Nine out of 10 people who fill out a network marketing application will fail to build a viable business. Among that number will be people who do not take action and people who build a business yet experience a true business collapse.
The oft-quoted statistic allegedly from the Small Business Administration(SBA) that 9 out of 10 of all businesses fail within 10 years by comparison is not true.
According Brian Headd’s article from Small Business Economics 21:51-61, 2003: Redefining Business Success: Distinguishing between Closure and Failure, 66% of conventional businesses survive 2 years or more, 50% survive four years or more and 40% survive six years or more. Traditional small businesses do far better than the 90% failure rate quoted by people in the network marketing industry.
What is the difference? Is the network marketing model itself faulty? Many familiar sales models use the same business model as network marketing. Real estate sales are a prime example. Many top sales people across the automotive, pharmaceutical, travel and other industries have as their main responsibility to recruit and train sales people and in return are paid commissions based on the performance of their teams. It is not the model.
What is it then? Why do so many people fail in network marketing?
Working with people over the past 5 years and in speaking with other successful network marketers during the same time, I have been able to come up with 5 reasons:
1) The cost of entry is too low: The typical start up costs can range from 0 to $1500 dollars. Imagine the person who decides to open a traditional business and has to invest tens of thousands of dollars to do so. How might that person differ from the person who can put their business start up on a credit card? The person seeking to open a conventional business where the investment is high will develop a business plan. That plan will include a skills assessment, expected expenditures and projected revenues. If the prospective business owner realizes they have a skill deficit that is material to their business success, they will either set to work learning that skill before opening their business or they will provide funding and a plan to acquire that skill while they are in the planning stages and before they open for business. Now imagine the person who can simply put their start up costs on their credit card. For the majority of network marketers there is no planning beyond the initial start up. Most never ask of their sponsors or themselves what they may need to be successful other than the initial start op costs. They never ask what skills they lack. There are on-going business costs in addition to the start up costs and those costs can range from $100 to $500 dollars per month. Many do not make provision for on-going expenses. On-going business expenses tend to be regarded as expenses akin to the cable bill rather than investments in their business. The low start up, then, can be a stumbling block to success in business.
2) Lack of appropriate training: Unfortunately many companies and teams do not offer training beyond corporate events. In order to be successful network marketers must master a simple formula, the Inviting Formula, and they must use that formula 30 to 60 times per month. Without this formula many new and seasoned network marketers will invite the wrong prospects to review their information and find themselves disappointed by the results. The Inviting Formula is simple to learn and implement. Why is there so little training available in network marketing? I believe the reason can be found in the very reasons why people get started in network marketing. Take the wage earner who wants to fire his boss. He never wants anyone to tell him what to do again; he hates his boss and wants to be free. Take the corporate executive and the entrepreneur both of whom are tired of managing people and are looking to build a fleet of independent business owners that they never have to manage. Put both groups of people together in what is fundamentally a people business and what do you get? People who find that they have to do what they were trying to get away from in order to be successful and become free! YIKES!
3) Too many people are looking for the big income score and fail to appreciate the smaller sums of income they earn along the way. Most people get started in network marketing because of the big income claims. They want the six figures. If they don’t get ’em they quit. Here is a statistic that will knock your socks off. Anyone grossing $30,000 per year or more with their respective company is among the top 3% of income earners for their company. Here is another fact. The income earned through network marketing is tax-advantaged income. Income earned through a job is not. Anyone earning an additional $30,000 dollars per year in tax-advantaged income who fails to make significant strides in improving their wealth will never improve their wealth with $100,000 per year. Finally, the road to earning and keeping six figures and beyond is a 5 to 10 year process and there is no way around it. It is a process that requires growth and change in the areas of personal finance, emotional maturity, spiritual maturity, and personal association.
4) Low EQ, failed expectations, too much hype in the industry: Looks like I jumbled 3 different ideas into one point but they are actually all related. There is a lot of hype in the industry. Joe Smith the waiter to went from 0 to six figures in a year. Of course Joe Smith and his company forgot to mention that all of Joe’s family were involved in the industry of network marketing, that all were successful, and that Joe was working as a waiter just to figure out what his options were. That skills are required is just one of the “inconvenient truths” of network marketing. The hype leads invariably to failed expectations. If people understand at the start that network marketing is really a business that requires a skill set fewer people would get started and more people would be successful. The organizations created would move from vertical sales organizations to consumer-based organizations as more people seek to become product users rather than business owners. Network marketing itself is an industry that attracts too many people who desire instant gratification. Daniel Goldman described the Emotional Quotient or EQ in his book Emotional Intelligence. He found that the greatest determinant of long term success was one’s ability to delay gratification.
5) Money In, Money Out: Many people treat Network Marketing as a Money in, Money out proposition. Imagine a black box. On one side of the box is the word “IN” in bold letters. On the other side is the word “OUT” in bold letters. It would be easy to think that just because you put money in, you should get money out. Investments rarely work out that way. See the trouble is that “black box”. Something goes on in that black box that transforms inputs into outputs and therein lies the rub. As an illustration, I was on the phone with a prospect the other day. He said, “I have been scammed so many times, what I need is a person who will work with me, show me the ropes, train me…are you that person?” My response was, “yes, we have a training program that begins with our training manual. We have weekly calls and I will be meeting with you a couple of times per week and giving you assignments each time we meet. You won’t progress unless you do the assignments and attend the training calls…are you that person?” Stone cold silence. He never did answer my question. With my first company, I received motivational materials at a cost of $60 dollars per month but no training. In my second program there was training galore that I didn’t take advantage of. I thought my team’s system would build my business for me. When I realized that it wouldn’t, I had a choice, quit or continue. In order to continue I had to ask myself some questions, among them, What skill or skills do I lack? There are 2 skills required in network marketing A) the skill of inviting which has embedded in it the stills of listening, sorting and sifting and B) The skill of training which requires the skills of boundary setting and the skill of setting expectations. I lacked the skill of inviting. I learned my profession through experimentation, direct observation and practicing. I applied those same strategies to learning the skill of inviting and I went from sporadic checks to consistently earning multiple 4 figures per month.