The writing is on the wall. Soon, there will be few employees left.
Self-employed entrepreneurs are no better off.
If you start a business online today, your odds of surviving in this harsh economy are slim. Consumers have become more demanding, more careful, and less willing to pay. Only businesses that cater to the insatiable desires of consumers, for less money survive. In time, this too will become impractical.
While most Economists claim that our current Crisis is because of loans and hyper-inflation – I disagree. I believe that they are mere symptoms of an entirely different problem:
Technology and the Internet have destroyed more businesses than ANY bank. Technology has wiped out the Old Economy to make way for a New. Online Entrepreneurs are unknowingly conducting business following the Old Rules and most will face certain business-death.
If you would give me a few moments of your time, I will prove this to you and show you how to defend your new business from such a horrific fate.
Harmful Effect #1: Information
The Internet has shaken up Traditional Business. Today, any 6 year old child with an Internet connection can jump online and find information about anything they want.
Indeed, Google’s mission statement is worthy of note here.
To organise the World’s information and make it universally accessible and useful.
Consider the deep impact of this simple statement on your business.
Google Search is the engine of choice for 60% of the Internet population and allows anyone to find information on any topic they want, without ever leaving their home. In the Old Economy, a business enjoyed a certain privacy advantage from its competitors and anonymity from its unhappy customers.
Today’s consumer within a few keystrokes can uncover the dirtiest secrets about any business before they spend a single cent with them.
Similarly, your marketing campaigns, advertisements, and new offerings can be easily spied upon by competitors without much work at all.
Your business is constantly under surveillance, always scrutinised by watchful eyes of business spies, customers, and reporters. Nothing is truly private online.
During my work with YaghiLabs, I have seen products launched that were immediately hijacked by competitors: Some targeted our advertising and stole our traffic for their own businesses, others took marketing ideas and angles from us, and yet others released similar products that directly competed with ours. We’ve even had paying customers yanked by competition – we saw a rise in refund rate as our clients replaced us with our competitors.
There is no such thing as privacy online.
As soon as you get an ingenious business idea, the market becomes saturated with competitors offering a better product, faster, and cheaper than yours.
As soon as your website is ready, the market does a full 180 and your product becomes irrelevant.
As soon as you learn a brilliant marketing technique, customers become immune and refuse to respond.
The only way to beat the trend is to produce products and creative advertising so fast that competition cannot keep up. Small startups online are unable to do this because most try to do everything themselves.
Cost is a critical factor for them.
However, a single owner-operator cannot build a website, create a marketing campaign, develop a product, and deliver it fast enough to stay ahead of the competition for long. Not to mention that one person cannot possibly have all the necessary expertise to produce quality work on any level. Instead, a large work-force is required to startup and remain in business. This is a cost, most startups cannot afford.
Harmful Effect #2: Choice
Consumers have become more careful about spending their money.
We are like spoilt children, always seeking convenience – we want things now, we have unrealistic expectations of what products should do for us, and despite all of this, we don’t want to spend our money.
One could argue that consumers have become careful due to loss of their jobs, lay-offs, lack of work security, and a rising unemployment rate.
In the Old Economy, anyone who could not afford something would have reduced their demands.
A certain sector of the Lower- and Middle Class who bought anyway, despite not being able to afford their purchases, were said to be “Keeping up with the Joneses”. But even the “Joneses” is a Middle Class family paying for most of their luxury with instalments and payment plans.
In the New Economy, the consumer has choice. They will look online and quite easily find alternative products for less. Established direct-sales vendors with less debt, overhead, and larger advertising budgets provide healthy competition.
Online entrepreneurs starting up their business are under-funded. They cannot afford to offer low-enough prices and to run at a loss long enough to gain reputation and ground.
Many self-employed entrepreneurs think that their costs are low, because they spend carefully – but this is slow.
Also, any cost advantages or conveniences you have, you share in common with your competitors. Really, the playing field is not in your favour. Competitors with bigger budgets will beat you.
You may be tempted to think your case is special and that you will only spend a little on advertising or use free traffic, and offer an information product that is inexpensive to produce. But your small capital gives you a time disadvantage. Your methods will take too long, and like I said earlier, better-funded competitors will steal anything good for themselves and profit from it before you’ve started.
Harmful Effect #3: Technology
Services worth money yesterday are rapidly becoming irrelevant and worth nothing today.
These questions will likely stump you – What is money? What does it symbolise? Where does it come from? And where has it gone?
Let’s answer this in a moment.
Business is in an ongoing struggle to find cost-cutting avenues while still serving consumers cheaper; with faster comforts and conveniences.
However, creating a product or rendering a service has many costs: material, labour, property rental, storage, research, development, advertising, shipping, and more.
Think about how much a computer used to cost to produce in its earliest years. Computer manufacturers had to pay the high costs up front, develop the computer and its software, then sell onto the consumer while making a profit so they could remain in business. Only large organisations could afford to buy.
When regular consumers began demanding personal computers, they were still unwilling to pay the high cost. In order to reach them, personal computer manufacturers arose with innovations that cut manufacturing costs making way for the affordable personal computer.
All businesses, in a similar way, are on a mission to make more money – either by lowering costs so their products are affordable to more people, or by lowering their own costs to increase profit margins.
Earlier, I asked What is Money?
To really understand where money comes from and where it has gone, we must go back to a prehistoric time when people bartered their resources, skills, and experience with one another. One person provided a short-cut to another, and this had value.
We eventually evolved a tangible symbol for people to store “favour-trading” as a credit or a coin. At a later date, and when we need a “favour” done for us, we exchange our coin (a symbol of the favour we offered someone else earlier) with someone else who is willing to swap “favours”.
Technology has made many service-providers useless to business. In other words, many employees became an unnecessary business cost.
So where has the money gone in this economy?
It did not disappear – Consumers want cheaper and better conveniences from businesses, and businesses must cut their costs to comply. Many employees now have irrelevant skills for business. Any company that continues to employ such employees is unable to keep up with the impossibly low cost demands of the customer.
Until recently one could remain useful to a company with a basic University education obtained 20 year earlier. In the New Economy, that employee is toast.
Technology either replaces them – or makes their skills inadequate to drive the new technology.
A growing trend is for large supermarkets and chain stores to replace human cashiers with machines that do the same job for less.
Graphics design firms which used to work with paper and ink, today require employees who know the latest version of Photoshop and Illustrator. New versions of software are released frequently, and if an employee does not master the latest version yesterday, they will have no role in the New Economy.
Similarly, marketing and PR experts were needed in the past to make contact with journalists who might cover their company in the news. Now, instead, marketers must master mobile advertising (which came out very recently), Social Media, and blogging.
Similarly, entrepreneurs must keep their business relevant to consumers by embracing new technological advancements as they emerge. And be ready at a heartbeat to change direction and embrace a new technology.
Google and Facebook are commonly used by Online Entrepreneurs to advertise their businesses. These engines are a type of technology, software, that is constantly being updated. Startup entrepreneurs themselves usually lack the skills necessary to market with these advertising platforms.
Those who master advertising with one engine will quickly find that it is a full-time job to keep up with the constant updates and rule changes on these platforms.
To prosper, they need to contract the work out to expert businesses whose job it is to keep their advertising skills relevant and up to date. This is another difficult cost few startups can afford.
Harmful Effect #4: Developing Countries
India and China, together have a population of over 2 BILLION people; a huge labour force easily accessible with the Internet to any business.
I’ve said this several times already, businesses are constantly looking for ways to cut costs. Companies like Nike, Adidas, and Microsoft have enjoyed giant profit margins by outsourcing work to developing countries.
India has been for years a technology hub where you can employ very skilled software developers for only a few dollars an hour. Contrast this to the usual cost of a programmer from the United States, for example, who costs at least $20/hour and as much as $100/hour.
While it may seem at first glance that having easy access to Developing Country contractors is an advantage, it is not.
The Internet has enabled freelancer businesses in Developing Countries to become informed about how much they could earn. Online Businesses typically pay very similar rates for Indian contractors as they would for a freelancer from the United States for higher quality work.
Online Businesses do not benefit from cost-cutting by hiring skills from Developing Countries.
However, they do have the ability to avoid paying salaries and benefits to contractors, and need not pay income tax on their behalf.
On the other hand, finding quality workers who are truly skilled at their craft is difficult. Outsourcing can also be filled with problems in reliability and efficiency. Faced with established competitors, a new startup business will be crushed if their reputation is tainted by their choice of contractors.
It is truly a challenge to outsource. But there’s an even bigger problem the Internet creates.
Your competition has access to freelancers too, probably better than what you can obtain. Particularly that they have already spent time and money finding rare contractors with talent. Your competitors ongoing relationships with competent contractors who provide reliable, high quality work.
You have yet to find yours as a startup.
We’ve described four major problems the Internet has created for the new Online Business owner. You’ve seen how easy it is for your best ideas to be stolen and your customers yanked from you because of the availability of Information online. You’ve seen how the numerous competing options the Internet provides makes it impossible to compete with a small startup budget. You’ve seen how fast-evolving technology is a drain on your time and skill-set. And you’ve seen how the Internet makes outsourcing expensive
So where do you go from here?
How do you defend your business and join the New Economy as a valuable service provider worthy of “favour”?
YaghiLabs has built a wonderful course called the Internet Business Academy. We help Online Startup Businesses with small budgets to build their businesses QUICKLY in a way that can compete on price, speed, convenience, and quality.
We have even developed relationships with Freelancers and Contractors who will willingly work for you on production alone – meaning, you can get their help in building your online organisation and only pay on results.
Learn about the Internet Business Academy with us by enrolling below: