There are two types of businesses i.e. offline business and online business. Recently i observed that online business is diversifying into offline business. The recent entrant into offline business is YepMe and launched their first physical store. The other prominent names are FirstCry, PepperFry, Lenskart etc. It is quite an interesting development and logistics can be one of the reasons for this move. Another reason i can think of is to hedge the risk. The e-commerce business is burning huge cash in terms of discount. The big names cannot continue with this strategy forever. With each passing day, it is getting difficult for small vendors to sell their products on e-commerce websites. Only the player with deep pockets can survive in this business.
On the other hand, the success of an offline business is purely dependent on some key factors. It is always aspirational to take the offline business to online. Though i have different views on this. There is a famous saying that competition is always good. I agree but only if there is a sufficient demand to accommodate everyone. Assuming, there is a demand to accommodate only 4 players but ten players are fighting for top 4 slots. The end results either rest 6 will shut shop or merge with others. This is what is happening across all the businesses and sectors. Be it e-commerce or telecom. Sometimes we feel that these strategies or assumptions are valid only for big businesses. Trust me it is true for all businesses including small business.
In my previous, i shared some of the small business that can never fail. The list included offline business and i promised to share the reasons for the same. This post will discuss the points to be considered before you start an offline business. Some of the points may be situational or geography dependent.
Offline Business – Five Points to Consider before you Start
1. E-commerce: E-commerce can be a both opportunity and threat for offline business. It might be an opportunity for existing players who have achieved economies of scale. When you are planning to start an offline business, your key concern should be competition. Trust me, the biggest competition is from e-commerce. The offline retailing of products like mobiles, electronic goods, books etc have suffered the most. The reason being, these are best sellers on e-commerce platforms. There is a limited demand and competition is from all side.
In my opinion, while shortlisting an offline business, the first and foremost consideration is that it should not be replicated online. Any skill based businesses like dance school, consultation etc cannot be replicated online. Whereas, stationery shop, service centre or small food points are other examples of physical set up. Therefore, you should select a business that cannot be replicated online to kill competition.
2. Experience: You must have observed that most of the entrepreneur start a business correlated to their skill sets or experience. It may not be true for online but definitely true for offline business. The probability of success is high if you know the business in and out. On the contrary, if you have a unique business idea then experience might not be required. Thirdly, you can always start an offline business in partnership if you don’t have an experience. The example of snacks shop shared by me in the previous post is running on the same model. The raw food material and workers are supplied by his business partner in lieu of 25% share in profit. He is also providing support to run the business. Lastly, Franchisee model is always a safe bet for offline business. The company provide a complete setup and your job is to manage and run the same. It eliminates a lot of hassles and hurdles.
3. Avoid Conflict with Big Brand or Established Player: In my opinion, this is the very crucial point. You should always look out for virgin territory. The reason being a new business cannot compete with a big brand or established player in the same area. There is a concept called first mover advantage. Trust me, it works most of the times. I always suggest readers to start a business in upcoming areas or areas with huge growth potential. It may increase your gestation period but it is better than wasting energy in fighting with the competition. Once you are established, you will be in a better position to take on any new player.
4. Worker Issues: Practically speaking, 90% of offline business face worker issues. Though you may find cheap workers but difficult to find good workers. Assuming, you invested 50L to start an offline business but the salesman is not good. It is difficult to run a business in such a scenario. In the food business, the success depends on the cook. All business strategies fail if the cook is not good. Secondly, it is difficult to retain good workers. Before you start any business, it is important to address workers issue. Recently, one of the barber shops near to my place closed because of workers issue. A new shop opened and all the barbers of the old shop were hired at double salary. The reason, there is no other barber shop in the area.
5. Be Prepared to Handle Unexpected: In business language, it is called Plan B :). I came across a similar situation. Therefore, it will be better to explain with an example. There is a locality near to my residence with a lot of PG’s. Some business graduates sensed business opportunity and launched laundry service. At one point i saw huge queues in front of their shop. Initially, he started with 5 washing machines and gradually increased the count to 25. A few more shops opened and everyone was minting money.
The PG owners of this area are basically land owners and not professionals. They don’t want any hassles and provide only basic services like TV, WiFi, catering etc. Now another smart guy sensed different business opportunity. He offered PG owners to allow him to run laundry service/install a washing machine inside the PG facility and offered 50% profit. The PG owners happily agreed. He provided room service and reduced rates by 20% as his operational cost is less. You cannot predict unexpected but should have a plan ready to handle such situations.
Words of Wisdom: The online business has its own set of challenges. In my opinion, offline business is more dependable and reliable. If the e-commerce players are moving to offline mode, it implies you cannot write it off completely. Both the models can co-exist. As i suggested, if you are in a business that cannot be replicated easily then you are home. The big question is how to find such business idea :). If you don’t want to risk high capital initially then you can always look out for business ideas without any investment.
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