Why e-commerce startups fail? if someone had an answer to this…
As a photography partner I interact with many e-commerce startups, I have seen many shutting the shop before their first anniversary, generally those who do not have enough money to hire talent, or those who do not have money to upgrade the inventory or purchase attractive inventory etc. This is understood, because it is rare or almost impossible to get a finance from banks or lenders to run an e-commerce business.
But I was wondering about the failure of the companies who get a decent amount of money to run the show. I saw 3 such companies in last few month who brought down the shutters for ever. I might not understand the core reasons, but few observations below.
- The employees of the startups struggle to demonstrate excellence. They often make it a personal playground to show the ultimate of quality, accuracy and performance. However what they do not understand that they eat up unreasonable time in this process, pull the expensive resources, make things difficult for vendors who then loose interest in serving you. Making a good cup of coffee should not be a big challenge, but what if some one says let’s make worlds best coffee? for which you will need the beans from Cuba, sugar from Switzerland milk from Holland.Fashionara.com which is closed down recently, I was in their Bangalore office to pitch for a contract of photo shoot, when I reached to their photo studio, I saw that their studios are restricted even for the vendors for entry, “Our photography process is secret.” said the Ops head. With my experience of setting up the Photography process for sites like Myntra.com and Flipkart.com and with the exposure to the studios of Jabong, and Amazon.in I do not think that there is anything which needs to be kept confidential in photography dept; except for the costings. Fashionara closed after burning 120 crores approximately. They struggled for months to setup that secret Photography studio and save few thousand.I know a dozen of e-commerce sites made their photography the world’s most difficult photography to achieve. The reference they take from multi billion dollar sites and spend lakhs on experimenting. Finally they come back to earth anyways but after burning huge cash on R&D.
- One more startup with a funding of a couple of crores of rupees – I am not going to take the name here – closed the doors early this year, had an absolutely pathetic design and the tech infrastructure. I was shocked to know that they spent over 90 Lakhs on the design of the website. which could have been developed with less than 2 lakhs. This non-sense could have been prevented if the management had taken a second opinion, just like we do with the expensive medical treatment.
- One of the startups could not even acquire few hundred buyers in a whole year, even after paying 6-8 lakhs/month for over a year, on digital (Google adwords- the only digital they understand). This could have been avoided by giving the digital to experienced agency or a consultant. There is no reason that you can not acquire enough customers for reasonable cost irrespective of your domain. Digital marketing is a smart game and you need the right team to play it. If you double up your accounts team to play google adwards the disaster is guaranteed. There are 100s of channels for Digital marketing to suite to every budget and objective. All you need is to take help from a right person or company instead of doing it yourself by reading a blog.
- Politics among the teams – This is a reality in almost every startup. I have seen that many of the startups encourage the competition among the teams, which leads to politics in the company. This results into a rain of resignations – those who can not sustain the political moves within the teams press the eject button. And you always loose the best talent, best talent can not sustain office politics. I have seen the high command seeding few employees as spy in the organisation, which is not required, it is easy to measure performance with other standard techniques than vigilance.
- Running behind the VC funding – Remember your chances of getting the VC funding are dependent on the customer acquisition and not on the idea. There is no magical idea in this world that can attract a VCs, but few happy or excited buyers can open up the gates of VC funding instantly. Therefore if you spend money on the customers it self it will gain value to your site, offer the discount, offer free shipping, offer rewards, offer surprise gifts. Look at the point number 2 above – the company wasted 90 lakhs on the design which was worth only 2-3 lakhs, what if they had spent that money on customers itself.
- Inventory – Many startups purchased the inventory for whole year, basically to save the money by buying the bulk. Wrong move —- the dynamics of your business are so unpredictable that you can never predict what kind of inventory you will be selling month on month. You might start with shirts but after 3 months you may find that t-shirts are in demand among your customers or vis a versa. Therefore buying a huge inventory is a wrong move.
- Trying to be or trying to look the best in the world. You can not spend on a Maruti car and try to make it look like Rolls Royce. Let your site look like a small site, small company. With 100 products on your site you can not look like Flipkart, but with 100 products without looking like Flipkart you still can book profit and get a VC. But because of this obsession to look like Flipkart or Amazon you keep on dragging your launch by months, with your expensive fuel.
- I had a client who was so excited with my PPT, that the very next day he sponsored my air tickets and hotel stay and called in a meeting. Everything was OK, at the end of 2 hours long meeting, I received the cheque as advance payment too, within a week I presented the designs, he liked one and I started working on the code. When I finished almost 80% work, I received a call and a suggestion to make the site like Nestle. (Nestle is a world leader and my client was a startup-compare the pumpkin v/s mustard seed) To retain this client and maintain good relations I started working on look-a-like Nestle site. After a few weeks when I finished assembling the site, I received one more call to make the design to look-a-like ICICI Bank site. I refused and it’s been 3 years the site is still having under construction label. I hope you understand what I mean to say.
- Burning money on advertising – Lets take one of the best newspapers in the state, with a readership of a 2 crore, meaning 2 crore people will read your ad, if you take full front page, If you publish a full page ad in the best news paper with the above calculation, you might get at least 50 lakh hits and at least 10 lakh buyers. The ad will cost you 10 to 12 lakhs. But hold on; in reality you might not even get 5000 hits and 1000 buyers or even less. Now what is this silly calculation? this is not a silly calculation this is reality. Silly is the calculation or assumption.Never do the maths about media yourself unless you have experience of buying media, The same goes for digital, electronics ie TV, and Radio, spend some money on a good consultant who may save you lakhs of rupees and give you a better media plan. Indian startups spend 100s of crores on wrong media for wrong products and burn the cash. Media buying and managing is an expert’s domain, you can not discuss it with your team in a board room and take decision just because you all read news papers and watch TV – get the expert to do the job.
- You are an expert of garment industry or a topper in finance, that does not guarantee success in e-commerce. Respect the domain expertise of individuals, from a driver to the CTO. Do not force people to follow your idea, give them a chance too. The reason I am saying this is that I have seen startups where the founders are not less than dictators. But finally they shut down the store.
- One of the startup which is bad shape and going to shut down soon – the boss comes to office at 11:30 am, the staff comes at 10:30 to 11:00 am, them a bunch of people go out for a smoke or a coffee, and come back to the desk at 11:30, 12:00. At 2:00 people are out for lunch only to come back at 3:30. Sounds funny but a reality. What can stop you from going bank corrupt if this is the way an organisation works.
I believe that the e-commerce ventures need not to sink as a thumb-rule. Probably 1 out of 1000s of startups get funded only to realize that it was a wrong choice of investors. Many deserving small businesses do not get a penny to move forward. The dot com startups should respect that.