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.

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.

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.

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.

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.

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.

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.

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.

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)

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.

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.