Online Retail: Five Observations from a Beginner

I’ve been running my online retail business, The American Made Retail Company, for about two weeks now. That’s not long, of course, but it has been long enough for me to notice a few things. I’d like to get them down here for posterity so that I can come back in a year and be embarrassed by how much I thought I knew…

Hedging with another job let’s you trade free time for debt. If I wasn’t running this business as a low-pressure side project I would have come up with a formal plan that included at least marketing and operations budgets–no inventory since I’m using dropshippers–and likely taken on some debt in order to finance the business until it became profitable. That would mean being in the hole two weeks in and owing people money. With that much on the line, I’d need to invest a lot of time getting everything online as soon as possible so that I could afford to pay the debt off. That would likely require making this my full-time job. In other words, no day job, no steady income, just jumping into the deep end of entrepreneurship and sinking or swimming. People do that all the time, but, man, talk about pressure. Instead, I’m spending very small amounts of my own money and accepting that my growth rate is going to be slower and more gradual. I’ve still got my day job, but I’m using my free time to work on the business. I don’t have all my eggs in this online retail basket, so I don’t need to go 100% from day one, which means I don’t need to go into debt. I can spend the time I have instead of money I don’t. It’s not a better way, but it’s a lower-risk way, I think.

Marketing is the most important skill a person can learn. It’s debatable how much I really gained from my MBA, which was online from the University of Maryland Global Campus and received at the age of 42. One major takeaway for me was a completely new understanding of marketing. Like a lot of people, I assumed marketing and advertising were essentially the same thing (and that advertising and writing pitches were the same thing, another common mistake) and decided I wasn’t interested. It wasn’t until a class a year ago that I learned just how big an umbrella the term “marketing” spreads. And, maybe the biggest lesson of all, the first and arguably most important part of marketing is finding the market. I think this is the thing that is going to determine the success of my business, if I do in fact succeed: my ability to determine who is looking for what and how to bring them together.

You can’t escape social media, and you shouldn’t even try…but you can engage it on your on terms. I’m not a social media guy. The last platform I was at all active on was MySpace. I was tepid about Facebook at best before deleting my personal account several months ago, and I’ve frankly never understood Twitter. Seriously, I’ve never understood how to use Twitter, not to mention I don’t really get the appeal. But the numbers don’t lie. When I compare the organic traffic my online retail store sees to referrals from Facebook, it’s not even close. This puts me in an awkward position, because I genuinely dislike the lopsided, biased way that the most popular social platforms police speech. Frankly, I even see this in the troubles I’ve had with advertising on Google and Facebook. Still, it seems to be worth at least trying to get exposure on these platforms if for no other reason than the expansive reach they command.

Volume and margin are like the chicken and the egg. In the online retail dropshipping model I’m pursuing margins are pretty thin. The short version is that I market products provided to me at cost by a dropshipping company. When someone places an order with me, I forward it to the dropshipper, who charges me for the product cost and shipping. In exchange, the dropshipper handles everything but the marketing: shipping, manufacture or supply, etc. It’s a great system in terms of ease, but the margins are necessarily narrow. In order to be competitive, I have to eat most or all of the shipping costs. When I set the retail price, I have to walk a thin line between being low enough to compete with other retailers–often other retailers who can charge lower prices–and high enough to remain profitable. The more volume I sell, the lower my retail prices can be–increasing volume–and still cover my overhead, never mind actually make a buck or two. However, to get volume, my prices need to be so low that I’m not covering my overhead at current volume. Remember the risk I mentioned avoiding earlier by hedging with a day job? It shows up here, too; I’ve got to take a leap of faith and hope that I can hit a profitable sales volume at margins too low to reach profitability at lower sales.

Selling things is addictive. I’d heard before that most entrepreneurs are driven by the thrill of success more than money. I’d always thought that was a bit of romanticism. I was wrong. There’s really nothing to compare to making your first sale, and each sale afterwards just renews that feeling. It’s genuinely exciting. I’m passionate about this in a way that I really didn’t anticipate. And it’s not just the prospect that at the end of all this I might be able to live off of my own business, with no boss and no schedule other than the one I set for myself. It’s not easy to put in words, so I’ll borrow someone else’s and paraphrase. On some level, the money is just a way to keep score.

Read more about my new business here, and find links to both my online businesses here.

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