26Oct 2021

Why Do Most Online Stores Fail in First Year and What You Can Do to Avoid It

Businesses are not the easiest to run. In general, about 20% of small businesses fail in the first few months of operation.

This is according to the US Bureau of Labor Statistics. About 50% of companies fail by the fifth year, and only a third survive by the 10th year. As serious as those statistics are, they are nowhere near those online businesses.

Multiple studies, including a survey by Marketing Signals, indicate that 90% of online businesses fail in their first four months of operation.

A whopping 90%! This is in sharp contrast with statistics on physical stores. According to Small Business Administration, only 22% of small businesses fail in the first year.

Why is there such a mind-boggling failure rate for online startups? What can you do about it? 

Top 10 Reasons Why Online Businesses Fail

There are endless reasons why the failure rate is high. Some of these reasons are based on market needs. Other causes are dependent on how the business owners execute their strategies.

Some of the top reasons why online businesses fail include the following.

  • 37% of online startups fail due to poor online marketing strategies
  • 35% fail because they do not have online search visibility
  • 35% of businesses also fail because there is no market need for their product or service
  • 32% of businesses run out of cash
  • 29% of startups have issues with their pricing and costing strategies
  • 23% of online businesses are outcompeted
  • 19% of online businesses wake up to discover that retail giants already dominate the market they are trying to penetrate, and customers are unwilling to give newcomers a try
  • 16% of these businesses close down because they are not good at customer service
  • 14% of online startups do not have the right team
  • 11% of online businesses fail because of poor timing when entering the market

For online businesses, online traffic is key to making sales. Unlike physical stores where people passing by can walk in and purchase, online stores cannot sell unless visible online.

This means that the business ought to have a targeted and strategic approach to its online marketing.

Failure to which only family and friends will know about the company may not necessarily be the ideal clients for the products or services.

What Online Businesses Can Do to Succeed

what-an-online-business-can-do

Although the failure rates for online startups are high, the situation isn’t entirely unsalvageable. There’s a lot you can do to be among the 10% of businesses that succeed. 

Investigate your market

It is admirable that you have a brilliant business idea that you can execute online. Now, look at the market you wish to thrive in. Does it need your products or services? Is it saturated? Can you manage to break in?

The easiest way to break into a market is to identify a gap or a problem then solve it. If the problem already exists and people are already looking for a solution, you have a ready market. 

If you are offering something that doesn’t solve an existing problem, you may need to work hard. You will need to convince the customers to spend money on something that they think doesn’t add value to them.

Study the market you wish to operate in. Identify your competitors (direct and indirect). Research thoroughly on how to gain a competitive advantage over them.

If you do not have the correct market research information from the start, you are likely to fail.

Develop a business plan and strategy

develop-a-business-plan

Keep it as realistic as possible. Outline all aspects of the business and how you will handle them.

Figure out all the likely costs associated with the company and outline how you will meet these costs until the business breaks even and starts being profitable.

Define the timelines for each business element and outline strategies that will be implemented for optimal business operations.

Figure out the skills you need and how to get them to the business. You can take up courses or hire skilled people to run specific business operations.

A business plan should include the following:

  • A clear outline of your unique value proposition. Outline the products and services to be offered and how different they are from what is available in the market. Outline the prices, the processes involved, the technology to be used, and the skills to put it all together.
  • A well-researched market analysis that outlines the business strengths, weaknesses, threats, and opportunities. The research should also outline consumer demand for the products and the alternatives available in the market.
  • A marketing strategy that clearly describes how the business will create its brand and market its products or services. The strategy should also show how the company will attract and retain a customer base. It should outline the distribution channels to be used and the marketing campaigns that will be run.
  • A financial plan shows how much money will be needed to run the business to the breakeven point and where the startup money will come from. It should also show future projections. Be sure to keep financial records as they come in handy when looking for investors.
  • Operations plan as well as a budget to show how the day-to-day operations of the business. This plan should include an estimated number of employees needed, their skills and competencies, the key performance indicators, and operational timelines.

Plan the finances of your online business

plan-the-finances

A well-done business plan can be used as a tool to raise funds. You should know where the money in the business will come from and where it will go down to the last cent.

It would be best to have a contingent funding plan in case of a financial crisis, or the business fails to pick up according to plan.

Keep track of and plan for expenses, taxes, cash flow, and other monetary requirements. You can use professional financial records software to help you keep track of the cash flows.

Plan well for growth and expansion needs in terms of funding and building teams.

Keep your customer records safe

Novice business owners often struggle to keep their customers’ records safe. Some of them don’t even realize that they’re obligated by law to do so.

Any information given by a potential customer to your business even over the internet should be protected.

One way of doing so is storing that information on devices that are separate from the ones you use on a daily basis, only retrieving the data when you need it. You should also have several secure backups.

In addition, ensure that you keep your systems updated and access restricted to a handful of employees on a need-to-know basis.

And in situations where your business no longer needs, say, the credit card information of a certain customer, there should be working protocols in place to destroy those details.

Level up your digital marketing

Yes, it would help if you were visible online. It sounds like a no-brainer, but you’d be surprised at the number of businesses that lack a solid online marketing strategy.

Have you done everything you can to ensure that you can be found online by your target market?

Well, for starters, you need to optimize all your platforms for visibility. This means that you need to fill up your online platforms. Use key phrases that your target customers would use while looking for what you offer.

Additionally, you can do the following.

  • Increase your authority and visibility online through organic search engine optimization
  • Create and manage optimized paid search campaigns for maximum returns
  • Revamp your marketing content for improved engagement. Build a community

You can hire a professional digital marketer to handle customer service for your business. This includes post-purchase communications.

Keep in mind that all staff should be trained on excellent customer service. Outstanding customer service staff helps you to understand your customers.

With valuable market insights, you can give them what they need and are willing to spend on. The trick is to get your customers to give suggestions and feedback to improve your business.

Encourage your customers to review their experience so that other potential clients can see what you do.

Build formidable management and team

You might have everything figured out, but you are bound to fail if your management team isn’t great. Business managers are responsible for business strategies that ensure that the business penetrates the market and thrives.

They should be visionary, professional, and master strategists. Describe every role in the business and develop an accurate job description for each position.

Additionally, come up with realistic goals for each role, KPIs, and the appropriate remuneration. Getting the right employees can be daunting.

As such, you can hire professional recruiting firms to bring you the right people for the jobs. Get employees whose career goals align with the company’s growth trajectory.

Conclusion

Every business, startup or not, should always be prepared for a change in the market and business environment—the internet, and to the extent that the pandemic has shaken up businesses.

Today, new ventures have to be built to thrive through vulnerable, uncertain, complex, and ambiguous times.

There will always be new platforms, and new styles of reaching out to clients online should push businesses to adapt quickly to situations.

The mark of a successful business is to thrive through changes that leave other companies crippled.

For an online business, it is essential to learn how the internet works, how algorithms of various platforms work, and how you can use the algorithms to increase your visibility.

The more visible your business is, the more likely it is to make sales.

If your online business is not making enough sales, check your online visibility. Additionally, offer excellent customer service to each client you serve so that they come back. Be exceptional in how you deal with customer concerns.

Acodez is a leading digital marketing agency in India. Our services includes SEO, SMM, SMO, PPC, and content marketing services to ensure that your website’s rank among the top results on the search engine. We are also a leading player in the website design company India arena, offering all kinds of web design and web development services at affordable prices. For further information, please contact us today.

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Vipin Nayar

Vipin Nayar

Vipin Nayar is the Digital Marketing Head at Acodez. As a Social Media, SEO & SEM expert with over 8 years' experience in online marketing, he uses his keen insight into customer behaviour to formulate innovative strategies that helps clients enhance their online presence & open up new business avenues.

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