Summary of "MBA2617 5 Online Businesses with Shockingly High Failure Rates"

The $100 MBA Show, hosted by Omar Zenhom, delves into the realities of starting and sustaining online businesses. In episode MBA2617, released on April 28, 2025, Omar exposes five online business models that, despite their apparent appeal, harbor shockingly high failure rates. This comprehensive summary captures the key discussions, insights, and conclusions drawn during the episode.

Introduction: The Harsh Reality of Online Businesses

Omar sets the stage by cautioning aspiring entrepreneurs about the pitfalls of certain online business models. He emphasizes that not all business ideas are created equal and highlights the importance of understanding the underlying challenges before diving in.

Omar Zenhom [00:00]: "Want to know the fastest way to lose your money and sanity? Start one of these online businesses."

Why Online Businesses Fail

Before dissecting the five problematic business models, Omar outlines the fundamental reasons why many online businesses falter:

1. Low Barriers to Entry: When it's easy to start a business, competition becomes fierce, making it challenging to stand out.
2. Saturated Markets: Entering markets teeming with competitors reduces the likelihood of success.
3. Low Margins: Businesses that rely on high volume sales with minimal profit per unit struggle to sustain profitability.
4. Lack of Differentiation: Without a unique value proposition, businesses become just another option for consumers, easily overshadowed by larger players.

1. Dropshipping: A Race to the Bottom

Overview: Dropshipping promises entrepreneurs the allure of selling products without holding inventory, minimizing upfront costs.

Challenges:

• Tiny Margins: Selling products at a markup barely covers costs, leading to relentless price wars.

  Omar [00:XX]: "Dropshipping businesses have tiny margins. You're selling someone else's product at a markup, but guess what? So is everyone else."

• Lack of Control: Entrepreneurs don't own the product or the shipping process, making reputation management difficult when issues arise.

• High Failure Rate: A staggering 90% of dropshipping businesses fail within the first four months.

Conclusion: Omar advises against venturing into dropshipping, highlighting that even seasoned influencers often profit more from selling courses on dropshipping than from the businesses themselves.

2. Print on Demand: The Brutality Behind the Ease

Overview: Print on Demand (POD) allows creators to design merchandise without handling inventory, seemingly offering a passive income stream.

Challenges:

• Low Margins: High costs per unit mean minimal profits, often around $3 per $25 T-shirt.

  Omar [00:XX]: "A $25 T-shirt might give you a $3 profit if you're lucky."

• High Competition: The saturation of online t-shirt sellers makes differentiation nearly impossible.

• Endless Design Work: Continuously generating new, appealing designs consumes significant time and resources.

• Failure Rate: An alarming 98% of POD businesses collapse within the first six months due to insufficient sales volume and burnout.

Conclusion: POD may appear hassle-free, but the underlying challenges make it one of the most precarious online business models.

3. Affiliate Marketing: A Declining Opportunity

Overview: Affiliate marketing involves promoting products and earning commissions, often touted as a lucrative side income without the need for inventory.

Challenges:

• Increased Competition: The market is oversaturated, making it difficult to capture audience attention.

• Reduced Commissions: Major platforms like Amazon have halved their commission rates, diminishing profitability.

  Omar [00:XX]: "Amazon is really the one that started this all. Amazon cut their commission rate by 50% recently."

• Dependence on External Platforms: Changes in affiliate programs or platform algorithms can abruptly end income streams.

• High Failure Rate: Approximately 95% of affiliate marketers fail within the first year due to fierce competition and diminishing returns.

Conclusion: While affiliate marketing can serve as a supplementary income source, relying on it as the primary revenue stream is risky and often unprofitable.

4. Digital Marketplaces: Navigating the Cutthroat Environment

Overview: Selling digital products on marketplaces like Etsy, Udemy, or Amazon KDP offers a platform to reach a broad audience without managing a personal store.

Challenges:

• Low Margins and High Fees: Marketplace commissions eat into profits, leaving sellers with minimal returns.

  Omar [00:XX]: "Platforms like Etsy and Udemy take significant cuts, often leaving you with razor thin margins."

• Price Wars: Constant undercutting by competitors forces sellers to lower prices further, eroding profitability.

• Lack of Customer Loyalty: Customers belong to the platform, not the individual seller, hindering repeat business.

• Failure Rate: 88% of sellers on digital marketplaces fail within the first 12 months due to insufficient sales volume and high competition.

Conclusion: Digital marketplaces present significant challenges that make sustaining profitability difficult, despite the apparent ease of accessing a large customer base.

5. Coaching and Consulting Without a System: The Hidden Trap

Overview: Coaching and consulting offer the potential for high income by leveraging personal expertise to help others succeed.

Challenges:

• Lack of Systems: Without structured processes for client acquisition, onboarding, and service delivery, businesses become unsustainable.

  Omar [00:XX]: "Without having automated systems for your clients, onboarding or follow ups or when payments fail, you're going to hit a ceiling."

• Burnout and Inconsistent Income: Reliance on manual efforts leads to exhaustion and unpredictable revenues.

• High Failure Rate: About 85% of coaching and consulting businesses fail within the first 18 months due to poor system implementation.

Conclusion: To thrive in coaching and consulting, entrepreneurs must establish robust systems and strategies to manage and scale their businesses effectively. Omar recommends seeking expert guidance, highlighting Taki Moore as a top coach for scaling coaching businesses.

Final Thoughts: Emphasizing Value Over Volume

Omar synthesizes the discussions by reiterating that the failure of these businesses largely stems from a focus on volume rather than value. He advises aspiring entrepreneurs to:

• Choose High-Margin, Scalable Models: Focus on businesses that offer better profitability and growth potential.
• Solve Real Problems: Develop products or services that address genuine needs of a specific audience.
• Build Sustainable Brands: Create brands that inspire trust and foster repeat business over time.

Omar [00:XX]: "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."

He concludes by encouraging listeners to adopt a long-term perspective, emphasizing the importance of providing real value and building impactful, enduring businesses.

Takeaway

This episode serves as a crucial guide for anyone considering entering the online business arena. By highlighting the high failure rates and underlying challenges of popular business models, Omar equips listeners with the knowledge to make informed decisions, steer clear of common pitfalls, and focus on building resilient and profitable ventures.