There are not so many direct selling companies that start their journeys as big businesses from day one. Almost all are small and medium-sized enterprises (SMEs). In fact, many of them start as family-owned businesses. And they come with their limited resources and their own weaknesses, as well.
Here are several of the areas where those start-ups in the direct selling industry fail:
Cash
Profitability and cash generating ability are entirely different. An enterprise can well be profitable as shown on its all financial reports but can easily go bankrupt due to the lack of cash.
Staff
When the owners lack the necessary corporate background, difficulties arise in managing people especially at middle and senior levels. The result is a high turnover of personnel.
Field
Many of the times, the way to a fast start seems to be recruiting one or two strong field leaders from other organizations. It can be too late though, when it becomes apparent they have their own agenda and higher expectations than initially stated.
Financials
Financial reports tell managers a lot. They show both the good and the bad signs when reviewed thoroughly, especially if this is done comparatively.
Best Practices
Direct selling is not a new-born industry. There are many successful enterprises around, at various sizes. Analyzing what they have and have not done teaches valuable lessons and avoids a significant amount of mistakes.
Own Mistakes
It is inevitable that there will be mistakes made on the road. The important thing is to take the lessons and not to repeat them or make similar mistakes in other areas of the business.
Industry Dynamics
While the industry has evolved in many aspects, there are quite a few dynamics that have remained as they are. Respecting instead of attempting to bend them, is most of the time the right path to take especially if the owners are not that experienced.
Statistics
Direct selling is both a people business and a numbers business. Spending the necessary time to analyze figures form the field provides invaluable insights.
Compliance
Whether it is the home country or a newly-opened international market, regulations should always be taken seriously for a “clean” reputation and long-term success. Doing not so has a very high price.
Many of the areas briefly mentioned here are not peculiar to the direct selling industry. We see very similar situations in all industries’ SMEs. However, that is definitely not a relief for entrepreneurs in direct selling who wish to build businesses with a long-term vision.
I’m not sure where you pulled your data, but you’ve missed many factors –especially the biggest reason — when a company continues providing products that are no longer appealing to the market. I was a top leader with a company that, after experiencing year over year declines for 7 years, ceased operations. As the company declines additional factors come into play (for example, motivating your leaders and consultants to sponsor when they know the company is declining), keeping your employees motivated when they know they might lose their jobs in the next round of layoffs (many start looking for new jobs before the ship completely sinks). The biggest lesson I learned is that building the business is actually a much easier task compared to saving one that has started to decline. Those who accomplish it are the real business experts.
Thank you for sharing your thoughts, Susie! This short article was not meant to list all the reasons of failure. It is a short list that we see frequently during the first few years of businesses. For sure, there are others including those we see later on. Again, thanks!
HiSuzie,
I enjoyed reading your post!