Business Can Go 2 Ways: It Grows Or It Doesn’t
Clearinity has been in the industry for over 3 years. And here’s what we noticed – businesses do grow or don’t. We admit to feeling perplexed seeing how dirty the accounting for ecommerce businesses can get.
We then ask these questions – How could two similar businesses, with the same processes, find different outcomes?
To find the core component of this difference, our founder, Conrad Rohleder, began to soak himself in accounting for a few years. And voila, he got the answer we all needed! Every business’ back story is a huge factor in their success (or even failures.)
He immersed himself in business books that allow him to deep dive into profits, and how money can kill your business. It gave him perspective far outside his own conclusions.
Talking to other Amazon-specific accountants was a tremendous help too!
Some Choose To Start On Amazon. Some Don’t.
Understanding a company’s origin helped our team understand changes and evolution within an organization. We used the Clearinity Process model to help uncover this reality.
One trend we would like to share is the Amazon Siren Song.
Fact 1: Amazon Makes It Easy To Start
How can Amazon be accused of killing small businesses if it’s so easy to start here? Guys, we’re in the middle of a nuanced conversation.
The fact that this is true, makes it the most popular origin story of many companies. Without a doubt, we agree how Amazon makes it convenient for entrepreneurs to begin a business venture.
The thing is, business success may differ for all of us. We’ll leave it to you to be the judge!
Fact 2: Amazon Owns All The Structures.
Amazon owns everything. From the marketplace to technology, to billing systems, to your listings and products (if you do FBA) – you name it!
But here’s the ugly truth on the accounting side – you need to pay Amazon to play on Amazon.
Amazon doesn’t care if you give them your inventory or if you do it yourself. You’re not exempted from seller fees.
Fact 3: Amazon Owns The Margins
Several things happen once you make a sale on Amazon. For the sake of this example, we’ll assume that the product we’re talking about is in Amazon’s warehouse:
- Amazon makes the sale on your behalf.
- The customer pays for the product using an Amazon payment processor.
- Amazon fulfills the product. Take note that this is protected by Amazon’s return policies. (
- Amazon takes your order and logs it into multiple different databases to do accounting.
- After the settlement period, Amazon decides what fees to pay.
Don’t get us wrong – there’s no problem here. Although here are some of the downsides you can face:
- Amazon knows your unit cost
- Amazon has a buy box to incentivize sellers to have the best price for consumers.
This reality puts Amazon in the position to love the way you make money and your profit margins or not. At the end of the day, they own all aspects of the sale from sales mechanism, unit costing, and payment processing. They’re in control!
Again, Amazon owns it all. This is one reason why divergence between businesses exists.
Amazon Sellers vs. Businesses
The logic in Fact #3 strongly relates to how small businesses think and operate. Do you want more money? Sell more!
Adizes and others codified this thinking well before Amazon existed. Growing businesses must consider better profits to fuel positive growth.
Amazon sellers have very little control over their Amazon platform margins. This can be a factor in the growth or death of a business.
Since we have many clients who have sold or are actively selling on Amazon, we’ve had to ask them these questions:
- Do you feel like a business that sells on Amazon?
- OR Are you an Amazon seller who happens to have a business?
To us, it is without question how Amazon is a firestarter. While it’s great to start here, we’re here to tell you that it’s not great to stay here. Get out when you can!
We’ve seen this time and again, and have even been able to quantify it:
- <1% of Amazon Seller businesses can make over $10MM/year
- The good ones will stop growing around $3-6MM/year.
- The vast majority of Amazon Sellers make $1MM/year or less.
It’s crazy. All of this revenue territory is still classified as a small business.
Be A Business First
Here’s what we want you to keep in mind – be a business first. Be an Amazon Seller second.
Our motivation is pretty straightforward. We want you to grow a business, from $0 to $20MM+/year. We’re not here to tell you to just follow what the successful guys did. We want you to do your very best and follow your flow!
Here’s all that you need to do:
- Start the business on your website first.
- Be a true niche expert, regardless of your product.
- Go to Amazon once you have control of your own business first.
- Use Amazon as leverage for your Sales & Marketing. Don’t let them have control over you.
- Do your best. Be better than Amazon!
Amazon: A Business Killer
So, how does Amazon kill small businesses? We’re about to share some valuable things here so pay attention.
No matter what you do, Amazon is costly. It’s investing in your sales and your marketing.
Take [Tiffany, insert story]
Notice the catch?
[Tiffany]’s small business had to sort out (at least) two issues at once.
A) Solve the margin crunch
B) Solve the new marketing problems
C) Solve the unexpected inventory problem
This is where the Amazon Siren Song kills a company that starts in the marketplace. The company:
- Starts in Amazon
- Grows to that $3MM/year mark and wants to keep growing
- Never gets a healthy margin to invest in new infrastructure.
Amazon sellers who try to turn into full-fledged businesses face the same marketing and inventory growing pains. For starters, they were lured by increased margins but are now second-guessing themselves. They don’t want to kill the golden goose that got them there!
So, what’s next for you?
While the answer to this question can be vague, you can start by taking our Ecommerce Maturity Assessment here.
Let our team help you work through your ecommerce business problems. We’re here to do it with you one day at a time.
Always remember – nothing is easy. If it were, everyone would be doing it.