How to Build
a Successful Direct Selling Company
by Jay E. Leisner
In the United States, almost two million
new businesses are started each year. People with good ideas and good
intentions decide to put their best foot forward. They open their doors
for business and hope their businesses stay alive and grow.
In contrast, there are several hundred
direct selling businesses that are launched each year. Some of them are
funded well at their birth, others are launched with bridge funding, and
many begin with a critical shortage of investment capital at the outset.
It's a rough world out there. Half of new
businesses don't make it past their first year and most don't celebrate
a 5th anniversary. The odds don't scare many away, so don't let them
scare you away. A healthy dose of fear, however, can be a good motivator
to do the right things to increase your odds of staying in business.
Here are some smart things you can do
when building your direct selling company:
Choose a business that is
For a direct selling business to be
profitable, it must have healthy gross margins. The retail price of your
products should be at least 5 times the cost of goods sold. Operating a
direct selling business with margins less than these is possible, but
difficult. Companies with smaller margins typically pay out a smaller
percentage of commissions, the result of which impacts the
attractiveness of their business opportunities.
Create a business plan.
Many people think that the sole purpose
of a business plan is to secure outside investment capital. This is one
of the two purposes. A business plan helps demonstrate that you have
thought through the business in detail and can show convincingly that
you have a viable, profitable model.
The other purposes are less obvious.
Writing a business plan forces you to
think about the seemingly endless collection of details about the
business you plan to launch. The exercise of writing the business plan
is key to the process of working through the plan as you write it. The
pain is worth the gain. You'll see what you know already, and you'll
also see what you have yet to learn.
Having a business plan gives you a
concise document to share with the consultants you'll contact as
resources to help launch your business.
If you have your business model reviewed
by a qualified attorney, he or she may ask to see your business plan
(and any other documents you've written about your business, such as
your compensation plan).
If you choose to engage a business
consultant to help you fine tune your business model, having a business
plan will save you money in reducing the amount of time the consultant
will need to spend to understand your business model.
When the time arrives to make decisions
with respect to software, your software company will appreciate reading
your business plan for it will help to identify unique requirements that
may need to be addressed with software.
Don't view your business plan as a static
document, once written, that shouldn't be changed. On the contrary, your
business plan should change as you adjust your business model prior to
and after the launch of the business.
Secure dependable sources
of cash for the business.
Most businesses fail due to
undercapitalization. Direct selling businesses are no different. Not
having enough cash to address the expenses incurred prior to and after
launch is the cause of many business failures.
You should prepare a sales forecast and a
budget. These documents, like the business plan, will be prepared
initially based on best guesses. Once you've launched the business
you'll have real numbers to look back upon, and with these real numbers,
your ability to prepare a good forecast and a good budget will be
Before you begin spending big money,
you'll need to decide how to fund the business. Will you supply the cash
personally, locate multiple outside business partners or investors, or
find an "angel investor"? These are tough decisions for many
entrepreneurs as their limited cash often accompanies a strong desire to
own most or all of the company.
Most product-based businesses become
profitable within 18 months to 3 years from launch. Yes, I've seen
companies that have been started on a shoestring budget with the plan to
be profitable within 90 days. While this is possible (as some companies
have achieved this goal), the odds that you will be one of the lucky few
Don't take a lottery approach when
starting your business. Yours should be a serious business, not monkey
Software and Technology
Making a decision on the purchase or use
of software for a direct selling or network marketing company can be a
difficult process. Each business is unique with specific requirements
that should be considered when evaluating software vendors and their
products. Don�t make the mistake of assuming that you have no unique
On the surface, vendors can look alike,
but each has its strengths and weaknesses that are not readily
apparent. Take the time to compare vendors and their products. Don�t
be �wowed� by the bells and whistles. Instead focus on basic
functionality and insist upon a track record of successful projects with
several client references that you can speak with.
Some companies choose a vendor based on
how quickly they can implement a system, assuming all vendors offer the
same service and the same product. These are incorrect assumptions.
Selecting a software vendor is much like
selecting a spouse. Just as you shouldn't select a mate based on how
quickly he or she will marry you, timeliness is not the primary factor
to be considered when purchasing software. It is definitely better to
choose a software vendor carefully than to make the wrong choice
quickly, for the wrong reasons.
Using a consultant to assist with the
purchase of software gives companies many strategic advantages. A
consultant familiar with software vendors and their products and
services can help not only to explain the differences among them, but
also to help identify what is most important to the purchaser and to
communicate these requirements to the prospective vendors.
For a marriage to work well and last,
both parties need to understand how each other thinks. The same goes for
the client/vendor relationship. An experienced consultant can help teach
the purchaser how to be a good client and can help present the client's
needs clearly to the vendor. He or she can provide guidance to both
parties and can serve as an intermediary to help negotiate the terms and
deliverables in contracts or to resolve disputes.
Endeavor to understand
your sales force and its retail customers.
Who do you anticipate will be attracted
to your business opportunity and who will buy your products? What are
their needs and how will you meet them? What will you do to keep them
coming back for more?
Understanding the personal goals of those
that will become your consultants will help you in building your
marketing plan and your commission rules. Identifying and promoting the
reasons consumers are attracted to your specific products will help your
products to be viewed as even more attractive and needed.
Don't wait for the company's launch to
find out what's good and what's not. Before you open your doors, take
the time through focus groups to demonstrate the infant versions of your
marketing and commission plans. Present the products and obtain feedback
through carefully crafted surveys to learn what is liked (and not liked)
about them. Then, adjust your business model and your products as needed
to make each more attractive.
Determine multiple sources
for your products.
A chain is only as strong as its weakest
link. If you can't purchase enough of your products quickly enough to
satisfy demand, your business model will break, your sales reps will
flee, and your end consumers will go with them.
To ensure the product leg of your
business is strong, whenever possible identify multiple vendors for each
product. Explain to your vendors that you anticipate your purchases will
increase significantly over time and that you require your suppliers to
keep up with you. Locate suppliers who have a track record of keeping up
with fast growing companies. If possible, provide incentives to your
vendors for meeting your requirements for product quality and quantity
and disincentives for failing to do so.
Price your products and
It is almost impossible to make the point
that you have the lowest prices and the best quality. Most direct
selling companies emphasize quality over price. You should probably do
Products and services sold through direct
selling can cost more than similar products sold through other marketing
channels, but not that much more. If similar products exist, determine
the price ranges of those products (from discount warehouse clubs to the
corner store). I recommend that if your products are very similar to
those available in traditional shopping venues, your prices should not
be more than 25% more than other prices.
If your products today are sold by other
direct selling companies, I would be careful not to overprice them. If
your products are unusual and can't be found anywhere else, clearly you
have more room in pricing these products.
Ideally, your products should be unique
and not readily available anywhere else. Products that require a story
or an explanation to understand their use typically do well in direct
Through your focus groups, you can
experiment with different price points to see how purchase decisions are
affected. Then, you can set your prices at the right price points.
Develop strategies for
Companies that wish to grow quicker at
launch time typically have a strategy to identify and recruit
experienced direct sellers, giving them special roles in exchange for
their commitment to heavily promote the business opportunity (and to
recruit others) during a pre-launch period and after the official launch
of the company.
The definition of "special roles" varies
by company. Some will offer to grandfather a core group at higher than
entry level positions in the sales force. Others will offer a monthly
stipend as an incentive to join this elite group at the "ground floor"
of the company. Some companies will offer both types of incentives.
If you choose to offer special deals, do
so only if you require specific performance in order to continue to be
paid at the higher level or to receive the monthly stipend. "Pay for
performance" should be a clear requirement.
Some companies feel strongly that no
special deals should be offered and that each consultant should earn her
title and that the compensation program itself is reward enough for the
effort put forth.
How will you recruit your consultants?
Before your official launch, will you seek to build a core team of
experienced direct sellers who wish to promote your business opportunity
at the outset, or will you build your sales force more gradually?
Plan for change to your
Don't view your business as an island.
Keep aware of your competition's moves. When I say competition I mean
both other direct selling companies (that offer similar business
opportunities) and companies that sell similar or identical products.
While looking sideways at your
competition, you should also be looking forward to offer innovative
products and business opportunity advantages to help differentiate you
Professional consultants can offer you
suggestions that you can fine tune for your business model.
Introduce changes to your business
While you may have a long list of "cool
things" you wish to release to your sales force, temper your enthusiasm
with controls that limit the frequency of new announcements and changes
that you introduce each year. If you can, announce changes on a
quarterly basis as any change to your business (whether good or bad)
deflects the focus of your sales force and its end customers from
recruiting, selling, and purchasing your products.
Limit your focus.
Decide what kind of business you want to
be and then build that business. Keep to your core mission - running a
profitable company. Whenever possible, don't introduce new product lines
with inferior margins compared to your existing product lines, because
your new product line may cannibalize an existing one. If this happens,
your sales will stay the same, but your profits will decline.
Before you introduce a new product line,
use focus groups to determine the impact of new product introductions on
existing product purchases.
Know your limits.
Many entrepreneurs fall into the trap of
not admitting what they don't know. Their self-confidence can be their
own internal enemy. To avoid this trap, surround yourself with people
who have skills that you don't have, whether they are business partners,
employees, or professional consultants. Let others make recommendations
and decisions. View your business as run by a team.
Just as the entrepreneur sets high
standards for himself or herself, so should standards be set for
performance of business partners, employees, and your sales
Accountability and rewards for achieving
goals should be a key ingredient in all of your agreements with
employees (and sales reps, too). Your compensation plan should reward
consistent attainment of specific goals.
Your business is a result of your drive
to create something significant. Building a business is an exciting but
complex endeavor. Pay attention to the details, and seek assistance when
needed to help you through the rough spots.
Jay Leisner is President of Sylvina Consulting, a business and software
consulting firm with more than 17 years of experience having worked with
over 150 direct selling and network marketing companies. Sylvina
Consulting provides a wide range of services to both new companies and
For more information on Sylvina Consulting, including free white papers
on direct selling and a company brochure, please contact Jay at
503.244.8787 or visit
you have an article you would like to share please submit it to