E business – What are the possible dangers?

The bankruptcy rate of these companies is very high. One reason is that most of them generate no or insignificant cash flow and rely only on investment money. Most e companies are inclined to the errors I will point out bellow. These are the aspects need to be taken into consideration:

These companies mostly rely on mass customers in order to generate their revenue. There is a huge market out there and a lot of tastes. You do not know whether your web site will reach the intended customer and attract his/her attention. So the revenue that you expect is very subjective and volatile. The mistakes the companies make is spend heavily at the beginning of unnecessary equipment (expensive offices, overpriced and over performing PC’s that are not really required in the early stages, and so on) even before receiving a significant income form the business. These companies should reduce costs as much as possible at this stage, until they can establish a relation between revenue and expenses (a cash flow) and thus a bracket on the range of their affordable expenses.

Businesses should always define the exact source of income. Solely stating that revenues will come from future ad dollars and e-commerce is not enough. The income generating sector should be well defined before the activity can start, so that you know for sure that the possibility of revenue will appear in the future.

Try to balance the revenues with the market share. Many low-cost product e-businesses appear first on the search engines like “pricegrabber” when you look for the lowest price of a certain equipment or service. These companies rely heavily on market share, but hardly generate any revenue from sales. They rely on huge purchases in order to survive, which makes this strategy very volatile since you rely of customers that go with the lowest bidder (not loyal) and that leave you as soon as they find a better offer. Of course, going on the other side is not good either (high price and low sales).
The best alternative is a balance between the two at the point where you have the highest rate of returning customers. But for that you will probably have to focus on more than just the product (fast delivery, optional features of the products, customized parts discounts for repeated purchases or high volume of merchandise bought, etc)

Focus on the industry you are in. Do not try to cover everything because you will have nothing to win since bigger competitors in that are better than you as a new entrant.

Source: http://www.entrepreneur.com