Top Tips For Starting Your Own Direct Sales Company

Direct sales companies can be launched with little startup capital. Here's the 411 before you get into the industry.
September 29, 2011

I’d love to launch a direct sales company. In what other industry could I start a business in my basement with little capital, recruit others to sell for me, and reap the profits?

The idea is genius. Take the late Mary Kay Ash as an example. She started her company in the early 60s and is now revered as one of the greatest entrepreneurs of all time. And then there’s Doris Christopher. In the early 80s she started selling kitchen products and soon founded The Pampered Chef. There are dozens more like them. These days, direct sales companies specialize in everything from candles to jewelry.

Starting this type of business, though, isn’t easy peasy. There are many things to consider—such as the pros and cons of getting into the industry in the first place. According to Amy Robinson, spokesperson for the Direct Selling Association in Washington, D.C., pros include short start-up times, inexpensive product release launches and the opportunity for hyper growth.

“Hyper growth can be a pro and a con; sales can plateau after a major spurt of growth, too,” she notes.

Cons include dealing with a dizzying number of distributors and customers and complex compensation models, which can prove tough tracking on the back end.

I sat down with two heavy hitters in this space to learn more: Heather Chastain, president of Celebrating Home, a home décor company; and Jessica Herrin, founder and CEO of Stella & Dot, an accessory company that bills itself not as a direct selling company, but as a social selling business. “We created a new business model that combines person-to-person selling with a modern e-commerce platform that includes an online university,” Herrin says.

Here are a few of their words of wisdom.

Consider how the product/service fits the channel

In-person demonstrations are a huge part of direct selling. Consider your product or service. Is it best sold in-person or could someone experience it just as well in a store or online?

“A good example is Tupperware; consumers couldn’t tell its value when seeing it on a shelf, but when they heard its pleasing pop in a demonstration, they got it,” says Herrin.

Make sure you are solving a problem

Solution-based products or services do well in this industry, says Chastain. “You need to have a story, a reason for being—maybe you are helping moms make more money or fulfilling a passion for a product.”

Herrin agrees, adding that it is important to not just focus on one product, but make sure your company is fulfilling a market need.

“With Stella & Dot, we offer accessories that give women confidence and we help them style their outfit, therefore our channel is adding value to the product which is different than just looking at a piece of jewelry in a retail environment,” Herrin says.

Focus on people

Instead of zeroing in exclusively on your product or service, make sure to consider those persons who will sell your product—your independent consultants, Chastain suggests.

“Understand that you have two primary constituents: your representatives and the end customer; really make sure that in every decision you are considering the right audience,” she notes.

Chastain’s solution: immediately designate a senior level person in your company to recruiting consultants.

“We have a vice president of opportunity at Celebration Home; he embraces the product line, but that is not his focus—instead he is responsible for recruiting for the earnings opportunity,” she says.

Embrace a new employee/employer way of thinking

There is one major difference between a brick-and-mortar company and a direct sales company: the latter has an all-volunteer workforce. Independent consultants can’t lose their jobs. They work when they want to and quit when they want to. This can be a tough pill to swallow for 9 to 5ers-turned-entrepreneurs, but there are ways to ensure continuous sales.

“There is a lot of incentive-based encouragement in this industry—offering consultants prizes, trips, bonuses—but it is also important to show them that you genuinely care about their success,” Chastain says, adding that the direct selling business model is built on relationships—company to consultant, consultant to customer—so it is important to continuously show salespersons that you care.

Understand cash flow

How many times have you been invited to a purse/candle/fill-in-the-blank party without ever having heard of the selling company? I can bet you weren’t that excited to go.

Herein lies the cash flow curve of direct sales businesses. According to Chastain, most of these companies make little money in their first three years because it takes that long to circulate a concept and build organic growth.

She says that from year four through eight, many companies experience explosive growth, but then things plateau or simply drop off.

Why the up and down?

“Think about the life cycle of a consultant; direct selling only fits you at a specific time in your life and only about 3 percent of consultants are lifers,” Chastain notes.

Focus all your energy on your top performers and you will surely see a decline, she adds. Instead, continuously fill the ranks behind the veterans to help maintain steady sales.

Check out these great stories on cash flow: