Challenges of Owning an Ecommerce Business: Low Margins and Marketing Fallacy

– The author does not believe that owning a physical product-based ecommerce company is a worthwhile scalable business due to low margins and overhead costs.
– The author prefers to use their skills to build a portfolio of assets that can fuel growth for multiple companies simultaneously.
– Scaling ecommerce businesses requires significant investment and does not guarantee profitability due to increasing costs, decreasing results, and intense competition.Invest more time in better data collection, testing, and optimization for ecommerce businesses.Although I work with e-commerce companies, I would never want to own one. I don’t think a physical product-based company has high enough margins 99% of the time to be a worthwhile scalable business. That doesn’t mean we shouldn’t work together if you are an e-commerce company; it’s just not a business structure that I would choose for myself personally as a stand-alone company without massive margins and vertical integration. Even then, I’d still hate it for overhead reasons. I’d prefer to spend my skills building a portfolio of assets that can fuel growth for multiple companies at the same time. That’s me though, one to many, not one to one.

Is there a market for starting a bunch of smaller e-commerce brands with US-sourced products and getting them to $1-$3 million in revenue at 30% margins and flipping them for an exit with a lot of automation? Yes. Should you try to build a brand to a massive size today, right now? Maybe, but odds are you won’t be profitable, and the unit economics simply won’t work out like you think. The problem with scaling these businesses hard like that is that you have to spend a lot of money to do so. The other problem is the “marketing fallacy” that we’ve convinced ourselves of, where spending more money equals more revenue and subsequently more profit. That’s not the way these things work. So when you spend more money to drive more revenue, your costs go up across your entire business. You need to order products more often, spend more on ads, hire more people for support, and the list goes on. All this while facing increasing ad costs, decreasing results, and more competition than ever before. Sooner or later, people might wake up and realize that the game is essentially rigged against them for most e-commerce companies, as the unit economics just don’t match. Until then, I’d invest a lot more time in better data collection, testing, and optimization.

For all my friends trying to build and flip brands though, there are much smarter ways to make money that don’t require you to swim against the economic current. Also, more people had jobs rescinded, and tech is cutting back everywhere. Although people think this will create a talent pool, the reality is it’s the canary in the coal mine for a lot of smaller businesses that don’t have the insane margins that tech has. Good luck out there, let me know when you want to start your one to many journey, I’ll be here for you.#ecommerce #marketing #customerjourney

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