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.
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MLM Business Experience: Possess
it or buy it.
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MLM Technology and Software:
The engine of the machine.
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Get the product right the first time.
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International markets.
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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."
MLM Business Experience--Possess it or Buy it!
As mentioned, MLM is not just any business.
It is not retailing, franchising, e-commerce internet or
dot com selling, telemarketing, catalog, direct marketing
or infomercial. MLM, under all its names, Direct Selling,
Network Marketing, Direct Sales, Party Plan and Multilevel
Marketing, is a unique beast. To launch this business, you
must have a substantial background and be well-grounded
in its written and unwritten principles. If you know your
product and you have a passion to bring it to the public,
but you lack industry experience, then you must buy that
experience. You may hire key employees in such positions
as CEO, COO, Sales and Marketing, Customer Service and Distributor
Relations, Information Technologies, etc. The payroll will
add up fast and, unless your capitalization can sustain
this ongoing cost, you should seriously consider outsourcing
the solutions for these types of expertise. A first suggestion
is to consult with your MLM attorney, who is likely familiar
with the best resources in the business. Although limited,
your search will disclose extraordinary resources in the
area of MLM management consulting. Such industry established
experts in areas of MLM startup implementation, compensation
plan design and software selection are often tremendous
team players and invaluable assets to your team. Above all,
don't launch without in-house or outsourced MLM business
experience.
MLM Technology and MLM Software--The
Engine of the Machine!
"Having" great MLM software won't recruit one single
distributor for you. Having said that, lousy software and
inferior support will no doubt ruin what might have been
a tremendous business opportunity. This business is a numbers
business. It is built on recruiting, payouts on thousands
of generations, genealogy reports to thousands of distributors,
timely calculation and payout of commission checks to vast
networks of sales people. The moment you fail in the technology
area, you will lose confidence amongst your distributors.
Prepare to watch sales, recruitment, retention and momentum
plunge to ocean depths. Recovery may never occur.
And so, remember cheap is not good in the
technology business. Good value is good, but not cheap.
"You get what you pay for" is true in this acquisition.
The fact is that cheap software usually means "cheap
software" that is flawed and for which there is no
backend support service of worth. Your software must work,
it must be scalable such that your data tracking solutions,
your web and e-commerce solutions and your reporting and
communications solutions can grow with your business. These
are important questions for those bidding for your software.
Statements like "up and running in 24 hours for $100"
are as invalid as "join our MLM and earn $10,000 in
your first week." Of course, expensive does not necessarily
mean good either. At least one software firm became infamous
in the industry for promoting seminars that were little
more than high pressure sales presentations in which unwary
MLM startups were induced into astronomical priced offerings.
Beware the high pressure sales tactic that does not afford
you the opportunity to compare in the marketplace and check
references and opinions. Your best sounding board is your
MLM Business Consultant or MLM Lawyer.
Look for established providers with track
records with established companies, but that is not to say
that you should not "hold" their feet to the competitive
fire. Established MLM software companies all bring different
but important strengths to the table. Most major providers
also offer design solutions for the MLM startup that involves
web-based software support that can grow to licensed onsite
technology as the company grows.
Get the Product Right the
First Time!
If your software runs the "machine," and the business
is the "machine," then your product or service
is, as the French would say, your "raison d'être,"
your reason for existence. In looking back on history of
the direct selling industry, a chicken and egg analysis
makes it difficult to determine whether the business opportunity
or product was the essential reason for commencement of
the business. There are instances of both. The founders
of Avon, Mary Kay and Home Interiors came from successful
experiences in marketing other products. They found a product
suitable for their marketing talents. On the other hand,
the founders of Nikken, Amazon Herbs and Shaklee had a passion
for bringing uniquely new products to the world and direct
selling became the best vehicle. You will fit in one of
these two categories. Whether it is one or the other, however,
choose a product or service for which you can promote with
passion. Be sure that the product is unique or that its
formulation is unique to your company. If it is a commodity
or generic product such as telephone service, then you will
need to create another unique marketing edge, such as great
service and value, to market the product. The better of
the MLM products are those with high margins resulting from
the "perception" of uniqueness in the marketplace.
In the end, a company will only succeed when selling a product
of high quality at a reasonable price to a market that purchases
the product on its own merits. Over-priced products of dubious
worth have no real long-term future. The death knell occurs
when distributors are caught informing business opportunity
meetings that the product is really irrelevant and is merely
an excuse for the marketing plan. Another vocabulary term
for this phenomenon is "pyramid."
Equally important to choosing the right product
is the assurance that your marketing will not be impaired
by poor planning. Your initial vendor agreements should
be drafted or reviewed by MLM Legal Counsel so that you
do not find yourself stranded without product, or worse,
find your manufacturer in competition with you. Regulatory
compliance is essential for such issues as FDA for labeling
and claims, consumer standards for water and air products
or compliance with discount buying legislation. If you are
importing products, you should be assured in the beginning
that your product will not be subject to embargo or detention.
And, obviously, you should be assured that your distributors
and customers would have an uninterrupted supply of product
because you have established adequate capacity to produce
the product or service.
International Markets
Having viewed the tremendous international success of companies
such as Avon, Nikken, Amway, NuSkin, Mary Kay and Tupperware,
many owners of startup MLM companies are tempted to go into
international markets immediately. The short answer is "don't
do it." Starting the successful MLM company is a daunting
and complex task, a process that should be perfected one
step at a time. For most companies, it is important to first
develop a working model in the United States or country
of origin. Mastering the marketing plan, establishing distributor
and customer service departments, refining the support technology,
etc. are best accomplished in one country, with duplication
and adaptation in foreign markets to follow once the machine
is working in the home country. In addition, it is important
to cause distributors to first focus their efforts in one
market rather than ineffectively diluting their efforts
in multiple markets. Of course, all rules have exceptions,
and if your company is a multi-billion dollar conglomerate
with worldwide retail stores or international catalog operations,
the resources may be available for a multi-country launch.
For the "small guy," the logical progression from
the U.S. is to Canada, Europe, Australia, Asia, Mexico and
South America.
Many companies believe that the internet has
made international expansion an instantaneous event. Unfortunately,
the internet and technology are far ahead of the legal and
business requirements of going international. For those
who really wish to approach international markets in a rational
business and legal manner, the following points are summarized
from the author's article, MLM Going International, which
can be found, with other resources, at www.mlmlegal.com.
- Corporate and Foreign Lawyers. Locate
counsel in the foreign country that has expertise in direct
selling. You may need to locate several different lawyers
with expertise in direct sales, including food and drug,
taxes, corporate structure, etc. Include your usual corporate
counsel in the loop as you move into foreign countries
to create some continuity throughout the world system
- Trademarks. Look into registration
of your company trademark and product and service trademarks
as early as possible, and preferably even before entry
to the country. Companies are always surprised to find
themselves being held hostage to well-meaning distributors
or greedy pirates who have already registered important
company trademarks.
- Consumer Legislation. Every country
has variations on deceptive trade practices, laws, consumer
laws and anti-pyramiding statutes. These vary around the
world and you should check out the local pyramid scheme
acts to make sure that your compensation plan and method
of marketing are in tune. In fact, in many countries,
you may be able to receive opinion letters, advisory opinions
or approvals by government agencies as to the marketing
program before entry.
- Earnings Claims. Check out the sort
of restrictions that you and your distributors may make
with respect the business opportunity you are offering
and how it may be presented.
- FDA Issues. Food, drug and cosmetic
laws vary widely from country to country. You may need
to reformulate your product's ingredients. You may find
yourself forced to manufacture within the country. Get
an early start on labeling as this may slow you down considerably.
Get yourself to a lawyer knowledgeable in FDA-type law.
- Product Compliance. Check out the
government standards for manufacturing with respect to
your product. Your product may need to be manufactured
within the country. Specific type products may have their
own regulations within the country. You will need to check
out your entire product line on this point.
- Intellectual Property. In addition
to trademarks, you may need to register patents for your
products in the country. You may need to check out restrictions
regarding transfer of intellectual property, such as software
licenses, etc.
- Immigration. You will be sending
key employees from company headquarters to work for indefinite
periods within the country. You need to check out short
and long term business visas or other necessary documentation
for ongoing residency and local employment.
- Language. Verify language restrictions
for labeling and literature. In some countries, you may
be required to have dual language labeling.
- Banking. There will be large scale
movement of monies in and out of countries. You need to
verify restrictions on currency movement across borders
and whether profits can be repatriated to the home country
or must be reinvested in the foreign country.
- International Sponsoring. Every
company has its own unique method for international sponsoring.
Make sure that the new market is receptive to your method
of international sponsoring. Determine the relationship
of sponsoring distributors in both the home country and
foreign country. Will distributors need to sign up country
by country or is the company considering a seamless international
sponsoring system with inter-company accounting for commission
payments?
- Customs and Tariffs. Although more
free trade is coming about in the world, you need to explore
in detail customs and tariff issues with respect to your
product into the foreign country. In particular, taxing
authorities of foreign countries will pay attention to
transfer pricing with respect to both customs issues and
tax issues.
- Taxes. You need a good overview
of national, provincial, sales, value added and other
taxes. Your corporate counsel, tax accountants and foreign
counsel need to advise you on the most tax advantageous
method of operating whether it be as a subsidiary, an
affiliate, a branch office, etc.
- Corporate Form. Must you have local
ownership? Must you have local residence of shareholders
and members of your board of directors? Will your distributors
be considered employees? You need to fully understand
what your presence will mean in the foreign country.
- Manufacturing and Supply Agreements.
Must your manufacturing be local? If you are having local
manufacturing, make sure that you have adequately secured
under foreign law, your rights and responsibilities with
respect to local vendors and suppliers. This may include
both production as well as protection of your trade secret
formulas of confidential information.
- Marketing Literature. Everything
that is passed out to the consuming public or your distributors
must be brought up to speed, including distributor agreements,
policies and procedures, compliance with door-to-door
sales rules, distributor cancellation rules, buy-back
policies, termination notices, etc.
- Advertising. Before you bring your
products into the country, are they required to undergo
testing to verify claims that you may make about the product
or other specific advertising rules that require compliance?
- Antitrust and Trade Regulations.
You need to check out restrictions on pricing, relationships
with suppliers and vendors, relationships with your distributors,
relationships with the other competitors, etc., all to
verify that you are not in violation of local antitrust
and trade regulation rules. For instance, may you ask
your distributors to adhere to suggested prices or trade
practices imposed by the 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 III of MLM Corporate
Startup: Essentials.
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.
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