Last week I asked you to consider quitting Amazon. We talked about failing quickly; we talked about Bill Gates starting both Traf-o-Data and Microsoft; we talked about whether e-commerce was right for you. You’ll remember, I didn’t really give any direction on this question. I purposefully left it in limbo in the hopes that some people would spend some time over the past week entertaining that question. Today, I’m going to try a little harder to push you toward an answer.
Using the same image of Traf-o-Data and Microsoft, I want to remind you that one of the most profitable companies of the past couple decades may have never been created if the founders had stayed in the company they originally started. Who knows? Maybe they would have revolutionized the traffic census data industry, but they would not have revolutionized the world. It’s not necessarily that Traf-o-Data was wrong. There was a need and Gates and Allen were poised to satisfy that demand. But, never forget the concept of opportunity cost. Opportunity Cost relates to the value lost by not choosing another option. In this case, every minute and dollar invested in Traf-o-Data was a minute and dollar that could not be invested in Microsoft.
Remember, an Amazon business takes both your time and your money. Every hour you spend is an hour you aren’t working on another business, an hour you aren’t using to fix your patio, an hour you aren’t spending with your children or spouse. Every dollar you invest in Amazon is a dollar that isn’t being used to pay down your mortgage, invest in a 401k, or take your spouse on a trip. In view of this, it is essential that we really make sure that Amazon is the best place for our time and our money.
“Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?” — Steve Jobs (Luring John Sculley away from PepsiCo)
You’re going to need to answer at least 3 questions:
- What do I want?
- Is Amazon the best tool to help me get there?
- Am I pursuing it in such a way as to make attaining it a reasonable expectation?
[dropcap]W[/dropcap]hat do I want? It’s been said that if you have no destination, you’ll never get there. This is really important. I can’t help you figure out if Amazon can get you where you want to be if I don’t know where you want to be. More importantly, you can’t help yourself answer that question without knowing your aim. Do you want a fun hobby? It’s not a bad thing. A lot of people really like the idea of cruising yard sales and thrift stores to find that one item that they purchase for $2 and sell for $40. It brings a type of adrenaline rush that is more satisfying that building any business. There are other people who want to show off their creativity. Some people are insanely creative and they make me jealous. I saw a girl who can take nearly any pair of shoes and create an amazing, personalized, hand-crafted product. Other people want to break free from rules. They’ve worked for Corporate America for the past 20 years and they’re fed up with having a boss who tells them exactly how they have to do things. They want freedom, independence. Other people want to be free of risk. Their parents filed for bankruptcy because they started a business and they’ve vowed never to make the same mistake. To guarantee this, they avoid anything with even a modicum of risk.
So, what do you want? Very rarely is it just one thing. We all have values and sometimes they compete with one another. Ultimately, however, we have a hierarchy of values and this is how we make choices. What matters most? An example: you can say that you value being physically fit, but if you find yourself choosing Ice Cream and Netflix more often than Broccoli and Exercise, then I can just about guarantee you that being physically fit does not occupy the peak of your hierarchy of values. Take some time and ask yourself what you really want. Truly. Not what you tell your friends that you want. Not what your parents tell you that you should want. What do you actually want?
[dropcap]I[/dropcap]s Amazon the best tool to help me get there. I’m probably supposed to say yes. I write for a site called FBAMaster and co-run a group by the same name. The marketing gurus are probably pulling out their hair, but if I can make the right people quit and the right people stay, then I’ll consider this a victory, the opinions of the marketers notwithstanding.
The answer is not always yes. In fact, I’m tempted to say that if ANY of the things I mentioned above are your primary goals, then Amazon may be a needless uphill battle for you. There might be better areas to spend your time and money.
The Hobbyist — Amazon is just not a great environment for the hobbyist. They have this pesky habit of wanting you to be constantly prepared to reply to customer questions and orders. They have fee structures that are designed to benefit people who sell a lot. They have demanding rules and are prepared to ban you and tie up your money if you don’t comply completely. They have a buy box algorithm that benefits sellers who have good metrics/feedback that are difficult to obtain as a recreational seller. They demand that you have a return policy that rivals the corporate retail giants. Now, I’m not opposed to someone trying Amazon out — a test run, if you will. One of the great things about Amazon is that there are almost no barriers to entry. A couple hundred bucks and a bank account and you can get started. You can prove the concept. But this is not a long term strategy. Whenever someone who isn’t absolutely brand new asks me whether they should be on the Individual Selling Plan or Professional Selling Plan, I almost always want to tell them to just quit. It’s not that I like being a jerk. It’s just that Amazon isn’t a great environment for people who aren’t selling way more than the 40 items per month it would take to justify the Pro plan.
Creative Genius — It’s not that creative people can’t thrive on Amazon, but that Amazon isn’t the best place to exhibit their creativity. We all know the sites where creativity is valued and Amazon isn’t it. Listings are very formulaic and moderately time consuming to create. Products that are sold to the masses rise up the pages and get more sales, while small niche items often languish many pages deep in the search results. The return policy doesn’t work for someone who spends hours creating a personalized product.
Rule Breaker — It’s true that being self-employed brings some freedom and independence. It just happens to be the case that if you are self-employed via Amazon’s sales channel then you get the freedom to follow their rules. Precisely. Ask Chris Wilkey what happens when you follow *most* of their rules.
Risk-Averse — Like most businesses, there is some speculation. You’d be surprised how often I get asked if I can guarantee that someone will make money on X product if they buy it to resell. I always say no. How could I possibly guarantee that? I can’t guarantee that your home’s value will rise or that investing in mutual funds will net you gains either. All of those things are pretty likely in the long run, but they aren’t guarantees. As I explained earlier, there are low barriers to entry, which means that risks can be minimized but they cannot be eliminated. If you aren’t the kind of person who can pull the trigger without having a guarantee, I struggle to see a way forward in this business for you.
[dropcap]A[/dropcap]m I pursuing it in such a way as to make attaining it a reasonable expectation? This is a big one. You may have decided that you want to achieve financial independence and that Amazon is the perfect fit to make that opportunity a reality. You may have the knowledge and even the skill set to turn an Amazon based business into what you want, but if you aren’t pursuing it in the right way, then you can’t have a reasonable expectation of achieving your goals.
So what are some of the things you should be doing to pursue this business in such a way as to give yourself the best chance to meet your goals?
Have you figured out how to structure your business? Have you consulted any experts? Every business is structured some way and doing nothing is a choice (and it may not be the best choice).
Do you have an EIN? Have you registered with the tax board in your state? Do you have a business license / permit in the appropriate jurisdiction? Besides the obvious value of operating your business as you legally ought to (depending on your jurisdiction, it might not be legal to run a business out of your home without a license), this allows you to open a bank account in your business’s name, and to avoid paying sales tax (I discuss this very briefly here).
Speaking of opening a bank account in the name of your business. Are you doing that? Are you commingling personal funds and business funds? The consequences of this can range from being generally unwise and unhelpful to enough to pierce the corporate veil, allowing your personal assets to be targeted in a lawsuit, even if you thought you had appropriate protections in place. This is the bank I use for my business account.
Are you keeping good records? You should probably have consulted with someone on taxes by now and they should advise you on the information they will need to complete your taxes. I’m not going to give advice on whether you should use QuickBooks, Sage 50 (Peachtree), Xero, Wave, or anything else. There are a lot of options and they range from quite expensive to free. However, one thing I will definitely advise you to use in conjunction with a bookkeeping suite is Inventory Lab. Honestly, I’m not sure how people do this business without IL.
Are you collecting and distributing sales tax on your sales? Step by Step guide here.
Are you using all of the tools at your disposal?
Do you actually know if you’re making money? This seems pretty obvious, but you’d be amazed at how many seasoned sellers have literally no idea how much (if any) they are making. Again, I find Inventory Lab to be incredibly helpful here.
Are you investing in yourself? Whether it is books, tools, webinars, or what, the only difference between you and the you from a year from now are the people you meet and the things you read. We try to facilitate that growth as much as possible by creating a community where we help each other, but if you’re serious about this, you should probably be looking at ways to improve on your own.
Do you have a plan? Wanting to grow is not a plan. Making more money is not a plan. Do you have a roadmap of how you will get from where you are to where you want to be? Is it on paper? Is it quantifiable? In an Amazon based business, like most businesses, you can get lost in the details. You can spend so much time working in your business that you never work on your business. My absolutely favorite book on this topic is E-myth Revisited. There are plenty of other options, but that is the book that did the trick for me.
Are all of these things overwhelming? If so, that’s okay. Not everything has to be done today (although you’d probably benefit from picking at least 1 thing to work on and starting today). But, these are just the tip of the iceberg for the things that go into growing this into a successful business. If none of this sounds desirable, it’s entirely possible that this isn’t right for you. I can tell you to keep plugging away. I can sell you some e-book for $29.95 about the *secrets* to being successful on Amazon. And, at the end of it all, we might be in the very same spot we are in today. This business is not for everyone.
For some of you, this is your Traf-o-Data and you need to start figuring out an exit strategy. Don’t let sunk cost keep you in a business that you don’t belong in.
For others of you, this is your Microsoft. This is the opportunity you wish you would have found 5 years earlier. The idea of growing a business, while a little frightening, is exactly what you want. You’re willing to put in the work. You’re willing to put in the investment. You have the right balance of caution and execution. You have the right balance of creativity and rule-following. You have a plan and you’re putting it into place. You’re creating a team of advisers who will help you succeed. For you, well there’s no article I could write that could talk you out of this business.
As Always, Best Wishes
Mike
I enjoyed the article. It feels like you are taking a scare tactics approach to get people to figure out whether or not Amazon is right for them.
I have read much of E-Myth as well and part of the reason why I love doing Amazon so much especially FBA is because Amazon does a lot of the work so I don’t have to. I get my stuff to them and then for the most part a lot of my work is done.
Because I am a FBA seller I don’t have to worry about:
1. Shipping stuff and everything that entails
2. Customer service and everything that entails
3. Managing a website and everything that entails
4. Marketing
5. A whole slew of other things.
Amazon is the well oiled machine that is talked about in E-Myth. Amazon is the McDonalds of web-fulfillment. Their aim is to make every experience through their website as easy as can be.
It is for that reason that I continue to rely on AMZ because you can trust them to provide customer satisfaction and of their reliability.
Definitely agree with you that Amazon makes running a true e-commerce business far easier than anything else, particularly using FBA. I think this is a two-edged sword, though. Sometimes people fail to do even 1/100th of the due diligence that they’d use with a ‘real’ business. Nobody would ever open a McDonalds without spending a single hour talking to an an accountant or lawyer. Nobody would ever open a McDonalds and say “oh, I’ll worry about sales tax later.” Nobody would ever open a McDonalds and use their personal checking account to fund it. I could go on, but I think it makes the point. Amazon can be a great tool to empower you, but it can also be a crutch that lets people who shouldn’t be in business pretend that they are a business for far too long.
Some of the hurdles / roadblocks you mention may or may not be super relevant if you are first starting out though and your just starting to sell.
In your home state it is important to pay the sales taxes on stuff within your state but after that regarding selling stuff online sales taxes to other states are still pretty murky.
There are states that are supposed to collect use taxes on stuff sold out of state.
I agree that there are rules and guidelines you need to follow if you want to turn it into a successful business but I like I said previously AMZ and their minions make things a lot more easy to do stuff.
I think something that should be mentioned is to have people do FBA before they try and do merchant fulfilled.
I think merchant fulfilled is more difficult and people often get suspended because I can imagine merchant fulfilled being more complicated / frustrating.
Not sure if you have done an article on merchant fulfilled vs. FBA but would be a great topic I think.
People get into Amazon to ‘express their creativity’…..seriously????
As a relatively new seller I pretty much KNOW that Amazon is my Traf-o-data.
I’m surprised to hear it would be ANYONE’S Microsoft.
Surely that’s your own shopify e-commerce store or PLR set up or your used book mega-selling operation that could survive outside of Amazon if it really had to etc etc. An email list. Anything where you actually have an asset that you own. (50k of inventory sitting in FBA that they can, on a whim, decide is all hazmat and that you would struggle to sell anywhere else- does NOT qualify in my book.)
Playing in someone else’s sandbox where they control ALL the rules and where (as the recent post on being suspended said) you are less than a microscopic blob on their radar… In what sense is that ever going to be anyone’s ‘Microsoft’? In some ways selling on Amazon is like being EMPLOYED by Microsoft. But under the worst possible terms: You get no guaranteed income but are responsible for your taxes. You have one employer who can turn off the tap at a moments notice or change the rules in any way they please- but not a trade union in sight where you can go to appeal.
Why I am even pursuing it then? One reason, and the ONLY ultimate reason I can see anyone would: Amazon produces the sales and if you want to re-sell profitably you don’t really have much of a choice.
FBA and having them ship stuff whilst you sleep is fab and all. But there are other companies that will do that. NI much feel much more comfortable using Shipwire and having Amazon Ebay, Rakuten etc as mere sales channels amongst many.
However we all know that set up doesn’t get you into the inner sanctum of the prime membership and all that brings – namely the 50% of customers who never order from a merchant seller.
I can really only see a few likely outcomes of my foray into amazon FBA:
– I will use amazon as a starting bloc to move into other stream of revenues.
– I will stick with amazon as my main online entrepreneurial activity but my offline efforts in other completely unrelated fields will take up a 60/40% split against Amazon. That would be the passion/creativity/ changing the world stuff you alude to.
I find it hard to see a scenario where all of my eggs will ever be put into Amazon’s precarious algorithm prone basket.