Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
E-retailing entrepreneurs talk about what they’ve learned from the Internet school of hard knocks.
If I had only known then what I know now.
It’s a common expression and it may be especially relevant in e-commerce. Retailers who have opened online stores often learn within months, maybe even weeks or days, after their grand opening of all the things they should have done differently.
Lillie McDowell, president of Afriel.com, an online seller of housewares and home furnishings, sums it up: “When you start, it is just you and an idea,” she says. “But then you find there is so much more to selling over the Internet than you ever expected. You really need to plan everything out in detail because making a mistake is very expensive.”
Among common mistakes new e-retailers often make:
—Not having a clear vision of what products Internet customers will want and then getting access to those items.
—Not planning for scale or advanced functionality from the beginning.
—Under-estimating marketing, customer service and product fulfillment requirements.
Before they do anything else, new retailers need to give a lot of thought to product-not just have a vague idea of stuff they want to sell, but a detailed plan of what particular products they want to sell and how that product line will be different from what is already available in the market and from others on the Internet. “You have to come to the market with something different,” says Chuck Hansen, chairman and CEO of TheTrackShack.com. “You won’t make it with a me-too product.”
TheTrackShack sells music tracks online. Its approach is different from what other online music sites sell-and is radically different from anything that an offline retailer could sell. Rather than selling entire songs or albums, as many online music sites do, TheTrackShack.com allows customers to purchase individual tracks, the background music or even specific instruments of a song. For example, a drummer can purchase a song without the drums to practice playing along. Or the drummer could purchase just the drum portion to analyze it.
“We knew we could not just sell music,” Hansen says. “ITunes.com and others have already locked up that market and we knew we had to offer something different.”
No going back
Not only is a well defined product important to creating a strategy, but it’s also important to creating the site itself. “Be sure you have a good idea of what your customers want before you create your platform,” says Afriel.com’s McDowell. “It is often hard to know what the customer is going to want, but it is very expensive to make a lot of changes to your product line later.” Afriel, launched in August 2007, sells such high-tech devices as household motion sensors, automatic light dimmers, robotic vacuums and in-wall monitors.
TheTrackShack’s Hansen agrees that knowing what consumers are likely to buy is necessary before going too far into the process. “A venture capitalist once told me, ‘Make sure the dog will eat it.’ Before you do anything else, make sure you have a product that people are going to want,” he says.
The Internet itself offers an easy way to survey consumers’ interests and product needs. “We use the Internet several ways to survey consumer interest in products before making a decision to add the product to our site,” McDowell says. “To name a few, we use consumer reports, forums and product review sites. Knowing what our customers want and researching products before we sell them will always be a top priority.”
Once a new retailer has conducted studies to find out what consumers want to buy, making sure that product is available is the next challenge. New entrepreneurs need to be willing to spend time courting the right vendors. While established retailers understand the importance of product sourcing, entrepreneurs who have an idea of selling something online-and who might not even have any retail experience, which is often the case with online start-ups-may not understand the challenges.
“Getting product was a huge obstacle for us in getting started,” says Tony Quinn, founder of Goballzout.com, a site that sells skating, skateboarding and skiing equipment. “A lot of the small ski shops are putting pressure on the top manufacturers not to sell to online merchants. And the manufacturers themselves are concerned that their products will be represented by the wrong people. The first time through, I sent 50 e-mails to manufacturers whose product we wanted to represent and I got only one response.”
Quinn found he had to go directly to these manufacturers and show them he was a legitimate sales outlet. “You have to talk with authority and show them that you are qualified to represent them,” Quinn says. “You have to show them you mean business and are capable of really driving their sales. Then they’ll listen to you.”
For TheTrackShack, which launched its e-commerce operations in February, the musical connections of Hansen’s partner Jeff Tamelier were critical in getting access to the music tracks. Tamelier is a record producer and lead guitarist who has played with a number of top rock bands, including nine years with Tower of Power. He used those connections to set up meetings with top musicians and music executives to persuade them to sell the rights to their music.
Although some artists may not have originally liked the idea of having their creations cut up and sold in pieces, Tamelier showed them the economics of the business plan. Under that plan, musicians would get paid not only when someone purchased a song, but also when someone bought pieces of it. “We showed them how they could sell one song for 99 cents or sell 50 different tracks from that one song for between 99 cents and $12.99 a track,” Hansen says. “They quickly saw there was money to be made for everybody.”
Developing a developer
Once the retailer has finalized the product lineup, finding a web site developer who can produce a simple and inexpensive platform, but one that is capable of adding features in the future, can be tricky. New Internet retailers say there are a number of low-cost service providers that can get a company online and processing orders quickly. The web sites they offer are basically functional and acceptable for a new company. The problem comes as sales grow and the retailer wants to do more with the site.