posted by dfriedman at 6:39 AM on January 6, 2012 [1 favorite]

I too don't see that your SEO background really gives you the experience to run a retail business at the level you'll need to be clearing $80K or so a year, which is where I would peg the typical web professional supporting a family at. What do you know about managing inventory turns, negotiating with suppliers, financing accounts receivable to get the cash to stock up for Christmas, managing employees, managing shipping and delivery, etc etc etc?

Really, the world will never run out of e-commerce operations that need help - if you are a successful consultant I would not give that up. Maybe pick up a retail side business as a hobby business, maybe it will grow to support you, maybe not. I'm not sure the odds are all that different starting part time versus jumping into into full time.
posted by COD at 7:16 AM on January 6, 2012 [2 favorites]

Response by poster: Thanks all for input.

dfriedman:

So you want to compete with Amazon.com and eBay? Or whatever their British equivalents are?

Absolutely not - at least, not in the sense of trying to create a large online retail website that sells huge numbers of products across a huge number of categories. That would be madness!

I don't understand how your experience in search engine optimization translates into having the knowledge to successfully run an online retail store.

Mmm, maybe I should be clearer here. SEO is an odd field. SEO as I practice it has nothing to do with some distant or mysterious tweaking or trickery; it's about understanding what makes great websites - best propositions, price point, customer service, content, etc., because ultimately those are the ones that search engines will want to show their customers. (Yes, there's a ton of other detail besides, but this isn't a question about SEO!) Suffice to say that I'm completely comfortable with what is necessary to create an online business that customers will value.

What I don't know much about - COD makes a very good point - is "managing inventory turns, negotiating with suppliers, financing accounts receivable to get the cash to stock up for Christmas", etc. Thanks for that COD. That said, I have had a fair amount of experience in management roles at small businesses previously where I've had to deal with cashflow and dealing with suppliers, but it's still good food for thought.

Metafilter is not a great place for business advice.

Useful observation, thanks. That's not snark - I ummed and ahhed about whether I should post this here. I decided to go for it on the basis that my first question isn't really about business advice: it's asking if anyone here has done something similar previously, with success.

You don't have a plan, so I'd vote for fail at this point.

Again, probably could have been clearer, but didn't want to make my already fairly lengthy question lengthier. At this time I have:

- category of products I'm very interested in; identified what appear to be popular products in that category; identified the main distributors and contacted a couple to see what's necessary to resell their products;
- checked the size of demand (e.g. how many people want to buy those products) in my target market
- checked the competition, e.g. who else is selling those products, to see if I think I could compete (and my sense at this stage is that I can)
- a plan to start slowly with a modest range, grow organically from revenue and see where that takes me
- an e-commerce platform pretty much identified with very low cost
- the ability, I confidently believe (I know exactly how non trivial this is) to design and develop a good site
- a plan for where I'm going to acquire customers, and how I'm going to do that (e.g. natural search)

That's certainly a plan of some form. I guess the question is, is it deficient? If so, where?

a retail side business as a hobby business, maybe it will grow to support you, maybe not.

That's absolutely the plan. Day job continues and doesn't stop until and unless online retail works out.
posted by Hartham's Hugging Robots at 7:34 AM on January 6, 2012

Response by poster: Maybe I should also point out, just for clarity and to help explain some of the things I'm saying about what I think I can do, that prior to specialising in SEO I spent quite a few years working in very good digital agencies in London; I know a lot about digital marketing in general.
posted by Hartham's Hugging Robots at 7:51 AM on January 6, 2012

I definitely see how experience in SEO and digital marketing will be invaluable to starting a small business. I wonder, however, if selling physical products is the most profitable approach. Have you considered selling digital stuff, such as information?

I have an online business that's an offshoot of my consulting work. I sell information related to my consulting. Currently, I have a membership site -- customers pay to access the site. With no paid marketing (and decidedly amateur SEO) it provides a steady income that keeps me going during the slow periods in consulting.

Now I'm thinking of creating some downloadable files that people in my niche need, and maybe an ebook, and other stuff -- all digital, because uniquely created digital stuff has these advantages:

- It's uniquely yours: no one else sells it, unless you have affiliates, in which case they're not competing with you.
- Up-front costs are mostly time, not money.
- There's no inventory, shipping, suppliers that can suddenly disappear, etc. etc.
- You're completely in charge of the product's quality.
- You can easily modify the product as demand changes.
- If you're selling to businesses, you can charge a decent amount.

The tools I use are WordPress, a membership site plugin called Wishlist Member (not sure I would recommend it now), E-Junkie for a shopping cart, and the usual Authorize.net + a merchant services provider to accept credit cards. The monthly overhead is absurdly low.
posted by ceiba at 7:53 AM on January 6, 2012 [5 favorites]

I forgot to say that if I actually marketed my membership site and diversified with some of the other digital products I'm considering, I'm confident that I could replace my consulting income.
posted by ceiba at 8:33 AM on January 6, 2012 [1 favorite]

I have never worked as an independent online retailer, but I have worked as a website developer for a number of them, setting up storefronts and the like. (Read this as a smallish sample size, it's not my favorite type of work.)

From what I've seen, if you're planning on selling a product that is already sold on Amazon or some other large online retailer, you should really just not bother, or else go ahead and resign yourself to being an Amazon Marketplace seller and spend your days undercutting the competition by a penny. It's just too difficult to overcome the "why should I entrust my credit card number to randomwebsite.com when I can just get the same thing from amazon?" even assuming the customer can find you in the first place, or bothers to go looking.

I have seen sites run by individuals selling unique, non-commodity, or niche-appeal products succeed, at least in the paying-the-rent-and-most-of-the-bills sense -- although in all the cases I'm personally aware of the site owners also did quite a bit of in person sales (think craft fairs, events vendor tables, classes or retreats with a soft sell at the end, etc); it was never pure online income.


That said, marketing is, as always, the hard part. And it would be safe to say that few if any of the people I've worked with in this space are marketing geniuses. And you've certainly already done vastly more up front research and planning than they have, and generally sound like you have your head screwed on straight, which all by itself puts you well ahead of the pack.


Some specific advice based on failures I've witnessed: start with a simple and inexpensive off-the-shelf storefront, don't go crazy building something elaborate for launch day; don't dig yourself into a cash hole by buying too much stock ahead of time; and try not to chain-smoke while packing your orders.
posted by ook at 9:28 AM on January 6, 2012

SEO as I practice it has nothing to do with some distant or mysterious tweaking or trickery; it's about understanding what makes great websites - best propositions, price point, customer service, content, etc.

I actually agree with you here, but that's because I run informational websites.

For ecommerce -- especially at the beginning -- SEO is ALL about trickery, unless you have a truly unique product or approach that will get press without it.

So to answer your question: Yes, you can make a good living through ecommerce. Hell, with the right approach you can become a billionaire. The question is, what sets you apart from the tens of thousands of people already trying to make a living in the same field?

Without (a lot) more info, no one here can tell you that.
posted by coolguymichael at 9:29 AM on January 6, 2012

Can I make a reasonable living by doing this?

It seems from all you've said that you must have a better idea of the answer to this than anyone on Mefi could give you. You look to have done your homework, on the demand side at least, and short of people reviewing all your detailed analysis they can't add much to what you already know.

So it looks like perhaps you're looking for affirmation more than anything else.

You also say:

the best thing I've found so far ... I do worry about whether I might end up in too small a niche

It would be interesting to know if the numbers say the market is big enough, but your gut says no. Or if the numbers say it's too small, but you still want to believe. Or whatever else it is that's going on with you. Just clarifying that for yourself may give you the answer.

Be that as it may, what struck me in your post is that you clearly value intellectual challenge and are also seeking more time with your kids. These are not things that you're likely to get from starting a small retail business, except maybe in the long run, and quite likely not even then.
posted by philipy at 7:15 PM on January 6, 2012

Response by poster: Ceiba - that is a really valuable suggestion. I'm going to think carefully about that.

Philipy, thanks for coming at this from a slightly different angle. That's also really valuable perspective. Thanks very much to you, and to all, for taking the time to give me your thoughts.
posted by Hartham's Hugging Robots at 4:07 AM on January 7, 2012