Zulily’s $2.6B Valuation Illustrates Success of Online Mom-and-Pop Shops

Brick-and-mortar giants like Wal-Mart, Home Depot and Best Buy have been steamrolling mom-and-pop shops for decades, but e-commerce has begun to level the playing field.

Zulily, a four-year-old flash-sales site for children's clothing and accessories, went public last month at a $2.6 billion valuation, raising $253 million through the sale of 11.5 million shares. The company has a mere 300 employees.

So why are small businesses more likely to succeed online than in brick-and-mortar when it comes to competing against goliath corporations? And why have online companies been thriving amid e-retailer giants like Amazon.com and Overstock.com? The reasons are simple and compelling.

The barrier of entry is low. Starting an online business is easy. Nonconventional marketing like social media reduces the cost of conventional marketing such as print, billboards, and radio. Many small online sites are hosted on existing marketplace platforms like eBay, completely eliminating the cost of even creating a website or advertising.

Overhead is low since the storefront is a website, which can be started and operated on a laptop, in your underwear, in a garage. The demographic includes millions of online consumers rather than the few hundred or maybe a few thousand consumers mom-and-pop shops rely on in any given neighborhood.

Accessing specialized inventory allows small online businesses to build unique brands that help them stand apart from the larger e-retailers that sell everything. Second-season discounts, end-of-line products, opportunity liquidation buys and purchasing factory-refurbished product allows e-retailers to compete with Amazon price points.

This surge in successful small online businesses is good for our economy. In the U.S., small businesses (fewer than 500 employees) account for around half of the private sector employment. Top job providers are those with fewer than 10 employees.

The vast majority of small business jobs are still at brick-and-mortar companies, but with the hypergrowth of online companies like Zullily, we'll be seeing many more small business jobs in the online sector. This is a good sign for our economy.

Eliyahu Federman is an executive at 1Sale.com, an independently owned online retailer.