E-Commerce Marketplace Blog

Tag: Funding

  • How to find sources of funding for your E Commerce Project?

    How to find sources of funding for your E Commerce Project?

    Any E Commerce business need funding for starting up and for ongoing activities. In the age of internet, finding funds have never been so easy. There are multiple options to finance your e commerce dream. Here are some of the ways in which you can secure funding for your E Commerce business.

    Bootstrapping (Family/Friends)

    Bootstrapping is one of the easiest funding sources that you can deploy. You can use your own savings or ask your family or friends for funds, in return for promise of revenue or shares. Bootstrapping removes one large pressure of paying monthly instalments for e.g. to a bank. You often do not need to part with equity as you may get support from the family just based on personal relationships and not wanting much back in return.

    You are thus free to pursue any strategy you see fit without needing investor approval. This provides unimaginable flexibility to pursue your goals.

    The issue with this type of funding is that personal or family funds are limited and you need to show results at some point otherwise your finances may be stretched. Also, the funding may not be sufficient to meet the need of an E Commerce project based on the scope forcing you to look for other sources of funding.

    Bank Loans

    Bank loans are essentially given by the banks to an entrepreneur or businessman based on a business plan and other criteria such as repaying capacity or revenue forecasts. Banks may require a collateral to issue your business a loan. The loans may be short or long-term depending on your needs and bank’s decision.

    Once you submit your plan, banks issue the loan. The loans have conditions attached to them such as how much is repayment period, and how much is the interest charged on the loan. Based on your credit history with the bank, you may ask for lower interest rates from the bank.

    Since bank loans are secured with collaterals, you may lose collateral if your business is unable to pay the instalment. This is different compared to personal loans where often no collateral is desired. So, you need to be strategic with the fact, that not paying the loan back may cause bad credit history and future denial of loans.

    Business Credit Cards

    Entrepreneurs often have the habit of using personal credit card for funding their E Commerce business but that causes some problems. Using personal credit card for business means your personal and business expenses are now on the same card. It makes reporting difficult and bloats your card expenses.

    A better way to separate spending is to apply for business credit card. Business credit cards are similar to personal credit cards but with higher interest rates that business loans. This is because the credit provided to you with a business credit card is unsecured.

    With business card, there are advantages such as building a credit history with your loan provider. You may use the credit card as any other credit card paying for expenses (even rotating the credit) and earn points based on the spend.

    Banks may ask for your credit scores and your past repayment history to issue you a credit card. Remember that it is a responsibility for you to pay your dues back or interest penalties may become too much to manage.

    Crowdfunding

    Crowdfunding is another noteworthy method of financing. Crowdfunding uses social media or crowdfunding platforms to initiate funding for startups. Often investors scout these sites looking for next disruptive product or technology and innovative ideas get funded quickly. The advantage of crowdfunding is that there is no repayment obligation such as monthly repayment instalment and the “crowd” invests on either your personal history or their perception of your product. You do not even need to share your equity with the donors. Often the donors become your target market or your amplification marketeers because they have a stake in seeing your product succeed.

     

    VC/Investors

    VC or Angel investors could be toughest funders. Even though they are nothing like banks i.e., you do not need to supply a collateral or make a monthly payment, what they demand is something else, equity in your business.

    You will get connections, large amount of money, mentorship in addition to elevated media presence. However, now you are strictly bound to the performance. You might even need to change your business model so that your VC can move it to 10x their returns.

    Thus, your original idea may be distorted to the point where you no longer recognize it. It can be demotivating. But the success, which is often huge, may mitigate those circumstances.

    The VCs may have an upper hand in decision making. In certain case, after a few rounds you may end up as minority shareholder. This discourages many founders to see VC funding even though the scale that this funding provides is tremendous.

    Customer Advances

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  • Do you really need an online E Commerce store?

    Do you really need an online E Commerce store?

    Let us imagine that you have an offline business and because it is in trend, you feel it is the time for you to take your business online. Because, why not? You will have global audience; more people will know about your product line and your sales might just explode.

    But hang on. This is not an article about going online. In fact, here I would be talking about why you should not go that way, i.e. do not take your business online. It would be anti-consulting advice.

    Not what you want to hear?

    Well, like any business needs commitment, going online is often a big commitment and while I do not wish to discourage you, I feel that you need to keep your hopes realistic.

    Here are a few challenges I feel you should be aware before even you think about putting a single $ online. And these challenges are substantial.

     

    Planning challenges

    Planning an ecommerce store is not easy. Would you want to pay more fixed costs or more running costs. Would you want a large marketplace as your shop or would you go for your own store. How would you handle orders? How would you handle customer complaints. How would you handle social media grievances?

    Well, trust me these are some of the possibilities that can happen with an online business.  And planning for every aspect will cost you money.

    Local/Global

    Let us say you are comfortable selling in your industry. Your processes are running as optimized as possible. You can fulfil your orders and handle your complaints because your customer segment comprise mostly of local clientele who walk into your shop or call you by phone. It may seem interesting to add a web channel, but you need to ask if it really is feasible in terms of cost benefit.

    At this moment, maybe you are not comfortable serving outside the region. Having a website is good enough. You may not need an E Commerce store for your operations.

    Technical requirements

    Once you move from offline to online , you will realize how much of a vast world it is, With so many vendors, technologies and tools to choose from, it is a hugely confusing array of things. And unless you have basic knowledge of technology, vendors might lock you into software you may not need.

    You would also need to select from the right e commerce tools to tools that do work of email marketing, search engine optimization and customer complaint system. As of now you are probably maintaining most of them in an excel sheet in a local system (which has its own issues, nevertheless). But then you would need to worry about the availability of website, technical issues, software that doesn’t work the way you want them to. Unless you have a competent team or a vendor, you will be in a difficult position to handle all the headaches that come with an e commerce store.

     

    High costs

    At the first glance, the E Commerce looks easy to get into but with time and experience people running a store may realize that costs add up quickly.

    You would need to pay for software tools, domain names, hosting space in terms of technical needs.

    Then you would need to pay for marketing tools such as email management and lead generation.

    You would need to pay for the vendors to help you install these tools or you would need to invest a significant amount of your own time to learn them.

    You would need support staff to manage aspects of delivery and fulfilment.

    You would need a social media manager to handle all the posts on your behalf and in addition work on any customer grievances arising on social media.

    So you can see there are significant costs to every component of E Commerce business.

     

    Risk of frauds and legal challenges

     

    As an e commerce store, you are responsible not only for listing your own product but also you are a custodian of your customer’s data. You would need to institute strong policies if for example you plan to sell in places like European Union. You would need to comply with GDPR.

    In addition, you need to secure the site against cyber frauds, credit card frauds and data breaches. In some place you could be held responsible for data breaches and penalties could be heavy.

    You would also need to teach your customers about safe email practices so that they do not fall prey to attacks like phishing leading to revealing their data.

    Competition

    E Commerce is often touted as easy to start. Thus, you have very serious large competitors which can take away your lunch money completely to small startups which are nimble enough to take off small bites from your lunch.

    The competition is not just from independent websites but also from social media platforms such as Facebook, Pinterest, Instagram etc where someone can create catchy content and instantly drive traffic away from your webstore.

    The price of the product is also no longer an advantage because anyone can see and compare your prices with a million of other listings. There are now AI tools which can help scrape sites completely and thus nullify any competitive pricing advantage.

    Sometimes large competitors can play unfairly and lower the price of products in a popular niche down by so much that it may become impossible to compete with them.

    In addition, large competitors have much heft over suppliers, and they can easily create similar products in your category leading to sales losses.

     

    Conclusion

    The purpose of the article is not to discourage an average seller from starting an e commerce store. But like all businesses, easy entry means higher competition and lesser margin and often higher unintended expenses.

    As with every business, one needs to be aware of the benefits and risks of starting a business. Hopefully, this article helped you understand the risks well.
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