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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.

Opinions expressed by Entrepreneur contributors are their own.

Here are the cold, hard facts on failure in direct sales or network marketing. If a new network marketing company flops, it will be for one or more of the following reasons:

  • 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plans, powerful marketing systems and competent "can do" distributors fold because they are strapped with an outdated "me too" product.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 Sheffield Resource Network, a full-service direct sales and multilevel marketing (MLM) consulting firm. He is also the co-founder and chairman of the Multi Level Marketing International Association (MLMIA). He can be contacted through