50% Of Shopify Businesses Are Worth $0 (With Fan Bi)
May 9, 2025
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Fan Bi, Co-Founder of The Hedgehog Company, delves into the harsh realities of e-commerce valuations. He reveals that 50% of Shopify businesses could actually be worth nothing, despite their revenue figures. Bi shares insights from analyzing over 300 P&Ls, highlighting the pitfalls of margin traps and mispriced equity. He discusses why revenue isn’t synonymous with value, the importance of financial discipline, and how to identify red flags in valuations. This conversation is essential for founders who prioritize profit over vanity metrics.
The stark reality is that 50% of e-commerce brands are financially unsustainable, often masked by superficial revenue figures.
Newer e-commerce businesses generally demonstrate better financial health, showing that informed management practices significantly impact success rates.
Many operators mistakenly believe higher revenue guarantees enterprise value, overlooking true financial metrics that indicate a brand's worth.
Deep dives
Concerns About E-Commerce Viability
The current landscape of e-commerce is facing significant challenges, particularly for median-sized businesses generating $3 to $30 million in revenue. The operating environment has deteriorated, impacting profitability and enterprise value negatively. Many e-commerce sellers struggle with subpar gross margins, high marketing costs, and weak customer retention, making it difficult for these businesses to thrive. As a result, about 50% of the e-commerce brands reviewed are classified as 'challenged businesses', grappling with unsustainable financials.
Evaluating Business Conditions
A breakdown of the 300 businesses examined reveals a stark contrast between older and newer brands within e-commerce. While brands established in the past four years show improved financial health due to better financial education and discipline, those started five to ten years ago often struggle with inflated growth expectations and poor margin management. This distinction is crucial, as newer businesses tend to have stronger operational frameworks compared to their predecessors, reflecting a shift towards more informed and competent management. Therefore, understanding the vintage and operational condition of a brand is essential for assessing its potential success.
Challenges in Turning Around Underperforming Brands
Many e-commerce operators believe they can turn around struggling businesses, but the reality is often grim. Attempts to elevate gross margins through innovative strategies frequently fail due to ingrained operational inefficiencies and low customer price elasticity. Despite previous optimism surrounding potential profitability enhancements, such shifts require significant time and resources that many brands can't afford, leading operators to realize that some businesses may be beyond recovery. This acknowledgment shifts the focus towards smarter opportunity selection and avoids investing in brands that are perpetually 'dead on arrival'.
Misperceptions of Enterprise Value
A prevalent misbelief in the e-commerce space is that achieving higher revenue will automatically enhance enterprise value, despite the absence of substantial profit. Similar businesses with varied revenue figures and financial health often perceive their enterprises as possessing equal worth, relying on subjective valuation rather than solid financial metrics. This mindset clouds judgment and prevents operators from acknowledging the true financial potential of their brands, potentially leading to detrimental decisions. Encouragingly, addressing these misconceptions could illuminate the path toward more strategic planning and ultimately improve financial stability.
The Complexity of Business Strategies
Navigating the e-commerce landscape requires a fine balance between growth ambitions and prudent financial management. Many operators grapple with the misconception that simply increasing sales will resolve their operational challenges, while they remain unaware of the complexities involved. Whether it’s through DTC channels or shifting to wholesale, the ramifications of these strategic decisions hold profound implications on complexity and capital management. Acknowledging these realities prompts operators to be cautious, as many have learned the hard way that aggressive growth strategies can lead to severe operational pitfalls and unsustainable business models.
INTELLIGEMSIntelligems is the ultimate profit-optimization tool for DTC brands. Use it for all of your CRO efforts by visiting https://intelligems.io.RICHPANELCut your support costs by 30% and reduce tickets by 30%—guaranteed—with Richpanel's AI-first Customer Service Platform that will reduce costs, improve agent productivity & delight customers at https://www.richpanel.com/.//Fan Bi is the Co-Founder of The Hedgehog Company, a buyer and advisor of ecommerce brands with 4 brands in your portfolio. Follow Fan on X at https://x.com/lifeofbi and LinkedIn at https://www.linkedin.com/in/fanbi/.//
//Are half of Shopify brands building businesses… or illusions?In this brutally honest episode, Fan Bi (The Hedgehog Company) breaks down why 50% of eCommerce brands may be worth nothing—despite flashy revenue. After reviewing 300+ P&Ls, Fan shares hard-earned insights about margin traps, mispriced equity, and the brutal realities behind “successful” DTC brands.You’ll learn:Why revenue doesn't equal valueThe red flags investors see in most Shopify P&LsWhat healthy eComm businesses actually look like todayWhen growth becomes a liability, not an assetAnd how to evaluate your business before it’s too lateThis is a must-watch for 7–8 figure founders and operators who care more about profit and enterprise value than vanity metrics.
//1:15 - Why Fan Bi Has Looked At 300+ Businesses6:00 - Importance of being Financially Disciplined14:21 - Learning From Failure24:56 - Risk vs Reward To Increase Your Margins33:00 - Why After 15 Years Fan Is Still In E-Commerce?42:12 - Business Problems vs Desired Problems// SUBSCRIBE TO MY CHANNEL FOR 2X WEEKLY UPLOADS!//Get the best media buying training on the Internet + a free coaching call with Common Thread Collective's media buyers when you sign up for ADmission here: https://bit.ly/3x99lip //FOLLOW UP WITH ANDREW X: https://x.com/andrewjfaris Email: podcast@ajfgrowth.comWork with Andrew: https://ajfgrowth.com
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