When it comes to ecommerce or retail, Revenues are Ego, Margin is Intellect. I owe this key insight to my former partner Tom Stemberg, who founded Staples and built it from scratch to a $17B company. Ecommerce businesses, by and large, are relatively easy to start but difficult to scale. Its relatively easy for aspiring ecommerce entrepreneurs to come up with a flashy, snazzy website – with outsourced web development and customer service and drop-shipped orders, getting started has become easier and easier.
The best ecommerce businesses start with a nifty front end but always have a robust strategy towards building a back end for scale. These businesses realize that ‘Front End is Revenue, Back End is Profit.’ Ecommerce has always been a lower margin sector than say, SaaS or Software. Bottom-line focus and an obsessive analytical orientation from the CEO down is crucial. I believe this was a critical success factor for Diapers.com, acquired by Amazon for several hundred million dollars. It is also something that ecommerce leader Beyond the Rack has taken to heart.
When it comes to scaling, ecommerce businesses face a new echelon of challenge. Logistics, supply chain, order management, fulfillment, merchandising, returns, automation, and customer service all become geometrically more complex. And guess what is the leading indicator of customer satisfaction and repeat purchase? Delivery Time. The faster customers can get their purchases, the more likely they are to be satisfied and demonstrate repeat purchase loyalty. Not rocket science, but oft overlooked.