6 Lessons Learned from Starting an E-commerce Business During a Recession
Like many who have been working corporate jobs for years, I dreamed of a way to escape the gravity of “working for a paycheck.” For me, this took the form of running an e-commerce side hustle selling women’s hair products online for a couple of years while still working my primary job. But in March 2007, I finally decided to quit my full-time job as a web developer and plunge headfirst into entrepreneurship.
It turns out the timing of my decision to start my business was perfect for me personally, but an imperfect timing of the economy. By the fall of the same year, stock and real estate markets were in full meltdown. Consumer sentiment and general retail sales soon followed.
Despite the adversity of the market timing, I was able to grow my business quickly at a 200% YoY rate, quickly reaching mid-7-digit gross sales numbers, from 2007-2010. Here are 6 lessons I learned while growing my business through the last recession.
1.) Choosing the right niche
I was lucky my product niche was already chosen for me years prior to the recession. In retrospect, however, I realized that my category was more resilient than most because women tend to always see value in spending on appearance, even in down markets.
2.) Expanding market share within your niche
Another key reason my business was able to grow during the recession, was that my sales revenue was starting from near 0 and I was able to effectively take market share from my competitors. Any recessionary drags on revenue were overcome by market share increases. The e-commerce market is much more competitive in 2022 compared to 2007, but that doesn’t mean you can’t be more agile than your competitors.
3.) It’s the perfect time to find good employees.
In a recession, an "employees market" (where candidates have any choice of jobs) quickly shifts to an "employers market" (where employers get the choice of any number of candidates). My first employees were all recent University of California graduates. Under normal circumstances, it would be very difficult to hire these candidates within my budget, but these were different times.
At first, I hired all of them part-time, but many of these employees actually ended up staying with me longer term as full-time employees and managers. For the most part, they were all competent, sharp, and motivated, and I really couldn’t have built the business without them.
4.) Contrarian paid marketing tactics may pay off.
Your incumbent competitors will most likely react in one of two ways.
They’ll start spending less because conversion rates will fall.
They'll spend more in desperation to recover their overall revenue.
In my experience, most competitors default to option #1 - which is the safer option. This opened up an opportunity for me to push my budgets harder on my high-performing campaigns. As always, there is a delicate balance between traffic and Return on Ad Spend (ROAS).
5.) Evaluate and trim all your marketing services to help manage costs.
Through the course of running my business, we added a litany of marketing services to help drive sales. It’s always good to periodically review these services and see which ones you can trim to save valuable working capital during a recession. If any contracts are being renewed, this is a good time to re-negotiate better rates and terms. You have leverage because a lot of these services are likely losing customers and would rather give you a lower rate than risk losing your business outright.
6.) Building your repeat customer base is more important than ever.
If you are a young e-commerce business, it’s incredibly critical to building that repeat customer base. To grow your market share in any given niche, you’re going to have to not only acquire new customers to the marketplace but also grab customers that defect from your competitors. It should be an organizational imperative to provide the right customer service, product selection, and overall shopping experience.
In my experience, there is no single “magic bullet” for building your repeat customer base. The building of this base is more of an overall net effect of doing everything “right” over an appropriate amount of time. But that's a story for another time.
