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Hire or Automate; the key question to scale ecommerce?

Ecommerce businesses are fundamentally different to traditional forms of trading. Once you’ve ironed out the main teething niggles in getting the business working, the follow-on is getting the foot firmly on the gas pedal and scaling as quickly as possible. As sales grow there’s more work to get done so you think about getting more people to order more stock, to manage the warehouse, to do more marketing, pack the boxes and count the money.

But wait … by bringing in more staff are you in danger of setting the company off on the wrong course? 

Before deciding on the best approach for your ecommerce business, let’s carefully consider the key factors.

Profitability

Many ecommerce businesses run with frighteningly small margins. If you are selling products from other brands then you are simply a me-too channel. In a world where easy price comparison has levelled the playing field you need to keep your costs down and focus on productivity. If you are a brand with your own products then you have more margin to play with. Unfortunately, marketing and promoting your brand can be hugely expensive and will take a lot longer than you expect. Either way, you need to hang on to your profits. Taking on new staff can sometimes be the quickest way to lose them.

Staff Costs

Consider an employee earning £25k per annum. The total cost for their position may well be £50k once you factor in all the training costs, equipment, support, pension, etc. If the final margin in what you sell after factoring in all your other costs including marketing is 10% then you have to sell half a million products before even the base costs get covered. Unless you have an absolutely fantastic business model then you could quickly find yourself working harder than ever in a growing business while making less money than before.

Hidden costs with people

I don’t believe that businesses fully factor-in all their real people costs. Full recruitment costs are a major expense. Consider all the management effort that goes into defining and managing a new post. Even if you employ a recruitment agency, consider if you had a stopwatch that ran every time you talked about the need for the new post and then spent time with the recruitment company. Then there are the interviews, reading the CVs, undertaking diligence and implementing the legal paperwork around contracts of employment, NDA’s etc. Then consider the costs of the larger office space to house people, the rent, the rates and the Health and Safety burden. On top of that, if the recruits don’t work out what are the costs associated with managing their exit from the company? If you do nothing other than apply accounting logic then it’s easy to understand why employing lots of people to help cope with a rapidly scaling business may not be the best approach.

It’s Digital stupid!

The industrial revolution saw new ways to scale business by replacing human physical work with machines. These human-operated industrial machines were capable of dramatically faster ways of making things. The digital revolution offers new ways to scale business in terms of information flow, decision making and smart control. Using lots of people to undertake these tasks in an ecommerce business would be like adding 19th century work processes to a 21st century business. If the business is digital anyway (the ‘e’ in ecommerce) then we really should focus on using digital solutions to scale our digital businesses.

Examples of Digital Scaling

INDEZ has clients whose businesses turn-over well in excess of £1 million in sales per employee. This is a great  benchmark for low-margin online retailers who often work in competitive markets where every penny counts and where productivity has to be high in order to survive. One of these businesses operates a drop shipping model where the ‘million-per-employee’ target is much easier to achieve. Another operates a large warehouse and is making increasing use of hard automation for pick-pack-dispatch operations along with marketing automation to generate sales. Not only do these very high productivity businesses make extensive use of business automation software, they have decided to outsource their system development and marketing systems to third party suppliers.

Who to employ

Even by adopting the latest robotics and AI technology you will still need to employ people. The really important questions are what type of people, with what skills and undertaking what tasks? In the early 1980’s I was fortunate enough to visit a small startup in California called Adobe. They had a small office and less than ten staff. What impressed me was that everyone there was super-intelligent with incredible skills, great ideas + total focus on company success and a powerful work ethic. If you translate that into the recruitment needs of small ambitious ecommerce businesses then the characteristics of potential employees goes something like

  1. Intelligent, well educated in English and Maths, excellent in communication and good problem solvers.
  2. Have an understanding of worldly business and how modern business detail works in practice.
  3. Personality-types that can take responsibility, can focus, is attentive to detail and can be trusted within a team of equally high-competence individuals.

Scoring well across these three provides the perfect rough diamonds. A surprisingly small team of just a few of these hard-to-find people can provide a platform for creating and building the powerhouses of the future.