Why e-commerce businesses should opt for smart instead
In my 15 years of creating software for e-commerce businesses, I’ve seen the industry change a great deal. Lately, I view most e-commerce software falling into one of two distinct categories — sexy and unsexy. Inevitably, the flashy side of selling seduces transfixed business owners toward tools they must have to “attract” customers, such as beautiful websites, custom-fit applications, artificial intelligence, trending social media apps, marketing automation, and the like. Because owners are convinced they need all this customer-facing software in order to sell online, they put tremendous business resources toward the sexy.
But here’s the rub: The unsexy, “boring” side of the business is what owners actually use to run the company. In fact, without it, they are sure to fail. Among dozens of other important tasks, this is the software that allows them to
- manufacture or source their products
- decide how many they need to make or buy
- receive and process an order or return
- transfer payment from their customers to their bank account
- ship products, track inventory, see what’s in and out of stock
- automate data to and from sales, accounting, inventory, and shipping
- calculate, validate, and collect sales tax
Take it one level deeper, and those same owners use boring software to learn about their profit margins, see where they’re spending too much or too little, and forecast how much money they’re going to make this year.
Like insecure middle schoolers, the operational stuff often leaves e-commerce business owners feeling left out of the fun. Unfortunately in online retail, the boring operational problems must be solved before an owner even knows if they have a viable, sustainable business. Sadly, most online businesses do not even make it past the nerdy library study group of inventory management, data automation, and bookkeeping and to the more tantalizing all-night rave of social media marketing.
Swipe right at your own risk
For those legitimate business who make it past the survival phase — for example, those experiencing startup growth, a successful brick-and-mortar store going online, or even a successful enterprise that just crossed their first $1M in revenue — the complexity and volume of unsexy operational noise can be equally deflating and debilitating. It’s far more entertaining to think about the sexy side of things, so these businesses often spend a disproportionate amount of time doing so. To the detriment of their business, they neglect their operational logistics, which could be far more efficient.
Because of the way the software industry has evolved, the sexy applications and platforms that help retailers reach out to customers are front and center. They are the shiny objects that are featured in the marketplaces and in the foreground in advertising, so of course retailers gravitate to them. This means e-commerce businesses end up with multiple applications, including selling on more channels, which is great at first, but soon they’re in over their head. Having too many apps really messes with the operational side — inventory, warehouse, shipping, financial management, and such — which is not set-up to handle 15 different applications that don’t speak to each other. Very quickly, things get out of sync and chaos ensues. Today in e-commerce there is so much competition and the margins are so low, businesses that singularly chase applications and sexy ways to make more money are doomed to fail. Instead, profitability lies in finding ways to sell more efficiently. It is imperative to cut costs and expenses.
Vote for Pedro
Forgive me for stating the obvious, but accounting is the leader of the unsexy pack. Because sales tax compliance and financial accounting is mandated, e-commerce businesses simply look the other way and say, “I’ll have an accountant or bookkeeper take care of it. I don’t want to deal with accounting.” No one looks at their accounting as being the hottest piece of their business — the one that could actually unlock the secrets to saving and making more money. Accounting is all about dollars and cents, what’s provocative than that?
Take business intelligence, for example. Analytics comes from the numbers, and the numbers come from the accounting. The breakthroughs to profitability lie in the insights businesses glean from their data. E-commerce businesses need to know: What’s our most profitable product? What is our average customer value? Which parts of our operations can be optimized to cut costs? On which sales channels do we have the best margins? Analytics even tell you which marketing campaigns drive the most traffic to your site. So, until financial data is a priority and e-commerce businesses create a system focused on a single system of record for all of the financial data, they’re all dressed up with nowhere to go.
No one starts an e-commerce business by first becoming a financial accounting expert. Accounting is either farmed out or added in as an afterthought and under duress. Typically, when it comes to finances, new businesses want to know, 1) How do I invoice? and 2) How do I manage my cash flow? That’s usually as far as it goes. Once a business sets up accounting, it goes on autopilot. The momentum required to learn, change, or adjust the accounting system is insurmountable to the average small or midsize business. As a result, all the valuable insights that reside in a business’s financials never see the light of day. Yes, bookkeepers and accountants oversee the numbers as dutiful chaperones should. But business owners need to control their own destiny by digging deeper and using the data to their benefit. It’s okay to let the bookkeeper drive but the owner should be the one setting the course of the business.
Data is a playa
It’s high time small businesses pay attention to their own financial data. Sure, they have customer lists in a few different email marketing systems, invoices are coming into their inbox, and they might have a support ticket system with still another set of customer data. But until these systems get together and party, there will be no sustainable profitability. It is crucial for sales data to intermingle with all the unsexy systems that keep the lights on, like order fulfillment, warehouse management, inventory, and accounting.
When an e-commerce business puts its focus first on the unsexy side of operations, it operates efficiently, data flows freely between employees and departments, and the business is able to scale on demand without stressing all of the workflows. Until then, it’s leaving money on the table and will never have enough left to take marketing to the prom.