A client has been very active in raising capital for their MLM startup and they presented us with the following:  “Both investors have concerns that raising $1M to $1.5M will not be sufficient to execute our plans.  How much do you think will really be required?”

The main focus we have seen in fast-growth companies is that truly, when demand hits you must be ready for it.  It’s more than an axiom that fast-growth MLMs fail from lost momentum, often due to lack of advanced planning and funding.  For instance, nobody with the best predictive modeling could have anticipated the now-famous Quorum 12-month growth plan.  They had only been in business for 16 months when I arrived as VP Ops / COO in January 2003.  December 2002, they had achieved a record $2.8 million in sales.  I arrived on the last week of December, between the holiday break, and got ready for the New Year.

In January, we hit $4 million in revenues.  February produced $8 million in Results.  March, $12 million.  April, $16 million.  May, June and July, $18 million each month.  August, $19 million.  September, $22 million.  October, $24 million.  November, $23 million.  December, $21 million.  Into 1994 the company leveled out at $18 million monthly on average for the year.  Their product?  Personal alarms, the “PAL” which is a pager-sized alarm for bag, purse, belt.  Non-consumable, one-time purchase.  Eventually, the company tried adding consumable products into their distribution stream, but by then the momentum had subsided.  Though it was a meaningful product, it was a “one-hit wonder” and the company eventually changed directions completely and went into Chinese vitamins.  I haven’t checked lately whether they are even in business.  If they are, it’s insignificant.  This is simply an illustration of a real business case of a company with the right product at the right time; it came out during a period of growing national awareness around abductions and personal security worries, long before 9/11.

Our client’s question involves an important and legitimate concern about ramp-up time for plant expansion.  The concern is vital, and it is the most valid reason behind the investors’ legitimate concerns about sufficient capital.  The best scenario would be additional rounds of funding lined up to meet contingencies, building cash reserves as well as raw material reserves to build inventories that will support demand as the company hits momentum.  This is particularly useful if shelf life is not an issue, or if it is a manageable issue.

One strategy, and the one we recommend to the client, is to move to full production from the beginning of the agreement and begin building inventory reserves.

The suppliers and manufacturers want the company to be successful and to reach its sales goals so that they can get to the revenues that they also desire to achieve.  They have the same agenda as the company has.  I watched Melaleuca build a significant supply of barrels of Melaleuca oil in anticipation of big growth.  They had an additional challenge of seasonal harvests, so they reinvested available profits back into a stockpile of Melaleuca oil.

Thus, useful questions for estimating required capital that will be used to fund inventory would include the following:

• What will be the lead time on manufacturing?  If short lead time and highly available ingredients, then you should feel more confident in funding inventories through growth.  Careful, don’t get overly confident, but it’s a good strategy if properly managed.
• Are there unique, seasonal, or rare ingredients that must be stockpiled?  Obviously, if you rely on a seasonal harvest of an ingredient, or if lead time demands more careful advanced planning, then your plan will of necessity require enough capital to purchase ahead

By David M Taylor, Co-Founder of LaunchSmart

We all remember the great childhood story about the little engine of the train that said: “I think I can, I think I can, I think I can . . . . “  Well, in the wonderful model of direct selling we call party plan – there is an amazing little engine that drives that business, and therefore drives the long-term, sustainable growth of a party plan company.  Understanding that engine, and all the personal motivations involved, is critical to success using the party plan model.

The little engine gets started right after a new party plan consultant (independent field sales representative) enrolls.  As soon as possible after enrollment, she needs to do her “grand opening party” – usually with the support and supervision of her sponsor (the person who enrolled her).  The grand opening party fills the little party plan engine with its first tank of gas!

A new consultant’s grand opening party will usually be held at her home, and she will invite all of her close friends and relatives to come and support her as she kicks off her brand new home based business.  Usually she will get a good turnout at this party, because her close friends and family want to support her.  But what is vital is that she has to get as many bookings for additional parties as she possibly can before those guests leave her grand opening party.  Why?  Because, here are the key elements that drive the little party plan engine:

1. A full calendar means a full bank account for the party plan consultant.  An empty calendar means she’s out of business.
2. The goal is to get at least two bookings from every party.  That’s what keeps the calendar full!
3. The goal is to get at least one follow-up phone interview per party with an attendee who is interested in starting her own party plan business.   That’s what builds her team and exponentially increases her income!

Now, to get the guests at the grand opening to book their own parties, there are three essential ingredients.  Of course, attendees have to fall in love with the product.  Second, there has to be an enticing hostess reward program in place that is communicated to all attendees.  And third, the new consultant has to be taught how to invite attendees to book their own parties.

Next, let’s fast forward a couple of weeks.  The new consultant is now doing the parties she booked at her grand opening.  Again, what’s her goal?  Simple – two bookings and one prospective new consultant from each party.  To make that happen, again there are several key ingredients.

Of course, attendees have to fall in love with the product.  Second, there has to be an enticing hostess reward program in place and the consultant must make it very public to all guests how the hostess will benefit that night from the guests’ purchases.  Understanding the hostess reward program helps them feel a motivation to purchase because they know the hostess and want to help her get some great rewards that night.  In addition, understanding the hostess reward program makes them want to have their own party.  It’s great if the hostess reward program has a booking incentive – something that rewards both the hostess and the guest who books at her party with small rewards.  The consultant will need to learn to effectively use “booking seeds” – comments she drops here and there to inform, educate, and invite guests to book their own parties.  If she books two parties from her grand opening, and two parties from each of those parties, and two parties from each of those parties, and so forth – she will soon have too many parties.  Great!  Now she’ll be even more motivated to invite a new consultant to enroll under her, help that new consultant with her grand opening party, and give that new consultant a couple of her own bookings to help her get started.  Of course, where is the best place to identify and invite new consultants to come on board?  At her parties!  And the hostesses are some of the very best prospects.  Again, she will need to learn to effectively use “recruiting seeds” – comments she drops here and there to inform, educate, and invite guests to visit with her about starting their own party plan home based business.

So, there it is – the amazing little engine that drives this business model we call party plan.  Get some gas in its tank, get all party plan consultants following the formula and teaching those they recruit to follow the formula – and this little engine will build a great big company!

A client has been very active in raising capital for their MLM startup and they presented us with the following:  “Both investors have concerns that raising $1M to $1.5M will not be sufficient to execute our plans.  How much do you think will really be required?”

The primary concern with raising startup capital that we have seen in fast-growth MLM companies is that truly, when demand hits you must be ready for it.  It’s more than an axiom that fast-growth MLMs fail from lost momentum, often due to lack of advanced planning and funding.  For instance, nobody with the best predictive modeling could have anticipated the now-famous Quorum 12-month growth plan.  They had only been in business for 16 months when I arrived as VP Ops / COO in January 1993.  December 1992, they had achieved a record $2.8 million in sales.  I arrived on the last week of December, between the holiday break, and got ready for the New Year.

In January, we hit $4 million in revenues.  February produced $8 million in Results.  March, $12 million.  April, $16 million.  May, June and July, $18 million each month.  August, $19 million.  September, $22 million.  October, $24 million.  November, $23 million.  December, $21 million.  Into 1994 the company leveled out at $18 million monthly on average for the year.  Their product?  Personal alarms, the “PAL” which is a pager-sized alarm for bag, purse, belt.  Non-consumable, one-time purchase.  Eventually, the company tried adding consumable products into their distribution stream, but by then the momentum had subsided.  Though it was a meaningful product, it was a “one-hit wonder” and the company eventually changed directions completely and went into Chinese vitamins.  I haven’t checked lately whether they are even in business.  If they are, it’s insignificant.  This is simply an illustration of a real business case of a company with the right product at the right time; it came out during a period of growing national awareness around abductions and personal security worries, long before 9/11.  It also coincided with a mass exodus of distributors away from NSA.

Our client’s question involves an important and legitimate concern about ramp-up time for plant expansion.  The concern is vital, and it is the most valid reason behind the investors’ legitimate concerns about sufficient MLM startup capital.  The best scenario would be additional rounds of funding lined up to meet contingencies, building cash reserves as well as raw material reserves to build inventories that will support demand as the company hits momentum.  This is particularly useful if shelf life is not an issue, or if it is a manageable issue.

One strategy, and the one we recommend to the client, is to move to full production from the beginning of the agreement and begin building inventory reserves.  This is because the unique product has the chance to be a widely accepted product with global appeal, and manufacturing supply will possibly have challenges keeping up with aggressive growth scenarios.  Though the manufacturer can scale its capabilities, the client is safest to have a stockpile of the key ingredient.

The suppliers and manufacturers want the company to be successful and to reach its sales goals so that they can get to the revenues that they also desire to achieve.  They have the same agenda as the company has.  I watched Melaleuca build a significant supply of barrels of Melaleuca oil in anticipation of big growth.  They had an additional challenge of seasonal harvests, so they reinvested available profits back into a stockpile of Melaleuca oil.

Thus, useful questions for estimating required capital that will be used to fund inventory would include the following:

• What will be the lead time on manufacturing?  If short lead time and highly available ingredients, then you should feel more confident in funding inventories through growth.  Careful, don’t get overly confident, but it’s a good strategy if properly managed.
• Are there unique, seasonal, or rare ingredients that must be stockpiled?  Obviously, if you rely on a seasonal harvest of an ingredient, or if lead time demands more careful advanced planning, then your plan will of necessity require enough capital to purchase ahead