What are the top reasons why MLM companies fail? There are two reasons MLM companies fail: recruitment and capitalization. A companies’ 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 someone else who has the ability to recruit.
Another reason is funding, unlike traditional businesses, or in particular the high-tech industry where you have the ability to bootstrap a business on a shoe-string budget, the network marketing profession is entirely different. Reason being that most individuals joining the profession are solely joining for their potential earnings. A new startup network marketing company just won’t be attractive to those that are looking to be a part of a multi-million dollar venture in the making. Traditionally you will seldom see a customer interested in a product that judges the company by its financial stability, since mostly people are interested in the actual product itself. Whereas in network marketing, most join for the opportunity and eventually become a customer.
MLM companies are not a scalable business model. Going from a few thousand distributors to a few hundred thousand distributors in very little time would require substantial financial backing to support that infrastructure. Therefore, one of the reasons why MLM companies fail is the lack of funding to support the potential exponential growth, the unforeseen and unpredictable business model that may require instant cash injection, and any potential legal issues that may arise.
Thirdly social proof, Social proof is beyond social media; rather it becomes a talking point, accepted in the community, and well known among everyone. This alone won’t cause the company to fail, but it does help make the company successful. Social proof is the reason why MLM companies will continue to be successful.