Avoid These 5 Mistakes if You Want to Succeed in Subscription E-Commerce

People often talk about the high failure rate for startups. But what about the challenges that lie ahead for the companies that actually succeed in making it past the “startup” stage?

Throughout his career, Georg Richter, founder and CEO of OceanX, has had the opportunity to work with dozens of companies that have succeeded in moving from “startup” to $100,000 in monthly recurring revenue. He’s also been deeply involved with companies that moved beyond that to $1 million-plus per month.

Along the way, of course, they face significant challenges. Not every company that goes from small to medium can go from medium to large — and that’s because these two critical growth periods come with completely different problems that require very different strategies. After 30 years in the direct-to-consumer retail industry, Georg has seen plenty of mistakes that have turned successful companies into sinking ships. Let’s dive deeper into the top five:

Mistake #1: Failure to differentiate.

According to McKinsey, the subscription commerce market grew by more than 100% between 2013 and 2018, and there’s no shortage of companies looking to capitalize on that. Some entrepreneurs jump into the direct-to-consumer retail space assuming that a product and a subscription business model are all they need to start generating a flood of revenue, but in reality, that’s not enough. Today’s entrepreneurs should be thinking about how they’ll stand out from day one. Go beyond the elements of convenience, value, and replenishment to create a sense of exclusivity or community around your product or to personalize deliveries to set yourself apart from the competition.

Mistake #2: Being too optimistic or growing overhead too fast.

Once you hit a certain revenue point, it can be tempting to start funneling that money directly into hiring high-level employees, starting new initiatives, adding products, and other growth-oriented pursuits. But it’s far better to stick it out in a makeshift office while you gain traction than it is to start accumulating too much overhead because you overestimated your company’s potential. The last thing you want is to end up with a warehouse full of goods and employees you can’t pay because you tried to scale up without ensuring you could bring in the revenue to support that growth.

Mistake #3: Overreliance on small partners.

Lots of young retail entrepreneurs build a great relationship with one small supplier, and that supplier helps them get the business off the ground. Unfortunately, those affordable small suppliers don’t always operate by the highest standards of quality. They also tend to be in less-than-optimal locations and usually don’t have the capacity to suddenly produce 10 times your normal volume. If orders can’t be shipped fast enough and backlogs pile up at your distribution center, customers will bail fast. Their expectations are sky-high these days — we’re talking same-day shipping here, folks — and you won’t get many second chances. Make sure your partners can deliver.

Mistake #4: Prioritizing acquisition over retention.

A lopsided focus on your front-end acquisition goals at the expense of current clients will lead to churn that ultimately can’t be contained. Your goal should be to turn your current customers into your best salespeople, and that takes an unwavering focus on keeping them happy, even if it means holding off on business development or replacing a valued friend or loyal supporter on your team. Mistakes on the back end that lead to poor customer experiences will be publicized on social media and subscription review sites. And procrastination makes the problem bigger: If you don’t address it right away, it can destroy your reputation.

Mistake #5: Losing control of your data.

Cash-strapped startups are notorious for using a technology stack that consists mostly of free internet tools, most of which aren’t very robust. While it’s certainly OK to take advantage of free tools, especially as you get started, just realize that most can’t handle a whole lot of data. If you are managing a stitched-together group of free tools to process a relatively large data set, you’ll experience substantial friction that typically leads to avoidable mistakes. Consolidate your systems as early as possible, especially if you become confident that your company can scale beyond its current size.

Building a business is hard — it’s just a fact. You’re going to hit speed bumps and make mistakes. Of course, not all mistakes are fatal, but these five have the potential to derail your dream if you don’t take steps to avoid them upfront. Use these tips to keep your company on its upward trajectory to millions in monthly recurring revenue.

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