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Tuesday
Jun252013

When Is A Direct Selling Company Ready To Scale?

 

The hardest thing to tell an entrepreneur who is ready to start is that they aren't ready yet.  I do this as diplomatically as possible, using the Socratic method, because I don't want to dampen the spirits of the leader of the startup.  

Most entrepreneurs like to go as fast as possible.  They like to see what works, and then slam the accelerator hard.  In many businesses, it works.  But in direct selling you have to secure the back-end, before any growth can be accellerated.

A direct selling company has a lot of incubating to do before it's ready.  Venture capital hates to hear that, but it's true.  You cannot pile on hyper-growth before the company can handle it.  At its core, direct selling is about providing someone an opportunity to sell your product, and make money doing so.  If you cannot make 100 consultants and their customers happy with not only the product, but the way you fulfill, then how will you ever do it for 1,000?  Your business weaknesses will be on full display (google, comments, forums, etc..)  Sacrifice your brand for growth, and your customers will shut you down, as most of the startups no longer in business this year know.  You simply cannot recover.

Once you've determined that the sales funnel process designed is working in a repeatable and scalable way, then you shoud ramp up the company as fast as you can.  If your net cost of acquiring a customer (CAC) is less than a fifth of the customer's lifetime value (LTV),  then you have a clear return on investment for sales & marketing expenditures.  

Only then do you press the accelerator down hard and invest more as fast as you can.

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