I ran an e-commerce site for several years that was doing very well until one of my main suppliers cut a deal with Amazon. Due to Amazon's purchasing volume, they could sell the products with free shipping for less than my cost. The manufacturer would not listen to anything their smaller retailers had to say.
I was also one of the first sites that offered a hot tool gadget that became one of the Top 20 Cool Tools selected by Chris Grundy of the DIY Network. I was selling everything I could get for several months until the supplier cut an exclusive deal with a marketing firm who set up a Billy Mays infomercial. As soon as the infomercials hit the TV, the Chinese started making cheap, extremely crappy counterfeits and even sold them using the company's trademark and image of Billy Mays. Both the marketing company and the legitimate supplier went bust. The counterfeits currently sell on eBay for $2 to $3. I was selling the tool for $20 with a landed cost of $8.
A good friend was one of the first sellers of digital scales on eBay. He did $1.5 million in sales the first year and by the second year there were so many competitors that he almost went bust. He no longer sells products on eBay because it raises too many flags for competitors.
The moral of the story is that if you are going to sell a physical product through a small online business, you need a unique product that you have complete control over. If anyone thinks you are making money, you will have 50+ competitors with knock-off products within a few months. Today, I don't know what that product would be.
I have not done any drop shipping, but did investigate that several times. The problem is that it is hard to make any money when thousands of others are selling the same products with the same costs. The drop shipping costs will take most of your margin and too many competitors think they can make money by marking products up 10%. Plus, drop shipping suppliers are notoriously unreliable and poor communicators.