The initial idea sounds great to all parties involved, so the expectations are quite high. The first reactions from the field also seem very promising. People are enthusiastically joining the sales force. Products are moving out and the whole field force is happy as the members are receiving increasing commissions… A familiar story, right?
It is very common for a start-up in the direct selling industry to have quite positive results in the beginning. However, this dolce vita is doomed if the management does not pay attention to a few critical issues. These issues impose high risks on a direct sales company’s long-term success:
Weak Product Offering
Everything starts with the product (No, not with the compensation plan some people claim!). And if what your company is offering is not bought, everything basically ends there! Make sure the products are at least at a reasonable quality, priced accordingly and are sold 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 the one that has a lower total commissions pay out than your competitors’. On the contrary, 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. It has to be rewarding all field activities you deem necessary, for sure. However, it should not offer any rewards for those unnecessary activities, too. And last but not least, it has to be 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 business. The initial staff count could be small and there may be a small group of sales reps. So, the thinking might be that there is no need for any detailed policies. Just wait until the business growth accelerates. Everything becomes a mess at that moment and losing poorly served distributors becomes the inevitable consequence. Having policies and procedures does not create unnecessary bureaucracy or a barrier to growth as some people believe so.
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, financially speaking. If the difference here 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! So, proper working capital management ensures that the business maintains adequate cash flow. In other words, sufficient cash that is needed to cover all expenses, costs and any other financial obligations in the short term.
Inadequate Managerial Resources
Entrepreneurial spirit is definitely a must-have at a start-up! So is the knowledge to run and improve a business, though. A business comprises several aspects, to include finance, accounting, logistics, human resources, legal, IT, corporate communications, brand communications, digital marketing… Proficency at all these requires having a good management team. Going international is an entirely different ball game, with its additional requirements. Being good only at product development and field management 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. Authorities’ intervention can give collosal damage to the overall business. 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 Founder of WDS Consultancy, a management consulting and online publishing firm in Canada, specialized in providing services to direct selling firms. WDS Consultancy is 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.
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