Why Some MLMs Fail
How can you tell if the network marketing company you're interested in will succeed or fail? Take a look at these reasons.
Entrepreneur Magazine Online — Ask the MLM Expert
by Michael L. Sheffield
CEO The Sheffield Group
Why do some network marketing companies flop and others succeed? Is it related to the product they sell or to other factors?
- Inexperienced management
- Insufficient capital
- Ineffective distributor team
- Inability to recruit distributors
- Incommensurate compensation plan
- Ineffective products
- Lack of uniqueness
Now, it's true that any one of these things can bring a company down, and it's also true that when a company fails, it's generally a result of more than one of these factors. But to me, the saddest circumstance, because it is the most preventable, is when companies with great management teams, good capitalization, exciting compensation plans, powerful marketing systems and competent "can do" distributors fold because they are strapped with an outdated "me too" product. Regrettably, I have seen this happen all too often in the 30-plus years I've been in this business. These companies learned too late that, with respect to the market, they were the network marketing equivalent of Where's Waldo. Lost against a backdrop of a lot of other "me too" merchandise, they couldn't establish unique differentials and secure a proper brand position.
In other words, network marketing and direct selling organizations may peak and pass away for a lack of outstanding "hey, world, look at us" ideas.
On the other hand, there are numerous examples of companies with unsophisticated managers, insufficient capital, inexperienced distributors and an average to poor compensation plan and marketing system that have emerged as network marketing giants because they had the right product at the right time.
Perfect products can compensate for an imperfect company. Quality products, fairly priced and delivered as promised, can cover a lot of flaws in an organization. The customer can forgive inexperienced management, unsophisticated distributors and less than snazzy packaging if they really love what's inside.
Good companies will always have some form of product research and development in progress. It must be an integral, ongoing aspect of their business. Just remember, there is no perfect company, but if you believe their products are exciting and fill your potential customers' needs, you'll most likely get off to a good start with your initial customer base. But don't be afraid to ask questions on all aspects of their business before you make your decision. They won't be perfect on everything you would like to see, but good companies are always improving their business model. It is very possible your own suggestions will help them to enhance their business model, making for a strong and potentially long-term opportunity for you.
Michael L. Sheffield is the CEO of The Sheffield Group, a full-service direct sales and multi level marketing (MLM) consulting firm. He is a Co-Founder and Chairman Emeritus of the Multi Level Marketing International Association and in 2001 he was inducted into the MLMIA Hall of Fame. He and the Sheffield team have assisted in hundreds of national and international MLM corporate start-ups as well as offered a full line of services for established direct sales companies including consultation on MLM Website development. As the most noted expert on compensation plans, he has been a guest lecturer on the subject for the DSA, University of Illinois, University of Texas, Berkeley and Harvard Alumni Association. He has helped launch over 200 new products marketed by direct selling companies around the globe. He can be contacted at 480-968-6199, The Sheffield Group, 2239 N. Hayden Road, Suite 103, Scottsdale, AZ. 85257, website address: www.sheffieldnet.com.
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