Failed E-Commerce Businesses: What Lessons Can You Learn?
It's a fate everyone fears but is sure to learn from.
And let’s be honest, we CAN learn from our OWN failures. But, learning from others’ failures is certainly easier (and less painful).
While doing some research, we found a fascinating website called Failory. It’s a mashup of ‘fail’ and ‘factory,’ or fail factory. An interesting database with articles such as 31 Failed E-Commerce Startups & Their Case Studies.
After perusing the list, we’d like to share some of the most interesting failed e-commerce start-ups and the lessons they’ve learned since shutting down. Let’s jump right in!
First up: FAB, a North American company valued at more than 1 billion in March 2015 with over 500 employees.
After just six months, FAB managed to gain 1 million members. In 2012, they hit the 10 million members milestone. Important note: To view the products available on the website, you had to be a subscriber!
But, what was FAB? FAB was both a social network platform and an e-commerce (sort of like Pinterest), which was way ahead of its time in terms of its features. Among those features was an ‘Inspiration Wall’ or feed which enabled users to share the purchases they made on Fab.com. Already, Fab was pushing the idea of social commerce, which was quite avant-garde at the time.
A successful company, millions of users, and even partnerships with huge networks and platforms like Facebook. What went wrong?
Their success. Before they knew it, there were tons of companies seeking to replicate the platform and its success. Well-known North American players wanted a piece of the pie.
The race to the top was on, and FAB’s CEO, Jason Goldberg, made some bad decisions. Even before making sure that the American market is stable, he invested in a few European start-ups. As a result, FAB said goodbye to $100 million in capital.
Then another problem emerged: the delivery time. FAB managed to decrease its delivery rate from 16.5 days on average to 5.5 by buying their own warehouse in New Jersey. Sales increased.
Cue the drama. Spurred by its success, the company began exponentially scaling its inventory and product catalog.
The issue is that the more products you have, the more likely you are to find them on other websites. As Failory points out, “The plan on expanding their product inventory backfired as customers realized that they could find the same products for a cheaper price and a faster delivery on Amazon. Customers left Fab in exchange for a better service from Amazon.” In other words, FAB lost its competitive edge.
The company, once valued at $1 billion, was sold for $15 million.
WANTFUL is another e-commerce business that was prevalent in the US in the 2010s.
The company targeted individuals looking to buy gifts for friends, family or acquaintances and its objective was to help users by offering them personalized gift recommendations based on a set of input entered.
This feature worked so well that Wantful later expanded to allow users to find items for themselves as well.
In doing so, they signed their death certificate.
It’s important to understand that Wantful’s strength lay in its outstanding ability to generate personalized gift recommendations. As soon as they started offering e-commerce-like features, they had to compete with big players like Wish. It would have been best if Wantful established itself even further as a ‘curated recommendation website’ first, before integrating e-commerce features.
Inevitably, growth slowed down, investors got scared, and Wantful found itself alone against new competitors. As a result, the company closed only 2 years after launching.
Like FAB, Wantful lost its ‘raison d’être.' In other words, rather than stick to what they did best, both companies tried to generalize themselves. Users no longer had a reason to visit.
A valuable lesson for any business!
Last but not least: VIVALATINA, an e-commerce business in Mexico created by Frenchman Nicolas Tranchant.
Despite his very comfortable job as an aeronautical engineer, he left everything behind to follow his wife to Mexico.
He found himself without a job and started an online business (in France) that (resold) Mexican sterling silver jewellery.
The company's main selling point was the low price of its products, and Nicolas’ goal was to let the company develop on its own, little by little.
After several trials with different CMS, he finally switched to Shopify. This gave him the opportunity to invest a good part of his time into promoting his store.
His strategy was simple: SEO. SEO is a powerful acquisition channel, but it takes a long time to generate results, and even more so when you are not an expert. However, Nicolas explains that he learned a lot via videos and books.
However, 1 year later, his efforts bit the dust when he received a Panda Penalty. According to Google, "Panda penalties occur when websites manage to rank highly despite thin or poor content that does not serve the end user.” Example: duplicate content.
Realizing his mistakes, he invested in real SEO training. However, the damage was done and his company took a hit. Failure #1.
His second failure, as he admits, was his lack of knowledge about the French market. He eventually found out that the sort of jewellery he was selling wasn’t in demand in France.
The second time around, his company didn’t shut down, and Nicolas took some time to reassess the situation while keeping his domain name (and, therefore, his website). Except that:
- He invested in proper web design
- He made the switch from jewellery salesman to a jewellery designer, notably by purchasing a 3D printer
- He changed his target market by offering pricier products
- He completely transformed his marketing strategy
Keep in mind that his new company had nothing to do with his initial start-up. But this time, success was knocking at his door.
What we can learn from Nicolas’ failure: lack of knowledge and loneliness can eventually lead to your success!