How Online Marketplaces Are Changing the Face of Entrepreneurship

It's easier than ever to reach billions of potential customers -- but there are challenges.

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By Keith Smith

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In today's world, where ecommerce giants like Amazon, and Shopify boast huge third-party marketplaces online, just about anyone can become an entrepreneur. For sellers, starting up on an online marketplace is easy: There's no storefront, no need to buy tons of inventory right away and they reap the benefits of an already established online infrastructure. The consumer demand for these marketplaces is also skyrocketing. Nearly all (97 percent) of "avid" online shoppers -- customers who made at least seven online purchases in a three-month period -- purchased from ecommerce marketplaces in the past year, up from 85 percent in 2016, making digital marketplaces one of the best places emerging retailers can start growing their businesses.

Related: This Teen Paid for College by Selling on Etsy. Here Are 5 Ways She Did It.

These marketplaces offer ambitious business owners unique opportunities that traditional retail can't match. First and foremost, sellers have instant access to billions of global consumers, a firm retail framework driving more efficient transactions, a wealth of customer analytics and useful data points and software tools to assist sellers with inventory management, advertising pricing, fulfillment and more.

While this list may make it seem like sellers have nothing to lose when it comes to offering their goods and services on marketplaces, there are also unique challenges they must face. For example, sophisticated algorithms, like Amazon's "buy box," prioritize certain sellers and make it more difficult for some retailers to capture potential customer eyeballs. Disparate marketplace rules, seller metrics, additional fees and longer payments terms that measure in weeks instead of days can also hinder sellers' success.

So, what are some things sellers can do to boost their likelihood of being successful?

Look to new, specialized markets for niche customers and opportunities. While the big name players like Amazon, and Walmart still dominate the online marketplace discussion, the proliferation of niche marketplaces has increased dramatically in the last year. The most strategic sellers have taken advantage of these new markets and the more targeted consumer audiences they offer.

Related: 3 Branding Secrets for Ecommerce Success on Amazon

But, offering products across multiple marketplaces presents its own challenges, like how to manage inventory across different selling channels. Failing to keep track of inventory can create major issues for sellers and even prevent them from fulfilling orders in a timely fashion, which can often lead to abandoned purchases or negative buyer reviews. But, most traditional inventory management solutions aren't suited for marketplace sellers' needs, are for much larger organizations and boast price tags that would put most sellers out of business. It's no wonder that we're seeing a variety of new companies geared at addressing this growing new customer group with solutions that are right-sized for small online sellers' unique needs.

In addition to the operational inventory management that comes along with selling across multiple marketplaces, sellers also face the challenge of keeping enough inventory to consistently meet demand. But, investment in inventory requires capital, which can be difficult to access when payouts are delayed by marketplace terms and conditions or cash flow remains unpredictable as new businesses are being established. Historically, entrepreneurs looking to invest in inventory expansion would pursue traditional financing options like a bank loan or a line of credit. But, traditional financing companies don't quite know how to help marketplace sellers yet and still rely heavily on traditional credit reporting to make their lending decisions.

Related: 3 Ways to Get Your Amazon Customers to Buy Directly From You

While traditional financing might not be available to these new entrepreneurs, there is a burgeoning crop of fintech companies looking to support digital sellers' unique needs. With the growth in number of online sellers, fintech companies looking to support this new class of entrepreneurs are able to use big data based on sales history and sophisticated algorithms, fueled by seller performance, to make more informed decisions around lending and financing. These new financing options are designed specifically for ecommerce sellers and provide them with capital and cash flow that allow sellers to keep up with demand in a more flexible way.

Online marketplaces are changing the retail landscape, and in turn creating a new vertical of unique entrepreneurs. As this retail trend continues to grow, fintech companies will continue to innovate to support the unique needs of online sellers.

Keith Smith

CEO of Payability

Keith Smith is Payability's co-founder and CEO. He writes about fintech, financing for startups, digital marketplaces, management and startups.

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