📝 The Worst Businesses to Start in 2021
Are you thinking of starting a new business this year? Before you invest your time and money, it's important to know which businesses to avoid. Not every business opportunity is a good one, and not every business is suited for every person. In this article, we'll discuss the worst businesses to start in 2021 and why you should avoid them.
🚫 Retail Arbitrage
Retail Arbitrage is a business model where you buy products at low prices from retail stores, either physical or online, and then resell those items at a higher price on marketplaces like Amazon, eBay, or Etsy. The difference between the purchase price and the sale price is your profit.
On the surface, Retail Arbitrage sounds fun and profitable. All you have to do is shop the clearance racks at Target, list those products on Amazon, and keep the profit. However, over the years, this business model has become increasingly popular, which means that there are a ton of bargain shoppers already doing this. It's actually really hard to find items to flip for a profit that aren't already being sold by many other sellers.
Finding products to resell is often hit or miss, and there's no guarantee that the items you find one day will still be available the next day. Once you hop on this hamster wheel, you have to constantly be on the lookout for new deals. If you can't find a good deal, then you're not going to make any money.
Also, you better love shopping because that's what you're going to be doing all day. You can't really scale a Retail Arbitrage business because you're limited by how many items you can find, buy, then store, pack, and ship.
Overall, Retail Arbitrage is okay for making a couple of bucks here and there, but it's definitely not a good long-term business model. Not only is it getting harder every single year, but you constantly have to seek out new deals in order to stay profitable.
🚫 Selling Wholesale on Amazon
Wholesale is an e-commerce business model where you find an established brand name product, purchase it in bulk at wholesale prices, and then sell it on Amazon FBA. Unlike other Amazon business models such as Retail Arbitrage or Online Arbitrage, selling wholesale on Amazon allows you to make bulk purchases from a single supplier to provide you with a consistent supply of products.
In general, the gross margins for Amazon wholesale are decent at around 50% or so, and after Amazon fees and FBA, you end up making between 20% to 25% net. However, selling wholesale successfully on Amazon requires you to find well-known branded products with high demand and a low number of sellers selling the same product.
The biggest flaw with Amazon wholesale is that since you are selling other people's products, you'll be competing with many other sellers selling the exact same item on Amazon. When there are many sellers selling the exact same item on a large marketplace like Amazon, the price always spirals to the bottom. Every product you sell will have multiple sellers, and there can only be one active seller per listing on Amazon who owns what is called the buy box.
To win the buy box, you constantly have to lower your prices. Because prices change all the time, you have to watch all of your listings like a hawk to make sure you consistently have the buy box in order to make any money at all. The only way to make the Amazon wholesale business model a viable option is if you can somehow land an exclusive wholesale account where you are the only authorized seller of a product.
In my opinion, it's just not worth the time. If you're going to do wholesale, then sell wholesale on your own website because at least on your own website, you will be the only seller.
🚫 Dropshipping from China
The most popular dropshipping business model is called AliExpress Dropshipping. You find a product on AliExpress at low prices, list the product on your own online store, and when a purchase is made, you buy the same product on AliExpress and have it shipped directly to the end customer. You keep the difference in cost as profit.
Right now, there are actually many services that allow you to connect your Shopify or your WooCommerce store directly to AliExpress to make the entire process seamless. You don't have to store inventory, you don't have to ship out products, and getting started requires no money at all.
However, what they don't tell you is that you have to manage your own customer service. Ninety percent of the products shipped from China via AliExpress are just pieces of junk with little or no quality control. To gauge the quality of an AliExpress product, all you have to do is search for an AliExpress review on Google, and you'll find thousands of negative reviews.
Remember, these products are shipped from China, so they take forever to make it to the customer. The cheapest viable AliExpress shipping option that doesn't cost an arm or a leg literally takes up to 60 days for delivery. Can you imagine a customer buying something from you and having to wait 60 days for delivery, only to receive a piece of junk?
The other con that no dropshipping guru will tell you is that vendors on AliExpress are just regular people selling stuff. They aren't real suppliers or real factories, so their prices may change at any time, and listings disappear all the time. As a result, keeping your store in sync with AliExpress is always a problem.
In my opinion, AliExpress Dropshipping might make you a couple of bucks here and there, but it's not a good long-term business model. If you're going to spend the time trying to buy traffic and sales to your shop, you must sell high-quality products and be able to provide excellent customer support. This is impossible with AliExpress Dropshipping, even though it costs practically nothing to start.
🚫 Brick and Mortar Retail Store
Starting a brick and mortar retail store might seem easier at first because everything is tangible, but everything in this world is already moving towards 100% digital. Starting your own online store the right way is actually easier than ever thanks to e-commerce platforms like Shopify, BigCommerce, Shift4Shop, and WooCommerce.
When my wife and I first started bumblebeelinens.com, we actually considered creating a brick and mortar store, and when we ran the numbers, it would have cost us about $500,000 up front to launch our store. Meanwhile, when we decided to go the online route, we invested only $630 and made over $100k in profit in our first year of business selling handkerchiefs online. In fact, we were profitable from day one.
If you are a tech-averse person, starting in a brick and mortar store or something physical might seem easier at first because everything is tangible. But everything in this world is already moving towards 100% digital. Starting your own online store the right way is actually easier than ever thanks to e-commerce platforms like Shopify, BigCommerce, Shift4Shop, and WooCommerce.
Don't go for what's easy. You have to play the long game. Sell products that you own and can be proud to sell.
🎉 Highlights
- Retail Arbitrage is getting harder every year, and you constantly have to seek out new deals in order to stay profitable.
- Selling wholesale on Amazon requires you to find well-known branded products with high demand and a low number of sellers selling the same product.
- AliExpress Dropshipping might make you a couple of bucks here and there, but it's not a good long-term business model.
- Starting your own online store the right way is actually easier than ever thanks to e-commerce platforms like Shopify, BigCommerce, Shift4Shop, and WooCommerce.
❓ FAQ
Q: What is Retail Arbitrage?
A: Retail Arbitrage is a business model where you buy products at low prices from retail stores, either physical or online, and then resell those items at a higher price on marketplaces like Amazon, eBay, or Etsy.
Q: What is Wholesale?
A: Wholesale is an e-commerce business model where you find an established brand name product, purchase it in bulk at wholesale prices, and then sell it on Amazon FBA.
Q: What is AliExpress Dropshipping?
A: AliExpress Dropshipping is a dropshipping business model where you find a product on AliExpress at low prices, list the product on your own online store, and when a purchase is made, you buy the same product on AliExpress and have it shipped directly to the end customer.
Q: What is a Brick and Mortar Retail Store?
A: A brick and mortar retail store is a physical store where customers can go to buy products.
Resources:
- Shopify: https://www.shopify.com/
- BigCommerce: https://www.bigcommerce.com/
- Shift4Shop: https://www.shift4shop.com/
- WooCommerce: https://woocommerce.com/
