The SMB Digital Entrepreneur: Is it too good to be true?
Tools like Shopify and Squarespace have made it easier than ever for would-be entrepreneurs to launch their own businesses and the pandemic has propelled growth. But how many will actually succeed in a crowded marketplace dominated by incumbents?
2020 was an epic year for Shopify, the e-commerce platform for online stores and retail point-of-sale systems. Walmart announced a partnership with Shopify to open its marketplace to Shopify’s small business sellers. During Shopify’s most recent earnings release, the company posted results showing sales grew by more than 90% year over year for the third consecutive quarter and saw aggregated sales of $5.1B over Black Friday weekend. The company expects revenue in 2021 to grow rapidly but slow down from the 2020 pace as brick and mortar shopping returns. Its competitor Squarespace, valued at $1.7B in 2017, recently announced it filed confidentially to go public.
There has been talk of wholesale and multi-brand retailers as relics of the past, but the reality is more nuanced than that. The pandemic accelerated the growth of e-commerce and most of Shopify’s customers are first-time entrepreneurs, starting side hustles to compensate for under employment because of the pandemic. It remains to be seen how many of these companies will survive. According to the US Bureau of Labor Statistics, approximately 20% of small businesses fail during the first two years of existence. Department stores and multi-brand retailers have been successful historically because they exist as a platform for up and coming brands to get discovered. Visiting hundreds of various disparate websites is not a frictionless experience — the value proposition for multi-brand retailers is marketing, placement, and convenience.
I launched an e-commerce site on Squarespace selling personalized dog biscuits. The process was easy and inexpensive, costing me under $200. I had a logo designed, purchased the domain name, and set up my Squarespace website in one day. Then….crickets. I decided to test Instagram ads, which drove traffic to my site but did not result in any sales. I was missing a key component of any retail business: brand recognition, sales, and marketing. Another challenge I faced was high shipping costs. I had a few sales, however covering shipping costs and making a profit proved to be difficult. These issues will remain a key challenge for new entrepreneurs setting up sites through platforms like Shopify and may be an existential challenge for Shopify itself. The market is crowded, how do you get noticed as an independent small business owner without breaking the bank? The e-commerce shipping crunch of 2020 and beyond was difficult enough for large companies to handle, but can doom a newly-launched small business. Add in a fierce competitor like Amazon, who comes with a built in clientele. Amazon recently completed the purchase of Shopify competitor Selz. The company has increased its efforts to compete with Shopify, which has become a significant threat to Amazon as sellers have deflected to the platform.
Despite the competition, there is opportunity ahead for skilled (and lucky) entrepreneurs to capture their own tiny slice of the digital market. A report from IBM predicts that ecommerce is expected to grow by 20% and there are early indicators that this shift to digital shopping will persist after the pandemic is over. The market is there for the taking if you can get past the hurdle of discovery in a crowded space and create a unique value proposition.