A Full Proof Exit Strategy for Ecommerce Entrepreneurs

by alex| in Web to Print on August 23, 2019 8:25 am 1644 /

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There were approximately 25 million businesses in the US in 2018. About 95.5% of them are small entrepreneurs involved in high-growth eCommerce businesses. These entrepreneurs’ objective is significant wealth creation. There are 585 billionaires and about 11 million millionaires in the US. It is estimated that 80% of both groups originated as either an entrepreneur or were associated with entrepreneurial activity. Such statistics on entrepreneurship in the United States inevitably pose questions.: “What is the Full Proof Exit Strategy for Ecommerce Entrepreneurs?”.

The answers are as follows:

Growth model:

When designing a strategy for growth, the entrepreneur may face two problems – how to expand the business to new customers, varied geographies or product segments and how to finance the growth of the company.

Prepare the appropriate growth model:

The entrepreneur who wants to grow the eCommerce business will need to select an appropriate growth model. An entrepreneur need has the responsibility to prepare and follow the growth models depending on the industry, the availability of funds, and the state of the competition, among others. Based on a study it was found that there are three broad options to prepare a growth model: organic growth, franchising, and acquisition.

Organic growth model:

The organic growth model is the quickest form of the start-up phase to a different location or to a multiple product firm. The entrepreneur will invest in new profiting products, for instance; open a new office another town, will establish their own management teams, and will follow own business practices, reporting and monitoring of activities. Provided the entrepreneurs should have access to the external funds so that they can establish new markets/clients served in a manner that reflects the core competencies of the firm. This model will be suitable for businesses that require intensive customer service and provide value by knowing and thoroughly meeting specialized customer needs; or for businesses that serve highly-specialized niche markets.

Franchising model:

The franchising model provides another growth option. The entrepreneur may involve existing firms that will operate as franchisees. Thus, the entrepreneur will share the risk of business expansion with another firm or company and will minimize both potential losses and capital needs. On the other hand, however, the entrepreneur (the franchisor) gives up a portion of the profit to an external company; and will be unable to keep track of the business in the same fashion as with organic growth. This model may be suitable for firms or industries that offer standardized product, where customer service processes are straightforward and monitoring is easy to perform.

Acquisition model:

The acquisition model allows for rapid expansion. The entrepreneur may be able to capture significant market share by acquiring another company already on the market. The acquired company should have valuable assets, such as customers, know-how, or presence in strategic locations. The company is based on the company’s corporate culture and employees abilities and needs to guarantee that the leadership knows the goals of the firm and meets the planned scheme.

Prioritizing opportunities:

There are endless opportunities for any growing eCommerce business. Entrepreneurs need to choose only a limited number of opportunities to focus on. Make the opportunity analysis. All opportunities need to be identified and modeled to see how they affect market potential. The ease of implementation or the entry dimension is defined as identifying characteristics vital for a given industry. After identifying the relevant criteria, the next step is the qualitative analysis to classify entry or implementation as easy, medium or difficult. It is difficult for the markets to enter may provide a competitive advantage and be more profitable in the long term. It is beneficial to use the largest opportunity with the easiest implementation strategy.

Analyzing financial principles:

The company’s financial analysis is a consistent job in any company. However, such an assessment is required when the entrepreneur investigates alternatives for exit options. An entrepreneur should understand the amount they can pay from selling the entire enterprise or part of it, the entrepreneurs must understand the value of the enterprise. The financial modeling goal is focused on the company’s present results and economic perspectives. The entrepreneur can create assumptions about the growth of its sales, expenditures, resources, and investments, as well as its opportunities for the future.

In financial modeling, various rules should be noted, ensure consistency in the economic projections and corporate assessment and that the results are reasonable:

1. First, the entrepreneur should follow the three concrete statements of the company’s finance- the balance sheet, the profit-and-loss statement, and the cash flow statement.
2. Secondly, financial modeling can follow a bottom-up or top-down approach. In the bottom-up approach, the entrepreneur should forecast all key drivers of revenues, costs, investments, depreciation, as well as their growth rates, at a great level of detail and the Performance balance sheet, Profit, loss, and cash-flow statement will be the aggregate result of these financial models.
3. Third, any financial anticipation should include a range that is long enough to capture future growth, and short enough to avoid the excess uncertainty of long-term planning. Usually, financial projections extend over five years.
4. Fourth, financial analysis always includes scenario-based forecasts. Prepare at least three scenarios- current case, worst case, best case. Different scenarios not only add trustworthiness to the company but also shows that the entrepreneur knows the business and can think of what can go wrong or right with the eCommerce store.
5. The financial forecast can be real or nominal. Real forecasts exclude the impact of inflation and only look at the “real” growth of the eCommerce business whereas nominal forecasts, on the opposite, do not exclude inflation from revenue/expense growth.

Conclusion:

Finally, any attempt at making growth or financial model requires making assumptions and lastly into appropriate decisions. The entrepreneur may lack data at an initial stage, however; can be found referring to private sources like market shares of key non-public competitors, or customer segment penetration figures.

It is important for the entrepreneur to project future revenues, costs, and investments growth prospectus, opportunities, etc, and any arbitrary projection that can lead to concrete decisions leading to the success of the eCommerce firm.