6 Common Reasons Behind Direct Sales Startup Failures
The initial ideas sounded great to all involved so the expectations were quite high… The first reactions from the field were also very promising: In fact, products were moving out and the sales force was happy as the members were receiving increasing commissions… A familiar story, right?
It is not uncommon for a startup in the direct selling industry to have quite positive results in the beginning. However, this dolce vita is doomed, if top management does not pay attention to the few critical issues listed below. These issues impose high risks on long-term success:
Weak Product Offering
Everything starts with the product (no, not with the compensation plan!). And if what your company offers is not being bought, everything ends there! Make sure the products are at least at reasonable quality, priced accordingly and come with a good reason behind to be purchased by the end-users. Whatever the claim it carries, your product has to deliver it.
Poor Compensation Plan
A poor compensation plan is not necessarily one that pays out lower commissions than your competitors’. There are very good reasons why it is not a must to come up with a plan that has the highest pay out to beat the competition. A strong compensation plan, in short, is the one that is in full harmony with your company’s strategies and objectives, that rewards all field activities you deem necessary and last but not least, is financially fully controllable.
Lack of Internal Policies and Procedures
In many cases, this is not among the priority items on the to-do-list when launching a direct sales company. The initial staff count could be small and there may be a small group of sales persons. So the thinking might be there is no need for any detailed policies. Just wait until the business growth accelerates. Everything becomes a mess then and losing the poorly served reps is its inevitable outcome.
Insufficient Working Capital
This is not the initial investment that some would think. Entrepreneurs usually do not make big mistakes there. Working capital is the difference between a company’s short term assets and its short term liabilities. If this difference is positive at any given time, this means that the business has room to grow in a healthy manner. If it is negative, then it can go bankrupt in no time!
Inadequate Managerial Resources
Entrepreneurial spirit is definitely a must-have! So is the knowledge to run and improve a business, though. A business comprises several aspects, to include finance, accounting, human resources, legal, IT, corporate communications, brand communications, digital marketing… Going international is an entirely different ball game, with additional requirements. Being good at product development and field management alone are not enough!
Your business has to comply with all the related rules and regulations, period! And not only in your home country, but in all the international markets that you operate. Thanks to social media, it is so easy for the bad news to reach all over the world in the blink of an eye. Make sure you have taken all the necessary measures for your independent distributors to be in full compliance as well.
Success does not come easy. However, avoiding some crucial mistakes that the others have made can surely help.
Hakki Ozmorali is the Principal of WDS Consultancy, a management consulting firm in Canada specialized in providing services to direct selling firms. WDS Consultancy is a proud Supplier Member of the Canada DSA. It is also the publisher of The World of Direct Selling, global industry’s leading weekly online publication since 2010. Hakki is an experienced professional with a strong background in direct sales. His work experiences in direct selling include Country and Regional Manager roles at various multinationals. You can contact Hakki here.