How to Analyze
Home Business Opportunities
Unfortunately, a lot of people fall for the hype, false promises, and scams offered as business “opportunities” that proliferate the Internet. Our intent is to ensure you make a decision based on research and analysis – which is, surprisingly, something few people do. That’s why we offer this free report on How to Analyze a Home Business Opportunity to analyzing an opportunity. Don’t waste your time, energy, and money chasing scams and unethical companies.
Our goal is to help you weed out the chaff to focus on only the best opportunities that will be a fit for you. Here are the General Areas of Analysis we will cover:
1) Business Partner(s), Upline Sponsor, or Mentor
2) The Company
3) Product / Service
4) Market Trends / Timing
6) Personal Fit
Business Partner(s) / Upline Sponsor / Mentor
“You don’t have to be great to start,
but you do have to start to be great.”
- Joe Sabah (American speaker)
Picking the wrong business partner is a common mistake that many make in starting a home business - whether they are starting a home business, a traditional business, or even network marketing.
Business is about building relationships with people that have a vested and personal interest in your success – such a mentor, a partner, or an upline sponsor in multi-level marketing. Here are the things you should look for in a sponsor, partner, or mentor.
A 6-digit earner (> $100,000 a year). If you’re sponsor/partner is not already making 6-digits a year in the opportunity, you should have weekly and one-on-one access to someone who is. Bottom Line: Your sponsor/mentor should be making some money and there should be someone available who is making A LOT of money so they can show you how to do the same.
An Established Marketing System. Your sponsor / partner should have an established and professional marketing system. This is one of the major benefits of network marketing – an established franchise-like system without the investment or time required of a franchise business.
An Established Training System and Resources.
“95% of the people who hear, understand, and agree with a principle
do not have the ability to apply it to their lives
because they do not have the necessary resources.”
- Stanford University
An established system will jump-start your business and shorten your learning curve so you’re making a profit faster. Here is a short checklist of questions to ask a prospective sponsor or mentor.
Commitment Level / Availability.
“Most people who fail in their dreams fail not from lack of ability
but from lack of commitment.”
-- Zig Ziglar(best-selling author of Over the Top)
What will be their personal commitment to you? How much time are they willing to invest? A realistic expectation is about 1-2 hours a week until you’re generating some revenue. Are they easily available? They should not and will not be at your beck and call and, hopefully, you don’t have that kind of expectation. However, it shouldn’t take more than one day (at the most) for them to return your correspondence and answer any questions (unless their vacationing in the Bahamas, and then I would give them 2 days).
It’s not always the best jockey that wins the race. Victory usually goes to the best horse. Though the jockey must be skilled, it is best to find a good horse and then ride it for all its worth. The company that you choose should meet the following criteria:
$100+ million in annual sales. There is a point in a company’s business cycle called critical momentum: the point where as many customers are coming to the company as the company is actively bringing in. In other words, the company becomes a household name. That point generally occurs at $100+ million dollars in annual sales.
3rd Party Validation. This is basically bragging rights. The company should have references or accolades from other organizations, trade magazines, journals, and so forth.
5 or More Years in Business. According to the Small Business Administration, 30% of businesses fail in their first year. 60% fail within the first five years, the toughest period in the business cycle. It takes that long to establish a reputation in an industry and establish solid financial control. Though not 100%, 5 years in business means an established track record that can generate some more confidence in a company. A new company may be worth the risk, but the increased risk should require more in-depth research.
Stable, Debt-free, and Publicly-traded. Company stability and debt-status are obvious considerations, whereas being publicly traded is not quite as important. A publicly-traded company is basically run by a board – a private company by an individual. Both have advantages.
Good Reputation in the Industry and with the General Public. The company should also be in good standing with the Better Business Bureau, the Direct Selling Association, and the local District Attorney.
Allows Real Marketing. We qualify this as a requirement. Believe it or not, many companies will restrict your marketing. You will find yourself extremely frustrated with these companies once your business starts to take off. A company should allow you to market your business however you see fit (as long as it’s legal and ethical). A company that allows real marketing enables you to be an independent distributor or associate and provides a greater degree of autonomous control in your business.
International Presence. This one is also critical. Any company should have at least one foreign market (not counting Canada or Mexico), but the more the better. An international presence means the company is expanding and growing.
Truly Seamless Downline. Some network marketing companies will require you to open a new “financial center” (or some equivalent) in a foreign country. Here’s an example: You have someone in Korea who wants to start working with your company. You may have to start a whole new downline from scratch in Korea. A seamless downline means you could place your Korean contact directly into your current organization without any hassle.
Low Hype. This final point is mostly subjective. The company should not use hype or promises to position the opportunity. Does the company lead you to believe that you can get rich with little to no effort? Or do they emphasize that this is a business and it WILL take effort and some investment to make it succeed?
Finally, does the company emphasize the 4 Cornerstones of Business Success:
Product / Service
A business is the exchange of a product or service for something else of value, usually money. It’s a simple concept, but you’d be surprised how many people don’t get that. For a business opportunity to be legitimate, a service must be offered or a product must be moved. Here are some of the things to look at when analyzing the product or service:
Unique. Products should be patented or proprietary. Trademarks and copyrights are good as well. If the product is not entirely unique, then it must have some strong differentiating qualities from the competition.
Consumable. This is absolutely essential to generating a residual income. A consumable product is used over and over again. The key to success in business is repeat business. Any business owner will tell you that. If the product is not consumable, you’ll have to constantly find new customers and your business could run you instead of you running it.
Auto-Ship Program. Auto-ship is automatic monthly shipping. The product or service should be shipped or offered every month automatically, with the cost automatically charged to the customer. This falls in line with the concept of the product or service being consumable (i.e. repetitive) in nature. Additionally, auto ship from the company means no overhead or inventory management for you to worry about.
Product Advertised as Much as Opportunity. The company should put at least as much attention on the product as it does on the home business opportunity. Check out the company’s website. If the site is all about how you can get rich with a home business and there is little to no mention of the product / service, then the company’s approach is unbalanced, borderline illegal, and definitely unethical.
Competitively Priced. The product/service price should not be overly inflated in order to support the company’s compensation plan. High prices should have a reason (better quality, efficiency, delivery, customer service, etc.).
Money-Back Guarantee. This is an indicator of the company’s confidence in their product or service. It also gives you a no-risk opportunity to try the product/service. It will be very difficult to sell a product or service you don’t believe in or even use.
Market Trends / Timing
A Niche Market. The product or service offered must obviously be unique. However, the product / service should also address a niche market. Too many companies try to be all things to all people. Marketing should be conducted with a sniper rifle, not with a shotgun. Make sure there is a specific target market for the product or service.
High Potential Industry. The company and the product / service should be postured within an industry that has high growth potential. Some examples are:
Personal Care: a $40 Billion Industry
Basic Nutrition: a $60 Billion Industry
Weight Loss: a $75 Billion Industry
Sports / Energy: a $100 Billion Industry
You should avoid any opportunity that claims “No Competition”. There is no such thing. Look for opportunities that acknowledge their competition, but posture a USP (Unique Selling Proposition). A USP is what will separate you from your competition and take advantage of your niche.
Other Trends. Also look for an opportunity that takes advantage of trends in other aspects: societal, economic, social, etc.
The compensation plan is obviously important – this will be your primary monetization device – how you get paid. Here are some thing to look for.
Simple. The plan should not be overly complex. Your prospective sponsor or the company website should allow you to understand the pay plan without making your brain hurt.
Commission Payout. For affiliate programs, look for at least a 25% commission payout. There are many great programs that offer as much as 50%. Obviously the higher the better for you. However, don’t forget a company needs to pay for its own operating expenses. Many companies get into financial trouble because they focus too much on paying their affiliates – at the expense of running their company.
What to look for in a Network Marketing Compensation Plan
For a quick overview of different types of MLM Compensation Plans, click here.
Pay Out at Least 30% in Compensation. A company should pay out at least 30% of its total revenues. Most plans pay between 35–45% of the company’s wholesale purchase volume, and about 30% of suggested retail volume. Look for a plan that divides the pie in your favor, without going overboard. A plan that is overly "generous" to its distributors can run itself into financial ruin. And that’s bad for everyone.
Orphan Commissions. Sometimes distributors will fail to qualify for commissions in a given month, usually because they fall short of the minimum purchase qualifying amount. The commissions they would have earned are called "orphan" commissions. Avoid plans in which orphan commissions return to the company. Orphan commissions should "roll up" to the next qualifying distributor. This approach is also called "compression."
Lock-In. When you reach a certain level, you "lock in" and cannot be demoted because of a temporary drop in monthly performance. This is should not be a deal-breaker if it’s not available, but definitely something to consider.
Other Perks. The plan should offer some perks for top performance above and beyond normal commissions and bonuses. These come in many forms: cars, health insurance, free training, lead and co-op advertising programs. A few publicly traded companies even offer stock or stock options.
Front-Loading. Beware of companies that require “front-loading”, “buying” your way into a certain level or commission bracket. Be sure to read the fine print before joining any kind of company that requires you to purchase large amounts of products and store them! With the ability to drop-ship from anywhere in the country, any mlm company you look out should have an auto-ship program.
Fast-Start Bonus. A Fast-Start bonus is usually given as an incentive for personally sponsoring people. You can’t make money just by signing someone up--or what the FTC calls “selling distributorships”. But, you can make a fast-start bonus when someone purchases an initial amount of your product or service. This is just a commission bonus on the initial sale of product and rewards those going out and doing the work.
All of the previous characteristics will be essential in the beginning of your business building. The following won’t have an effect until later in your business, when you have a rather large organization.
Infinity Bonus. An Infinity Bonus is where your MLM will pay you, beyond their standard pay level, an additional bonus based upon your group volume. The real motivation of an infinity bonus is to give the upline an incentive to work with people that may be deeper than the normal compensation plan pays for.
Roll-up/Compression. As previously mentioned, orphan commissions should roll-up or to the next highest distributor. This causes “compression” of the organization and avoids the “Swiss Cheese” – a bunch of holes in the organization where people didn’t purchase product in a given month.
The final assessment of a business opportunity, however, does not lie with the Sponsor, the Company, the Product, or the Compensation Plan. It lies in the individual who looks at possibilities instead of problems.
After accomplishing your research ask yourself a couple of questions:
1) How comfortable do you feel with the company, the product/service, and/or your prospective business partner(s)?
2) Do you like or trust your prospective sponsor?
3) Do you have a good feeling about the company?
4) Do you believe in what they are trying to accomplish?
5) Have you tried or do you like the product / service?
6) Would you recommend the product / service to someone else?
1) Will this opportunity help you reach your goal?
2) Is it ethical and fair to everyone concerned?
3) Will it take you closer to or farther from your major objective in life?
4) Can you commit yourself to start and finish?
Hopefully, this Report will get you pointed in the right direction and get you started. However, be careful not to get stuck in “Analysis Paralysis” – which is a common cause of why people fail in a business, among other reasons.
For your convenience, click here for our analysis standards in a checklist format: Analyze a Home Business Checklist
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