Brian Mart is a freelance writer for MoneyCrashers and small business owner who writes about finance, technology, and business strategies.
To turn around a flailing e-commerce business, you need a strong understanding of, and possibly expertise in, the business’s niche. You need a detailed, start-to-finish execution plan. You need a big-picture, long-term vision to guide the turnaround and its aftermath. Sad to say, you need a fair bit of luck too.
Daunting as the thought of boosting a struggling e-tailer’s cash flow may be, the many thousands of success stories in every imaginable niche are a testament to the promise of a well planned, well executed business-building strategy. Let’s take a closer look at how to find a strong e-commerce business, boost its cash flow, and build it into a business worthy of its name – and yours.
Finding a Good Turnaround Candidate
Successful turnarounds begin well before buyers and sellers meet for the first time. In fact, researching and vetting candidate companies prior to a transaction can absolutely make or break a turnaround attempt. Though this is by no means an exhaustive list, these are some of the most important things to look for when selecting an e-commerce project.
Falling Market Share in a Growing Niche
Declining niches usually aren’t fertile ground for turnaround candidates. In struggling industries, the strongest companies’ value to potential buyers usually turns on physical assets, business processes, human capital, or some combination of the three. They’re often worth more in pieces than as a whole. Also, while it’s certainly possible to grab a larger share of a shrinking pie through better execution, that’s not a sustainable strategy, unless you’re looking to sell out to a larger or more diversified competitor before your niche swirls into terminal decline.
By contrast, companies earning smaller shares of a growing pie are often attractive turnaround targets, since their woes are more likely due to internal dynamics such as disinterested management or poor products than to secular forces too powerful to fight. Business Insider reports on Domino’s oft-cited turnaround, which transformed the company from a low-quality laggard to arguably America’s most recognizable pizza delivery brand in less than a decade.
Clear-Cut Evidence of Competitor Innovation
Hidebound industries are vulnerable to disruption. Uber has shaken the taxi industry to its foundations, for instance.
However, in the ultra-competitive e-commerce world, dynamic niches might actually present better turnaround opportunities. Great turnaround candidates often appear to have missed the boat on important trends that have benefited their competitors. For example, in the early days of e-commerce, free shipping was a rarity. Amazon and other powerful e-tailers pioneered the concept on larger orders, and free shipping is now far more common – though still not ubiquitous. Straightforward opportunities like these are low-hanging fruit for turnaround specialists.
Variety is the spice of life – until it creates a logistical nightmare that threatens to spiral out of control and drag a perfectly good business down with it. Often, all that’s needed to shore up a business with a bloated, unfocused product lineup is a diet. Look for turnaround candidates with lots of low-volume or specialized SKUs that don’t appear to provide much brand or bottom-line support. Such businesses are ripe for cost-cutting. According to Harvard Business Review, Oscar Mayer significantly improved profitability in the 1990s in part by eliminating approximately half its SKUs.
Unclear or Outdated Branding
You’ve surely visited your share of muddled, inscrutable websites that leave you with more questions than answers. If you can’t discern what a publisher stands for within a few moments of stepping over its digital doorstep, you’re likely to stop trying. This is an existential threat for e-commerce businesses that live or die by their conversion rates. Businesses with strong products and poor (or even mediocre) brands are excellent turnaround candidates. Often, all that’s required is a refocused, refreshed brand – in brick-and-mortar terms, a shiny new coat of paint and easy-to-read exterior signage.
Like poor branding, poor infrastructure is another sign of a turnaround in the offing. Businesses with subpar backend and frontend web infrastructure, objectively deficient customer service or fulfillment operations, or less-than-fantastic user experience ratings aren’t necessarily lost causes. All these problems can be fixed, as long as they’re backed by solid products – and as long as you’re willing to put in the work, which can be significant.
Evidence of Poor or Disinterested Management
It can’t be said enough: There’s no substitute for strong, attentive management. Look for turnaround candidates with obviously subpar or disinterested management – whether due to absentee ownership, understaffing, overstretching, or general apathy. If there’s nothing fundamentally wrong with the underlying business, a simple change at the top (and in the ownership suite) can go a long way.
Boosting Cash Flow at Newly Acquired E-Commerce Businesses
Turning around a newly acquired e-commerce business is a long slog. Some turnaround elements prove relatively quick fixes, while others require months or years of work, and sometimes don’t pan out at all. Here’s a look at broadly applicable elements of an e-commerce turnaround, in roughly sequential order.
Explore Short-Term Financing Options
You need capital to execute an e-commerce turnaround, especially if you’re investing in new inventory or a major revamp of your web presence. Before you seal the deal on your new business purchase, lay out your turnaround plans and estimate how much they’re likely to cost. Based on how much you expect to pay for the business and what you expect your starting cash flow to look like, determine whether you can afford to self-fund your turnaround, or whether you need to seek outside business financing.
It’s crucial to make this determination as early as possible. Raising capital is a complicated business that can’t be rushed or finagled. Then again, a properly executed capital campaign can be a great buzz-building tool. A high-profile traditional or equity crowdfunding campaign puts your business in front of thousands of potential customers, not to mention bloggers and influencers in its niche. Oculus, a virtual reality company, shot to prominence in 2012 (and was later acquired for approximately $2 billion) largely on the strength of a wildly successful Kickstarter campaign.
Don’t Be Afraid to Halt Order Flow
A simple tip that’s hard to follow. Early on, gaming out and then implementing your turnaround strategy is likely to consume the lion’s share of your time. Unless you plan to leave your pre-turnaround product lineup and fulfillment architecture in place, you need to halt (or, at minimum, disrupt) fulfillment at some point during the transition. If it’s going to happen anyway, it’s better to get this out of the way early on, before you build order momentum. Pausing order flow during a website redesign or rebrand is also a great way to build buzz for your eventual relaunch – the digital equivalent of a “Pardon our dust” sign presaging a new and improved retail space.
Cut Out Low-Volume, Expensive, and Extraneous Products
Take a page from Oscar Mayer’s book and evaluate your new business’s entire product lineup. Identify SKUs that don’t sell well, are expensive to make, or seem extraneous to your brand. If you can’t see a clear, cost-effective path to improving the financial performance of these products or aligning them more closely with the nub of your company brand, eliminate them. Slimming down your product lineup and eliminating extraneous inventory is a great way to cut costs without doing long-term harm. It can also be an effective precursor to a rebrand around a specific product line or segment.
Here’s a helpful calculator to allow you to determine your profit margin from a given product:
Dispassionately Evaluate Infrastructure and Discard Low-Performing Elements
Turn the same critical eye to your e-commerce business’s physical and digital infrastructure:
- Web hosting
- E-commerce engine
- Backend systems (bookkeeping and accounting software, inventory management, fulfillment)
- Customer service
Research and price out alternatives to every significant element of your new business’ infrastructure, even those that seem to be working fine at the moment. Research often uncovers previously unknown or nonexistent solutions.
Once you’ve identified alternatives, don’t be sentimental about discarding infrastructure elements that don’t work well or don’t perform cost-effectively. It’s better to cut them loose early in the turnaround process and start fresh with superior services than to put off the switch until a crisis forces your hand. A simple example: If your new business traffics in bulky items, switching from ship-by-weight to flat rate shipping is likely to trim your total shipping costs.
Focus on Delivering Value
An April 2016 Bloomberg report on Prada’s planned turnaround included a startling quote from the company’s chairman, Carlo Mazzi: “I don’t like the word luxury…[v]alue for money is our strategy for the future.” It’s remarkable to hear the chairman of one of the world’s foremost luxury brands and status symbols downplay the very concept of luxury – akin to the chairman of General Motors stating that the future of transportation is mass transit and bikesharing.
As the Bloomberg article and subsequent Mazzi statements make clear, Prada isn’t about to go into the knockoff handbag business. Rather, it’s retooling to focus less on ostentatious luxury for luxury’s sake and more on high-quality (or perceived high-quality) products that customers actually want to use – not just carry around to show off the Prada label.
Whether you sell designer goods or not, keep your customers’ perceptions of value front and center, and clearly communicate that delivering value is your top priority. You can communicate this directly, in a mission statement or individual product descriptions that highlight product quality. Or you can communicate this indirectly, with user experience and customer service investments.
Retain Existing Product Reviews and Testimonials
Quality product reviews and testimonials are critical to your company’s credibility. The more, the better. If you don’t plan to significantly change your e-commerce business’ frontend, you probably don’t have to worry about losing existing review and testimonial content, though you will want to maintain accuracy and discard reviews for discontinued or revamped products.
If you do plan to migrate to a new frontend, investigate the technical feasibility of transferring existing content. Ditto for reviews on your company’s directory listings (Yelp, Manta, BBB) and third-party commerce portals (Amazon, eBay). It takes months to rebuild a review and testimonial portfolio, and you don’t want to start from scratch.
Improve Onsite and Offsite Support
If your new e-commerce business has existing customer support assets, such as in-house account managers or service reps, subject them to the same standards as the rest of your infrastructure. If they meet your standards for performance and cost-effectiveness, keep them in place or expand their capabilities. If their value is less clear, explore outsourcing alternatives, such as traditional contact centers and cloud-based services such as LivePerson. If you’re taking over a smaller business, consider investing in a toll-free number that redirects to your personal phone during business hours, using a cloud service such as Phone.com.
If you don’t have existing support assets, you’re going to need them – if only to inspire confidence in customers and prospects. It’s almost always faster and more cost-effective to ramp up by outsourcing. Invest in phone, email, and live chat support to start. Over time, boost your self-service capabilities (and reduce demands on your human support assets) by building an onsite knowledge base or help article database.
Examine and Renegotiate Supplier Relationships
Once you’ve wrapped your head around your ongoing inventory needs, examine your existing supplier relationships. Renegotiate terms where possible, particularly with suppliers with which you plan to increase order volumes – and demonstrate buy-in with those suppliers by committing to such increases. Just remember to tread carefully. Next Level Purchasing has a good primer on the pitfalls of suppler contract renegotiations, which can be complicated and contentious for the uninitiated.
Set Up External Seller Accounts and Certifications
If your new e-commerce business doesn’t already have them, set up seller accounts on high-visibility retail portals: Amazon, eBay, and any properties specific to your niche. External seller accounts expose your business to new customers and markets – particularly during the early stages of a turnaround, before you’ve had the chance to raise your home site’s profile.
Also, seek membership in niche-specific associations or trade groups, if relevant. And commit to the Google Trusted Stores verification process – an onerous and potentially time-consuming project that can boost traffic and sales over time.
Redefine External Brand
Most e-commerce businesses don’t set out to save the world. However, that doesn’t preclude you from redefining your new business’ external brand in the context of a broader narrative, mission, or purpose. Younger consumers are especially sensitive to values and purpose – according to a 2015 Deloitte report, millennials prefer to patronize (and work for) companies they perceive as ethical or purpose-driven.
A quick, easy way to create a purpose-driven perception is to draw up and display a list of core values or a concise mission statement on your home website. If you’re willing to invest the time and resources, and it makes sense within the context of your business plan, consider a more comprehensive rebrand that makes your company about your higher purpose. For instance, apparel e-tailer My Sister devotes a substantial share of its revenue to fighting sex trafficking – and has an external brand that makes its mission abundantly clear.
Pursue Affiliate Relationships
Affiliate programs are excellent awareness-building and lead gen tools, and often boost sales. In a detailed (if salesy) primer on affiliate marketing, ConversionXL cites a sleepwear e-tailer that earns 11 percent of its total revenue from affiliate arrangements. You do have to pay commissions, typically of 10 percent to 15 percent, but that’s often a small price to pay for improved site traffic and higher sales. Quality affiliate prospects include influential web publishers catering to your core audience groups and discounting sites that pass portions of their affiliate commissions on to consumers.
Every e-commerce business is different. The tips and strategies outlined here are meant for the e-commerce category writ large. Your new e-commerce business might be able to shirk some or most without adverse effect. And, depending on the nature of your business, ideas not mentioned here might prove important or essential to its turnaround. If you’re overwhelmed by the thought of pursuing all these initiatives in sequence, or honestly not sure whether some apply to your situation, reach out to seasoned entrepreneurs with on-the-ground e-commerce turnaround experience. As long as you’re not crowding their turf, they should be more than happy to help a fellow go-getter.
What are you doing to improve your e-commerce business’s cash flow?