Online business and e-commerce are soaring, but it’s still a challenge to launch and grow an e-business — as two local startups explain.
From the pages of In Business magazine.
It shouldn’t really come as a surprise that online business is big business these days.
According to AdWeek, in 2014 more than $1.2 million in revenue was generated by e-commerce every 30 seconds.
You read that right — $1.2 million every half a minute. Nearly $1 million of that came from desktop sales, while $269,683 was generated via mobile purchases, a number that has only grown in the past two years.
Where’s that money coming from? A total of $684,669 was spent on credit, debit, prepaid, and store cards, while $516,504 came in the form of alternative payments.
In that same 30 seconds, Amazon accounted for almost $100,000 all by itself; eBay did $74,423 in business, and Apple processed $17,803. Social media got in on the fun, too. Facebook ($5,483), Pinterest ($4,504), and Twitter ($4,308) each generated sizeable sales every 30 seconds.
In 2016, the money continues to pour in.
The Census Bureau of the U.S. Department of Commerce notes the estimate of American retail e-commerce sales for the first quarter of 2016, adjusted for seasonal variation but not for price changes, was $92.8 billion, an increase of 3.7% from the fourth quarter of 2015. Total retail sales for the first quarter of 2016, in-store and online combined, were estimated at $1,183.9 billion, a decrease of 0.2% from the fourth quarter of 2015.
The first quarter 2016 e-commerce estimate increased 15.2% from the first quarter of 2015 while total retail sales increased 2.2% in the same period, according to the Census Bureau. E-commerce sales in the first quarter of 2016 accounted for 7.8% of total sales.
InternetRetailer.com reports that the upward trend in e-commerce sales won’t end anytime soon.
By 2018, the web will account for 11% of total retail sales, the online e-commerce tracker notes. U.S. e-retail sales are expected to be upwards of $414 billion in just two more years.
Sucharita Mulpuru, an analyst for Forrester Research Inc., an independent technology and market research company, told InternetRetailer.com back in 2014 that increased mobile device shopping by consumers is what’s largely propelling the e-commerce growth. According to Mulpuru, younger generations are also more likely to spend a larger share of their retail dollars on the web. In fact, of the 69% of U.S. adults who regularly buy online, as much as 16% of their purchases are generated on the web.
Mulpuru also says aggressive marketing, pricing, and customer acquisition strategies by e-retailers will only bolster online retail growth.
With that much money going around, it’s no wonder so many small businesses, startups, and entrepreneurs are opting to run their businesses online rather than through a traditional brick-and-mortar storefront.
Of course, just because people are spending more money online doesn’t guarantee instant or sustained business success.
Rapid growth in e-commerce does pose challenges for online retailers. Mulpuru notes that e-retailers can’t ignore site performance and execution, as online-savvy consumers won’t hesitate to look elsewhere if they have a bad digital experience with a company.
Making it work
For Linda Remeschatis, owner and president of Verona-based Wisconsinmade.com, an e-commerce specialty food and gift store, getting in on the ground floor of the e-retail revolution seems to have helped.
Wisconsinmade.com launched in November 1999 and never operated as anything but an online business. The company has grown significantly in the past 17 years. “We began with just 35 products and now present over 2,000 items made in Wisconsin,” notes Remeschatis. Additionally, Wisconsinmade has more than 24,000 newsletter subscribers and 75,000 Facebook fans.
“Our focus is on products produced by the artisans here in Wisconsin,” Remeschatis says. “The food, art, books, music, and items for your home and garden are all made by local artisans.”
Had the company decided to open a true retail storefront, it would have been a duplication of what its artisan partners already do, she explains.
With an online model for artisans, Wisconsinmade.com carved a niche.
“Many of the small artisans we started with already had a physical location. We offered them the opportunity to broaden their markets beyond a small regional presence.”
By filling a void in the market, Wisconsinmade created a niche for itself, something online retail experts agree is key to sustaining e-commerce success, especially now that consumers have almost limitless online retail options available to them.
Amazon, for instance, has broadened its product line beyond the books it started with, explains Remeschatis, so e-retailers must provide a product or service consumers can’t get anywhere else if they want to survive in today’s online marketplace.
An inherent advantage online stores possess over their physical peers is that they’re open 24/7/365, and not just to local shoppers. “The shopper finds this very convenient,” says Remeschatis. “Traffic, parking, checkout lines are no longer an issue, and gifts can be sent directly to the recipient. No need to box them up and take them to the post office.”
Of course, some customers still prefer to see and touch products prior to purchase, and competing with that tangibility is always at the forefront for online retailers, Remeschatis notes. “We use a number of marketing channels to reach out to customers but the most powerful is still the word-of-mouth referrals from our satisfied customers. Customer service includes the convenience of prompt delivery of the specific products they are looking for and eliminating some of the day-to-day claims on everyone’s time.”
One area where Remeschatis doesn’t see a big difference between online and brick-and-mortar retailers is operating costs.
“Online businesses incur costs that are not incurred by physical stores and vice versa. While the cost structures may be different, I do not believe in total they are materially different.”
Hitting a wall
Unfortunately, carving out a niche isn’t always as easy as it was for a company like Wisconsinmade.
QuHarrison Terry and Ryan Cowdrey found that out the hard way this year when their local startup 23VIVI, which launched with a lot of promise in February, fizzled out just a few months later and had to be shuttered.
23VIVI offered unique technology but faltered due to a high burn rate.
23VIVI was an online digital art marketplace conceived by the two 20-year-old former UW–Madison students that allowed digital art collectors and fans to purchase digital art pieces that they could call their own, just as if someone were to purchase a traditional oil-on-canvas painting that then only they would own.
While there are a variety of websites already selling digital art (Artsy is among the largest), what set 23VIVI apart was its blockchain authentication technology.
The blockchain is a form of encryption that can protect any digital asset, from currency to art. Terry and Cowdrey say this differentiated 23VIVI because collectors and artists could prove provenance of a digital masterpiece and people understood that they were actually getting an original.
“In the art world, it is a huge deal to collectors that they get an edition that was actually created by the artist. With the implementation of blockchain, we can now prove that for digital creations,” Terry explains.
As good a concept as the two had, however, it couldn’t overcome a crucial element — funding.
“Finances are critical to survival,” says Terry. “I think that is why ‘burn-rate’ is such a prominent word in startup culture.”
Burn rate is the amount of cash that a company consumes each month in order to continue operations. In other words, if a company has a burn rate of $100,000 and $1,000,000 in cash on its balance sheet, it has 10 months to live if no other revenue is factored in.
“We had the right team, we had the right vision,” notes Terry. “When we look at the digital art industry we love what wydr [a Swiss-based art-buying app] is doing by utilizing technology to disrupt the art industry. Also, what LG is doing with Acanvas to expand digital art’s audience. We didn’t really succeed [because] we couldn’t [gain] traction fast enough. That led to us eventually running out of money and having to figure out new roads to recovery.”
Asked if the pair’s decision to withdraw early from gener8tor, Madison’s local startup incubator, might have been shortsighted in light of 23VIVI’s demise, Terry is pragmatic.
“We don’t really regret leaving gener8tor. Ultimately, our visions were misaligned, which is something that happens all the time in business,” he says. “HP would have made its own Apple-branded iPods if their visions aligned perfectly and Nintendo would have made the first PlayStation if the company could have come to terms with Sony. It’s just business at the end of the day.”
Cowdrey acknowledges there are things online retailers need to do to differentiate from physical retailers while also still catering to consumers who appreciate a physical experience.
“First and foremost, you must let your true self shine through in your emails,” Cowdrey explains. “Meaning, don’t change up the verbiage or vernacular you use. Make it feel like your customers are at a storefront talking to you. Above all, constant and personalized communication makes your customers feel comfortable.”
There were times, Cowdrey explains, when 23VIVI sent individualized emails to all 80-plus of its customers. “As a result of that personalization and genuineness though, we got feedback all the time from our customers telling us that they were ecstatic when they got a new email update from us and couldn’t wait to read them. It sounds corny, but it’s the truth.”
For Terry, running out of money and having to shut down the fledgling business only months after starting was humbling but also a learning experience.
“I learned not to underestimate the burn rate,” he says. “Prior to 23VIVI, I ran a business that didn’t really have a constant burn rate, so I thought we could be flexible with our burn. Obviously that didn’t work out the way I planned. After throwing $20,000 of my own money into the company I realized that we would need a better plan if we truly were going to bootstrap 23VIVI. That was a very important firsthand experience because now when we start on projects the first thing we talk about seriously is how will this make money?”
If anything characterizes entrepreneurs and the mentality of online business owners, it’s resiliency.
“As a duo we are very fortunate to have met each other 18 months ago and cultivated a great friendship,” Cowdrey says of his business partnership with Terry. “We make a helluva team. We will continue to work together on projects as they pop in our head, while working independently to cultivate and improve on skills that we each feel are relevant to our own future. As for exactly what’s next on the horizon … well, maybe it’s best if you add our names to your Google Alerts.”
“We definitely have some even crazier ideas that we are working on, but the first priority at the moment is paying off debts,” Terry adds. And then with a chuckle, “[You] can’t make the dream work with no cash in the bank.”
Click here to sign up for the free IB ezine — your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.