by Dan Jensen, Jenkon International, Inc.

Multi-Level Marketing, also called Network Marketing, is the essence of free enterprise. Thousands of MLM companies have sprouted during the last few decades. Sadly, many are no longer in business. Having been entrenched in the MLM industry for over a decade seeing hundreds of companies come and go, I have observed a pattern that might be of help to an entrepreneur wanting to build a successful MLM organization in today’s competitive marketplace. This pattern includes at least ten common challenges facing new start up ventures. These common challenges include:

 

Adequate Funding

A Business Plan

Management and Leadership

Staff Training

Computer Systems

Compensation Plans

Have a Lawyer Review your Compensation Plan

Customer Service

Corporate Marketing Personality

Fast Growth

While these challenges are not in any particular order, they carry differing levels of severity. For example, Adequate funding is required to keep a company in business. And while a compensation plan can become a major obstacle to the success of the organization, it isn’t too difficult to creating a good one.

 

#1: Adequate Funding

 

Let’s suppose you want to build a house and have borrowed $150,000 to complete the project. You have $50,000 of your own money to add to the mortgage and expect the house to cost no more than $200,000. During the construction, you found a few unforeseen problems. While digging the basement, a water spring was found that had to be capped and routed to a different part of the property. Cost: $8,000. Lumber prices rose 30% from the time you started the project. Cost: $12,000. You upgraded the carpeting hoping to make up the difference in other areas. Cost: $9,000. As you near the end of the project, try as hard as you can, you can’t get the house complete without another $40,000. You’ve already borrowed as much as you can to get the $150,000. You have no more money of your own. What will you do?

So it is with starting a business. Many well-intentioned entrepreneurs embark on a long journey to prosperity full of hopes and dreams. As they journey along the road, they hit a few “springs”, and find many things costing far more than expected. They make a few mistakes, which are expensive to fix, and soon find they didn’t budget enough money to get the business off the ground. These people always come from the experience learning a golden rule of business: Know how much money you need and secure the funds before you start.

How does a person find enough capital to start an MLM business, and how much does he need? Nobody will be willing to risk his or her money without a plan.

Common sources for funding include:

 

Don’t become impatient and launch the business without the necessary funding! How much funding is necessary will depend on your business plan. Some companies start for as little as $10,000, while others find they require several million dollars. As my father wisely told me when I started Jenkon, consider every dollar in the beginning as being worth five dollars later on. Save your precious start up capital as if your life depends on it.

 

#2: Business Plan

 

The business plan is the blueprint of your success. Companies that are successful without a plan gain their success more by accident and luck than by design and thought. Which type of success do you want? Are you willing to trust luck for your success? A business plan is a “first creation” of the business, just like an architect’s blue print is the first creation of a beautiful home. A good architect will plan out every detail of a home long before the first shovel of earth is moved. So it must be with any MLM business. You must become a business architect before you build the business.

Another aspect of the business plan is that it is often used to attract potential investors, lenders, and vendors. No investor will be willing to risk his or her hard-earned money on a business venture without a well-designed plan. You shouldn’t either! As you establish credit with vendors, they will be more generous granting credit if they can review a well-prepared business plan. Remember, that any credit granted by vendors reduces your starting capital requirements; if your manufacturer is willing to extend 90 days terms up to $100,000 for product, you will need $100,000 less to start.

Key elements of a business plan should include:

 

 

Once the plan is complete, bind it so it can make an attractive presentation. Include a table of contents, index tabs, and an impressive cover. Don’t put the plan on the shelf! Use it in each manager’s meeting, refer to it like the corporate bible. Change it when needed, but follow it carefully.

Part of the business plan, of course, is to plan to be a profitable company. It’s amazing how many companies fail to plan to be profitable. A general rule might be:

While the above numbers are very rough, they have proven to be a target that many successful companies have set.

 

 

#3: Management and Leadership

 

No business can rise to the pinnacle of success and sustain it without effective management and leadership. It’s been said that leadership is doing the right things. Management is doing things right. Yet, the graveyard of free enterprise is littered with the bones of companies who were poorly managed or poorly led. Most often, the mismanagement started with an enthusiastic business owner with little or no experience believing that he or she could handle the job. While there are many who launch businesses very successfully, there are few that have the skills to sustain the success.

A wise business owner must be honest about his or her shortcomings and hire talent that makes up the difference. He or she must then empower the hired talent to do their job effectively; don’t hire skilled people and then ignore their wisdom and talent!

The role of the business owner becomes leader once effective managers are empowered to handle the operations. Leadership becomes one of planning, reviewing results, promoting, and motivating. Let the managers do their job according to the business plan. It becomes the yardstick to which the managers are accountable.

 

#4: Staff Training

 

What NBA basketball team would recruit a new player, place him on the floor his first day, and expect him to perform like the rest of the team? Without training with the rest of the team, his performance, at best, would be mediocre. At worst, disastrous, and the game would be lost.

Such it is with any new employee, especially if the whole staff is new as in a new business launch. Who should train them? What should they be trained to do? How do we know if they have completed their training? These questions need to be addressed individually:

Who should train new employees?
Don’t let the old adage, the blind leading the blind be said of the trainers. If you are a new start up company, find very competent people for each department and have an experienced general manager orchestrate the various departments like a symphony. Don’t be led into the trap of saving money on inexpensive workers in the beginning; it will cost far more than it saves.

One critical department that needs to be trained is the Order Processing department. This group is charged with taking orders over the phone and receiving orders by mail and FAX. They are in constant contact with field distributors and portray an image of your business to everyone they talk to. If you hire educated, warm, and friendly people, your image will also be such. If you hire minimum wage clerks to take orders, they will portray a much less impressive image. These people need to be screened during the hiring process for personality traits, patience with frustrated callers, and their ability to think on their toes. They must be trained by others employees who are of the highest level of competence; don’t let them receive training by less experienced peers.

The second most critical department is the Distributor Services Department. Each person in this department will handle problems, complaints, inquiries, and a thousand other issues that arise. These people must comprise an elite “SWAT” team with an obsession for customer service excellence to the field distributors. These people must have a similar obsession for excellence.

Where will you find experienced people to do the training if your company is just starting? Look to consultants (a list is provided at the end of this report), trade organizations such as the MLMIA, and the DSA for names, and advertise in industry publications. Executive search firms can often be fruitful as well.

What should they be trained to do?
As an experienced person is hired to supervise a department, their first task is to design and document a “system” or method of operation. For example, to process sales orders, a diagram of how an order must flow through the office could be created. Exceptions should be noted with a flow chart or diagram to handle each. What should an order entry operator do if the credit card is declined while the caller is on the phone? What should a warehouse person do if some of the products ordered are not in stock? Every conceivable problem must be documented in advance with an appropriate solution. Policies need to be documented and organized into a handbook for the staff. They might even be put “on line” on the office computer system for instant look up. Professional MLM consultants can be an invaluable source to help prepare these flow charts and documentation.

Once the systems, policies, and procedures are documented, training can begin. With documented systems in place, training proceeds quickly and thoroughly. Without systems, policies, and procedures, training can never be complete, and takes many times longer.

How do we know if the employee has been trained?
An evaluation process should be established which takes a new employee through a sequence of duties and responsibilities. For example, an order entry operator might be required to take ten phone orders with a supervisor at his/her side before being allowed to take an order alone. A distributor services rep might not be allowed to handle commission related questions until they have explained the compensation plan to the department supervisor thoroughly, top to bottom. In summary, each department must also establish a minimum level of competence before allowing an employee to perform their assigned tasks alone. Until then, they are “buddies” with another peer or supervisor. Many companies have tests that are taken and scored which focus on the various objectives each job has. The best tests focus on objectives rather than on the mechanics of the job.

 

#5: Computer Systems

 

In the section on training, I addressed the need to have good “systems” that, if followed, comprise the methods to handle each type of business transaction, whether the transaction is a sales order, a phone inquiry, a complaint, or the return of product for a refund. Computer systems in Multi-Level Marketing companies become the glue that binds the office departments together, a “core around which the business is built. No successful MLM Company has ever sustained their success without a well-designed computer system. Likewise, there are many MLM companies that have failed due primarily to the lack of a good computer system. Don’t let your new venture become just another statistic. Choose your software vendor wisely.

What is a good MLM computer system?
There are three major pieces to any computer system:

The greatest challenge companies face in this area is to think they can save money by writing their own software. This can take months or years, it can never include the experience and know-how that packaged MLM software contains. Why reinvent the wheel? Would it be worth the risk of losing the business to poorly designed software resulting in incorrect commission checks, errors in tracking a person’s downline records, lost orders, and so forth? Those companies that elect to write their own MLM software often find later on that they are vulnerable to the programmer who wrote it. What if he moved away, or became injured or sick? Never let someone convince you they can program an MLM software system in weeks or months. It’s never been done successfully before. Why should you believe it could be done, now? Companies such as Jenkon have spent many years writing MLM software that works right the first time, every time, and offer it to the public for a small fraction of what it costs to create it. It’s the best money you’ll ever spend.

How do I choose a good MLM software package?
While this report does not have the space to address this subject fully, a few suggestions should be noted:

Remember that you aren’t just buying a computer; you are buying software, expertise, emergency support services, programming services and you are starting a long-term relationship. Choose your software vendor wisely. Of all the aspects of a start up MLM business, don’t be tempted to penny pinch in the computer area. If you do, you may cripple your chances for success.

 

 

#6: Compensation Plans

 

A compensation plan that fails to motivate distributors will stop a company fast. Some people believe that a good compensation plan is the key element to success. I have found this not to be the case as I’ve observed many successful companies reach very enviable sales volumes with poorly designed compensation plans. At the heart of the issue is the question what makes a compensation plan good?Let’s address a few points:

 

#7: Have a Lawyer look at your Compensation Plan

 

While a compensation plan may motivate distributors, unless it is acceptable by every state or country where it will be used, it could put the company in jeopardy. There are many legal statutes that must be complied with in order to carry out an MLM business in any state or country. Those affecting Multi-Level Marketing vary and are well beyond the scope of this report. Several major points, however, should be discussed:

I have included in this report the names of several attorneys who work almost exclusively with the MLM industry. Many companies have found them to be very competent and knowledgeable in MLM legalities. It is highly recommended that a new MLM company retain one to review the compensation plan.

 

 

#8: Customer Service

 

Many companies enter the industry thinking they sell business opportunities and their products. They soon learn that they sell a third product, one of immense power: customer service. Distributors are fickle and seem to join the company that offers the most. One great discovery of our age, however, is that people love to be served well, and their loyalty is placed on those who service them best. Some MLM companies find their average distributor stays active only six months. Others find it is several years. What’s the difference between them? It’s not the compensation plan. It’s not the products they sell. Instead, it is how well the distributor is served.

Excellent customer service does not come by accident. It is the result of well thought out plans and hard work. It starts by having a very committed Distributor Services Manager empowered to implement the necessary systems, policies, and procedures to achieve excellence. The Customer Excellence System (CES) must comprise at least four areas:

Customer Information Data Base
In today’s modern business, customers have very high expectations for service. When a distributor calls the home office to ask for information, they expect to receive their answer immediately, not an hour later. With a customer information data base, the service rep on the phone can instantly access information that would otherwise take minutes or hours to find. The goal of any customer information database is to know everything possible about the distributor that might be the source of a question. From order status to commission problems, the customer service software must provide instant answers to distributors as they call the office.

Follow Up Systems
If 1,000 distributors were recruited this month, and 10,000 distributors had already joined, how many phone calls would they place with the home office? Statistically, well over 1,000 phone calls would need to be answered by professional, courteous, and competent office staff during the month. Of the 1,000 calls, how many would require a “call back”? It depends entirely on the quality extent of the customer information database. The better the on line information, the fewer call backs necessary. The goal of a good customer service system should be to have less than 5% of the calls requiring a call back. If 30% of the calls required callbacks, there would be at least 300 opportunities for not following up and finishing the call.

Any customer service system that strives for excellence has a means of tracking each phone call to completion. Open calls can be tracked and aged with priority given to the oldest calls, or to the most important distributors. Such a system, often called an Event Management System, becomes the hub of any professional customer service system. In essence, it tracks every inbound phone call from the field and makes sure that each call is answered quickly. It provides the department manager with the reports needed to avoid having a call “open” too long.

Satisfaction Measurement
If you don’t know how well your customer service people are doing, then you don’t know how your future will be. If they are doing poorly, the company is doomed to failure. If the distributors rave about the excellent service they receive, you can be assured of future success. A customer service system must include the ability to track satisfaction levels. How is this done?

When a distributor phone call is logged and closed, a follow up call is placed, or a survey letter mailed to the distributor asking:

Questions such as these, when answered by field distributors, become invaluable to reaching the goal of customer service excellence. The best software packages today incorporate Customer Service Excellence systems to make your obsession for excellence a reality.

Work Load Measurement
No customer service department can survive increasing workloads for long without burn out. If the number of calls received each day is tracked, with the length of time it takes to handle the average call, expansion plans can be put in motion before workloads become critical. Distributors cannot be serviced with excellence if there are too few people to do the work. Once again, the task of measuring workload will require an excellent MLM software system.

In summary, let customer service by your secret weapon to success. It takes planning, commitment, and hard work to achieve the excellence a successful company seeks.

 

 

#9: Corporate Marketing Personality

 

Complement an “on the road” campaign with effective videotapes that motivate, sell, and train. While nothing can substitute for being with them, videotape is the next best thing.

What businessman would start a new company and stay in the office waiting by the phone for customers to call? Time after time, the most successful MLM companies have proved the effectiveness of having corporate marketing people hold meetings on the road. Distributors need contact with corporate people for motivation, training, and especially, to help them recruit. There is no substitute for being in the field. Your success will be greatly enhanced by putting highly motivated corporate personalities “on the road”.

 

#10: Fast Growth

 

While most businesses would give their right arms to grow at exponential rates, MLM has a track record of just that. Unfortunately, this kind of growth has often been a major demise of many otherwise successful ventures. Success is wonderful, but it can bury you.

New businesses have new staff, new computer systems, new facilities, and are short on the experience to handle business efficiently. An office can only handle a certain volume of business. What if that volume is exceeded? Something must give. Many companies go on a spending spree, throwing money at their problems. While growing, cash seems to be unlimited. This too, is a false security, for as surely as the growth came, it will level out, and eventually go downward for periods of time. It is far better to limit growth temporarily, than to succumb to its demands.

How can an MLM company control its growth?

By controlling growth, a business plan can become a real guide to making the business profitable. Use the plan to make success become a reality.

Conclusion
Multi-Level Marketing offers incredible opportunities, but also has a vast assortment of challenges. By following these simple guidelines, your potential for success will improve dramatically. Those that have money to burn can ignore these rules. Those that must be careful and hit profit projections must give heed to these MLM Solutions to the 10 Most Common Challenges. Life is too short to learn every lesson by ourselves. We are far wiser to observe others, and let their experiences teach us a better way.

All contents © Copyright Jenkon International, Inc. 1996. All rights reserved. Permission is granted to reproduce this article, AS LONG AS the biographical section above is included with the article.