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The Top 5 Reasons MLM Companies Fail by Jeff Jordan

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One of the first things almost every new prospect asks me is, “What are the reasons that MLM companies fail?”  I believe there are several reasons why MLM companies fail. First, let me dispel the myth that MLM companies fail in greater ratios than that of traditional businesses. That just isn’t true.  All businesses fail at approximately the same rate, which is fairly high.  Some people say statistically that companies fail at a rate of 95%. So, 95% of every business that starts up fails within the first five years. The reason MLM companies appear to fail at a far greater rate is because of the higher public visibility.

The next question to ask would be, “what are the main reasons MLM companies fail?” There are perhaps 5 main reasons why MLM companies fail. The first three are what I would call primary reasons, with two secondary reasons. The first reason MLM companies fail is capital, or lack of it; the second is management or mismanagement; third is sales and marketing (which includes build strategy); and then the two secondary reasons are compensation plan and product.

Primary reasons

Funding

It’s been my experience, as well as my opinion, that the very first reason MLM companies fail is funding.  Funding doesn’t always mean not having enough money.  One of the advantages that you have with having enough capital is the ability to get the right software, the right consultants, the right people, the right office staff, and negotiate things correctly—instead of on a shoestring.  That doesn’t mean shoestring companies can’t make it.  But I believe the No. 1 reason companies fail, is because of their lack of funding and their lack of staying power.

Management

The second reason that companies fail is management.  You can have lots of funding, but if you have management problems, it won’t work out.  There are a lot of things that can relate to management problems.  For example: partner problems.  It appears to me that partnerships, and getting through the ruffle of partnerships, are one of the primary reasons that companies have struggles.  I’ve seen this with new startup companies and I’ve seen it with existing, stable companies: a difference of opinion with partners, or partners worrying about everyone doing their job.  These two items cause everybody to stop focusing on the primary thing, which is building the company.  Partners tend to want to argue and debate with each other.

Sales and marketing

The third reason MLM companies fail is sales and marketing—when they don’t do the proper job of launching their company, of getting their company out in the marketplace, and of attracting the proper leaders to the company. They then run out of time, because they’re out of funds to be able to keep doing that over and over again.  Recruiting and MLM building is a numbers game.  And it’s like any other sales game or any other sales development in the marketplace.  You have to keep testing and testing and testing again to find what works and attracts people to your company.

Part of sales and marketing is build strategy.  What is your build strategy as a company?  I’ve seen companies fail because they didn’t have a build strategy.  They had good products, a good compensation plan, a good management team, good funding, but they really didn’t have their strategy to where they were going, and how they were going to build the company. Build strategy is definitely a key to success.

Secondary reasons

After these three (dollars, management, sales and marketing) come the two secondary.  Many would call compensation plan and product primary reasons why MLM companies fail, but I disagree.  When you take your company out into the marketplace, you have to have a good compensation plan and product.  The better these are—the more competitive—the more it will allow you to attract people.

Compensation

You can’t use a comp plan that was exciting six years ago and expect it to work today.  The compensation plan has to be tailored to your current product, your current strategy, your current sales and marketing, and build strategy.  Your comp plan should be tied to those areas.  You need someone to help you write the compensation plan who knows how to write it and professionally put it together.  If you get the right software company, you won’t fail because of your compensation—if you’ve got a good compensation, even when some don’t like it, others will.

Product

Of course, your products have to work.  Testing is key.  You don’t want the product that you believe will work—and which you have a story around—to get on the marketplace and not deliver the results you were hoping for.  If you develop a technology product and launch it, and it’s exciting and sizzling—what happens when it doesn’t work and there are errors in it?  These will be some of the reasons key people in your company will leave, ultimately causing your company to fail.

Summation

Overall, there are three main reasons and two secondary ones as to why companies fail.  You’ve got capital, management, sales and marketing (including build strategy), compensation plan, and product.  And remember that 95% of all businesses are likely to fail as they start up—this is not just MLM companies.  MLM companies are just more noticeable than other business that fail because of how many people are involved.


Jeff Jordan is a direct sales consultant and has advised more than 300 companies. Jeff works with new companies as an interim V.P of Sales. At MLM-CC Jeff aids companies in compensation design. Using the WINz analytics tool, he works with existing companies to analyze their compensation plan using a data driven approach.

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