I have been meaning to write about “internet exceptionalism” since I read a post titled “It Always Comes Down to Math” but various political and economic events intervened. The key quote summarizing the post is “but at the end of the day, regardless of what business you’re in, everything comes down to the same math problem. Revenue minus expenses must equal a positive number.” That is of course not much of an insight although it would have been useful to add something like “from some point forward” (and businesses differ a lot in when that point happens and how much capital is consumed before then). But instead, the author felt compelled to add the following: “Anyone who tells you business works in some other way or the rules are different on the Internet or any other claim of exceptionalism is an idiot.”
Well, not only is that a bit of a strong statement in general but I also happen to think it is false other than with regard to the most basic premise that any business in order to be sustainable must eventually make a profit. Beyond that I think it is deeply flawed and I want to give just one example to illustrate my point. In bricks and mortar retail customers who come to the store and do *not* buy contribute meaningful expense, including time spent by sales people, physical space needed, cost for re-shelving items examines, breakage, etc. Also, in bricks and mortar retail the people who can access your store are inherently limited to people living in (or visiting) the geography of the store. If you combine both of these factors you will quickly understand why it is important to be obsessed with how many people who enter the store buy something and how much they buy: your top line is limited and non-buying visitors are costly.
Now contrast that with selling online. The entire country or potentially the entire world can be your customer. And someone visiting your online store but not buying will tend to result only in negligible cost (unless you invest heavily in realtime online consultation). So now what should you obsess about? Top line growth suddenly becomes hugely important. Unless your are huge already, if you are not at least doubling year over year you are likely to have a problem. Sure, you need conversion rate (if nobody buys you don’t have a business), but generally obsessing about conversion rate if top line growth is lagging is wrong. Why? The difference between growing 2% month over month and 7% is the difference between growing 27% per year and more than doubling! Try doing that with you conversion rate.
So yes – eventually you have to make more money than you spend but how you get there is often the exact opposite on the Internet from what it was in the physical world. It is therefore critically important to understand those differences if you want to succeed. Or put differently: Internet exceptionalism is a requirement not a flaw.
