We all get caught up in our own worlds, especially those of us with relatively narrow focus.
I’m certainly guilty of this. I’m an eCommerce guy. It’s pretty much all I think about professionally.
But the reality of it is that eCommerce is still only a small % of the total retail/commerce industry. While I think it is still the 1 singular thing that all retailers/merchants should be putting at the front of their business, I do believe that it isn’t the end-all be-all of commerce.
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Pure Play is a Total Garbage Business Model
In fact, I think pure play eCommerce is a totally garbage business model for most verticals, especially if you are trying to build something of significant scale (9+ figures in sales).
Most modern day (i.e. – digitally born) commerce companies will see a path to sustained success by using digital channels as leverage to off-line channels. In short, they’ll see profits by opening stores, and by opening stores they’ll see eCommerce profits too. One feeds the other and visa-versa.
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Before you jump down my throat, I said “most verticals”. I know of some companies doing mid-8 figures and 9-figures in sales with pure-play eCommerce business models and doing very well in the bottom-line department too.
These companies that achieve pure-play nirvana, defined by scale AND profits, are just too damn rare to make them the watermark for commerce. No extreme should ever serve as the standard.
What’s the Mostly Likely Path to Success?
That then begs the question, what is the most likely path to success in commerce? Well, first we need to define success in the context of commerce, and for me it encompasses a few things…
Three words. They seem harmless enough on their own but when you try and build a pure play eCommerce business that has all 3 characteristics their weight becomes noticeable.
Let’s break them down so you can see why pure play eCommerce companies are so difficult to create and grow.
This is, really, the financial goal of any for-profit business. If you aren’t generating profits then you simply won’t be around for very long.
You can certainly build a profitable pure-play eCommerce company, but unless you have a very proprietary product (i.e. – hard to knock off) than those profits won’t last very long as there will be fast followers eating your margin.
If you don’t have high margins, then achieving profits in a pure-play eCommerce business becomes damn near impossible since the cost of customer acquisition is extremely high online. Most at-scale pure-plays have very high lifetime value customers and they make their money mid to long term instead of off that first order.
Now, if you do everything right and you have high-margin products, you can enter the pure-play nirvana club. This likely means you’ve taken the time and invested the money to build a very strong brand in a narrow niche. I’m not going to get into what makes for a strong brand in this post.
Predictability comes from leverage and leverage comes from having the right tools, systems and people deployed and working in the business at the right time.
Without a predictable business we are left scrambling in a reactionary state of operating too much of the time instead of doing what entrepreneurs and leaders are supposed to do…see around the corner.
Creating predictability comes from creating a great machine (tools, systems, people).
Predictability gives us freedom to think about that venerable “big picture”. We need predictability to think about how we create a great brand that can sustain those profits over time. That’s the mark of a great business!
Once you have the profits and some predictability, you need to think about sustaining these profits over time. This is so much more difficult than it seems, especially when you’re riding high on some short term profits.
Possibly the largest group of people mistaking short term success with building a business are the private-label Amazon marketplace sellers. This has been a bit of a fad of late and is indicative of how “easy” many people think building an eCommerce business really is.
Sustainability then comes from using the profits to re-invest in building an even better machine, creating more predictability and ultimately more profits through either growth of the business or optimization of the business.
If Not Pure Play eCommerce, Then What?
Given that brick & mortar retail is still such a gigantic part of the commerce world I think new merchants would be remiss to ignore it entirely.
I think it’s especially foolish to ignore the offline sales channels if you don’t have any good reason to other than your general dislike for them, which is what I hear most digital commerce entrepreneurs tell me quite frequently.
That’s right, the most common argument I hear against offline sales channels is that they are “old”. Instead of seeing these channels as platforms to create leverage, many eCommerce entrepreneurs are dismissing them as dead or dying. While this might be true in many cases (look at the news to see retail closing doors), there are still mountains full of opportunity in offline commerce.
Perhaps it’s my own limited social network, but I know far more successful commerce companies that have both online and offline channels than I do that have ONLY online channels.
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