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" recruited networks.
umbrella term for the business is 'direct selling'.
Under that umbrella is found party plans, MLM or multilevel
marketing, network marketing and direct sales."
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."
Capitalization-Can you Recruit?
Do you have a great recruitment background, the
ability to recruit, or a lineup of strong distributors? If so, your
need for capital will be substantially diminished. In the end, your
ability to recruit a talented and motivated sales network will be
the number one key to your success. In fact, your need for capital
is in direct inverse proportion to your ability to recruit. If you
can recruit, you may have a cash cow on your hands. If recruitment
will go slow, your business plan needs to allow for buffer capital
to hold you through one, two or three years of break even or loss
scenarios. That capital should be lined up ahead of time, either
through personal and close relationship resources or through angel
investors. The likelihood of public financing for the new MLM is
very remote. Time after time, the best source of capital is literally
"closest" to home. Your ability to manage expenses will
be very determinative of your need for buffer capital and you will
find that payroll infrastructure will "eat up" capital
faster than anything else. Can you make it in this business by starting
in a back room or garage? Absolutely! The fact is that most of today's
giants started precisely this way...with little capital, but much
You need to be honest with yourself. Do you or
those who are key owners in the business have MLM recruitment background?
Without this talent, the best products will continue to languish
on the shelf. Companies like Amway, Tupperware, Mary Kay and Home
Interiors were not only founded on a very limited budget, but by
individuals with strong backgrounds in direct selling. Develop a
recruitment strategy for initial key leaders. It may seem odd, but
your top distributors may not come to you for years. To those would-be
leaders who come to you seeking special benefits or corporate positions,
design remuneration that is "results oriented." Do not
pay high salaries to individuals who claim to be able to recruit,
but cannot demonstrate a strong track record of success. As a general
matter, if individuals are strong recruiters, they would be distributors
because the remuneration is much higher. Obviously, track your warmest
market, then move on to lead generation systems and advertising.
You shouldn't expect initial advertising to bring you distributors,
but consider it instead a foundational industry announcement that
you have arrived on the scene. For instance, the best place to create
the institutional announcement of your existence is in a leading
trade publication. Notwithstanding all of the hype, however, about
internet, direct mail or mechanized recruiting campaigns, history
demonstrates that this will always be a person- to-person relationship
business and that there is no substitute for "pressing the
MLM Legal--Don't Leave Home Without It!
At first blush, one might question the role of the MLM Law expert
in a marketing driven business. However, your MLM Lawyer may well
be the single most valuable resource that you ever utilize. This
individual, and there are very few in this gene pool, has intimate
practical knowledge as well as legal knowledge of the business,
often understanding the business better than most of his/her clients.
It is a unique melding of marketing practical knowledge and experience
together with practical legal experience that may cause this individual
to answer questions off the top of his or her head in five minutes
that would take typical business lawyers five years to research...and,
in which case, they would still probably not understand the "issues,"
let alone the solutions.
For better or worse, the practices of the MLM industry have induced
scores of pieces of legislation and regulatory control, such as
pyramid statutes, MLM statutes, business opportunity, securities,
FTC and postal regulation. Notwithstanding the success of the industry,
there is always tension between the regulatory community and the
MLM industry. Overzealous regulators and rogue operators guarantee
that this state of affairs will always exist. Layer these issues
with distributor relations and discipline, FDA, trademark, tax and
international issues, and it is easy to see why this individual
is probably the first person with whom you should establish a relationship
and with whom you should grow, with that person as a trusted business
advisor and member of your business team.
At a minimum, you would be totally premature to jump into the marketplace
without a legal review by MLM legal counsel of the most basic of
sales kit contents, whether they be in hard copy, CD-ROM or on the
internet. Those basics include: representative agreement; policies
and procedures; product brochures; marketing plan presentation;
and various forms ranging from retail receipts to autoship to multiple
owner applications, etc. Responding after the fact to regulatory
agencies over deficient materials or answering distributor complaints
for slipshod documentation is too little, too late...and too bad for
the startup MLM business.
Your Trademark-Your Life!
Picture living your life without a name. To some extent, you
define yourself and your existence by your name. Obviously, you had
no choice in choosing your name, but nevertheless, in the trademark
sense, it is your branding for life. When others think of you, they
think of your name, and vice-versa. Your choice of name for your MLM
is equally important. Not only will you brand your business and product
forever, but what may be worthless today will be your most valuable
asset in years to come. Just ask Coca-Cola, Marlboro, Microsoft, Avon
or Mary Kay. And so, this choice deserves special emphasis in the
beginning. A trademark search by your MLM Lawyer is a must. To be
told three years down the way that you must give up your name because
you did not bother to conduct a trademark search would be a devastating
blow to your business. Also, it is essential that the name that you
choose will suit the expanding product or service offerings that will
be coming down the pike. So, what's in a name?...everything!
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 eleven, which is "success is never
a sure thing, but opportunity is always guaranteed." Look for
more detailed "rules of engagement" in Parts II
and III of MLM Corporate Startup:
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.