Home-Based (Non-Employer) Businesses Reach New Markets- Despite Barriers to Commerce

 

All businesses face obstacles throughout their various stages of growth and development, and small retail businesses often face larger hurdles due to their size and resources.  Home-based retail merchandising is an example of an industry that is exposed to many difficulties on their road to success. The home-based retail industry is comprised of individuals who seek added income by creating and designing their own products or services (“Home-Based Business Opportunities”, n.d.).  Due to the constraints of a home-based small businesses, these retailers must find their own customers, and usually sell their products locally at events like craft fairs and farmer’s markets.

Most of the home based businesses are classified as non-employers because they are unincorporated and have no payroll. According to the United States Census Bureau, non-employer companies make up three-quarters of all business firms in the United States, yet these companies only produce 3.4 percent of all business receipts. (“Statistics About Business Size”, 2012) The reasoning behind the low business receipts can be largely attributed to the barriers to commerce faced by these companies, which frequently prevent them from expanding.  The inability to acquire the capital needed to maintain a successful business is a major hindrance for these non-employers.  This difficulty often prevents these businesses from overcoming other obstacles such as geographic barriers, proper advertisement, and gaining customer trust. The rapid development of new information technology is helping these small businesses overcome the barriers to success.

Employers and Non-Employers, 2007
	Firms	Establishments	Sales or Receipts (in $1,000)
All firms	27,757,676	29,413,039	30,738.533,467
Non-Employers (firms with no payroll)	21,708,021	21,708,021	991,791,563
Employers (firms with payroll)	6,049,655	7,705,018	29,746,741,904

(“Statistics About Business Size”, 2012)

Traditionally, these merchandisers would have to rely on setting up in a flea market or traveling from craft show to craft show. They would be required to pay booth fees, display their full inventory of products, and rely on cash transactions. As technology has advanced, commerce has become easier. Thanks to advancements in transaction processing, payments can now be made quickly and efficiently through computer transactions and mobile devices. PayPal provides a service that enables

Image Credit: ("What is PayPal?", n.d.)

individuals to pay, send money, and accept payments without revealing their financial information. In fact, PayPal has become so widely trusted that it now handles more than 100 million transactions a day. (“What is PayPal?”, n.d.).  PayPal has allowed small businesses to expand their customer base and to move into e-commerce by offering quick and secured credit/debit card transactions.

Image Credit: (Kosur, 2013)

Additionally, on the mobile front, Square (founded in 2009) has allowed instant transactions through Apple and Android phones and tablets. Through Square, retailers can process payments with or without a mobile network for a 2.75% fee per transaction, immediately track inventories, and send receipts via e-mail or text message (“Square Reader”, n.d.).  Not only are paperless receipts ideal for environmentally conscious individuals, this benefit also allows the retailer to collect customer information and email addresses for future contact (“5 Reasons to Implement a Mobile Point of Sale System, n.d.). Although payment technology has made transactions quicker, easier, and more convenient, small businesses were still limited to having their products on display, and pushing sales face to face. Without the financial means of advertising, these home-based retail businesses would remain a small and relatively unknown business. 

Small, home-based businesses needed the ability to evolve with the demands of consumers and their buying patterns.  The advancement of user-friendly e-commerce sites has given businesses the opportunity to reach a larger market. E-commerce is defined by Investor Words as “the buying and selling of products and services by businesses and consumers through an electronic medium, without using any paper documents.” (“What is E-Commerce?”, n.d.) E-commerce allows retailers to create virtual 24-hour storefronts to sell their products.  Through e-commerce platforms, small businesses now have access to digital marketplaces and international markets(Colvin & Habiby, 2013). Even the smallest retailer can reach consumers around the country and around the globe (Colvin & Habiby, 2013).  In many cases, is it difficult for a small business owner to think beyond the local community.  It is hard enough to deal with tax laws, competition, and business relationships at the local level (Colvin & Habiby, 2013).  However, the different forms of technology that have helped enable e-commerce are also helping business owners navigate the world outside of their local communities (Colvin & Habiby, 2013). One such medium to help these small businesses reach their desired target market is Etsy.com.  

Image Credit: (Fabian, 2013)

Since its launch in June of 2005, Etsy has grown to 43.9 million registered users. (“Etsy:Number of Registered Members”, 2015) With such a large community of members, Etsy has revolutionized the way the hand-made craft world is brought to the masses in a similar fashion to what Gutenberg’s printing press did for the written word. To quote the Etsy website, “Etsy is a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods.” (“About Etsy”, n.d).  Etsy exposes the small retailer to the global marketplace by connecting them with customers in over 200 countries (“About Etsy”, n.d).  In 2012, Etsy reported that nearly 25% of the transactions that occurred on their website crossed international borders (Colvin & Habiby, 2013).  Competing in the international market is a feat that would have likely never happened for many of these small retailers without the use of e-commerce technology.  Etsy allows those new to e-commerce the advantage of a nearly out-of-the-box web store, which includes tracking and payment options, and the all-important advertisement. Additionally, Etsy has already spent the capital on their business development to foster customer trust that brings in a higher quantity of visual traffic much quicker than individuals could generally obtain through their own marketing. Etsy also has community boards to help its sellers with any issues they may encounter during any stage of commerce. (Klontz, n.d.) Although there are many possible benefits to using e-commerce tools like Etsy, like every business, it has its drawbacks. Fraud and identity theft are a risk every time you have to enter your personal information online. Even though these e-commerce sites, for the most part, have thorough security features built into their sites, there is still always a risk when doing business transactions online. Another common drawback to e-commerce is the excessive competition found in the global online marketplace.  Customers can instantly compare prices to similar items in order to find the best deal. This level of competition often causes businesses new to e-commerce to be forced to sell their products at lower prices than normal.

(Smith, 2015)

The video below details how individuals turned their hobbies and passions into businesses when they opened their very own online retail shop through the online marketplace, Etsy.

 

 ("Etsy", 2015)

While there are possible negatives associated with small businesses using Etsy and other forms of e-commerce, most would agree that the benefits greatly outweigh the risk. Alicia Shaffer is a great example of just how much an e-commerce site like Etsy can benefit a small business. In just three years, Etsy allowed Alicia to go from selling her handmade headbands in her small women’s boutique to having her own line of women’s clothing accessories that generates more than $65,000 in sales each month (Wagner, 2014). Her story shows how tools like e-commerce and similar forms of technology can benefit small retail businesses by providing them with resources that were not available to small businesses in the past. These resources help small retailers overcome barriers to commerce and allow them to continue to grow their business, both locally and internationally.

Despite the fact companies such as Square offers more convenient and safer business transactions and Etsy helping to ease barriers associated with developing, maintaining, and growing a home based business, these companies also foster competition as described in Michael Porter’s Competitive Forces Model by offering equal product development and marketing opportunities to those who wish to participate in the services they offer; by easing the burden of company development, and increasing competition, essentially they are creating new barriers to growth. Home based companies must find other means of differentiating themselves and standing out from the competition. Etsy now allows shoppers to pin items directly on Pinterest, enabling the retail shop virtually free advertisement to Pinterest members by attributing the retail shop’s name, item description, and item price to each pin. (Feldmann, n.d.) By tying products in with Pinterest’s goal of inspiring people to be creative, new customers are introduced to Etsy’s retail stores. As Alicia Shaffer’s story suggests, utilizing tools available to all competitors to their fullest will help overcome the competitive barriers described in Michael Porter’s Competitive Forces Model, and set themselves apart from their rivals.

Works Cited

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About Etsy. (n.d.). Etsy. Retrieved January 28, 2015, from http://www.etsy.com/about

Etsy. (2014, September 11). Start Your Etsy Shop Today! [Video file]. Retrieved from January 28, 2015, from http://youtu.be/TeC--cLgE8g

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Fabian, M. (2013, May 19). Opening an Etsy Shop. Retrieved January 30, 2015 from: https://melindafabian.wordpress.com/2013/05/19/opening-an-etsy-shop/

Feldmann, A. (n.d.). Success Story Etsy. Retrieved January 30, 2015 from: https://business.pinterest.com/en/success-stories/etsy

Habiby, A., & Colvin, J. (2013, October 25). The Dawn of Global Entrepreneurship. Inc. Magazine. Retrieved January 28, 2015, from http://www.inc.com/jake-colvin-anne-habiby/dawn-of-global-entrepreneurship.htm..html

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Klontz, B. (n.d., ).Should You Sell on Etsy, or Build Your Own E-commerce Site? .  Bplans.  Retrieved January 28, 2015, from http://articles.bplans.com/should-you-use-etsy-or-build-your-own-e-commerce-site/

Kosur, J. (2013, January 5). Square Reader Launches At 7,000 Starbucks Stores. File Hippo Retrieved  January 30, 2015, from http://news.filehippo.com/2013/01/square-reader-launches-at-7000-starbucks-stores/

Smith, D. (2015, January 16). Etsy Could Be The Next Big E-Commerce IPO. Retrieved January 30, 2015 from Insider: http://www.businessinsider.com.au/etsy-ipo-2015-1/

Square Reader. (n.d.). Square. Retrieved January 28, 2015, from http://squareup.com/reader

Statistics about Business Size (including Small Business) from the U.S. Census Bureau. (2012, August 22). Census.gov. Retrieved January 28, 2015, from http://www.census.gov/econ/smallbus.html

Wagner, E. (2014, December 19). Secrets of the Richest Seller on Etsy. Yahoo. Retrieved January 28, 2015, from http://www.yahoo.com/makers/secrets-of-the-richest-seller-on-etsy-105472402320.html

What is E-commerce? . (n.d.). Investment and Financial Dictionary by InvestorWords.com. Retrieved January 29, 2015, from http://www.investorwords.com/1637/e_commerce.html

What is PayPal? Learn more about PayPal's unique features. (n.d.). PayPal. Retrieved January 28, 2015, from http://www.paypal.com/webapps/mpp/paypal-popup