The Top Two Reasons Why MLM Companies Fail


People often ask, “What are the top two reasons why MLM companies fail?” Many have speculated. However, we have been in the direct selling industry for a long time and the answer may actually surprise you. The reason for a company’s failure is not necessary always a legal one, which may sound odd coming from a seasoned direct selling attorney.

There are two reasons MLM companies fail: recruitment and capitalization. We have often told executives of direct selling companies that their need for capital is in inverse proportion to their ability to recruit. If you have the capability to recruit, then the company can become quite a cash generator, in which case, it looks good for you. On the other hand, if you don’t have recruitment capability then you have to go out and buy the capability to recruit. This would mean that you would have to hire a VP of marketing, or someone else who has the ability to recruit.

And if you are lacking immediate recruitment ability, you need to have sufficient backup or buffer capital to allow for the longer period that will be required to grow the business to a profitable stage. You must provide your company with at least two years of financial security in order to give your MLM company an honest shot of achieving growth and success. The reason we see companies fail particularly early on is because they either did not have recruitment capabilities or they didn’t have adequate capital to stay with the company long-term and make it a success.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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