E-commerce tribulation: Should any business that is not profitable be cut off?

Student case sharing: What to do if you don’t make money?

Recently, I have received some typical cases of students' Q&A. I will share with you:

Case 1: An e-commerce student came to Hangzhou to establish a Douyin team of more than 10 people. He lost more than 2 million in three months. His performance fluctuated greatly. He didn’t know where the breakeven point was, and he could not see the hope of profit. Should he continue to do it?

Case 2: An e-commerce student did three businesses, one made profits in cosmetics, and the other was on the verge of loss. There is also a new Internet celebrity fast food business, which has received angel round investment. Investors have given high performance indicators. From the second half of last year to now, they have spent money quickly on channels such as Douyin, but sales have not improved. The losses have continued. They have invested a team of more than 70 people and tens of millions of cash. Will they be shut down? I am unwilling to give in and cannot explain to investors! Don't turn it off? What should I do if I continue to lose money?

Case 3: A certain e-commerce student has a brand flagship store operated by an agency, with a distribution model and good profits. In June this year, the store was taken back by Party A, and the company suddenly fell into a loss. It turned out that the store had supported more than 150 people in the company. Now the company has laid off more than 40 people after a round of layoffs, but it still suffers losses. What to do next?

An uncertain business environment that exceeds the ability of entrepreneurs to control

The essence of business is uncertainty , and the value of entrepreneurs is to control uncertainty and make everything controllable and predictable. Management master Drucker believes: "The future is not a continuation of the present, but many things that happen in the future are rooted in the present" - meaning that regularity can be derived based on past facts and data and predict the future. This is no problem for the normal business and market environment in the past.

However, in the past three years, uncertainty in the economic environment has intensified, and relying on past experience and laws to make decisions can lead to fatal mistakes . In fact, the current environment and situation changes have exceeded the scope of business and beyond the normal market rules . Even business heroes have become trembling and trepidated.

For example, Yu Minhong, the godfather of studying abroad training, has been successful in the past 29 years, but it cannot save the overnight apoptosis of the education and training industry. Ren Zhengfei, the godfather of private enterprises, has been successful in the past 35 years, but now we have to admit that we are powerless in the face of the domestic and international environment and pass on the cold to everyone. Huang Guangyu, the godfather of the home appliance chain, came out of prison and was blinded. He could no longer understand the current business environment. He vowed to set a small goal - "restore the original market position in 18 months", and the latest open letter has admitted the failure.

The market economy is a huge ecosystem, with both losses and prosperity. Looking at the financial reports of listed companies, the sales of the top 50 real estate companies in the first half of this year fell by nearly 50% year-on-year! At the same time, the automobile industry has also called for losses, of which Xiaopeng Motors lost 4.4 billion yuan.

The downturn in real estate and car companies directly affects upstream steel companies. Recently, more than 20 large steel companies represented by Ansteel have intensively issued industry warnings and proposed measures such as production cuts, salary cuts and layoffs. Industry insiders believe that due to the decline in demand and overcapacity, one-third of steel companies may not be able to survive the cold winter.

Looking at the consumer field, most clothing companies have poor financial reports in the first half of the year, among which Metersbonwe lost 700 million yuan in the first half of the year. According to data from the China National Commercial Information Center, the retail sales of women's clothing products of key large retail enterprises across the country in May fell by 35.91% year-on-year compared with last year!

Looking at the transportation and tourism industry, according to flight manager statistics, at the end of June 2022, the global civil aviation flight volume recovered to 77.8% of the same period in 2019; the Asian flight volume recovered to 67.1% of the same period in 2019; and the domestic flight volume recovered to 54.2% of the same period in 2019!

Let’s look at the e-commerce and Internet industries. On August 10, Alibaba Group released its latest report. In the first half of this year, the total number of Alibaba employees decreased by 13,600. Similarly, Penguin and ByteDance are not idle either, and they lose more than the other. Don’t be gloating. Just imagine that the companies that collect protection fees in Liangshan are laying off employees. Can passing business and travel companies be better?

Increasing uncertainty, damaging entrepreneurs and investors' confidence

企业经营和商业决策，是理性与感性相结合的。如今黑天鹅事件层出不穷，对于未来难以预测，就会影响大家的信心，采取收缩战略，减少扩张和冒险。同时，对于亏损和不赚钱的业务，容忍度也会显著降低。

For example, it is rumored that one-third of the shops in a famous financial center in East China have stopped operating. On the one hand, it is because of cash flow issues, and on the other hand, the boss lacks confidence in the turbulent business environment - assuming that you can be sure that profits can be restored in the next few months and that history will not repeat itself, then you will grit your teeth and take out your private money and continue to persevere.

Unfortunately, after the first wave of impact in 2020, many physical bosses died like this, thinking that it would be better to overcome the current hurdle, persistence would be a victory, and exhausted all cash flow, but found that there were still 81 difficulties in the future.

Therefore, today's entrepreneurs have learned their lessons and immediately stopped the loss decisively when they see that the situation is wrong. The number of closed companies will increase the unemployment rate, reduce consumption power, and make the economy worse.

Five situations in dealing with unprofitable business cannot be generalized

Going back to the previous three student cases, should we close the e-commerce business that is not profitable? Let's discuss it.

First, businesses without hope should be shut down. Look at the trend. If revenue does not have an upward trend, losses do not have a narrowing trend, and it is impossible to predict where the breakeven point is , then you must resolutely turn it off, don’t drag it on, have fantasies, and don’t invest one more cent in the failed business! This is the case in Case 1 and Case 2.

Second, make necessary investments in business during the rising period. If the business is in an upward period and is currently in a phased and strategic loss, we can judge the future break-even point, and cash flow and resources can support it, then we should continue to persist. This is the norm for many e-commerce companies to build new stores and new channels.

Third, trial and error should be adhered to for the second growth curve. If there are profitable projects, you can raise some small losses to the project, use them to try and make mistakes , explore the second growth curve, and solve the problem of what to rely on to make a living in the next three years.

Fourth, the coach should shut down if he loses his fighting spirit. If the boss is in a state of turmoil and feels that the prospects and future are in chaos, and he can no longer make a judgment. In this case, the coach's mind has collapsed and should be turned off decisively.

Fifth, the main business should have strategic contraction due to losses. Case 3 above, the main business is in losses and there is no way to retreat. At this time, we should strategically shrink, decisively cut off unprofitable stores, channels and product lines, concentrate resources on profitable businesses, take stock of the company's backbone talents, and put them on the whitelist of key protections. Taking advantage of the fact that the company still has cash reserves, some of the non-core personnel will be dismissed and compensated as soon as possible to survive.

The most taboo is: not decisive in dismissal, dragging the mud, and ending the closure when the closure is over, wage arrears, and employees have no way to protect their rights. Many companies end in such a mess. This is the boss’s biggest dereliction of duty!