Rules to Keep
in a Very Safe Place
The umbrella term for the business is
"direct selling." Whether it is the variety practiced
by Tupperware or Amway or Nikken or The Pampered Chef, it
still is in the business "species" known as direct
selling. Under that umbrella is found party plans, MLM or
multilevel marketing, network marketing and direct sales.
The objective is always the same, however...build a consumer
products and/or services marketing company that distributes
through a vast network of salespersons who sell both consumer
products and services, as well as recruit and develop an
even larger network of salespersons to sell, and for which
remuneration is paid on the sales volume of those "downline"
Although a significant force with upwards
of $30 billion in U.S. sales and $90 billion in worldwide
sales, it is nevertheless an ultra niche industry with its
own culture and formatting. Those who understand this focused
culture and business model can prosper, and others will
be "strangers in a strange land."
Although it may look straightforward,
starting the successful MLM business is no simple matter.
A methodology course could fill a library. A practical advice
primer could fill books. The following is an essentials
sampler from an industry tour guide, a professional MLM
Consultant and MLM Law Professional who has spent two decades
as a "consigliore" or trusted business and legal
advisor to legions of leading direct selling companies.
Those companies have started in back bedrooms and garages
and have grown and ranged in size from mom and pop boutique
businesses to multi-national, multi-billion dollar conglomerates.
If you are looking for detailed insight
from this author, attend a conference sponsored by www.mlmlegal.com,
Starting and Running the Successful MLM Company, or read
one of two books by the author, Starting and Running the
Successful MLM Company or Network Marketing: What You Should
Know. (Legaline Publications, 1-800-231-2162 or visit www.mlmlegal.com)
However, for purposes of a "to do" list, consider
the following very brief but very practical tips on starting
the successful MLM company. Each of these factors is so
critical that each one might be placed on the "make
it or break it" list. In the first of three presentations,
this article addresses issues of capital, recruitment, legal
and trademark. In a second article, Part II will focus on
equally key issues including MLM business experience, technology
and software, product and international markets. Part III
will focus on compensation plan, outsourcing, owner relationships
and attitude and commitment. These tips are obviously not
good enough to warrant being etched on tablets on top of
a mountain in the Sinai desert, but they are worthy of being
tucked into your MLM "bible" somewhere between
"Solicitations" and "Celebrations."
Compensation Plan--It Better Be Good!
Does a compensation plan make or break
a startup MLM company? History suggests that a good one
is helpful and a must. Does it drive success? Probably not.
Will a bad plan contribute to failure? Probably, together
with other unlucky breaks. As industry expert Michael Sheffield
notes with respect to a "good" compensation plan,
"its absence will be noticed more than its presence."
Is there anything new under the sun
as far as compensation plans? Probably not. Whether the
plan is a unilevel, breakaway, binary, party plan, Australian
two up or utilizes enroller, infinity or coding bonuses,
the goal is the same...motivate varying behaviors of distributors
ranging from direct sales to building wide to building deep
to supporting downline to maximizing sales volume production
and retention. Of key importance is that the plan is easy
to explain to recruits and that it is perceived as fair
Typical plans may pay out upwards of
30% to 50% of sales volume in commissions to distributors.
Various plans merely divide the pie differently. As long
as the perception is that the plan is competitive within
the industry, it appears that other factors, including bonding
with the product, management, field leaders, company philosophy
and corporate communication will be a more significant driving
force for recruits and distributors. In fact, companies
whose pitch leads with the compensation plan are often merely
hiding the weaknesses of other key components such as quality
of product or stability of management. In designing plans,
leading MLM management consultants serve a vital role in
balancing all of these factors.
There are obviously significant legal
issues in evaluating and implementing the compensation plans.
Review and input by a competent MLM Lawyer is essential.
Software, hardware, warehousing,
fulfillment, legal, graphics, video, product manufacturing...well,
if you have a few years and a few million dollars and you
want to reinvent the wheel, you can do it all. However,
in the world of MLM, Direct Sales and Network Marketing,
you would be an anomaly. The great success stories in the
business have started in back bedrooms, basements and garages.
Just look at Mary Kay, Amway, Avon or Pampered Chef. Party
Plan companies are also famous for three ladies in a living
room wearing multiple hats of CEO, COO, CFO and CBP (Chief
In the beginning, scarce resources will
focus on those essentials that cannot be outsourced, namely
passion for the product, passion in the presentation and
passion in the recruiting. Some resources must, of necessity,
be outsourced. Although a very basic accounting software,
together with pencil and pad, may suffice to run the books
and commission payout for a very limited period of time,
the better decision will be to outsource software technology
such as commission payout, web hosting and replicating distributor
websites. Established technology vendors in the business
have invested millions and years to offer an efficient solution
at an affordable price. Similarly, in an industry where
legal challenges are a basic part of the marketing landscape,
there is no substitute for competent outside MLM/Direct
Sales legal counsel who often doubles as one of the most
trusted advisers to management on business issues. Such
an individual has years of experience, has seen every business
and legal scenario and may understand the business better
than you ever will, has excellent relations with regulatory
agencies and can usually answer questions off the top of
the head in ten minutes that would take other inside or
outside attorneys five years of research, that is, if they
could actually identify the issue that needed a solution.
Don't leave home without "this guy."
Although other outsourcing may be more
discretionary, if affordable, it is the best way to attain
expertise honed by experience. In particular, you should
seriously consider early continuing relationships with vendors
with specific MLM/Direct Sales experience in graphics and
video production, management consulting, private label manufacturing
of products or private label sourcing of services products
and warehousing and fulfillment. The experience outsourcing
resources are there....use them, and focus on your own expertise,
recruiting and business building.
Clear Agreements Between Owners
It is one thing for an MLM business to
fail because of regulatory challenges, legal challenges
or even financial challenges. Periodically, the industry
is aghast when MLM companies fail as a result of disputes
among owners. Unfortunately, such events have occurred.
The causes for such failure can be many. Often, the failure
occurs because the owners of the business did not, at the
time of inception, take sufficient care to outline their
respective rights and responsibilities. It may be a legal
matter, but then again, it is often a case of differing
expectations about the future of the business. These expectations
should be out in the open at the commencement of the business
and mechanisms for dynamic change should be anticipated,
including exit strategies for owners. The worse case scenario,
which has occurred, is paralysis of the business while owners
argue over management objectives. Obviously, this problem
cannot occur when there is one principal owner to the business.
It tends not to occur when there are two owners. Three owners
tend to produce a revolving alliance of two against one.
More than three owners may well be a prescription for future
disputes. In any event, managing expectations starts "at
home" and at the beginning of the business.
Attitude--The Three P's-Passion, Patience and
Success coaches and motivational speakers
will often note: "If you think you can, you're right!
If you think you can't, you're right!" This is not
a mere placebo. There is something to such advice. Attitude
makes all the difference in survival and success of the
startup MLM. Every successful MLM company was driven by
a leader who had passion for the product, the opportunity
or both. The charisma of the leader could not be shared
successfully without passion. You must be in a sense what
the philosopher Eric Hoffer referred to as a "true
believer." A "true believer" is a founder
of cultural, religious or business movement...and that's who
you must be. There is little room for the skeptic or cynic.
As Eminen would say, you can't just sing the song, to succeed,
you must "lose yourself in the music."
Only with passion will persistence and
patience occur. And, only with those two additional attributes
will an individual be successful in the start of an MLM
company. It is a rare day that an MLM company is an overnight
success. Some companies become overnight success stories
because of the migration of thousands of seasoned distributors
as the result of the collapse or implosion of other large
MLM networks or companies. This occurrence is the exception
to the rule. In the end, it is often the case that a company
will not experience its more rapid trajectory until it has
been in existence for two or three years. It is usually
at that point in time that the combination of its stability,
and some other fortuitous event in the marketplace, causes
its discovery by legions of potential distributors and customers.
So, in the end, attitude, the culmination of passion, patience
and persistence, is a defining factor in the success of
the startup MLM company.
This Advice from Experience
You won't find these rules in a textbook.
You will not find them in a college course. You will not
find them at Staples or Office Depot. You most definitely
will not find them by consulting with corporate business
lawyers or general business advisors. These very important
factors are forged in the furnace of experience. These are
practical rules that arise from two decades of practical
hands on involvement. These rules come from the school of
"been there, done that." If you pay attention,
is success guaranteed? Well, go to rule number one,
which is "success is never a sure thing, but opportunity
is always guaranteed." Look for more detailed "rules
of engagement" in Parts I
and II of MLM Corporate
About the author:
Jeffrey Babener is widely recognized as a leading legal
counsel in the MLM and direct selling industry. His law
firm, Babener and Associates, has, for two decades, represented
leading direct selling companies headquartered throughout
the U.S. and abroad. He lectures extensively at such universities
as the University of Illinois, University of Texas and
University of Houston, publishes extensively in books
and articles and has served on many committees of the
Direct Selling Association as well as general counsel
for the Multilevel Marketing International Association.
He can be reached at his Portland, Oregon office at 503-226-6600
or visit his website at www.mlmlegal.com
for an expansive selection of information on direct selling,
MLM and network marketing.