I met a guy a while back who said he'd been burned by network marketing. It isn't the first time I've heard someone say that, but it fascinates me every time. What's it really about? Let me give you my view on it.
If I go out to a restaurant and get a burnt piece of meat, it's up to me to say something. It would never occur to me to go around trying to convince my friends to stop eating at restaurants.
More than 60% of all companies that are started are wound up or go bankrupt within a year. 80% of the ones still standing are gone a couple of years later. Staff turnover at a fast food restaurant can be several hundred percent in a single year. Students start and drop courses all the time, so the fact that we humans are after change, or alternatively need to work on patience and persistence, is hardly news.
Direct selling has been around since the late 1800s, among others Avon Cosmetics, which started in 1886. The old MLM companies grew up in the 50s and 60s. Then they started investing in training and even more companies and compensation plans were developed in the 70s and 80s. One of the world's largest companies started in the late 50s, and a bit into the 70s two gentlemen started who today have the larger part of that company's turnover in their organisation. Direct selling has a brilliant compensation plan that rewards the right actions and the right production. There are limits in the structure that mean it isn't about when you start, it's about the one who does the most earning the most. You shouldn't be first. As I see it, it's better to start at a later stage when you have more people to lean on, since the pioneer phase is by far the toughest time before everything is in place.
Several big leaders in Swedish direct selling organisations were around already in the Quorum days in the mid 90s, when they sold alarms through direct marketing. Then you meet some people out in the field who ask ”Is it like that Natures Own thing?” I wasn't around back then, but they had their heyday in the late 90s and they still exist today under the name The Broccoli Company.
Why am I writing about this? Because there's both good and less good history. If you put money into WGI, GI-CORP, QUATTRO or T5PC you're probably less than happy. If you didn't lose all your money yourself, you surely have people close to you who did. T5PC was a disguised so called pyramid scheme that flared up 15 years ago. The Five Percent Community was going to make you the rich five percenter (the wealthiest 5% of the population). People were recruited into an organisation that started selling soap. Shares were sold in the company that was going to develop a marketplace everyone would get a payout from, but it never became anything more than newspaper write ups about what was later classified as financial crime. The others I just mentioned ended in similar ways.
Zeek Rewards is another case in the US where they wanted it to look like an online auction where people could bid on things they wanted. Instead they became an example of how badly it can go, since we're talking about one of the biggest pyramid schemes since Bernie Madoff. A Ponzi fraud where it turned out that new investors' money paid old investors' returns. The founder of Zeek Rewards got 15 years in prison after almost a million people lost 850 million dollars.
When old MLM foxes who've jumped from pyramid to pyramid whip up the mood in the meeting room, it can be hard not to get swept along in the hype. All these marketplaces, gold, silver and cryptocurrency sadly leave many people feeling burned by the concept the day they realise they drew a blank. So that you don't become one of them, it's up to you to prevent it by studying what this is actually about. The company needs to be serious and the founders need to be genuine. The leaders in the field need ethics, morals and integrity. They need to build the organisation with the right intention and stick to all the marketing rules that exist out there. That's a lot of buzzwords, but directives and regulations from the authorities are brushed aside by a frightening number of companies today.
When it comes to serious companies, they should start following the directives the EU issued a few years ago, which are about building a customer base of consumers who aren't part of the sales organisation. The European Commission describes pyramids like this: ”Establishing, operating, or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products”
So it's about the majority of the turnover needing to come from customers who can't be compensated, since they aren't part of the distributor network. We saw this in two cases during 2016 when the American Federal Trade Commission acted against VEMMA and HERBALIFE, which attorney Kevin Thompson writes about in a post. Click the text to read the whole article.
”The FTC makes sure to narrowly define a retail customer as a “person who is not [a] participant in the business.” Plain and simple, Vemma has to produce customers to stay in business. While the 51% rule isn’t as arduous as Herbalife’s 66% rule, it’s a tall hill to climb. After decades of legal precedent that stayed away from the how much internal consumption is TOO much, the FTC now has back to back settlements on the books with finite retail requirements.”
I heard a while back that a big leader in one company was annoyed with me because I'd said that her company sooner or later will run into trouble with the authorities if they don't start focusing on external customers, since all the turnover in that organisation comes from team partners. That isn't what Patric said. Patric said that every company that doesn't start focusing on external customers will sooner or later run into trouble, because the authorities want to move away from internal consumption, which both of the cases above indicate pretty clearly.
I sat and talked about exactly this with Mr Art Jonak, the creator of Mastermind Events, over dinner on the Direct Selling Cruise in the Caribbean last autumn. This legend has a gigantic network worldwide that puts a big focus on external customers. He said that the FTC as a rule has capacity to take on two cases a year, and last year it was Vemma and Herbalife. This year we've seen Zeek Rewards so far. Which company is next remains to be seen.
Today in direct selling we get paid because customers buy products, instead of distributors buying products home in the hope that their potential customers will then buy, which was the case in the old MLM companies. In a good direct selling company more than 80% of the turnover comes from external customers who get their products shipped to their door, so that no distributor has to deliver them. We don't build up stock, we don't have the same money tied up and we train people in how to do the job. Once we've invested time in teaching someone how to get customers, that person can master customer acquisition and easily teach it to someone else. Then that person can recruit someone and teach the next one to get customers.
If partners only recruit partners, it becomes a product pyramid with 100% internal consumption. Then a lot of people are buying in the hope of making money. The whole idea of direct selling is to market products through conversation out into the market, products people want and are willing to pay for.
A lot of people left Natures Own in the late 90s and from what I've heard several quit because they didn't have many repeat orders. It was hard to promote a recurring income if it wasn't there. I've never looked at the company, so I honestly don't know how it looks. If you've put money into a secret marketplace that was supposed to launch ages ago, it may have left a bad taste in your mouth, but what I want you to understand is that this is a business model that works if the company is serious, the owners are honest and there's the right leadership in the field.
There was hype for quite a long time, but it's many years since several companies moved over to building organisations with leadership. Some still hop around among the hype concepts, some have found the right thing and some have found a serious company but for some reason can't get any momentum. Those who've been in for 20 years have learned a lot along the way, but if you're going to do this for real once and for all, it comes down to mentorship. It isn't much fun to follow someone who's talking about something else a few years later. Be careful about what and who you choose.
You want to follow someone who's professional. If you work in direct selling you represent a marketing company with product lines in different industries. If we look at Direct Selling Sweden's list of members, it looks like cosmetics, supplements and household products are the biggest. A customer who buys a perfume, a multivitamin or a car shampoo does it because they want the product.
Imagine you'd followed the wrong people. Imagine you go to a nutritional adviser to get your diet in order and all they talk about is how bad everyone else's products are. Nothing about broccoli or saffron being so good for you. A self appointed nutritional adviser who uses power games to get more followers on social media or more readers on the blog isn't professional. When everything is about publicity there's often a hidden agenda to sell more books later on, or to sell the next course. Bert Karlsson once said that all publicity is good publicity, but I don't agree with him. The one who talks others down rarely has anything positive to say about their own.
Ken Dunn wrote on Facebook a few weeks ago: ”Making your money from selling courses doesn't make you an expert on the content.”
You don't get burned by network marketing. You get burned if you follow the wrong people. You get burned if you put your energy into the wrong things, or don't manage the energy you have. The organisational culture has changed within direct selling, and through leadership we're going to lift this to completely new heights.
