The idea of setting up and running an E-Commerce business has piqued much interests amongst a lot of entrepreneurs or entrepreneurs-to-be’s.
One of the obvious fundamental advantages is that you can set up “shop” without really setting up shop.
The conventional business of having a brick and mortar store is no longer a must.
Organizations such as EBay have completely revolutionized how people could do business without ever meeting or speaking with each other. Vendors and customers could transact instantaneously even if they are from different parts of this world.
So if you don’t need set up a physical store front to run an e-commerce business, you can save a lot of money, right? Yes and no.
Don’t Need a Physical Store
It is true that if you have an online shop, you can probably save a lot of up front costs in leasing a commercial space (in which you may need to commit to 1 – 2 years), renovating it (which you may not get any of the money back), security, etc.
More importantly for some people, you don’t have to physically be there – opening the store and closing.
However, many people may overlook that running an e-commerce business could still be capital intensive.
Setting Up an Online Store Could be Expensive Too!
Setting up a professional website for you to engage with your customers may not be as cheap as you think it should be.
There are website designers and programmers out there that are offering up their services and expertise for US$10,000 plus per website.
Granted that they do produce some incredible work but that is still an up front cost that would not be recoverable if your venture does not work out.
What about ongoing website maintenance fees?
Think about this way, if they built your website and customized and coded it the way you want, the designers just might have a bit more leverage than you think on a go forward basis.
Your website is the gateway to your business, and you need it to be up and running flawlessly.
The capital intensiveness of e-commerce also depends on what sort of business you are in.
If you are selling physical goods, then the traditional business model also applies.
You need to purchase inventory up front, storage costs, fulfillment costs, etc.
You still need adequate working capital to run through your sales cycle.
After all, for most businesses, executing a Just-In-Time inventory model just isn’t practical nor economical. If you purchase in bulk, although you can try to get some level of credit, it’s some level of cash up front a lot of the times.
Running an e-commerce business, as in anything, has its pros and cons.
While it is definitely advantageous in that you could potentially be any where in the world where there is an internet connection, the business may still consume a good chunk of capital.
As always, budgeting and planning are keys to being prepared. There are some really good rewards if you can execute an online strategy.
But at the end of the day, as always, cash is always king.