It’s easy to feel disheartened about starting an ecommerce business as new competitors are entering the space every day.
Giants like Amazon and Alibaba are intent on snapping up new customers.
And advertising costs have never been higher.
It looks like a pretty gloomy picture. But you shouldn’t feel put off.
Because the truth is that there are more opportunities than ever.
Possibilities are literally everywhere, from untapped niches to global consumer markets.
What’s more, many old high-street brands like Toys ‘R’ Us, Sears, and Macy’s, are facing difficulties, often undertaking mass closures of brick-and-mortar stores (or flopping altogether).
This phenomenon is opening up huge spaces, and creating large unserved markets, for new brands and retailers to take advantage of.
As an entrepreneur, there’s no better time to seize the opportunity to build a multi-million dollar, or even a multi-billion dollar, ecommerce store.
So, what does it take to create the next billion dollar online store?
I believe it takes 5 things I’ll elaborate on:
1. Identify an Underserved Customer Segment That Can Benefit From Better Product / Service
2. Create an Experimentation-focused Culture
3. Over-Deliver on Customer Expectations
4. Growth Sucks Cash – Find Cheap Capital to Fuel It
5. Build a Brand
Let’s dig in!
All successful online retailers began by pinpointing a dissatisfied or underserved market.
In most cases, underserved markets are either unhappy with the current ecommerce offerings or demand is completely unmet.
Whatever the case, it’s up to you to find these segments, craft a compelling brand, and provide a range of products and level of service that outpaces the current competition.
The importance of finding a product that caters to unmet demand can’t be stressed enough. If you don’t find a segment that’s insufficiently served by existing online retailers, then the rest of the process becomes futile.
It’s also worth keeping in mind that products that can be sold for a higher margin are preferable.
The cost of acquiring customers through the internet is growing by the day. The best strategy is invariably to offset these costs by opting to sell products that command the highest returns.
It doesn’t matter how you gain a competitive advantage – you might sell superior products, provide better customer service, or offer more added value through a ecommerce value proposition (free delivery, discounts, charitable donations etc.) – but it’s crucial you find one.
One interesting example is that of Warby Parker, an online retailer of prescription glasses and sunglasses. The company was able to leverage the strategies outlined above to take advantage of a unique situation in the market.
When they started out there was a single behemoth, Luxottica, that served most of the market.
As a vertically integrated company (meaning that it controls all parts of the supply chain), Luxottica manufactures and sells most of the well-known products on the market. It’s responsible for an array of well-known brands, including Ray-Ban, Persol, Oakley, Chanel, Prada, Versace, and DKNY.
It charges exceptionally high prices for its branded products and has benefitted from a lack of competition in the high-end spectacle space.
While there were competitors like 39 Dollar Glasses that differentiated based on low price, there were no alternatives providing the same quality of design, branding, and quality that defined the Luxottica brands.
Warby Parker noticed this huge gap and was quick to step in.
By creating a USP (unique selling point) that consisted of a mix of designer branding, superb customer service, high quality, and moderate price, they were able to set themselves up as a serious contender in the online eyewear space.
Testing, and in particular the right kind of testing, is what separates good ecommerce stores from brilliant ones.
The internet grants you a unique opportunity to make improvements very quickly in regards to your product-market fit and marketing messaging.
You can test all aspects of your site, making numerous small tweaks, and find a winning formula (one that’s far better than your competition) in a relatively small time, often less than six months.
At the very earliest stages, your main task is to develop a great unique selling proposition (USP).
Once you’ve identified some clear potential differentiations, it’s time to validate them by seeing how your customers respond.
When you promote your store in light of a particular USP, do key metrics increase?
This is the method that Susty Party used to validate its USP of non-toxic, compostable party tableware. When it showcased its USP on the homepage, as opposed to having a generic design, conversions increased by 250%.
This was a clear green light.
Once you’ve established a rock-solid USP, it’s time to adopt the “keep on testing” mantra. And there’s one online retailer that does it better than any other.
No discussion of billion-dollar ecommerce stores would be complete without mentioning Amazon. So let’s take a quick look at how the online leviathan approaches optimization. You might just be surprised.
If you examine Amazon’s testing strategy, you’ll notice it has three key features:
The average ecommerce CAC (cost-per-customer-acquisition) is constantly increasing. Advertising costs, irrespective of the platform – it doesn’t matter if you’re talking about AdWords, Facebook Ads, or any other network – are growing larger by the day.
This means it’s crucial to achieve an optimal ecommerce conversion rate and customer lifetime value. When you acquire a customer, you need to ensure they’re contributing as much as possible to your bottom line.
If something doesn’t work out as expected – if, for instance, an item you were convinced would be snapped up underperforms – don’t despair.
If a product doesn’t sell as expected, testing is the key.
Changing photographs, names, descriptions, add-ons, urgency-building features etc. will often yield surprising results, as in the example below.
Remember, any ecommerce store is instantly accessible by a nationwide market.
In comparison, it takes years for brick-and-mortar stores to achieve that kind of customer-volume. So take advantage of high traffic numbers by introducing a long-term optimization plan as soon as feasibly possible.
If you’re already turning seven or eight figures, you may like the idea of indefinite testing but you also might be thinking, “I haven’t got the time or resources to organize an entire department to take care of it!”
The good news is that third-party solutions (shameless plug alert) like Growcode can shoulder the testing burden for you, at a fraction of the price it would cost you to handle things in-house.
Growcode also recommends this eBook:
Ecommerce Optimization Checklist of a 7+ Figure Online Store
One online retailer that’s mastered the testing game is Fabletics, a brand owned by TechStyle Fashion Group. Adam Goldenberg, the co-CEO of the group, revealed the number of customer experience tests it had undertaken in the previous year was close to 2000. BTW we saw hsi cool speech an Shoptalk 2018 about growing business.
What’s more, this strategy is applied to all other aspects of business, particularly traffic generation.
The group test-runs 35,000 ad designs 150 commercials every year.
During its New Year’s campaign, the conversion rate on day sixteen was twice that on day one.
This agile approach to testing has allowed the group to drive over $700 million in revenue since its founding in 2010.
Not bad going, eh?
What TechStyle is all about is using technology, being vertically integrated from start to finish, having this direct relationship with the consumer and building brands online first. What makes us different is that we have great brands, we deliver amazing value for the price and amazing fashion.
– Adam Goldenberg, TechStyle (owner of Fabletics brand) CEO during an interview with CNBC
One of the primary long-term goals of top-performing retailers is to continuously boost their customer satisfaction metrics. And first to remember the voice of your customers!
Usually, I recommend that online retailers focus on “Net Promoter Score” (NPS) which is based on responses of customers to the question, “How likely is it that you would recommend our company/product/service to a friend or colleague?” on a scale of one to ten.
No single metric is perfect, but NPS is a great way to measure how delighted your customers are. Plus, there are lots of tools that support asking this single question and even more benchmarks you can compare yourself to.
By working to boost NPS you’ll achieve two important outcomes.
First off, you’ll be pushed to develop processes that deliver new, innovative ways to boost customer satisfaction, differentiating yourself from competitors and providing an array of unique selling points (USPs) in the process.
Furthermore, delighted customers are much more likely to promote your store and keep coming back.
The knock-on result is a boost to your average customer lifetime value, which is arguably the most important ecommerce metric.
I believe it’s even more crucial than conversion rate.
Warby Parker is also an excellent example. The site focuses on growing and maintaining an extraordinarily high NPS (which according to Warby Parker’s CEO Dave Gilboa is north of 80) by providing superlative customer service.
The recipe includes free shipping, beautiful packaging, lots of social media interaction with followers, and a variety of customer service channels.
In particular, the company created a service which allows potential customers to sample five eye frames at home for free, a practice which has been copied by many online retailers.
Summing it up: if you want to build a billion dollar business you have to delight your customers. Use NPS as an actionable metric to track how you fare.
If you don’t have cash, you can’t grow.
It’s as simple as that.
What’s more, poor management of capital at this growth stage can prove fatal to a fledgling ecommerce store.
There are, however, a number of ways to ensure you stay on the right track.
In particular, I recommend you pay attention to your “Cash Conversion Cycle”. If you can lower your conversion cycle, you can increase the speed at which you’re able to grow, ensuring you don’t run out of cash and avoiding the problems doing so would create.
Verne Harnish defines it in the following way: “We encourage companies to calculate their Cash Conversion Cycle (CCC) which measures company-wide how long it takes between when you spend a dollar (marketing, design, rent, wages, etc.) until you get that dollar back.”
He has created two tools to help online retailers get a grip on this key metric. It’s essential to understand and utilize it to ensure you can create a workable growth plan and improve it going forward.
Btw. I personally love Verne’s book “Scaling Up” — if you’re an entrepreneur and haven’t read it yet, then go order it ASAP (you’ll thank me later).
Watch this video to understand CCC a little deeper:
Growth sucks cash and that’s precisely why you should be working on having as much cash as possible on a daily basis.
My advice is that: read “Scaling Up“, use these two powerful tools and go through SSBG’s list of 10 ways to reduce Cash Conversion Cycle to have some early ideas today.
It’s difficult to overstate the importance of branding and, in many cases, it often trumps other major ecommerce goals.
The guys at Warby Parker didn’t spend a dime on advertising for the first three months they were operational.
Instead, they focused on generating positive PR, telling their story, and creating a positive brand image.
The upshot was a great deal of positive publicity and appearances in major publications like GQ.
We bootstrapped our business. The only three things we spent money on was: hiring an engineer on Odesk to build our site, our initial inventory, we hired a PR fashion firm.
– Warby Parker’s co-founder and co-CEO Dave Gilboa (watch the full interview here)
When Casper was still unknown, before the company had even decided on its name, they worked with Red Antler, one of the world’s leading branding agencies.
They spent time crafting a story and building a philosophy that people would immediately recognize as a solution to their problems and relate to on an emotional level. They understood, fundamentally, that people buy from a company because of what it stands for.
Simon Sinek, the author of Start with Why, has echoed this sentiment. He believes that companies that are directed by a strong core mission are best able to engage with their markets, whilst fostering a productive, efficient company culture.
Developing a brand is not an easy task.
Developing a great one is even more daunting.
However, there is a small shortcut.
Try asking yourself “What successful offline brands do I know do a poor job online?”
Asking this question can be immensely useful in pinpointing underserved online markets that are eager to connect with online brands that embody the stories, values, and missions of offline retailers.
According to one study, 47% of the world’s population now uses the internet.
As an online retailer or an entrepreneur, that figure should be enough to make you dizzy with excitement.
If somebody had said ten or twenty years ago that it would be possible to reach a global market comprised of half the world’s population, with nothing more than a website, you’d likely have thought them mad.
Yet here we are.
The ecommerce space is growing in hundreds of billions of dollars every year. It’s easier than ever to secure funding, build a retail platform and reach underserved markets.
If you want to build a ten-figure ecommerce store and change the world in the process, now is the time to do it.
Because if you don’t, somebody else will.
I really hope the five points listed above will help you achieve your goals and build a billion-dollar online store.
Enjoy the ride!
And if you would like to hear me talking about creating a successful online store just watch the episode of Bite-size Ecommerce Optimization!
Drawing on eight years of experience, we gathered all our top insights into one book: The Ecommerce Optimization Checklist of a 7+ Figure Online Store. If you want to increase the performance of all your pages – from the homepage to checkout, grab your copy here. And maybe you would like to build a successful online store with us? Find out detail about us and why we were recognized as a top Conversion Rate Optimization Agency by Clutch!