A single point of failure is an event that threatens to take your business to the point of no return. It doesn’t have to be a catastrophe like a flood, fire, a key supplier going bankrupt, or a global pandemic. Sometimes, even the most mundane outages can prevent us from meeting our customer’s needs and result in the business hemorrhaging cash. Scary stuff, right?
Worryingly, many small and medium-sized businesses can have multiple “single” points of failure that threaten their operations. So, how does a business spot these potential weak spots and mitigate the risk?
We spoke with Peter Allsop, Senior Product Manager at Linnworks, to understand the most significant threats and how to maintain business as usual when something unusual happens.
Building redundancy into your business
According to Allsop, factoring in some level of business redundancy is essential to safeguarding your business from single points of failure.
“If you’re a small business, and you’ve only got one dispatch PC, and that PC dies, what are you going to do?” says Allsop. “You’ve got to go out and get a new one, and nothing moves out of your warehouse until you do. If you have a second one, even though you never use it, it’s there. The problem is immediately solved, and it doesn’t cost you your ability to ship those orders out the door.”
This simple example can be replicated across multiple areas of your business. “If you look at any large-scale enterprise, they will have redundancy built into their business processes, with multiple suppliers and backups for absolutely everything,” says Allsop. “So when something changes, they can continue processing their orders calmly and efficiently.”
But what about small businesses? Well, this preparedness doesn’t mean they need to emulate larger firms and have a storeroom full of expensive spare tech just in case something breaks down. They just need a backup plan. “If you’ve only got one banding machine and it breaks, do you have a backup?” says Allsop. “That backup could be tape.”
Allsop explains that there is a cost involved with having spare warehouse equipment on hand, but highlights the inverse cost of not having a backup if you cannot get your orders dispatched on time?
Nobody likes to think about the worst happening — but it’s vital to have a back-up plan. “It seems like a false economy,” says Allsop. “But when seemingly small things go wrong, the impact can be pretty dramatic.”
Relying on any one courier is a great example of a single point of failure that can destroy a business.
“If you rely on one courier and that courier goes on strike, you can’t ship anything out. If your Amazon policy states that your orders must be delivered in three days or less, you’ve failed on day one.”Peter Allsop, Senior Product Manager at Linnworks
This disruption to service might see your business receiving a short-term suspension from the marketplace, which will cost you sales. But what if it’s a three-day strike — or even longer?
“You could find yourself facing a more lengthy ban — possibly permanently,” says Allsop. “Now you’ve lost an entire sales channel. If you’re a business that solely relies on Amazon, your business is now really stuffed.”
Spreading the risk across multiple marketplaces
How can retailers insulate themselves from this risk? Well, for starters, it’s essential that you spread their risk to include multiple suppliers and routes to market.
“Retailers will always have a primary channel. It’s inevitable that there are some products that will work better on eBay and others that are more suited to Amazon. But I would always be concerned about any business that relied on one channel for 50% or more of their sales.”Peter Allsop, Senior Product Manager at Linnworks
According to Allsop, having three or four channels that sell well is a good idea. “So that could be eBay, Amazon, your own website, and then maybe another channel like TikTok,” says Allsop. “This will give you some resilience if a channel suspends or pauses your account while they do a validity check.”
Selling across multiple channels will add complexity and cost to your operation, “If you’ve got your own website, you will have to invest in things like SEO and marketing to drive sales,” says Allsop. “But it’s better to spend the money and have a breadth of operation and a more stable income level.”
Allsop warns sellers against spreading themselves too thinly. “Some retailers spend a lot of time listing on channels that might only generate 100 orders a year,” says Allsop. “The return on investment just isn’t there. It’s important to research and move to channels where the market can support your business.”
Cash is king: Invest in a mortality fund
While most businesses will understand the importance of reinvesting their profits back into the business to ensure its growth and security, Allsop explains that this investment isn’t always spent wisely. “A lot of businesses have the mindset that if they spend £5,000 on stock, they will generate £10,000 in sales,” says Allsop. “They then think if they have £10,000, they can turn it into £20,000. What they don’t do is build up a mortality fund.”
A mortality fund is a pot of cash a business can fall back on when the unforeseen happens. “A small wobble might result in the loss of a month’s worth of sales, and suddenly, they’re under,” says Allsop. “They can’t get a loan because they have no sales, and they are shocked to discover the value of their stock when liquidated is less than 50% of what they paid for it.”
Allsop recommends that a mortality fund should enable a business to keep the lights on for six months. “You’ve got to be able to pay people’s wages, and basically pay for everything without making money,” says Allsop.
While having a six-month mortality fund might seem like an extravagance, Allsop highlights the plight of a business that went under during the COVID pandemic after 40 containers of its stock were delayed at customs for 12 months. “They went under through no fault of their own,” says Allsop. “Their stock was in the UK and had been paid for. It just wasn’t moving through customs. You’ve got to be able to have some level of cash to be able to survive events like this.”
Identifying weak spots
While no business plans to fail, not identifying those potential single points of failure can lead to catastrophic consequences. Being forewarned is being forearmed. Take the time to look at your processes and ask yourself: What if this suddenly stops working? Do you have a plan B?
Need help figuring out where to start? Consider the following eight common challenges and ask yourself, “What if?”:
8 common single points of failure in ecommerce
- Dependence on a single marketplace: If the business focuses exclusively on one online marketplace, any changes, issues, or restrictions on that platform can have a significant impact. Diversifying across multiple platforms can mitigate this risk.
- Marketplace policy changes: Changes in the policies of online marketplaces like eBay or Amazon can significantly impact a business. If the business heavily relies on selling specific products affected by policy changes, it could disrupt operations.
- Customer feedback and reviews: Negative reviews or feedback on the marketplace can impact the business’s reputation and influence potential customers’ purchasing decisions.
- Account suspension: A suspension or closure of the seller’s account on a marketplace due to policy violations, disputes, or other issues can result in a sudden halt to sales.
- Competitor manipulation: Unethical practices by competitors, such as false reporting or malicious actions, can lead to account suspension or damage to the business’s reputation on the marketplace.
- Shipping and fulfillment issues: Reliance on a single shipping or fulfillment provider can result in delays or problems in delivering products to customers, leading to dissatisfaction and potential account issues.
- Search algorithm changes: Alterations in the search algorithms of online marketplaces can affect the visibility of a business’s products, potentially leading to a decline in sales.
- Supply chain disruptions: Relying on a single supplier or a limited set of suppliers for products and packaging materials can expose the business to risks if there are disruptions in the supply chain, affecting inventory availability or the ability to ship items.
How Linnworks can help
To learn more about how Linnworks can help online sellers reduce their exposure to single points of failure by better managing listing, stock movements, and shipping across multiple marketplaces, ecommerce sites, and couriers, contact us today or request a demo.