Priya Malani, Jennifer Mueller – How to Invest in, Start, or Buy an E-Commerce Business

Abstract

Priya Malani, Jennifer Mueller How to Invest in, Start, or Buy an E-Commerce Business

The pandemic that started in 2020 caused unprecedented difficulty in most sectors. But with most people staying at home and buying things online, e-commerce boomed. If you want to get in on the action, we have answers to your most common questions about how to invest in e-commerce—including how to start an e-commerce business yourself.

What exactly is e-commerce?

E-commerce is the buying and selling of products online.

E-commerce (short for electronic commerce) is technically just another way of doing business. It's conducted online over computers, tablets, and smartphones. Anytime you buy something online, you're engaging in e-commerce [2].

If you're talking about investing in e-commerce, you can do that in one of two ways: either by purchasing stock in existing e-commerce companies or by launching your own e-commerce business.

What's the easiest way to invest in e-commerce?

Buying shares of a publicly-traded company is the easiest way.

If you want to invest in e-commerce but only have a little money or don't know where to start, open an account with an online broker. Then, you can buy shares of established companies on the stock market [3].

Most online brokers don't require a minimum deposit and allow you to trade at your own pace. You can also find plenty of learning resources if you want to enhance your understanding of investments and the stock market.
The beauty of buying shares is that you typically don't have to invest a specific amount to get started and you can sell your shares at any time.
Remember, investing isn't a way to get quick overnight; it's a long-term strategy to build your wealth. Only invest money that you can set aside for the mid- to long-term—don't invest any money you may need in the near future [4].

Which e-commerce stocks are the best investments?

Companies that provide platforms and services are often the best investments.

Payment services, such as PayPal, and store platforms, such as Etsy and Shopify, are good ways to invest in e-commerce generally. As long as goods are being bought and sold online, you can expect these stocks to have strong showings [5].

For example, even though Amazon is known as an e-tailer in its own right, it also serves as a platform for small businesses. This platform gives Amazon nearly unlimited growth potential.
Whenever someone buys a physical product online, it has to get to them somehow. This is why logistics and shipping companies are also strong investments [6].

What types of e-commerce businesses are there?

There are 4 basic e-commerce models where you can invest.

You have direct sellers, marketplaces, software providers, and logistics/delivery companies. All of these 4 models work together, like spokes on the e-commerce wheel, to deliver goods and services to consumers [7].

Direct sales is typically the model you'll be getting into if you're planning on opening your own e-commerce business. To get your business off the ground, you'll need to work with software providers as well as logistics companies to deliver your product to your customers.
You can also use a marketplace, such as Etsy or Amazon, which connects you to your customers. Marketplaces typically provide the software and other support—some even take care of some aspects of logistics. You can also invest in publicly-traded marketplace platforms by buying stock.
Think of software providers and logistics/delivery companies as support for e-commerce. Without them, e-commerce wouldn't be possible because sellers wouldn't be able to sell their products online or deliver orders to customers. If you want to invest in these models, buy stock in companies such as Shopify (for software) or UPS (for logistics).

What's the best e-commerce business to start?

Start a direct sales business that caters to a specific niche.

Think about a specific area that you have a lot of passion for or know a lot about. Then, identify a specific product or group of products that people in that area need. By selling that product to them, you could launch a successful e-commerce business with little to no tech-savvy [8].

One way to find your niche is to think about a product that you personally need and haven't been able to find. If you're having that problem, chances are there are plenty of other people in the same boat.
If you're active on social media, get feedback from your friends and followers on products you're thinking about selling. This can help you figure out if your idea is likely to take off.

How much would it cost to start an e-commerce business?

You can start on many existing platforms for next to nothing.

If you're planning on selling products, you'll have to buy or make those, but apart from those expenses, you don't need a lot of seed money to get started on an existing platform, such as eBay or Etsy [9].

For example, if you buy old furniture and refurbish (or "upcycle") it, you might open a storefront on Etsy to sell your finished products. You won't pay anything for your Etsy store, although Etsy takes a commission off of your sales. You could also set up social media accounts for your store and use them to advertise. Those you could also set up for free.
If you want to launch your own website, you could spend several hundred dollars on web hosting, payment services, and advertising. Most platforms do all this work for you. Although they'll take a small percentage of each sale you make, they typically don't charge you anything upfront.

Can I buy an existing e-commerce business?

Yes, and it's a good option if you want to make money right out of the gate.

With an existing e-commerce business, you don't have to worry as much about developing a website or finding customers for the products—the current owner has already done that work. All you have to do is maintain it. While strong e-commerce businesses might sell for hundreds of thousands of dollars, it's also possible to buy a smaller, niche business for a few thousand [10].

Shopify, one of the leading e-commerce platforms for small e-commerce businesses, has an exchange where you can browse Shopify sites that are up for sale.
Always do your own research before buying an existing e-commerce business. You might also consider hiring a broker to facilitate the purchase for you—they know what to look for and what to avoid.

Do I need tech know-how to start an e-commerce business?

No!

It's fairly easy to start an e-commerce site without web development experience. Most small business and blogging platforms are designed with the average computer user in mind, meaning you don't have to be a tech expert to get a website up and running. If you want your own website, there are plenty of templates available online that you can use to give your site a fresh and professional look [11].

Some templates cost money, while others are free. There's nothing wrong with using a free template, but if you want your page to stand out, stay away from the ones that are most popular.
Opening a storefront on an existing platform, such as eBay or Etsy, is a good way to get your business off the ground and get your name out there. Then, if you want to build your own website, you'll have business income you can use to hire a web designer and make sure it's done right.

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