Multilevel Marketing is big business. There are dozens of companies (including Infotrax) that sell products and services to MLMs new and old. My company has been supporting companies in the industry for decades. I have seen a lot of companies start: some fail some succeed beyond their wildest expectations, and many others fall somewhere in between.
Most of the advice you’ll come across for startup direct sales companies is about mistakes to avoid, problems to expect, and best practices for set up. One thing we don’t spend enough time talking about is what the roadmap looks like for a company going from startup to class enterprise. If you’re always focused on the problem of today, you aren’t thinking about where you’re going.
There are all sorts of things that create success, or bring on failure. But we have identified a set of common challenges that companies face as they grow, and we have identified several distinct phases companies go through. Each of these phases have their own challenges and opportunities. Obviously the number of orders per day and the monthly sales volume vary by company but we’ll use both of those metrics to divide company growth into phases.
I recently fielded a phone call from a business owner who asked me the following question: Does my business model qualify as a multi-level marketing company? It’s a good question whose answer invokes a variety of possible legal implications.
THE MLM LEXICON
With no single authority providing some sort of precedential definition of “MLM,” the best way of boiling the concept down to its essential elements is through the lens of different authorities and sources.
Talk Fusion, a member of the DSA and a purported legitimate multilevel marketing company, was recently named in a class action lawsuit. The lawsuit can be found here and in its entirety below. The lawsuit was filed by Spreter Law Firm, based out of San Diego, California.
It’s a meaty lawsuit, clocking in at 110 pages (plus an additional 200+ pages for exhibits). The attorney that filed the lawsuit, Geoff Spreter, did a fair amount of homework.
Bob Reina, owner and founder of Talk Fusion, was also named as a defendant in the lawsuit.
I went to a Grateful Dead concert in 1976. The band was at the height of cool at the time as they represented the counter-culture movement from the Haight-Ashbury district of San Francisco. Although I had been to a number of concerts before seeing the Dead, this concert was different because it was the first (and to this day the only) concert where I witnessed security personnel hauling stoned audience members out throughout the show like it was a revolving door, and I saw medical personnel take at least six overdosed people out on stretchers.
This was obviously a common occurrence at Dead concerts. I vividly recall that right after their first number (Truckin’), Jerry Garcia (lead singer for those of you not old enough to have a touch of grey) announced “Hey people, have a great time, but don’t do any stupid sh**!” Such profound wisdom in such a simple statement!
I don’t think Jerry Garcia’s admonition resonated with the audience that night (shocking, right?), but it should resonate loudly with direct sellers. I look back on the FTC’s last four pyramid actions, Vemma, Fortune Hi-Tech, Burnlounge and Trek Alliance, and in each case we can point to stupid things that that landed the defendants in the FTC’s cross-hairs. We can (and will) closely analyze compensation plans, compliance and marketing nuances that the FTC charges render MLMs pyramid schemes. But there’s a place for analysis, and a place for common sense. Let’s put common sense first, because it’s unquestionably the first and best defense against finding your business in the line of regulatory fire.
Let’s start with Equinox and Trek. In both cases distributors (with corporate knowledge) placed ads in the “Help Wanted” sections of newspapers. The ads led readers to believe that Equinox and Trek were seeking to fill employment positions. People applied for the “jobs” and showed up for “job interviews.” In egregious cases the job applicant would purchase an airplane ticket to fly to the city in which the “job interview” was scheduled. When people arrived for their job interviews, they were pitched on the MLM opportunity, sold a starter kit and a large amount of merchandise. This proved an effective recruiting technique, but it doesn’t take a rocket scientist to figure out that it was based on deception and would inevitably elicit complaints to regulators. You guessed it – STUPID MOVE!!!
Fortune Hi-Tech’s compensation plan had built-in stupidity. While FHTM sold some real products and services, FHTM also sold a $199 “training program” to new distributors and paid a multilevel override on the sale. The training program, to the surprise of … NOBODY, was simply a means of funding compensation for recruiting new distributors. Montana was the first state to investigate FHTM, and frankly, they missed this issue. However, enough money was flowing through FHTM that regulators could not help but notice that the growth was driven by recruiting rather than bona fide consumer sales. Once again, stupid reigned supreme and helped lead to the demise of FHTM.
The Burnlounge case was triggered by the incendiary combination of stupidity and arrogance. Burnlounge management and its top earning distributor conducted meetings rife with income claims. They told audience members they could earn $900,000+ in their first year (not even the top earner was making close to that much). A woman in the audience found the sales pitch interesting, so she brought her husband to the meeting the next night. After the meeting the woman’s husband pressed the presenters for information to support the pie-in-the-sky income claims. The presenters didn’t want to be bothered with him (nor did they have any support for their claims) so they told the man to mind his own business. It turned out he was the assistant attorney general for the State of South Carolina. The next day an investigation file was opened on Burnlounge. Ooops! Ring the stupid bell!!!
Most recently Vemma was shut down by the FTC. We don’t have to look very hard to see where dumb came into play. Several highly visible Vemma distributors built their businesses on college campuses. They would aggressively pitch the Vemma business to college students, telling themn that they didn’t need a college education or that they should use their tuition money to build a Vemma business. Could anyone have foreseen how that might lead irate parents to ignite a firestorm of complaints? Ummm … yeah …
Whenever an MLM is attacked by law enforcement, other MLMs want to scrutinize the defendant company’s policies and compensation plan and parse every phrase in court filings, orders and opinions and quickly make changes so that the same fate does not befall their company. But it’s a COLLOSSAL MISTAKE to assume that the critical flaws all reside in the compensation plan or policies. The first step should be to identify every element of STUPID (and arrogant) in your business and fix it. The company may have turned a blind eye to the stupid practice for years or thought because a practice is not specifically illegal, it’s okay. Most commonly, the stupid practice is effective at growing the business, so they try to rationalize that it’s acceptable. But guess what? Even if it’s not illegal, it’s still stupid! And it’s STUPID that most often brings MLMs into regulatory crosshairs.
So the first rule in avoiding legal problems; heed the advice of Jerry Garcia and don’t do stupid sh… stuff!
The FTC recently announced that it has finalized the amendments to the Federal Cooling-Off Rule, (aka Door-to-Door Sales Rule). The amended Rule will go into effect on March 13. When the proposed amendment was published, there was some anticipation on the part of the direct selling industry that sellers would be granted some relief from the Rule.
For those not familiar, the Rule requires that customers (including new distributors or consultants) be given two copies of the 3-day Notice of Right to Cancel whenever a purchase transaction for consumer goods or services takes place at a location other than the seller’s place of business. While there are some possible exemptions, for the most part the rule covered many transactions between distributors and their customers and between distributors and their newly recruited distributors.
The major exemption that has been in place since the Rule was originally enacted (in 1972) was a $25 threshold requirement. If the purchase amount was less than $25, the Rule did not apply and there was no requirement to provide the customer with two copies of the Notice of Right to Cancel.
When the FTC initially proposed the amendment, the threshold was raised to $130, which would have accounted for inflation since 1972. This change would have been a relief to many direct sellers with lower cost items and kit prices.
Ultimately, the FTC left the $25 threshold in place for transactions that occur at the buyer’s residence. For transactions that take place at other locations but are otherwise subject to the Rule, the threshold was raised to $130.
For many direct sellers, nothing has changed. A company cannot print separate contracts, order forms or sales receipts for different sales locations. Because a company will not always know the actual location of a sales transaction, the better course will be to include the Notice of Right to Cancel on all order forms, receipts, and purchase agreements. For additional information, please feel free to contact our office.
Over the last couple of weeks I have been sharing about Ocean Avenue, and today I have the privilege of announcing the network marketing community, the Fred Ninow & Ken Dunn are back together again! The last time these two were together, they created one of the most respected companies in the MLM community, and the first US based network marketing company to focus on the power of Gluathione which is the body’s master antioxidant.
– 29 years of ownership experience
– Over 2 Billion in Gross Revenue
– Senior Management Specialist
– Start Up Specialist
Fred Ninow, thrives on the challenge of entrepreneurship. Having started as as a stockbroker before moving up to investment banker, Ninow saw the success others were enjoying from owning their own business and quickly realized that real financial freedom came from owning your own business not working for someone else. However, he also learned there is a downside to owning your own business, it could own you!
During one of the most successful business launches he ever mastermind, he was faced with what could have become a catastrophic person loss, that he would not have ever overcome…
Losing his family. When his wive Staci made it clear, things needed to change, or she was taking the kids and moving back home to her family, Fred, realized that his priorities were backwards. When he realized his had bought into the worldview of financial success; owning the toys, houses, club memberships, and yes BIG bank accounts, instead of making your family #1, he made a life change.
Today, he is still launching businesses, but instead of doing it by himself, he has surrounded himself with his family and friends. All who come hold to the same core values that… “Family First” is not a slogan, but a Way of Life!
– 15 Yrs of Investigative Policing
– Owned Businesses in mortgage & Prop Mgmt
– Earned millions in distributor commissions
Ken Dunn, like Fred Ninow has had the entrepreneurial bug for as far back as he can remember. However he also had a maverick side to his personality which also led him to put his entrepreneurial side on hold, until his first child Matthew was born.
Ken’s professional career started when he was 18 and joined the Ottawa Police Service, where his talent for detail and his ability to connect and blend into just about any life style setting, led to him becoming one of the youngest undercover officers on the force to work drug surveillance, crisis management, SWAT, and finally as a homicide and sexual assault investigator.
Later he became the youngest member of an international task force working to uncover and expose an international ponzi scheme. This new direction led him to become an expert witness on compensation plans before the Supreme Court.
But, like Ninow, Dun, was not putting his family first. When his son Matthew was born, he knew he wanted out of law enforcement, but was not sure which direction to go. Always having the entrepreneurial bug, while on a get away to Mexico, he and his wife Julie decide to launch a Silver Import business. Success came quick, and so did the decline thanks to the NAFTA (North American Free Trade Agreement).
In 2002 Dunn earned his Mortgage Broker license and was off to the races. Still working in law enforcement, and running a successful Mortgage business, he was rocking. Then came a call from friend in real estate, telling Ken about his MLM business. Although Ken knew what he did not know about MLM because of his work on the International Task Force investigating ponzi’s, he still took time to listen, and soon launched into a 3rd career. But…
Like Ninow, Ken’s family were the ones suffering from his additive need for a new challenge, power and success. He kept telling himself, family and friends, that his drive was fueled for his family because he wanted them to have all the things he never had growing up. The reality was, he had the wrong worldview of financial success and his priorities were totally upside down.
Julie, came to Ken and made it as clear as day, she was concerned that their relationship would not last, if he kept going down the road he was on. Something had to change, and it was either going to be one or more of his three careers, or it was going to be her and the kids!
Well, in both Dunn and Ninow’s cases they made the right choice and put their families first. In getting to know these two, in both cases, they have gone on to earn more money than they ever dreamed, and along the way, they put their families first.
Fred, has coached or been involved in each of the sports teams his kids have been a part of. And Dunn has taken time to make sure his kids have been able to follow their dreams and passions from his son playing in a band, to his daughter pursuing her acting career.
And, each have grown closer to their wives, who are also part of the founding team of Ocean Avenue.
It is with great pride and honor I get to introduce the Network Marketing World to the Family of Ocean Avenue!
It is not everyday that I get the privilege of working closely with an international MLM start-up, who has brought folks together from across oceans, from different avenues in business to launch a movement that Celebrates Life in the Network Marketing community.
When I received my first call from Indonesia by one of the company owners and he shared the vision of the leadership team, and how they would like me to be a part of this new company as a consultant, I was truly honored, but taken back at the same time. I had never taken on such a project, and to have a top international network marketing leader ask me to be part of the inter-circle was truly an Epic Adventure, I was looking forward to.
But, my real buy-in to the vision of the owners did not come until I got to see first hand the real “WHY” that was driving the vision of this company. Watch the video below to get a better understanding of what I mean by “The WHY!”
The four driving forces behind this company are two very amazing couples who I have found walk their walk. What I found after investing some quality time with these folks over the last 60 days, is they have not always had it together as individuals or as couples.
It has been trough their own failures, as people and as entrepreneurs that they have realized that what matters most in life is not the money we earn, the tops we buy, or how many zeros we have in our bank accounts. What matters most if the FAMILY! Not just their families, but how they touch other families.
So very quickly I was introduced to not just their families, but the families who shared the same WHY as the founders.
However, behind every WHY must be a product or service that will engage the masses to become Raving Evangelists like those who drive the WHY of APPLE! What was started by Guy Kawasaki (the original Apple Evangelist in the 1980s) has now become a worldwide WHY that has allowed APPLE to touch and change the lives of millions of people and cross demographic and culture groups.
Well, after meeting the Chief Science Officer brought in by the founders, it was easy to see who the Chief Evangelist was going to be. His drive and passion to change the world and make it a better place for all people, not just a select group, was amazing.
Every now and then a small team of people get together, and decide to make an impact in the world. They are willing to risk more than most folks feel is wise, but are willing to follow their heartfelt passions. Their mission in life if you will.
Well soon I will be able to reveal who the folks are behind this new company, the product and most of all allow you to listen to them personally share why they are so passionate on building a company around FAMILY!
These truly are some amazing folks, with extraordinary passion for their mission!
Living An Epic Adventure,
The Beachside CEO