Getting into ecommerce has been one of the best educational experiences of my life. The things I've learned by actually starting a business would be challenging to find in an MBA or any business course.
With that said, the lessons I've learned were all born from mistakes I made. Each mistake sets you up to do better in the future as long as you reflect on what you could have done differently. I’d like to share some of my missteps with you so you can hopefully avoid them and succeed even faster.
Mistake #1: Rushing the math
If you ask any seasoned entrepreneur what the most important skill in running a business is, it’s math. When I started out, my business was like a hobby for me, so I didn’t create a detailed business plan or pay as much attention to the math as I should have.
As a result, I ended up in a niche that had good demand but not enough revenue potential to make it worthwhile. The products I was trying to sell were very cheap, and I had to sell way more than I forecasted to be able to make decent money.
Business math is very simple. To see how profitable your business can be, use this formula: Profit = Demand * (Revenue - Expenses).
To break this down, let’s assume altogether there are 20,000 people that are searching for your product (I’m using such a generous assumption to account for the main keyword, as well as some long tail keywords).
Assuming you can put yourself in front of even half of those people, that’s 10,000 potential buyers. If you convert at the average of between 1-2%, that’s 100-200 sales. If your average order value is $100, and you have a net profit margin of 30%, your profit will be anything between $3000-6000.
Of course, these are really rough estimates. But whatever you get into, if you’ve done the math, you know what you are in for. It took me two stores to learn the math lesson properly, because even though my second store had a very high average order value, the margins were so thin that I was barely making any money after factoring in costs.
Mistake #2: Not finding a gap in the market
Both stores I started were based on the dropshipping model. This meant that I was up against hundreds of people that would carry the same items that I was carrying.
Unless I could differentiate myself from them somehow, I’d just be a “me-too” store and I wouldn’t be providing any value to the situation. Not to mention you still have to compete with the likes of Amazon and Walmart.
With my first store, I just dove in, thinking it was a good niche, but without really researching any of my competitors to see what the market’s situation was. I failed to notice that the biggest player in my niche was just plain awesome. They had all the products I was carrying, hundreds of reviews, thousands of social likes, a popular blog, and tons of press coverage. They had every base in the market covered, and I still thought I could go up against them. Needless to say, the store was a disaster commercially.
With my second store, there was a big gap: not in terms of products, but in terms of information. I pounced on this opportunity and started doing my research, and managed to create a very comprehensive resource in my niche.
It’s not that the information wasn’t available elsewhere, but I presented it in a way that was easy to use and helpful for visitors. The result? With some search engine optimization (SEO) efforts, I managed to grow the store to 15,000 organic visits per month in a competitive niche.
The easiest gap to find is an information gap: you don’t need much of a financial investment, and your business’ worth will not only be that of your products and customer list, but of your content, too.
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Mistake #3: Spreading myself thin with products
My first store sold eco-friendly recyclable bags. However, since the bags weren’t selling very well, I slowly started adding other eco friendly products from my supplier.
Eventually, I had a whole medley of products, with no relation between them except that they were all eco-friendly. This would have been OK had my brand been something more general, but it wasn’t. While this didn’t directly hurt sales coming from paid traffic, it made it very difficult to appeal to a specific customer, and it also hurt our search efforts.
The error here was more of a branding error than a financial error, but building a brand is just as important, since your brand is what your business is actually worth.
Mistake #4: Not having a content plan
This was another mistake I made with my first store. I didn’t put much effort into content marketing, which made getting organic and social traffic very difficult, especially with something as innocuous as reusable bags. I rectified this mistake with the second store, which was built with content marketing as the foundation.
It’s difficult to write content for a boring niche.
Seriously, how much can someone manage to write about reusable bags, right? The key here (which I later learned) is to do content marketing not according to a product, but according to your customers.
Continuing the reusable bags example, who would potentially use reusable bags? Someone that was environmentally conscious, right? It’s also likely that they are into eating healthy, working out, yoga, and natural wellness. These are all initial hunches, but a little bit of research can confirm them.
By building your content marketing strategy around this ideal customer rather than around a product, you have a lot more to write about and a lot more ways to connect with your audience.
Even if your niche is very technical and you manage to write 50 to 100 articles just on the nuances of your product, that information will only go so far. To really round off your effort, you’d want to have more in common with your customer than just the fact that they are buying something you sell.
Mistake #5: Not thinking freebies through
Some businesses do very well with giving away a product for free. Since I was in the eco friendly niche, one such opportunity did fall in my lap.
Unfortunately, I misjudged the whole thing and took a loss on the entire project. I only made one sale from 300 samples that I sent out. Ouch.
Freebies, contests, and giveaways are an effective way to market a product, but they aren’t a good fit for every niche. Freebies would work on perishable or consumable products: skincare, foods, supplements and the like. For all other products—even if it’s something that someone could order another one of, like a piece of clothing—it’s very hard to make work.
What I learned from that expensive experience was that these gimmicks don’t really drive sales; they build a brand. And to build a brand, you need to have a plan.
Mistake #6: Running a contest without a plan
Reeling from the freebies, I was still looking for effective ways to market my bag business. I decided to run a contest with a blogger. I figured we could pick up a few links and social shares, and I’d also increase my social media following and email list.
This time, I was more prepared financially, as the prize offered was just a $50 gift certificate. The result? I nearly tripled my social media followers, and the contest turned out to be a hit.
Or was it? Since I had already made mistake #4, I didn’t have a content plan to follow up with all of these social media followers.
The trick with social media is that you have to engage your followers from the get-go. Find content to share every day. Put out your own content on a regular basis. Start conversations. Be helpful. Who would have thought Facebook and Twitter could be so much work. Eventually, to all my followers, I was forgotten. Another lesson learned!
Next time you plan on running a contest, make sure you plan for the aftermath of the contest. That planning could end up being far more valuable than the contest itself.
Mistake #7: Wasting too much time with menial tasks
In economics, there is a concept of opportunity cost. Essentially, when you choose to pursue any one opportunity, the “cost” of that to you is that your time is no longer free for other opportunities. So the cost of one opportunity is actually every other opportunity you have.
If you are bootstrapping your business like I was, chances are you did everything yourself. You set up your online store, you tinkered with it, you uploaded products, you wrote all the descriptions, you did all the marketing. A spectacular one-person show.
The problem here is that while doing everything yourself is great, it’s also incredibly time consuming. This is time you could be using elsewhere—spending it with your family, cooking up new ideas, or building business relationships, just to name a few.
Menial tasks come in two varieties: necessary and unnecessary.
You want to try and automate as many necessary menial tasks as possible. This process will cost a bit of money, but the headache and heartache you save typically outweighs the money you’ll spend. Besides, you can often find people that will gladly do these tasks (inventory uploading, data entry, etc.) for you for a reasonable sum.
Unnecessary menial tasks have to go to the chopping block. By unnecessary, I mean things like spending too much tinkering with your site’s logo, fiddling with a few pixels in image size, going into unnecessary detail about the color of a button, or some other minor change that probably you alone have noticed.
Some of the things I mentioned above can have a positive effect on your conversions, but you’ll only know once you have a lot of visitors and sales to compare it to. In the early stages of your business, you want to avoid those things.
Especially since after two hours of tinkering, you’ll feel like you did a lot of work, but realistically, your time could have been better spent.
Mistake #8: Not knowing who my ideal customer was
This was a mistake I learned from after working my first online store, but that I still made missteps around when working on my second store.
Doing quality niche research comes in two parts: finding a product and knowing your customers. The tricky thing here is that you can have customers and then build a product, but it’s very difficult to have a product and then hunt for customers.
Most of the conventional wisdom says to look at numbers and analytics when researching a niche, and that’s absolutely necessary, but a crucial step I didn’t do was to find an ideal customer and build a customer profile.
Even if your niche has sufficient demand and a good selection of products, without knowing your ideal customer, it will be a lot harder for you. That’s what happened with my second store. I did have very good months, but I wasn’t targeting my customers enough and because of that, I probably lost out on a lot of sales.
If you dig deep enough, you will find that niches have niches within them. The more you can target, the better, since it will be easier to identify with your customer’s needs.
I sold fairly complicated electronic equipment on my second store. Even among the myriad selection of products in my niche, there were levels: some were less complex, some were in the middle, and some were very advanced.
My store listed all three types, but in retrospect, had I focused on just one type, I could have connected with my customers even more—and I wouldn’t have found it so hard to network with the right influencers, either. My situation was something of “too pro for the newbies, and too newbie for the pros.”
Mistake #9: Not having a solid marketing plan
“Fail to plan, plan to fail,” or so the saying goes.
When you set up an ecommerce website, and you know who your customers are and where you can find them, setting up your marketing plan should be easy. Unfortunately, since I didn’t know either of those things, my marketing plan was more of a “spaghetti-on-the-wall” plan. I’d be doing one thing one day, and something else another day. Not the best of ideas.
While every ecommerce store should have a well-rounded marketing plan that covers all bases, some channels will obviously be more effective than others. Some businesses will do better with pay-per-click (PPC) advertising, while some will shine with SEO or social media. Email is a steady sales channel, too.
Whatever your plan is, make sure it is in place from the time you launch. New opportunities will naturally arise, but your foundation, if strong, will allow for steady and scalable growth.
Mistake #10: Falling for PPC company sweet talk
When your business is fledgling, it’s easy to see every service and software as a silver bullet to your problems. I can’t even count how much time I must have spent browsing through site after site, looking for the solution to all my acquisition problems.
Then one company caught my eye. It could have been any company, really, but for me, it was that one. It was a little costly, and would severely hurt my bottom line if it didn’t work out, but the appeal of their marketing videos and the extraordinary results they were showing from other clients pulled me in.
Then I had a call with them, in which they convinced me that they could turn my business upside down and it would just run on autopilot.
I couldn’t have been any more wrong. The results? I was stuck in a 6 month contract that cost me a good chunk of cash, and any sales that I did make during that period were from my own SEO efforts—not a single one from pay-per-click (PPC). Please note this is not an attack on that company! I’m sure they are good at what they do, but it was my mistake to see that the niche I had chosen was not a good fit for their solution.
Pay-per-click companies that I’ve come across have two pay schemes: a) they charge a fee, and out of that fee, they will use a fixed amount towards your ads, or b) you can spend as much as you like on ads (above a fixed minimum) and pay them a set percent of your ad spend on fees.
With scheme (a), you as a small business will throw a lot of capital into just paying for the service without getting much return, and with scheme (b), you need to have a large budget to start with.
If you dropship like I did, it’s going to be very tough. A friend of mine was using the same service and he made some money, but it was nothing close to something to live off of. If you manufacture your own products, or source them in such a way that you have very comfortable margins, then and only then can you even consider going this route. Many companies are wildly successful with PPC, but it’s just a matter of getting your numbers right.
What I recommend to new entrepreneurs
With all of those mistakes laid out, you might be wondering: How do you know you’re on the right track? No one can predict the future for you, but to help in some small way, here’s a shortlist of the hard but worthwhile work you should do to successfully launch and run an online store:
- Research your niche: is there demand?
- Know your customers: who exactly are you solving a problem for?
- Find a gap in the market: is there some value you can add, or are you just a me-too store?
- Have a marketing plan in place.
- Avoid wasting time with distractions.
- Think twice and thoroughly vet any company you work with, and avoid anyone that “guarantees” grand promises.
- Use a nice, clean design that you don’t have to tinker with.
And last but certainly not least: persevere!
Editor's note: A version of this article was originally published on July 10th, 2014.