Entrepreneurial Blog

What are the pros and cons of doing business entirely online without a physical storefront or presence? Consider this question from the perspective of selling a tangible product.

The pros of doing business entirely online without a physical storefront or presence include less overhead costs, less personnel costs, and less startup funds.  When a business is entirely online there is not any additional overhead costs for managing a storefront; including, rent, utilities, property taxes, and costs for furniture and fixtures.  The only overhead costs would be for a warehouse and not the additional overhead costs of a storefront.  One could set up the personnel in the warehouse to follow sales.  If one finds that they only make online sales at specific times, certain days, or certain seasons then personnel at the warehouse could follow this schedule but if one also had a store front then this would need to be manned more hours on the off chance that a customer might walk in the store.  Since one would not also have to purchase furniture and fixtures, pay deposit for a storefront as well as a warehouse then the start up costs would be lower.

The cons of doing business entirely online without a physical storefront or presence include potential for fraud, less customer loyalty, and some providers will not sell to a business that does not have a physical presence.  Customers could purchase your product with a fraudulent credit cards which you might not discover until after you have shipped the product.  The chances of using a fraudulent credit card at s storefront is minimized since you could ask to see identification with each credit card purchase.  When a customer gets to know a business owner and can come in to  a storefront for personalized attention then that customer has a greater likelihood of becoming a repeat customer.  This personalized service is lost with an online marketplace and it would be harder to inspire customer loyalty.  Some providers refuse to sell to a business with only an online presence, they require a storefront in order to purchase from them.  This could drive your costs of goods sold up if you could not purchase from the wholesaler and had to purchase from an intermediary.

Why are large firms so slow to change? Think about the reward systems in place in such firms, as well as organizational issues.

Large firms are slow to change in that there are many departments and people that make decision for the firms and this lead to many many meetings and discussions about changes.  Sometime the entire personnel in the company may need to be involved to decide on which changes would best suit the company.  Some people in the company may try to thwart the change which will also slow the process.  With the greater number of deciders finial decision take the greater amount of time.