By Scott Smith on Feb 28, 2018 7:10:39 PM
I’ve seen many MLM startups over the years. Some make it, some don’t. If you’re starting a company, you want to do it right to give yourself the best opportunity for success.
How do you do that? These are the four things that I have seen consistently cause problems for MLM startups if not handled well. Focusing on these areas doesn’t guarantee success, but subpar solutions in these areas virtually guarantees failure. All four are essential pieces of the puzzle—if you’re missing one, you don’t have the complete picture.
1. A Consumable Product
Your product is crucial. It must be a good fit for the direct selling model if you want your company to thrive—and “a good fit” means several different things.
Your product needs enough of a margin for you to be profitable and it must have sufficient value to the consumer for the price you’re charging for it.
Your product can’t be a commodity—it must be unique. If it isn’t, your customers won’t continue to buy it from you exclusively.
Your product should be consumable. When your customers run out (preferably at a monthly rate) they’ll buy it again.
Your product needs to be an emotional purchase. I’m not talking about deceiving or manipulating your customers by tricking them or by playing on their feelings. Your product needs to be something that makes people feel better about themselves and helps them be better. When your customer buys, you want that purchase to be backed by consumer passion.
2. Great Management
Your management team needs to be experienced—not only in managing a company but in managing a company in the MLM industry. I know that many people will disagree on this point, but I firmly believe that you need a team with MLM experience. Maybe I’ll discuss why this is important in another post, but for now, know that you need a team with MLM experience in addition to the other skills and knowledge required for your product and operations.
Unless your team is connected in the industry, you’re not likely to attract leaders to your field. Some executives start their MLM company and think “if I build it, they will come.” In my experience, those companies don’t succeed. They don’t just come. You need the right connections and relationships to bring experienced MLM leaders on board. If you believe that MLM is the right model for your business but you’ve never been in the industry before, build your team with people who have. Get the support you need to make those connections.
Your management team also must be passionate about what you’re doing. They can’t be working other jobs. They must be fully committed to the company, otherwise your chances of success drop significantly.
3. Healthy Funding
A lot of people think they can start an MLM on a shoestring. This is technically true. You can. It’s possible that some companies have been wildly successful with this method, but I’m not aware of any. To succeed, you need to be sufficiently funded. You need the funding to do things right the first time—and there are a lot of things you need to do right the first time.
You need to get proper legal advice and coverage. You’ve got to have the right insurance in place. You’ve got to have the right intellectual property protections. Your contracts with vendors must be right. You also need to invest enough in operations to start doing things the right way from the beginning.
You need to invest in marketing and branding so that you have a professional image and so that the materials you’re using to promote your company look great. People can see through a low-budget marketing and branding attempt—they’re going to gain a perception that you’re running a rinky-dink company, and they won’t put their trust in you.
You need enough funding to get the right partners. Let’s take software as an example. You need enough funding to partner with a software provider who can scale with your growth. There are low-cost options that can get you up and running, but they won’t scale when you need them to. That means that you’ll be stuck making a software change right when you’re gaining momentum in your business. A software change will wreak havoc on your momentum—it always does. Get sufficient funding at the beginning, and do it right the first time.
4. Motivating Compensation
Finally, you need a great compensation plan for your distributors. I don’t mean a unique, crazy compensation plan that no one’s ever heard of before. Those don’t work. You need a compensation plan that rewards the beginner and the dream builder and everyone in between with a build strategy that aligns with your plan. Create something that’s reasonable, and test it with a consultant so you know how it is likely to perform before you start writing checks.
You also need to ensure that your compensation plan and build strategy are explainable. If you can’t explain it to your field, they’re just going to be confused. If no one understands how to make money with your compensation plan, the plan is not going to function as a tool to grow your business—it won’t be a benefit or an asset. But a compensation plan that is easy to understand and based on tested compensation strategies will get your distributors selling and building your business.
There are many models and strategies for running a successful MLM business. Not everything will go perfectly for your company no matter how well you set it up. But doing these four things right the first time will prepare you to handle the surprises that come your way. Your likelihood for success will be greatly increased by your careful focus on these four critical areas.