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.
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
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
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 Box Packer).
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 Persistence
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 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.