A decade ago, ecommerce was touted as the golden gate to startup riches. Many entrepreneurs jumped in to get their share of the gold rush that followed. But as is the case with all such gold rushes, the majority of seekers return empty handed. While it is easy to appreciate that this is a result of hyper competition arising from over supply, some startups have to accept their share of the blame.

There are some characteristics of ecommerce startups that tend to signal imminent failure.

In this article, I am listing the top few.

Failure Signal 1: Advertising One's Way to Success

Regardless of whether the ecommerce startup is rolling in money or trying to bootstrap its way to success, the temptation to spend money on Google ads and Facebook ads is very large. These two ad platforms reach out to a huge proportion of prospects for any ecommerce business. Alternative methods for growth, such as social content, SEO, and offline marketing seem tedious, slow, and unpredictable. As a result, many ecommerce entrepreneurs try to advertise their way to success. I think this is a fatal flaw.

I am not against advertising, per se. As long as it is part of a larger portfolio of sales activities, I think it works. But, for all practical purposes, if it is the only mode of customer acquisition then I think the entrepreneur is either lazy or lacks creativity.

Failure Signal 2: A Business Focused on Raising Money From Investors

This is bizarre, but it is surprisingly common. I keep running into ecommerce businesses where the founders are perpetually in fundraising mode.

That would be acceptable to me if the company was showing so much traction in its key metrics (dollar amount of sales, number of transactions, number of active users, proportion of loyal customers, etc.) that it was burning capital quickly, but I have come across several ecommerce businesses that end up merely as fundraising vehicles. Some of them end up raising a few rounds of investment without really showing any significant traction. That is a huge red flag.

Failure Signal 3: No Path to Profitability

Even the best of ecommerce companies seem to struggle to turn a profit. The big daddy of them all, Amazon.com, has not turned a profit in nearly two decades of existence; and seems fine with that. But in several cases, you can see a clear path to profitability – just that such profitability seems delayed.

In the case of some ecommerce businesses, I find that the business plan does not even try to identify a path to profitability. If you are not familiar with the mechanics of ecommerce startups, you will probably be shocked to learn that many ecommerce entrepreneurs actually believe they will get away by saying, "wW haven't really thought about how we would be profitable, but we will get to that in due course." I cannot fathom that "strategy."

Failure Signal 4: A Model That Presupposes Scale

The approach an ecommerce player needs to take in order to successfully go to market is quite different from the one a mature ecommerce business would take. In engaging with several ecommerce founders, I notice their mindset is often far more suited for a mature business as opposed to a startup. Several of their tactics and assumptions make it seem like they have already succeeded to achieve scale.

But the biggest challenge that an ecommerce business faces is scale. While counting one's chickens before they hatch might provide a great ego massage, it is devoid of reality.