Why Direct Sales Companies Fail: What’s Missing?


There simply is no “silver bullet” answer as to why a direct selling company fails, for the same reason there is no single answer as to why one thrives. Every company is different, and every market has different needs.

However, in my travels I have noticed stark similarities in those companies that fail. Lacking resources in just a few key areas is enough to run them into the ground.

To truly achieve success in the MLM world, we must dissect our setbacks so that we can learn and move forward towards real growth. This is why today we’re going to consider some of the factors that led to the downfall of a real direct selling business.

Let’s examine a case study of a company that shut down well over 6 months ago. My intention is simply to draw into the light what we need to do as a community to better create success and abundance, not point any fingers at anyone in particular. I’m not trying to embarrass anyone; I simply want to share lessons that will hopefully make us all more successful.

As we take a look at this example, please don’t try to figure out who it is—you won’t. A quick overview of the company might have looked something like this:

Poorly branded website—check.

Compensation plan copied off the Internet without working with an expert—check.

Product / market fit that just wasn’t right—check.

Non-charismatic founder who lacked direct selling experience—check, check, check!

Any MLM company that fails tends to have some combination or all of this toxic mix.

However, in this particular case study, the biggest factor was a lack of training, support, and an on-boarding program.

This company had amazing results getting new distributors to sign up, but had equally disastrous results in getting them activated. It was like running the faucet in the tub and watching the water drain out as fast as it was coming out. To make matters worse, they didn’t have the top-level, experienced distributors that could lift up the masses and fill the gaps at corporate.

We all know how hard it is to recruit experienced, top level distributors. When we don’t have them in our organization, we must compensate by having a fabulous on-boarding program that gives step by step instructions in an easy-to-digest format.

If there is no one to coach the hoards of new distributors, they will get overwhelmed, stall, and quit as fast as they join. It’s human nature for uncertainty to breed procrastination. I can’t think of a bigger wasted opportunity than having paid money and given effort towards attracting large amounts of distributors, only to have them fail so quickly, at such an alarming rate.

At Krato, we bring on-boarding to the next level though the Journey mobile app. Every new recruit gets a virtual coach pushing them towards small tasks like training, sending emails to prospects, and making canned text messages, as well as social media posting strategies.

The ideal situation is that you have both a technology system that supports these new recruits AND experienced direct sellers who can reinforce these activities. Having neither is absolutely disastrous.

Of course, we want to see our direct sales companies succeed. We must strive for excellence with our marketing, sales, compensation plans, product “fit,” and leadership to achieve greatness.

But even if we do all these things perfectly, and still forget the basics, such as on-boarding and mentoring, the company will fail. Never underestimate how easy it is to lose your hard-earned distributors through lack of engagement. Keep them entertained and informed—and you will have an army of salespeople who will keep your business afloat for years.

Brian Palmer
Krato CEO