Here's How You Set Up a Million Dollar Ecommerce
What's the Big Deal With Setting Up a Million Dollar Ecommerce Business?
The term "million dollar business" seems to be losing its sheen, at least as far as ecommerce businesses are concerned. Given the large number of businesses managing it do so, becoming a million dollar ecommerce business almost seems trivial. And this is regardless of whether the million dollars refers to total lifetime sales, or to the valuation of the business.
How Some Entrepreneurs Are Setting Up Million Dollar Ecommerce Businesses Overnight
Don't hold me to the term "overnight," as I use it for effect.
But if you wanted me to be accurate, I think that setting up a million dollar ecommerce business should not take more than one year. Here's how and why:
- Many investors continue to be convinced of the great long-term growth prospects of ecommerce. Increased consumption is not driving this. Rather, it is the migration of offline retail to online that is creating a big wave.
- If you come up with some differentiator for your ecommerce business and set up a version 1.0 website, it is quite common to expect to raise some seed investment at a valuation of US$ 1 million. (Note: I am not saying that you will raise a million dollars. The amount raised might be $50K, but if that is the case you could end up giving the investor only 5% of the ownership of your business. That means the investor valued 100% of your business at $ 1 million.). If valuation were the metric, congrats, you are already a million dollar business.
- If you want to reach a sales figure of a million dollars, then you have to start buying customers with the investment you raise. I know that "buying customers" sounds like an oxymoron, but that is what you do when you go crazy acquiring customers with PPC advertising. Suppose you raise $50K and blew all that money up on acquiring customers who cumulatively purchased goods that gave you a profit of only $20K, but a sales of $100K. On the basis of this $100K sale, which now proves that you know how to do business, you should be able to raise $1 million in angel funding. If you partly repeat the customer buying process, this money should be more than sufficient to take you to a sales level of $1 million.
I know I make it sound like child's play, and surely it is not all that easy, but I have seen a similar cycle being repeated by dozens of ecommerce companies. So, though not trivial, it is definitely possible.
...And Why That Might Not Really Be a Big Deal
If you have followed my tone in the earlier part of this article, you know that I am not impressed by million dollar ecommerce businesses. It is one thing to reach some arbitrary "million dollar" milestone. It is something completely different to develop a sustainable business enterprise that has long-term competitive advantage. That is where the above model of scaling up to a million dollars at all costs will fail.
A Really Valuable Ecommerce Business Would...
- be loved by its customers
- have a brand name customers and prospects find highly familiar
- develop a loyal following
- would follow basic commonsense when it came to business economics
- exert significant cost control
- evolve a business model that can scale to a billion dollars, not just the first million
- someday be completely sustainable on profits, and not have to depend upon investor-dollars forever
- build organizational strengths: human resources, leadership, succession plans, systems of reporting and internal control, and the like.
A lot of what I have listed in this bullet point list may not contribute to a business turning into a million dollar business overnight, but that does not make it any less important as a stepping stone to ecommerce success.