The obvious advantage with this type of business is that you can start it immediately and for almost no money. The main problems with this type of business are saturation, service, and competition.
Saturation - Many of the businesses you're referring to have more than 50,000 reps already -- that's 50,000 other places to buy exactly the same thing in the same way for the same price. Three of the opportunities that are pitched here fairly often have over a million active reps. It's hard to distinguish or build your business in that situation. There are only so many buyers out there.
Service - Many of the products sold in this way are not that good to begin with, so when the customer has a problem, it's
your business that sold it and has to resolve the complaint -- even though you didn't make or ship it. So while the selling side of these businesses is represented as being super easy, the service side often isn't. A lot of manufacturers and dropshippers are non-responsive when problems aride, and their sellers get stuck holding the bag when customers refuse to pay the credit card bill, and claim a product was never shipped, arrived broken, was returned, etc.
Competition - Products that
are good are generally available for the same price (or less) from major retailers, which creates tough competition. (If a decent company is standing behind it and there's real money to made selling it, an analyst at WalMart is probably all over it, don't you think?) Given a choice, if someone can buy it from a business they've never heard of, or buy it for less from someplace they know and have confidence in, they'll choose the latter.
One thing I personally dislike about this business model is that most of the products are one-time purchases -- meaning that if you
do satisfy the customer and could build a good relationship, you still don't have anything else to sell them that they really need. You perpetually have to find new customers to stay in business. That's costly.
As for a "success formula" -- there are a few innovative "not sold in stores" manufacturers who use centralized dropshipping, targeted e-mail and/or infomercial campaigns, and a network of exclusive distributors and protected territories to get their products to market. This arrangement can eliminate the problems above. If the product requires installation, service, or maintenance after the sale -- or if it naturally leads to supplemental or follow-up sales of other products offered by the same seller -- that's even better, because the seller can build on an established relationship and grow a legitimate business.
Hope this helps. Best wishes.
