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So, You are Thinking of Starting a Company: What You Need to Know

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Article by: Sean Smith
July 11, 2016

The direct sales industry is on the rise. I’m approached every day by people looking to enter the direct sales market with a startup company. Here at InfoTrax, we launch an average of three startup companies every month and due to the growing main-stream acceptance of direct sales, I expect the trend to continue.

Starting a direct sales company, or any company for that matter, is never easy. There will always be unforeseen issues, unexpected costs, and unruly personnel. These types of issues are not unique to your company. The business gods are not picking on you for any particular reason; you will simply have to be prepared for anything to happen.

At InfoTrax, we have launched hundreds of direct selling companies on our software. Year after year, I see companies face struggles that could have been avoided. Watching the growth of these companies has taught me that every company should answer three questions before they launch: 1) What exactly is your product, and does fit in the direct sales space? 2) Do you have someone at the lead with Direct Sales executive experience? 3) Do you have capital to fund the project?

Here are the key points to evaluate:

Product

People often call our offices and say, “I’m thinking about starting a direct sales company.” The first thing I first ask them to do is to tell me about their product. Sometimes the answers I get aren’t clear. Sometimes the product isn’t well defined. The worst response I get is, “I don’t know… a service, a product, or a juice or something.” Identifying your product, understanding your product’s story, and having faith in that product is key. Without that, you cannot evaluate the viability of your company in a direct sales model.

Once you identify your product, the next question you need to ask is, “Is that a product that can be sold through direct marketing?” Certain products lend themselves to direct sales. Typically, the products that will thrive in this industry are products for which customers require motivation, training, and education to use. If everyone already knows how to use a product, they’ll simply buy that product off the shelf at Walmart, and they’ll get it at a lower price.

The third product qualifier identifies the range of products to be sold. In the past, companies started with one product but today, most successful companies create a range of products. That range of products works best when the products fall in the same circle. Selling a health drink and home décor may not be a good idea. The product line should be centered on a theme and it should serve an existing community of buyers or a niche into which a community of buyers can be built. Direct sales is still about community; rock stars with a California lifestyle and farmers from the Midwest will not easily unite. Choose a theme which serves the needs of a society with natural cohesion.

Executive experience

The second key element that we look for is someone on the potential client’s team that has direct sales experience at a corporate executive level; by this I mean, a non-distributor. We speak often with distributors who think that doing well in one area easily translates to another, but success as a distributor and success running a company are unrelated. It’s not that distributors can’t start a company; it’s that when they do, they should bring on an executive-level player with experience growing a direct sales company. Pairing up with the right people helps avoid problems that can cost you dearly.

If you aren’t ready to bring on that executive level player, or maintain confidence in your ability to avoid most of the pitfalls, direct sales consultants can be a great option to fill that executive experience role. For consultants to fit this role, they’ll need c-level type experience, so check their references.

Keep in mind that direct sales companies are unique: they’re like ecommerce, but not ecommerce, and similar to wholesale distribution, but not exactly, and they’re (kind of) like product manufacturing. Experts from these areas can and will add to your company’s strategic direction, but it takes time to learn the rest of your business model and that training will typically come at your expense.

Money

The last major question you must answer is, “Do you have solid capital to fund this project?” It may be cliché, but clichés arise for a reason; it really does take money to make money. In direct sales, it’s not $5 million, but it would be helpful if you had $500,000 at your disposal. If you are starting a company then you have to buy enough product to fulfill the sales you create; you need to have a phone to answer when somebody calls. Cash on hand is essential to funding the basic operations of a company and helping to cover that period of time when the business gets started. Stories about companies that sold $300 million in product soon after starting up are not always what they seem. If they were true, those companies would have to produce and pay for $300 million of product before that revenue ever made it to the bank.

Success can be just as costly as failure in some situations. The truth about successful companies is that they typically have a period of time, from a few months to a few years, while they shape their business model before they achieve success. You can’t expect to be profitable immediately and when you do achieve success, it will have cost you plenty to get there.

Going into business can be a very rewarding venture. Direct selling companies who find success make a fortune and positively affect the lives of their distributors along the way. I hope these insights into what we at InfoTrax look for in a new company will help you avoid unnecessary challenges as you create the next great direct sales company.

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Sean Smith

Sean M. Smith has over 12 years of experience in Business Development. Having started and grown companies in several industries, Mr. Smith...

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