MBA2617 5 Online Businesses with Shockingly High Failure Rates

Summary

The $100 MBA Show - Episode MBA2617: 5 Online Businesses with Shockingly High Failure Rates

Host: Omar Zenhom
Release Date: April 28, 2025

In Episode MBA2617 of The $100 MBA Show, host Omar Zenhom delves into the precarious landscape of online businesses, highlighting five ventures that, despite their alluring promises, suffer from alarmingly high failure rates. Drawing from his extensive 20+ years of entrepreneurial experience, Omar provides a candid analysis of why these business models often lead to financial loss and burnout.

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1. Understanding Why Online Businesses Fail

Before dissecting the five high-risk online businesses, Omar sets the stage by explaining the fundamental reasons behind the downfall of many ventures:

• Low Barriers of Entry:
  “Any business that has a low barrier of entry means anyone can do it, which means everyone does it, which makes it very hard to compete.” (02:30)

  Businesses that are easy to start attract saturated markets, making differentiation and competition fierce.

• Saturated Markets:
  Overcrowded markets hinder the ability to stand out, often leading to diminished returns.

• Low Margins:
  “A business that has very low margins and is reliant on high volume, you're asking for trouble.” (03:15)
  Even substantial sales volumes may not compensate for meager profits, jeopardizing financial sustainability.

• Lack of Differentiation:
  Without unique value propositions, businesses become just another option in a sea of competitors, prone to being overshadowed by larger players.

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2. The Five Culprits of High Failure Rates

a. Drop Shipping

Overview:
Drop shipping promises entrepreneurs the ability to sell products without holding inventory, emphasizing low startup costs and scalability.

Challenges:

• Race to the Bottom:
  “These types of businesses. Drop shipping businesses have tiny margins.” (04:45)
  Intense competition forces sellers into perpetual price wars, eroding profits.

• Lack of Control:
  Entrepreneurs have no authority over product quality or shipping processes, risking their reputation when issues arise.

• High Failure Rate:
  “90% of dropshipping companies within the first four months fail.” (05:20)
  The combination of slim margins and fierce competition leads to rapid business collapse.

Conclusion:
Omar vehemently advises against entering the drop shipping arena, labeling it a "plague" for aspiring entrepreneurs seeking favorable odds.

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b. Print on Demand

Overview:
This model allows individuals to design and sell merchandise without managing inventory, appealing with its simplicity and passive income potential.

Challenges:

• Low Profit Margins:
  “A $25 T-shirt might give you a $3 profit if you're lucky.” (07:10)
  Minimal profits per item necessitate exorbitant sales volumes to achieve meaningful income.

• High Competition:
  The ubiquity of print on demand businesses results in market saturation, making differentiation arduous.

• Endless Design Work:
  Continuous creation of new designs is time-consuming, detracting from business management and growth.

• Astounding Failure Rate:
  “98% in the first six months.” (08:00)
  The inability to sustain adequate sales volume often leads to early business termination.

Conclusion:
Print on demand, while seemingly effortless, demands relentless innovation and volume that most entrepreneurs cannot sustain, rendering it a high-risk venture.

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c. Affiliate Marketing

Overview:
Affiliate marketing involves promoting products or services and earning commissions on generated sales, touted as a low-effort income stream.

Challenges:

• Increased Competition:
  “Everyone's fighting for the same attention and therefore the same affiliate commission.” (10:15)
  The influx of affiliates dilutes potential earnings, making standout performance rare.

• Reduced Commissions:
  Companies like Amazon have “cut their commission rate by 50% recently.” (11:00)
  Lower payouts diminish the profitability of affiliate endeavors.

• Lack of Control:
  Affiliates are vulnerable to program changes or terminations, jeopardizing income stability.

• Technological Shifts:
  “Google's changing its algorithm constantly. It's using Gemini AI...” (13:30)
  Advances in AI and SEO algorithms further complicate traffic generation and link monetization.

• High Failure Rate:
  “95% within the first year.” (12:45)
  The demanding nature of building substantial traffic and trust leads most affiliates to abandon efforts prematurely.

Conclusion:
Affiliate marketing requires exceptional content creation skills and sustained effort to build a loyal audience, factors that contribute to its high failure rate.

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d. Digital Marketplaces

Overview:
Selling digital products on platforms like Etsy, Udemy, or Amazon KDP is often perceived as a straightforward path to passive income.

Challenges:

• Low Margins and High Fees:
  Platform fees eat into profits, making it difficult to price competitively without sacrificing earnings.

• Price Wars:
  “The price wars are brutal on these platforms.” (15:20)
  Constant undercutting by competitors forces sellers into untenable pricing strategies.

• Dependency on Platforms:
  Sellers lack control over platform policies and customer relationships, hindering brand loyalty and repeat business.

• Moderate Failure Rate:
  “88% of businesses within the first 12 months will fail.” (16:10)
  The reliance on platform dynamics and the necessity for high sales volumes contribute to substantial business attrition.

Conclusion:
Digital marketplaces present significant challenges in maintaining profitability and independence, leading to a high likelihood of business failure.

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e. Coaching and Consulting without a System

Overview:
Coaching and consulting offer the allure of leveraging personal expertise to build lucrative businesses.

Challenges:

• Lack of Systems:
  “Any business that is successful is a set of systems.” (17:45)
  Without structured processes, coaches struggle with scalability and consistent income.

• Burnout Risk:
  Reliance on manual operations without automation leads to unsustainable workloads and eventual exhaustion.

• Inconsistent Income:
  Without reliable lead generation and conversion strategies, income becomes erratic, fostering financial instability.

• High Failure Rate:
  “85% within the first 18 months.” (19:00)
  The absence of efficient systems and strategies traps many coaches in futile cycles of effort without commensurate rewards.

Conclusion:
While coaching and consulting hold potential, success hinges on implementing robust systems to manage operations and scale effectively, without which the venture is likely to falter.

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3. Concluding Insights and Recommendations

Omar synthesizes the discussion by emphasizing that these high-failure-rate businesses focus predominantly on volume over value and trend-chasing rather than establishing sustainable, value-driven brands. He advocates for entrepreneurs to:

• Prioritize High Margins:
  Ensuring that each sale contributes significantly to profitability.

• Solve Real Problems:
  Addressing genuine needs within specific audience segments to cultivate loyal customer bases.

• Build Trustworthy Brands:
  Fostering long-term relationships and repeat business through reliability and quality.

• Avoid Over-Reliance on Third-Party Platforms:
  Establishing independent channels to maintain control over business operations and customer relationships.

Final Thoughts:
“Building a business that lasts isn't about chasing the latest trend. It's about solving real-world problems. That's what's going to get you sales. It's about providing real value. It's about building something that scales and lasts for the long term.” (20:30)

Omar urges entrepreneurs to adopt a long-term perspective, focusing on creating impactful and enduring businesses rather than succumbing to the allure of quick but unstable online ventures.

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Notable Quotes

• “Any business that has a low barrier of entry means anyone can do it, which means everyone does it, which makes it very hard to compete.” (02:30)

• “90% of dropshipping companies within the first four months fail.” (05:20)

• “A $25 T-shirt might give you a $3 profit if you're lucky.” (07:10)

• “Everyone's fighting for the same attention and therefore the same affiliate commission.” (10:15)

• “The price wars are brutal on these platforms.” (15:20)

• “Any business that is successful is a set of systems.” (17:45)

• “Building a business that lasts isn't about chasing the latest trend. It's about solving real-world problems...” (20:30)

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Resources Mentioned:

• Taki Moore:
  Omar recommends Taki Moore as an exceptional coach for building scalable coaching businesses. Taki is renowned for assisting coaches in scaling their operations to seven and eight figures.

• Three Things Newsletter:
  For ongoing business insights, Omar encourages listeners to subscribe to his free "Three Things" newsletter, which delivers actionable advice on mindset, actionable steps, and learning resources.

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This summary encapsulates the key discussions and insights presented in Episode MBA2617 of The $100 MBA Show, offering a comprehensive overview for those seeking to understand the pitfalls of certain online business models and strategies for sustainable entrepreneurial success.

Transcript

[Omar Zenholm]

Want to know the fastest way to lose your money and sanity? Start one of these online businesses. I'll share today. Look, I'm not here to sugarcoat things. I'm here to show you that not all business ideas are created equal. Some businesses give you leverage, some businesses are easy to scale, and some they're just ticking time bombs to failure. Today I'm going to break down five online businesses that look great from the outside but have insanely high failure rates. The numbers do not lie. Even if you're thinking about starting one of these, and I don't think you should, I think it's better for you to go in with your eyes wide open so you know what you're getting into. But don't later say that Uncle Omar didn't warn you. Welcome Back to the $100 MBA Show. I'm your host, Omar Zenholm, where I deliver practical business lessons three times a week, Monday, Wednesday, and Friday, to help you start, grow and scale your business. Before we jump in and discuss all five of these businesses, I want to talk about why some online businesses crash and burn and some don't. And the first thing I want to point out is something that not a lot of people talk about, and that's low barriers of entry. Any business that has a low barrier of entry means anyone can do it, which means everyone does it, which makes it very hard to compete. If it's very, very easy to start this type of business, that means competition is going to be very high. The second reason why businesses crash and burn, and it's related to the first one, it's that people choose saturated markets. Too much competition makes it impossible to stand out sometimes. Another reason why a lot of businesses fail before they even begin is one of my biggest pet peeves. Low margins. You can sell a ton and still barely break even. In some of these businesses. If you have a business that has very low margins and is reliant on high volume, you're asking for trouble. You're asking for heartache. Another reason why businesses just flat out flop is that there's no differentiation. You're just another option. And you get crushed by bigger players that can just out price you. Now, let's get through this list of 5 culprits. Businesses I do not recommend you start. If you do, that's just up to you. You can go ahead and, you know, glutton for pain, go ahead, right? But brace yourself. Number one, with a bullseye, you hear all over the Internet, drop shipping. Oh, drop shipping. You hear all these crazy things like make money while you sleep. You don't even to touch the product. Start with zero inventory and scale fast. Sounds great, right? Here's the problem. It's a race to the bottom. These types of businesses. Drop shipping businesses have tiny margins. You're selling someone else's product at a markup, but guess what? So is everyone else. You're constantly fighting price wars. The only way you can stay competitive is to lower your prices, which is the worst thing you can do when your margins are already so thin. You have zero control. You don't own the product, you don't control shipping. And when something goes wrong, it's your reputation on the line. Here's a reality check. The failure rate of dropshipping companies is crazy. 90% of dropshipping companies within the first four months fail the first four months. That's absolutely ridiculous. Most dropshipping businesses barely make enough to cover their ad spend. And those Instagram influencers and gurus that are selling you the dream that you can make money with their drop shipping course, they are not making money on dropshipping. They're making money on the course, not the actual dropshipping business. Don't fall for the scam. Dropshipping is very hard to do at a high success rate. And I'm here today doing this lesson for a reason. Because business is as hard as it is. Stop making it harder on yourself by choosing businesses like these that make it so impossible to win. You want everything in your favor to increase your odds of success. So avoid this business like the plague. Business number two, Print on Demand looks easy, but it's absolutely brutal. Let me tell you why. Print on Demand is one of those businesses that people say like, oh, you could design cool merch and you can make passive income. There's no inventory, there's no hassle. Sounds like a dream, right? Anytime you hear about any kind of business and it's just all positives, you know it's a trap. You know it's a lie. Everything in life, everything in business has trade offs. There's some good things and there's some challenges. And when it's all good, it probably means it's actually all bad. Here's what they don't tell you. Number one, low margins. Again, that Gremlin, right? A $25T shirt might give you a $3 profit if you're lucky. I know this because I had my own clothing line over 15 years ago. I know how much this costs. I know what the margins are. Number two, high competition. Everyone and their grandmother is selling T shirts online. Good luck standing out, okay? And then lastly, endless design work. That's just the nature of fashion. You'll spend more time creating new designs than actually running your business. If you're listening to what I'm saying right now and you're like, omar, how bad could it be? This is how bad it could be. The failure rate statistically of print on demand businesses. 98% failure rate within the first six months. 98% in the first six months. Only 2% of businesses succeed in the first six months. We're not even going past the six months and finding out, did those 2% actually make it? Most print on demand businesses fail quickly because they can't sell enough volume to make decent money. So therefore they give up. It's not worth their time and effort and money, by the way. They burn out trying to come up with the next viral design and, and that viral design just never goes viral. So please stay away. Number three, and this third one, I used to recommend to people to start this type of business, but not anymore. I think it's a bad idea because things have changed in the world and that's affiliate marketing. Affiliate marketing sounds amazing. You know, promote products, earn commissions, no inventory. You know, just build a blog or YouTube channel and, and rake in cash. But here's the problem. It's not 2008 anymore, okay? There's a lot of competition. Everyone's fighting for the same attention and therefore the same affiliate commission. Over the years, just generally, there's been a lot less money to be given out, lower payouts. Companies are slashing commission rates. Amazon is really the one that started this all. Amazon cut their commission rate by 50% recently. There's zero control over the product. The company can change their terms and cancel the program altogether. They can just end your affiliate relationship. I don't recommend affiliate marketing as your main source of income. The way you make your money, it's okay to have it as kind of a side income, another revenue stream, but don't rely on it to pay the bills. Here's the thing. In order for you to be great at affiliate marketing, you need to be incredibly good at creating content that's shareable. And you have a large audience and presence online, whether that's on YouTube or Instagram or a podcast or whatever it might be. The point here is, is that building a large audience is getting harder and harder. And even those who have a large audience are also competing against you for the same affiliate commission. And this is why the failure rate is 95% within the first year, it wasn't always that way, but it really skyrocketed recently when everybody thought they could be an influencer and make money on affiliate market. More players in the game, more competition and a higher failure rate. Because of that, making money as an affiliate now requires insane traffic and years of trust building. So it's a long term bet. You gotta be willing to do this for the next decade in order for this to be feasible. Most affiliates make pennies trying to crack Google's never ending SEO algorithm. And now it's getting even harder with AI because a lot of great affiliates, people that have really been successful with affiliate marketing in the past, really were very good at ranking high at keywords and their blog post shows up and they're able to get a ton of traffic for their affiliate link. But now Google's changing its algorithm constantly. It's using Gemini AI in order for it to come up with answers. And it's just a winner takes all kind of situation now. And it's much harder for you to monetize your links using SEO. Number four, digital marketplaces. Again, low margins, high competition. Selling digital products on a marketplace sounds like easy money. You know, like upload your design, your template, your course, your whatever and earn passive income, right? Sell on a platform like Etsy or Evado or Amazon KDP or Udemy or whatever it might be. But the reality is, is that you're at the mercy of that platform. Again, it's a race to the bottom. The price wars are brutal on these platforms. You're constantly being undercut. Your price is being undercut just so that you could stay competitive. You have to lower your prices. Why? Because your product is being shown with your competitors. When people search, they can't help but compare price the platform fees. They eat at your profits. Platforms like Etsy and Udemy, they take significant cuts, often leaving you with razor thin margins. And I believe the worst part of all this is that there's no customer loyalty. Your customer belongs to the platform, not you. You don't control the relationship or the repeat sales. Now, the failure rate of this type of business is not as high as the other ones, but it's still pretty brutal. 88% of businesses within the first 12 months will fail when using these platforms. Most sellers never make enough to justify the time and the effort that they are putting into it. They often just quit and stop selling that product or, or just leave that product up there and not update it. And the fact of the matter is it's a volume game and most don't have the audience or the strategy or the ad dollars to get that kind of volume and win the fifth one, very special to me, very close to my heart, and that's coaching and consulting without a system. You need a system to sell coaching properly. And a lot of people think they can just sell coaching without any kind of game plan or strategy. Coaching and consulting can be a gold mine. You can help others succeed and make a great income. You can leverage your experiences, your expertise and build a scalable business. This is a real thing. But here's the problem. A lot of people don't understand that any business is successful is a set of systems. And if you don't have these systems in place, it's very easy to burn out and not make any money. It could be a time trap because you don't have a system to scale. It could be very inconsistent when it comes to income because you don't have a way to have regular customers coming through the door. You don't have a lead generation, you don't have a way to convert those leads into customers. It becomes like feast or famine. Again, scaling is impossible without systems, without having automated systems for your clients, onboarding or follow ups or when payments fail, you're going to hit a ceiling. You're not going to be able to really grow your business where it's really something that's going to sustain you and build you wealth. And this is why the failure rate on this type of business is 85% within the first 18 months. Now they last longer, these types of businesses without failing, because you're able to kind of monetize your time a little bit. But that's not sustainable. Coaches who don't build systems burn out before they even get the chance to even scale. So you need to find systems to put in place into your coaching business so you're not working harder, you're working smarter. Find somebody who can help you install these systems into your coaching business that can coach you through it. So you're not a statistic. You're not one of these people that are failing within 18 months. In my opinion, my buddy Taki Moore is the best at this. He's like the coach of coaches. He's one of the people that has really helped a lot of people scale their coaching businesses to seven, eight figures and beyond. So if you are looking to find somebody, go ahead and check out Taki's work. He is not cheap because he is impactful. So I want to tie this up for you. Why do these businesses fail at such a high rate because they focus on volume and not value. They chase trends. Instead of trying to build real sustainable brands, they rely on other platforms like Amazon or Shopify or Etsy, where the rules can change overnight. If you want to succeed online, focus on high margin, scalable business models, solve real problems for specific audience members and build a brand that people can trust over time and come back and buy from you again and again. Before I go, I want to leave you with this Building a business that lasts isn't about chasing the latest trend. It's about solving real world problems. That's what's going to get you sales. It's about providing real value. It's about building something that scales and lasts for the long term. So don't get caught up in the hype and all these idiots that are trying to sell you something. Play the long game. Create something that makes a real impact because that's how you build a business that doesn't just survive, but thrives for years to come. If you're serious about building a business that actually works, join my three Things newsletter. It's absolutely free and every week I will send you three things. 1. Something to think about, something to change your mindset. 2. Something to do so you're moving forward and Something to learn. That's number three. Something to learn. It's my way to coach you from afar. It's absolutely free. Go to 100- MBA-NET sign up for any of our free guides and you'll be added automatically. I'm Omar Zenholm and I'll check you in the next episode.