30% of startups fail within a year. Is Shopify’s “secret weapon” so fragile?

The outbreak of the epidemic in early 2020 had a strong impact on the operation of offline physical stores and caused a widespread wave of unemployment in American society. However, at the same time, online stores took advantage of the situation and ushered in new development opportunities, and more and more American merchants chose to enter the market.

Applications for new businesses hit an all-time high last year, up 24% from 2019, according to Economic Innovation Group ( EIG), which examined U.S. Census Bureau data. The most active business sector was retail trade , where new businesses grew 54%, most of which sold goods online or directly to customers.

(During the epidemic, the number of small businesses in the retail industry has increased significantly)

John Haltiwanger, an economics professor at the University of Maryland , said that the rapid growth of American people's entrepreneurship during the epidemic was largely the result of economic difficulties. After the outbreak of the epidemic, the number of unemployed people surged and the unemployment rate remained high, so many Americans did their best to create income. These newly established small businesses have also made very important contributions to creating jobs and promoting the development of productivity and innovation.

This shift has naturally brought a new wave of business to Shopify, a Canadian website building platform that helps people quickly set up online stores . Shopify's profits in the first three quarters of 2020 increased by 72% compared with the same period in 2019, and since January 2020, Shopify's stock price has more than tripled, with a market value of $177 billion, which is basically the same as oil and gas giant Chevron.

Shopify President Harley Finkelstein said that most of the platform's more than 1 million customers are first-time entrepreneurs. He said: "Imagine a future where everyone is an entrepreneur, and we are moving in that direction."

However, according to the Wall Street Journal, Shopify's business model also has considerable risks:

First, some analysts predict that as the epidemic situation improves, the e-commerce boom that has driven the company's business growth may subside, and at that time, the "sales growth of independent station merchants may show a substantial slowdown . "

Second, Robert Fairlie, an economics professor at the University of California , said that startups using Shopify services are more likely to fail than to grow meaningfully. "How to obtain capital and how to scale up in an environment full of uncertainty?" are all questions facing small and medium-sized independent station companies.

Moreover, small businesses are actually very vulnerable during economic downturns. According to data from Womply, a data tracking and software company , as of the end of 2020, 30% of small businesses newly opened at the beginning of the year "died" within a year.

If we look at the risk from Shopify's perspective, some companies that use its website building services may not survive for too long, thus posing a risk to Shopify's performance growth.

However, Shopify has mitigated this risk by deploying a variety of services including corporate financing, logistics and distribution, inventory services, and payment processing in advance , which can enhance the company's revenue source while providing support to emerging companies.

Some analysts say that these service fees accounted for the majority of Shopify's revenue in the first nine months of 2020.

According to Shopify's previously released fourth-quarter 2020 financial results, Shopify's total revenue for the quarter was US$977.7 million, of which the revenue from merchant solutions reached US$698.3 million in the fourth quarter, accounting for 71.4% .

Having said that, even though the economic environment is "bad", there are always small and medium-sized independent website companies that have successfully survived the epidemic. I hope that sellers will also be able to have smooth sailing in the new year and become "evergreens" in the industry!

Shopify

US Startups