Start-ups: 10 advice to stay alive
At a time when shares value keep on falling down in the technology sector, when many venture capitalists refuse to invest any more money in this sector, when gross margins remain negative, when marketing investments fail to generate sufficient customer loyalty: for many start-ups today, it is more a matter a staying alive than getting bigger.
why I thought a little survival guide, that would enhance the most critical
elements, might prove useful for all start-ups which are presently going
through a hard time.
1) Serve your "real" customers first
I already mentioned a survey that was conducted by Cyberdialogue. According to this survey, only 20% of online shoppers account for 90% of the total consumer online sales market.
Therefore, it would mean that 80% of the people who visit your website do not hold any interest for you, which means that you should not waste too much effort and marketing costs for them.
2) Reorganize your product offer
Without even mentioning business models based on the hope of creating a new type of online consumer with a "virtual" behaviour and, most of the time, sales that never get over the virtual stage, I am convinced that, on most websites, many products do not meet the Web requirements as far as profitability is concerned.
In concrete terms, it means that some of the products sold on the Internet generate logistic costs that are much too high to hope and generate a gross margin that would make their existence profitable among the other products sold on the site.
I refer to products with a low margin and high shipping costs.
3) Rethink your distribution channels
In order to complete the previous point, think about externalising your eLogistics as much as you can. Many websites have disappeared or are presently going through great difficulties because they absolutely wanted to integrate the whole logistic chain in their business-model. The Webvan example is very instructive on this account (see article eMarket 2001-4).
In the same way, do not endanger yourself up by promising delivery times that will prove too short, and that are impossible to honour from an economic point of view.
In fact, all the sites that used to promise delivery times ranging from one to two hours are presently backing up. Not only does it prove much more expensive to set up and keep the corresponding infrastructure in working order compared to what a standard delivery would cost, but what's more, sites do not seem to customize much more customers this way.
Assessing this type of service badly might prove enough to put your site in the red.
Once again, you should try and adapt your delivery costs to the real margins you get for each of the products you sell.
4) Give up the idea of working on negative margins
many sites keep on selling products and/or services at a loss, as they
think such investment will prove profitable in the next few years.
Indeed, it often happens that the First Mover advantage you hoped for turns into a First Looser Advantage as you are taking a permanent chance. Does one of your venture capitalists stop believing in your future prospects? This could prove enough to reduce two or even three years of work into nothingness.
An online presence costs money: never-ending marketing investments (setting up and upkeep of your eBrand), customisation of your visitors, after-sale department all those elements cannot go together with a business model based on the concept alone: "I work at a loss but I will soon own a market share big enough to enhance a capital sufficient to compensate cumulated losses".
This type of talk might have been fashionable before the Internet crash but it proves totally inappropriate now.
This is why you should get rid of all the products and/or services that are sold at a loss on your website otherwise you might well be the one that will be suppressed.
5) Think about the offline or the contrary
Delivery costs, just as some of the products offered on the Internet and that prove inadequate for the online sector, should prompt you to spread your offer to the offline sector or even take some products off your list and start selling them offline only.
This is what Lucy.com decided to do but the site went even further as it stopped its online operations in order to focus on the offline sector only.
The reverse can also be seen: the software store Egghead went from being a brick-and-mortar store to an Internet-only store.
Once again, the type of products you sell should tell you what to do: there is no use trying to fight a battle you've already lost.
these two extremes, you can also opt for a mixed business model, which
many stores chose to do.
6) BtoC or BtoB?
Many websites need to meet repetitive marketing expenses just to stay alive in a cutthroat Internet marketplace.
When you compare those marketing expenses to the potential margins they might get, you have no choice but to face facts: losses will be endless and you will never reach break-even point.
And yet, at the same time, you've become a master in technology and many of your competitors or even other sites that belong to different fields would like to benefit from your experience.
What's more, this knowledge often goes together with a rich database, based on partnerships that would prove costly and time-consuming to rebuild.
This being the case, there is no use trying to remain on the BtoC sector at all costs; you might try and become an information provider for other BtoC sites by becoming a BtoB portal yourself.
Many examples already took place successfully, mainly in the eTourism sector.
7) Rethink the cost of your customer service
Many websites believed that the Internet would allow them to reduce their transactional costs by reducing their customer service expenses.
Nearly all of them became disenchanted and had no choice but accept that, even online, the phone remained the most favoured tool to finalize a sale.
In the eTourism sector for instance, the biggest websites in the world such as Travelocity.com or Expedia.com, still finalise over 40% of their sales through the phone
The customer service often represents one the most expensive elements for a website.
This is the reason why it could be tempting to reduce its size, thus saving a few cents and getting nearer profitability.
And yet, between the online-only and the offline-only customer service, it is possible to find a clever balance that will help you keep your customers who proved so hard to get.
First of all, you should treat the layout of the simplest part of your help section, the FAQ, with great care.
A good FAQ (with a search engine wholly dedicated to this FAQ if it proves necessary) will help you save "human" time in the relationship you have with your customers but it will also be considered as a real service for those of your visitors who wish to find an answer to their questions quickly and on the Internet, without having to make a phone call or send an email.
You'll agree with me, it is not everyday that we see good FAQs.
Do not hesitate to add some simple functions such as a "chat" on the text format or even some co-browsing ; in a word, all the interactive elements that fit your core business best.
But please be careful: these online services might allow you to cut down your "customer service" expenses before or after the sale, but you'll still need to give your visitors the opportunity to write or phone to you.
Nevertheless, it goes without saying that if you improve the quality of your online services, you will reduce the cost of your offline services. It is up to you to find out what's best to keep your customers happy and loyal.
8) Improve the navigability on your web site
If your customers wish to get some added-value on top of what they are looking for, they will no doubt be sensitive to the ease of navigability on your website.
First of all, a website should allow its visitors to navigate, find and buy the products and/or services they need as easily as possible.
Such quality will depend on the way your products are displayed, whether or not your respect the web standards as far as navigability is concerned, but do not neglect the weight of your pages as they do play an important part as well.
20% of online shoppers who account for 90% of your total consumer online
sales market need to find on your website is: a good Web interface, a
great marketing structure but your site also needs to answer their needs
perfectly. These are the elements you need to stay alive.
I often notice that websites do not age well.
Once the new version is finalised, pushed by its competitors but also by the creation of new eService and new products the site will be tempted to add new pages and modify others and the result will not always be a success But in most of the cases, all these additions will influence the quality of the general navigability of your website.
Please do not neglect this point when your site is between two versions.
9) Pay attention to your conversion rate of lookers-to-bookers
This advice is related to the previous point but its ins and outs appear different, as they will depend on your ability to customize visitors but also on the confidence you'll prove able to inspire them, as well as the privacy statements you'll commit yourself to.
If most websites manage to get a conversion rate of lookers-to-bookers which is around 1%, it goes without saying that those who prove able to get a higher rate will have a better chance of success in the present Internet battle.
Please analyse your log files, the quality of your payment process, the weak points that prompt your visitors to give up the ordering process. You should also study the profile of the users who already made a purchase on your site and find out the products that sell most.
From such analysis, you should then modify your interface as well as your selection of products, without experiencing any second thought. This should help customers to find and buy your products faster but also more easily.
Am I stating the obvious? Go and have a look at some shopping websites and tell me what you think.
10) Does your customers' acquisition cost correspond to your margins?
Here is my last "survival" advice: will your marketing expenses for each customer ever prove profitable?
It is quite obvious that many e-retailers need their customers to make four or even five purchases on their website before they prove profitable.
This is why you should draw a parallel between your business model and the sector of activity you're in. You should also try and find out how many repeated sales you're able to generate from your customers, over what period of time.
This repetitive pattern, coupled with the average margin you aim for, must be the only indicators that will help you assess your marketing budget. Any inadequacy between those elements might mean the death of your website.
Many sites closed down in the past few months because they failed to respect the previous point.