The Disconcerting Truth About E-Commerce Side-Hustles

Originally Posted in The Startup on Medium

One of the great lies of this moment in online entrepreneurship is “if you build it, they will come.” The extremely-online hustlers and grinders love talking about how opening an e-commerce shop (or Amazon business, dropship business, or any of the many variations) is a quick and easy way to make money from the comfort of your own home.

What is not so clear is these people are often running a business you’re unaware of: one where their success is convincing you to buy into the dream of online entrepreneurship.

In some cases, this is obvious and an agreed-upon part of the deal. A micro-industry has come into existence which helps you secure wholesale inventory and put your brand on the packaging. They’ll even help you gain listings on major e-commerce retailers and share ideas for you to use on social media. These white-label firms earn an outsized markup on your inventory order but their role in your entrepreneurial journey is obvious and known. So, too, is the role of the individuals who sell Masterclass-style “classes” (often for hundreds or thousands of dollars, promising to unlock the secrets to online success) which are nothing more than YouTube videos summarizing what is largely available to you via a web search. But again, at least the customer is aware of what they’re being sold.

Not so much with many of the well-ranked material found on major search engines. One recent test of common long-tail search terms like “how to start an online store,” “earn money dropshipping from home,” and “making money in ecommerce” returned a disconcerting fact: more than 71% of the first-page search results contained an affiliate link which pays the author a commission on each sale. That means the web host those blog posts recommended isn’t being recommended because they have exceptional customer service and an easy-to-use interface; They’re being recommended because they pay out one of the largest referral fees. The majority of those were not disclosed, even in the footer or fine print of the website.

Is it stunning that people are trying to make a buck off of you trying to make a buck? Of course not. Some version of this has been happening for as long as there has been entreprenuership. But what is stunning is how many people make significant financial investments and decisions based on a handful of posts made by affiliate marketers pretending to be knowledgable about the subject.

Placing trust in these sources of information has real consequences.

Facebook groups and subreddits originally built for new entrepreneurs to share resources and support one another are often run-over with stories of failure. One young mother bought a pre-made “white label small business in a box” solution which, paired with the initial inventory purchase, was a $12,000 investment. In exchange, she believed she was receiving coffee bean inventory she would be able to retail for more than $100,000 and she would be well on her way to financial freedom. On her first day, having seen her product on major websites like Amazon, her brand on a bag in her own cupboard, and real money coming in (about $300 in sales), she started thinking about placing a second inventory order. In the week that followed, she sold just two additional units and found herself stuck with a perishable product in a space she described as “unexpectedly cutthroat.” The dream ended when she donated the coffee to local non-profit — but the people who sold her the coffee still sought their $200 monthly fee for maintaining the listings pages and website for her now-defunct brand. She had to pay them to terminate the agreement.

Unsurprisingly, moderators of these entrepreneurship groups and forums usually delete these threads so as to avoid harming the grindset facade they seek to promote.

When reached for comment, these failed entrepreneurs each shared they wished they had read one article about the challenges and problems of entrepreneurs rather than the hundreds of articles about the easily-available solutions companies and hustlepreneurs are eager to sell.

Great Products Don’t Win, Great Discoverability Does

One such challenge is that most people assume a great product wins but without a strong plan for discoverability, your product will languish on the digital shelves.

Consider how you first learned about a product you recently purchased. Most commonly, product discoverability comes one of two ways: you heard about it from a friend or family member, or you went searching for the solution to a problem and it was one of the top-three things you saw in the search results.

It’s no easy task to get your product into either one of those fortuitous positions.

Each platform and sales format presents its own challenge. Many entrepreneurs believe a listing on Amazon will lead to sales. After all, you may think, there are so many Amazon shoppers and there may not even be much competition when you punch in your product’s search terms. But almost all of those products on the first page of Amazon results are either sponsored placements or products owned by Amazon itself. Not exactly a cheap and easy way to find customers.

The business of ranking on the first page of a Google search is, similarly, a complex and potentially expensive process. Search Engine Optimization involves a long list of factors including keyword research, optimizing the technical end of your website, content creation, and building high-quality links from other websites. All of this takes time — it’s often a six to twelve month process — and a lot of effort. There’s a reason SEO consulting has become such a significant consulting business in these last two decades.

While technical discovery (on Amazon, Google, or elsewhere) can be learned with a little can-do and effort, one thing cannot: the viral coefficient of your product.

A viral coefficient is the number of new users or customers the average customer generates. In short, if you have a product that solves a popular pain point, your product is said to have a natural and strong viral coefficient. Some products — like in the health or adult industry, for example — do not. Those are products which your customer may not want to share even if they absolutely love your product. Make sure to consider the inherent viral coefficient of your product.

Place Your Inventory in Many Baskets

Another great hidden challenge for entrepreneurs is platform risk. A popular story that illustrates this risk is in social media, where social media influencers go from hero to zero when their platform of choice fails. Such influencers built a highly-engaged audience on Vine or Twitter but when it came to move on to a different platform, the success didn’t translate.

The same risk exists in e-commerce.

There is the obvious version of this challenge where one might you send all of the inventory to Walmart then fail to crack the front page, where you’ll now have to pull the inventory out of the Walmart warehouse (which is a time-consuming and difficult process in itself) and figure out a proper strategy, potentially costing you weeks of precious early-stage time.

The less obvious and potentially more damaging risk is that which comes with success. Those who launch products on Amazon have to worry about competing with both other entrepreneurs and the platform itself as Amazon sometimes uses proprietary internal data to drive decision-making on which products it wants to roll out from one of its many in-house brands (like Amazon Basics, 365, Amazing Baby, Mama Bear, and dozens of others). It was recently revealed Amazon operates at least 88 private-label brands with more than 158,000 separate products, many of which were inspired by the success of independent entrepreneurs.

This activity by Amazon has become the focal point of congressional hearings and Senator Elizabeth Warren’s push against big tech firms, especially after it was found Amazon appears to have manipulated their website search results to favor their own products.

The idea of going toe-to-toe with Amazon isn’t what most have in mind when they think about their e-commerce entrepreneurial dreams.

Those who are your allies and friends early in the entrepreneurial journey can become your enemy rather quickly. Be mindful of this risk and spread your product across multiple channels.

Think Before You Grind

Facebook, Instagram, and Tik Tok are full of people eager to sell you on the hustle, the grind, and get you geared up for the over-romanticized version of entrepreneurship that Americans have come to worship.

After ten years being around companies growing from napkin-stage to more than seven-figures in revenue, I can tell you: that’s not the winning mindset. Entrepreneurship is far more collaborative art-form than war.

There is no doubt it’s important to hold convictions that what you’re building has value and is something that people need, but conviction alone will not deliver a positive outcome on an entrepreneurial journey.

Far more important is objectivity and honesty, especially with self. It’s easy to get caught up in the excitement of an opportunity but more valuable is an honest SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis of both the business and yourself (or your founding team).

As the company launches, you’ll come to understand open-mindedness, true acceptance when things don’t go smoothly, and pliability will reward you far more than the twelve hour days trying to fit a square peg in a round hole.