The early 90s were all about dotcoms. Many launched, most crashed, a palm pilot full remain.
Even today, nearly a quarter-century after the term e-commerce began to make its way into the public’s vernacular—when more consumers than ever are shopping online—the Internet is littered with dead URLs, casualties of failed business plans, bad ideas and common mistakes.
Over the past decade, many once-ballyhooed dotcoms continue to fail. Flooz.com, which raised more than $50 million to create online currency; Pets.com, which burned through more than $147 million in its first nine months; and a slew of smaller companies that gave it a go but went nowhere.
The good news for you is that their losses can be your gain.
Business experts, scholars and entrepreneurs have been studying e-commerce sites that fail and they discovered that most make the same five common mistakes.
Mistake Number One: Jumping the Gun
The problem with a lot of dotcom startups is that they want to hit the ground running with big, giant strides. This is an admirable goal. After all, the faster you can sprint to market, the sooner you’ll turn a profit.
The reality, however, is that baby steps seem to be the best way to grow an e-commerce business.
Most dotcoms that fail to cross the finish line do so in glitzy offices, surrounded by too many employees and holding retainer bills from high-priced law firms, ad agencies and caterers.
The Takeaway: Pace yourself. Make sure that a clear business case can be made for every expense. Acknowledge that there will likely be some lean years initially and don’t overextend your finances. When it comes to getting your business off the ground, it’s better to view it as a marathon, not a sprint.
Mistake Number Two: No Revenue
When it comes to starting a dotcom, an idea that can’t be monetized is simply an idea—nothing more, nothing less. Unfortunately, a lot of people think a good idea automatically translates into revenue.
Most e-commerce companies that fail don’t have a revenue model. They don’t have a plan for creating several revenue streams, income or profit. In the early days of the dotcom, investors didn’t care so much about revenue streams. Profits, they thought, would materialize because the Internet was fresh, new and exciting. They got burned. Now they won’t likely invest unless they know that there will be revenue streams.
The Takeaway: Run the numbers. Do the scenario planning exercises, market research and don’t start your dotcom until you know exactly where the revenue will come from. That’s how you will secure investors.
Mistake Number Three: No Way Out
Investors like to know how they’re going to get their money back out of your company. Maybe not right away, but eventually.
Dotcoms that fail, often fail to have an exit strategy. They often thought they’d start their business, roll in dough and never look back. Investors, however, had other ideas. They wanted a return on their investments and when they weren’t getting it or seeing that it would be there—many pulled their financial support, essentially dooming the companies.
The Takeaway: Have a plan, whether to go public, get acquired by another company or bring in new investors who can buy out your initial investors. Make it part of your mission and stay true to it.
Mistake Number Four: No Marketing Plan
E-commerce isn’t a field of dreams. If you build it in that manner, there is no guarantee anyone will come.
Too many dotcoms thought they could simply launch a website, offer quality products or services, sit back and wait for the people to click by. These companies are now gone.
The Takeaway: Make sure you have a solid, well-thought out marketing plan in place to promote your business. Think advertising. Think search engine optimization. Think social media. Think public relations. Think events. Think outside the Internet to drive people to the Internet.
Mistake Number Five: Valuing Form over Function
Want to know why Amazon.com is so successful? It’s the world’s top e-commerce business because its technology works. The same cannot be said for the myriad dotcoms that failed.
Too often, people think that simply putting together a website with the latest bells and whistles will work. And it can, but only if it values function over form.
The average visitor to a website decides whether or not to click in eight seconds. If the site doesn’t work for them right away, they’re gone.
The Takeaway: Don’t use technology for technology’s sake—use if for your customers.