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.

The following links will provide additional information about MLM company success:

MLM Company Profiles – A comprehensive list of established MLM companies.

MLM Consulting: How to Build a Successful MLM Company – Article

What are the top two reasons why direct selling companies fail? [Video]

MLM Corporate Startup Essentials: Part I – MLM Capitalization

Capitalization of the MLM [Video]

For more information, be sure to visit www.mlmlegal.com – the best MLM resource on the web – and www.mlmattorney.com.

5 Responses to “The Top Two Reasons Why MLM Companies Fail”

  1. Thanks for the article. I enjoyed the read and it does make perfect sense. The better anyone, a rep, company, etc is at recruiting, the faster everyone’s income/business can grow.

    The company with is just about to reach the 3 year point in the direct sales arena, and I agree, it can take time to get a strong base of faithful leaders established. Retention is also a critical component.

  2. […] to mlmattorney.com the top two reasons for Multi-Level Marketing companies to fail […]

  3. Emily says:

    Thanks for the article, it’s a great read! Can you please give a few examples of specific MLMs that failed due to the two reasons who have mentioned?

    thanks!

  4. Quaid says:

    Great article. Can someone explain why party plan companies fail.

  5. […] quickly fail to have enough financial backing to sustain themselves.  According to the web site MLMAttorney.com most MLM companies fail because of recruitment or lack of […]

Leave a Reply