MLM Corporate Startup
Essentials: Part III
(a three part series)

By Jeffrey A. Babener
©  2003

(Excerpted from the forthcoming book, Starting and Running the Successful MLM Company)

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.

  • Compensation Plan: It better be good.
     

  • Outsourcing.
     

  • Clear agreements between owners.
     

  • Attitude: The three P's.

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 and balanced.

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.

Outsourcing

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: 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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