The Promise Of E-Commerce

Whichever way you look at it, the web has become the place for commerce.

Online spending grew again over 2011, and the growth rate has outpaced that of traditional brick-and-mortar stores. While many chain retailers’ online sales are growing, their store sales are shrinking.

For the longest time, entrepreneurs wanting to venture off on their own would open a store downtown where foot traffic abounded. But that trend, it seems, is changing. Today’s equivalent of foot traffic is eyeballs. Much of this new traffic flows from search engines and mega-marketplaces such as Amazon.com and eBay. Today an entrepreneur contemplating a retail business no longer leases space on Main Street. She opens a website. Her market is no longer local.

There is much discussion about how we will reverse the recession and why entrepreneurs are a key piece of the puzzle. The U.S. Census reports that there are 19.5 million nonemployer firms – mom-and-pops – and a large portion of this segment operates retail stores. Another 4.5 million firms operate with fewer than 10 employees, a segment that is also heavy in retail. In this recession many of them have gone out of business.

For an economic recovery, the small, specialty retail segment will need to get back to a healthy state. E-commerce may be the answer, as evidence suggests many small online retailers are doing quite well.

Take FineArtAmerica.com, an online marketplace and social networking site for painters, photographers, and other visual artists. Artists can use to the site to connect with collectors and other buyers and, says founder Sean Broihier, put the business side of their career on “autopilot,” leaving them more time to create art. FineArtAmerica.com (FAA) has more than 28,000 artists who upload new images to the site each day; 6,000 of them offer prints for sale.

FAA has been profitable since launch in 2007, thanks in part to its low overhead. Broihier is its sole owner, and the company has no employees. Revenues were $175,000 in 2008 and $1 million in 2009, when they hit the elusive target. Broihier is a very good example of someone who has taken destiny in his own hands by embracing the Web rather than joining the 8.5% unemployment pool in America. (See my post Deal Radar 2010: FineArtAmerica.)

Another entrepreneur, Jeff Taxdahl, founded Thread Logic in 2002 to create custom-logo-embroidered apparel for businesses and organizations. Products range from polo shirts to aprons to fleece blankets. In a business that has been slow to go online, Thread Logic has focused almost exclusively on Internet sales while keeping in close touch with customers. In 2009 sales reached $1.1 million. (See my post Deal Radar 2010: ThreadLogic.)

These are a few examples of how a high-tech spin is being put on nontech businesses. Providing this spin are companies like Austin, Texas-based BigCommerce founded by Mitchell Harper and Eddie Machaalani, who met in an online programming forum. Harper and Machaalani, a Web designer, founded BigCommerce because they saw that there was no e-commerce product really designed for the nontechnical business owner.

BigCommerce achieved $1 million in revenue in 2009 and continues to grow steadily. The company is 100% bootstrapped. (See my post Deal Radar 2010: BigCommerce.)

For retailers confused about how to manage their inventory and marketing budgets across their own website, eBay, Amazon, comparison shopping engines and search engine marketing, a company called ChannelAdvisor offers some answers. CEO Scott Wingo says, “By our estimation, 80% of e-commerce begins through one of three channels. If you’re a small business, you have a good shot at getting in front of consumers if you can be aggressive on eBay, search engines or comparison shopping engines. If you’re not [on these channels], you are missing 80% of the opportunity.”

Wingo’s company helps retailers manage inventory and traffic acquisition across various channels from a single integrated platform. From 3,000 customers, ChannelAdvisor pulls in $30 million in sales and has raised $80 million in financing. (See Scott Wingo’s Entrepreneur Journey.)

A major movement from brick-and-mortar to online retailers is taking place, especially in North America. In a few years, this will change the look of Main Street, but I hope it will give small retailers greater leverage and more efficient access to markets, including international markets in some cases. As emerging markets embrace e-commerce, large populations of both consumers and retailers will be buying and selling online.

By 2020, five billion people will be on the Internet. Imagine how much e-commerce is likely to happen. The sector is fertile ground for entrepreneurs of all sizes, and it is especially friendly to small, bootstrapped startups.