Those that keep you awake at night are probably the least understood — or beyond your control. A key to business success is to mitigate your risks by better understanding the issues and how you’ll react to them. If nothing else, you might sleep better.
The Business Aspects of Ecommerce
For this report, I will examine two unique varieties of risk and how you can leverage them to create a better business. I will call them”operational risks” and”assumptive risks.”
In case you have an established company that’s working smoothly, you still have dangers that could slow your growth or halt your earnings. All these”operational risks” are present and often beyond your control. They could include the following.
- Search engine optimization hazard. Google changes its search engine algorithms and your site traffic drops by 50 percent overnight.
- Hosting risk. Your site hosting company suffers a string of failures and your shops are offline for hours.
- Price competition risk. Your biggest competitor drops prices by 30 percent and your earnings suffer.
- Provider risk. Your top-selling product line is pulled out of the market and you’re faced with a massive loss of revenue.
- Transportation risk. A container load of merchandise from an overseas supplier is stuck in customs due to a change in policy or a mistake in the shipping manifest — you have very little inventory to sell.
- Marketplace risk. You sell products on Amazon that it doesn’t carry but it abruptly sources the goods itself, at a far lower price.
In those cases, the risk isn’t something you can directly control. Market forces, economic conditions, competitive strategies, and governmental regulation may affect your company. Nevertheless, you can make contingency plans to mitigate the dangers.
By way of instance, if you’re heavily reliant on Google’s organic search traffic to your sales, ensure you recognize which keywords convert and put up AdWords marketing campaigns that use those key words and landing pages. In the event you’re influenced by an algorithm change, you can quickly turn on pay-per-click campaigns to stay visible to those hunting on your own keyword phrases.
If your competitors opt to reduce prices, you will need to be in a position to quickly respond. Consider how you might decrease your prices in reaction, or present a campaign to highlight your superior service, free delivery, or rewards program.
The purpose is to take some opportunity to recognize the operational risks that would most affect your company. Consider ways to mitigate the effect if any of these scenarios were to really happen. Be certain you prioritize. As soon as you deal with one kind of danger, move down the list and examine the next one.
If you’re a startup or expanding into uncharted markets or products, your risk can be found in the assumptions you use for planning your new enterprise. You need to make assumptions, as you have little if any historical data to draw on.
To get a new ecommerce company, your assumptive dangers will likely include:
- Estimated site traffic;
- Conversion rates;
- Average sales order size;
- Cost per purchase from advertisements;
- Operating costs;
- Gross margins;
- Market demand for your products;
- Cost and time to build your site.
As with operational risk, you must first recognize the assumptive risks you face and prioritize them. Instead of thinking about what to do if the results are different than your premises, you will need to check your assumptions as far as possible to confirm them.
There are a number of ways to test assumptions. First, conduct industry research to ascertain as much as possible about your competitors. You can use tools to take a look at their site traffic and how they invest in pay-per-click advertisements. You may research conversion rates for companies operating in a similar area.
You might also survey prospective clients or ask them to check a mockup of your site. If you’re selling one product or product line, you can test sales using different landing pages to track conversion prices. Do some surveys in Facebook or Twitter or other social networking channels.
Interview other ecommerce business owners in non-competitive spaces. Ask them about conversion rates, seasonality, what their average order size is and so on. You’ll find business owners keen to speak with you if they do not find a competitive threat. I learn something every time I speak to some other ecommerce business, even if I’m the one supposedly giving the insight.
My Startup Example
I am a co-founder of a startup that plans to develop and promote a consumer product on the internet and via alternative retail channels. We’re focusing on our business model, focusing on the industry and how our product fits into it. We think we know that the customer need and have a workable solution to that need. But we have a good deal of assumptive danger in our strategy.
We’re using lots of the principals of this Lean Startup Methodology — a procedure for starting new businesses — to help identify our riskiest assumptions and test them until we invest in a prototype or the creation of the item.
“The Lean Startup” is a methodology of starting a company efficiently and without wasting money.
We’ll be conducting countless interviews to check different product concepts and price points. Some will be face-to-face interviews with our target clients. Some will be with prospective resellers. Most will be via our site using short surveys. We will also be using our site to gauge various product and price offerings and our brand messaging using A/B split testing.
Our purpose is to confirm our assumptions before we invest a whole lot of money. If we locate an assumption that’s invalid, we’ll reevaluate our solution and change it to discover the ideal market and product match. That may involve altering our product, targeting a different market, or both. It might also mean we decide we do not have a viable business. Regardless, we’ll make a minimal investment and gain knowledge. We will also minimize our risk before we spend heavily.
Irrespective of where you are in the lifecycle of your business, you should track the risks you face and how you might address them. If you do not recognize and address them, you may someday face a dire situation. Identify your risks, attempt to quantify their influence on your company, then evaluate alternatives that will reduce or remove them.