The 7 Deadly Startup Sins

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MLM Startup Sins

The 7 Deadly Startup Sins

Committed by MLM and Party Plan Startups

“Why most MLM startups are dead on arrival the day they are launched, and how to make sure that yours isn’t one of them!”

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The LaunchSmart™ research team has been on a 20-year mission to expose the most serious sins committed by startups. Along the way, we have asked our seasoned colleagues to contribute to the list, just to make sure we don’t leave anything out.

The list of sins causes saints to tremble! And, in the world of MLM startups and Party Plan startups, rarely does a business get a second chance.

From our long list of sins, we have identified the most grievous and unforgivable. Being believers that we can learn and grow from the mistakes of others, and having witnessed the mighty power that comes from following the best practices of the legacy MLM and Party Plan companies, we humbly offer this list of The 7 Deadly Startup Sins for the entrepreneur who would seek the greatest measure of success by not committing the same sins.

MLM Startup Sin #1: A Weak Strategic Plan

The movie Field of Dreams made famous the phrase, “if you build it, they will come.” In MLM startup, this phrase just doesn’t hold as well as it does in the movie.

A careful restatement might be, “if you build it right, have a sound strategic plan to follow, and then go to work to build business through inspiring, serving, recruiting and selling—and keeping your promises— they will come. And they will stay. Some will come sooner than others, and all will stay longer, depending on how well you do this.”

Some of the lesser sins that make up MLM Startup Sin #1 include these:

  • The entrepreneur does not know what she does not know
  • He copies and pastes compensation plans, marketing materials, policies and procedures and makes a plan out of what is being copied
  • Lack of a concrete plan nearly always results in undercapitalization which chokes a company during times of launch and fast growth.
  • Spending large sums on high-priced consulting services without clear expectations and understanding of the deliverables, resulting in disappointment and depleted resources
  • Not understanding the true business that you are in, and therefore not being crystal clear on target markets with programs and systems to support


MLM Startup Sin #2: A Patchwork Compensation Plan

LaunchSmart™ friend and trusted advisor Dan Jensen, winner of the prestigious 2007 DSA Partnership Award, has perfected the foundation of compensation planning.

If you press him, he’ll admit that he has helped to create, refine, and—in too many cases—repair about 1,000 different compensation plans. He will also tell you, “if you will start on a foundation of the Five Golden Behaviors then you can begin creating a legacy compensation plan.” Here they are, leave one or more out of your plan at your peril:

  • Sell
  • Recruit
  • Manage
  • Lead
  • Retain

Some say that as many as 95% of MLM compensation plans have errors ranging from insignificant to catastrophic. We have to agree. The sooner you build your plan on the right foundation, the stronger and longer it will stand.


MLM Startup Sin #3: Poorly Implemented Communications

In 1988, ServiceQuest founder Terrel Transtrum began interviewing and surveying canceling customers and departing distributors—now numbering in the tens of thousands over the years—those who decided to move on and thus say “goodbye” to the company they once saw as “their” company.

The most common response, and the one ranked top by the majority over the years, should amaze and astound you. In short, they told us that their company just did not communicate with them. So many communications blunders can be simply overcome with (a) the desire and commitment by the company to build a relationship with the field, and (b) a well-executed communications plan.

As you go deeper into your own research, you will probably find, as we have, that this sin is committed at several levels:

  • Poor communications between company and field
  • Poor communications within the office
  • Poor communications within the field

More Reading:

  • The 4-Cornered Communications Plan for MLM and Party Plan Companies

MLM Startup Sin #4: Procrastination

This sin my more accurately be described as procrastinating the most important preparations and tasks related to initial recruiting, training & development, and retention. Read on.

Believe it or not, nearly half of MLM and Party Plan owners that we have worked with have come without sales experience of any kind, except perhaps as youngsters selling babysitting or lawn-mowing services. They come to the business filled with dreams and passion, persistence and skills—just not selling skills or a sales plan.

Death is imminent if the vital first steps for recruiting are postponed until they actually have to be addressed. Even more sobering is that the lack of an adequate plan for attracting and developing strong leaders once the company is launched will accelerate failure.

The natural forces of attrition go to work the moment a person decides to accept your invitation to become a customer or distributor. The key to planning and implementing retention best practices is to be proactive, and to start Day1.

Some of the lesser sins that contribute to this great and terrible sin are these:

  • Waiting for enrollments and attrition to happen before considering retention best practices
  • Not properly planning for awards, incentives and recognition at launch, but postponing until it is often too late to have impact on creating the culture of appreciation in which humans thrive
  • Failing to provide field and staff training that builds knowledge and belief around the company’s products, services, and culture

More Reading:

  • Distributor Retention Begins at “Hello”
  • Help! I Need AIR (Awards, Incentives, and Recognition)

MLM Startup Sin #5: Poorly Executed Operations & Software

The July 2007 earnings report for FastCorp (fictional name, real company) showed just over $7 million in revenues for the month, a new record in a nice, steady growth trend that had started about 20 months earlier. Sadly, in about 90 days, enrollments and monthly sales plummeted to just over $1.5 million by end of November of the same year.

What happened? FastCorp had launched its operations on a platform and software application that was not suited for sustaining their growth. The restricted database literally filled up before the company could transition. As the system crumbled under the weight of growth, histories could not be restored, commissions could not be computed accurately, lost ranks could not be rebuilt in time to salvage momentum. Orders were lost and confusion ensued. The company has still not recovered.

The list of lesser sins is enormous, starting with a few that will spark imagination:

  • Making the wrong decision to build or buy software
  • Failing to create, design and document internal processes and best practices
  • Not consistently reviewing and improving the customer experience and distributor experience, resulting in “vacuum networking” (where bad word of mouth more than breaks down all the good you have done)
  • Inadequate backup and disaster recovery systems
  • Improper long-term technology planning and infrastructure

More Reading:

  • The Rock Solid Operations Checklist
  • Build or Buy – A Guide for Deciding
  • How to Create and Document MLM and Party Plan SOPs
  • Operations Manual Templates and Model SOPs for MLM and Party Plan

MLM Startup Sin #6: Thinking Big But Acting Small

Lack of proper structure, sloppy staff selection, and inadequate training systems that fail to foster internal growth and do not keep up with dream-filled distributors makes our list of the deadly sins. Any perception in the field that the company is small—and thus not able to keep up with growth in the field—will temper the efforts and momentum of your best builders. They’ll slow down until you get it right, guaranteed.

Entrepreneurial management, overlaid on proven fundamentals, is the perfect formula for structural and organizational integrity. Whether you launch with a staff of two or three who wear multiple hats, or scores of skilled professionals, define roles and segregate functions so that they naturally expand as the company grows. Best practices that can guide you are in abundance.

Think big and act big, even if the budget demands frugality and wisdom.

MLM Startup Sin #7: Cultural Suicide

Arguably the greatest of all sins committed by startups, aggregated cultural sins create either a slow or fast death, depending on the mix.

  • Secret deals with distributors for fast results will come back to collect a heavy debt on the company’s goodwill.
  • A lack of an identifiable culture creates confusion or, worse, leaves a distributor without an identity to connect with.
  • Missing the mark by overlooking both the design of a distributor-centric culture as well as the supporting distributor service function sets the company for failure.
  • Failing to create true and lasting value for customers on the shallow belief that a clever compensation plan might somehow cover for deficiencies in the product / service offering.
  • Greed. A funny thing seems to happen (but not in the legacy companies) when the owner(s) begin to see a return (usually deserved in so many ways) on their financial, emotional, and physical investments and sacrifices. But with restraint, faith, and planning, the founders can weather this test and set the course for becoming a legacy company.
  • Missing the “servant-leader” attitude toward the volunteer army of distributors.
  • Creating a virtual business that goes to the extreme (online information only, chat-only distributor service, no events, no leadership contact with the field except through electronic media and email interactions, virtual training, attempts at virtual motivation).

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