Good evening, ladies and gentlemen! Tonight I am going to be talking about the
oldest profession in the world, tracing its roots back to the Garden of
Eden. Now before you pick up stones to
castigate me, allow me to explain myself.
The subject of this talk is “Network Marketing,” which is
interchangeably called “Referral Marketing,” “Word of Mouth Marketing,” “Multi-level
Marketing” or simply “MLM.” It is a first cousin of franchising, a
younger sibling of “Direct Selling,” and is in turn an older sibling to
“Affiliate Marketing.”
As MLM guru Tom Schreiter likes to point out, “most people
do network marketing every day, they just don’t get paid for it!” Thus, when the Serpent talked to Eve, and
then Eve enticed Adam to sample the forbidden fruit, she was engaged in “belly
to belly” Referral Marketing (and we’ve been paying the price ever since!)
Network Marketing is a method of doing business whereby a
company markets its goods and services directly to the end consumer by means of
an independent distributor force, as opposed to working with wholesalers who then
stock their products in retail outlets.
So instead of spending advertising dollars up front to
promote their wares in malls and supermarkets, its marketing budget is
redirected into a commission bonus structure for the distributor force. Commissions are paid out after the sale is made, allowing the parent company to gain the
leverage of a huge advertising budget, without the upfront capital outlay. In other words, the sale comes first, revenue
is generated and commissions are paid out after the coins are in the coffer.
In fact, the Holy Grail of MLM is “leverage,” both for
parent companies and for their independent distributors. “Give me a lever long enough, and a fulcrum
on which to place it” exclaimed Archimedes, “and I can move the world!” Leverage is why companies employ the
multi-level marketing model, and leverage is what attracts hordes of
prospective entrepreneurs to launch an MLM career.
Direct selling has a long history in the United States, and
is usual associated with the door-to-door salesmen of Fuller Brush, Kirby Vacuums,
Watkins or Avon fame.
Similar to direct sales, MLM distributors get paid a direct commission by the parent company after
each sale they make. In addition, there
is an opportunity to earn indirect
commissions, by recruiting other distributors and getting paid on their personal sales volume, and so on
and so forth, down multiple levels or generations, in a snowballing effect. Hence the term “multi-level marketing.”
It is usually at this point in a pitch to a prospective business
associate that a distributor might encounter the dreaded “pyramid” objection. The litmus test used to determine whether a
program is a bona fide network marketing plan, or a pyramid or Ponzi scheme is
simply to ask whether there is an actual, legitimate product or service being
marketed, or if instead it’s purely a money game without anything substantive,
other than cash, exchanging hands.
Just as franchising had to face the US congress in
the 1940’s, network marketing had its day in court when the Amway Corporation
won a landmark victory in 1979, which declared that its business model was not
a “pyramid scheme” as long as it fell within the approved parameters.
As Tim Sales explains in his presentation Brilliant Compensation, “there’s nothing
wrong with a pyramid!” It’s one of the
most stable physical structures in architecture, as attested to by the Mayan
and the Egyptian civilizations.
Governments and corporations all employ the pyramid model. In fact, when someone asks me whether MLM is
a pyramid I often reply, “Oh, you mean like Social Security? No, it’s nothing like that!”
Multi-level commission structures are often employed by real
estate brokers and insurance companies who may extend “override bonuses” to
agents who refer other agents.
Professor Charles King, from the University of Chicago
School of Business, and Tim Sales debunk the “pyramid myth” in their classic Brilliant Compensation lecture, which is
considered the premier MLM apologetics piece to date. Each one of you will leave tonight with a CD
version of it in a goody bag I will hand out to you at the end of my talk. So
you’d better keep listening, and have good questions for me!
As I said before, the name of the game is leverage. A traditional job is typically an inefficient
way to gain the leverage need to create true wealth and “time freedom.” There one must trade hours for dollars. Stop working, and you stop getting paid. Owning a company is a better way to leverage
one’s time and money. The following
quote is attributed to America’s first billionaire, the famous oil tycoon John
Paul Getty: “I would rather have 1% of the efforts of a hundred men, than 100%
of my own efforts.” Some say Andrew
Carnegie coined that phrase. But in
either case, both men grew rich off its principle!
Network marketing, has been dubbed “The People’s Franchise”
because it allows average persons to work from home, and develop leverage in
their spare time by building up a network of customers and distributors. MLM
philosopher Jim Rohn would call this working full time on your job while
working part-time on your fortune!
Network Marketing usually involves far less seed capital
than traditional franchising. In theory,
any average Tom, Dick or José can bootstrap his way up from nominal start-up fees
(typically less than $1,000) to complete financial leverage in a long-term
passive, residual income stream. Now things
don’t always turn out this way, and often people will point fingers at MLM and
say it doesn’t work or it’s flawed because only the top 1% make any money, or “you
have to bug your family and friends,” et
cetera, ad nauseam. Yet, as my
father has drilled into my head ever since toddlerhood, “Abuse doesn’t take
away the use.”
At this point in my talk I’d like to shift gears and get
personal here. I’m going to share with
you my own personal ups and downs in this fascinating industry over the course
of the past 12 years.
For starters, I was introduced to the concept of residual
income through my passion for music.
When I was 14 years old my dear mother ordered a 6-string guitar for me
from a Sears catalog. I’m sure she may later
have second-guessed her decision, as she had to suffer through my learning
process, including the eventual smashing of this guitar in utter frustration. By and by, though, I got pretty good and
thereupon embarked on a prolific song-writing career.
While living in Texas
in the early ‘90’s I joined the “Dallas Songwriters Association,” and it was
there I learned that the really “lucky” songwriters could earn royalties on
their compositions for years or decades to follow. In reality, even though there’s an element
of luck in the music industry, “luck” is really nothing more than “preparedness
meeting opportunity.” I wasn’t prepared
to pay the price to make it big in music, and so I simply lived on as a legend
in my own mind.
But around this time, a fellow grad student at my alma mater, the University of Dallas, approached
me one day and asked: “How’d you like to make money every time somebody picks
up the phone?” This was the question
that launched my MLM career! I grasped
in a flash of insight the beautiful entirety of this abstraction called
“leverage,” and I could see clearly that multi-level marketing was going to be
my means to this coveted end.
I began attending standing-room-only hotel meetings with 800
eager entrepreneurs in the room, during which the speaker would point out that
he had built an organization 10 times the size of that group. “Do you suppose any of those folks made a
phone call today?” he’d ask? Dollar
signs danced in my head as I tried to compute his override bonuses on all those
ringing little ATM machines in homes across the country.
When the actual process of building my network of customers
and customer-gatherers moved more slowly than I had imagined it would, I made
the common mistake of most rookies who do not understand the growth curve and
thus panic during the incubation period:
I jumped ship, and found another telecom program without $500 start-up
fees. I had seen this fee as a barrier
to entry.
Over the next year, using the internet as a marketing
vehicle, I referred a handful of customers and distributors and eventually
developed a personal organization of over 1,000 customers on whose monthly
phone bills I was paid a small percentage.
This was back in the days of 15 cents a minute long distance calling!
But I soon learned my first big lesson about MLM: developing a business around a commodity was
like building a house of cards. Once
long distance rates started dropping, profit margins became razor thin. At one point, Excel Communications, a Network
Marketing company based in Dallas, Texas, had grown to be the Number 4 long
distance carrier in the US. Their top
distributor was earning a stratospheric $1.2 million per month. Excel went out of business about 5 years ago,
and with it vanished the hopes and dreams of millions of distributors for that
elusive “long term residual income.”
The problem, as I later learned, is that because of small
profit margins, Excel relied heavily on “coding bonuses” that were generated on
the $500 startup fee to become a distributor.
To me it became a case of the emperor having no clothes. Only a fraction of the top earner’s checks
could have been considered true residual income, based on long distance call
volume. In my humble, but accurate
opinion, Excel was a thinly veiled Pyramid Scheme that managed to fly under the
FTC radar, until its eventual collapse several years go.
Because I’m a high-tech, gadget kind of guy, I had turned my
nose up at marketing nutritional products.
But in reality, this arena is where the bulk of Network Marketing volume
is derived. I learned another valuable
lesson at this point: nutrition and
supplementation is a very stable market, and many of the older, well
established companies such as Shaklee, founded in 1956, Herbalife (1980) and
even Amway (1959) have a wellness component as their flagship product.
On Shaklee’s corporate web site (www.shaklee.com), the following quote is
found:
When
everybody else was spending their marketing dollars on advertising, Shaklee
invested what would amount to billions of dollars in rewards for people who
spread the word. Not to mention millions of dollars in research and
development.
MLM companies that sell nutritional products are able to
allocate more of their operating budget
into research and development, and thus often create a superior product. A top grade product usually costs more, which
in turn requires an education process that is hard to get from a 30 second
advertisement. Enter “word-of-mouth referral
marketing.” People who have great
product experiences tend to want to share those experiences with their “warm
market” (i.e. friends, families and neighbors).
As I said earlier, most people do network marketing every
day, they just don’t get paid for it! I
met a gentleman recently who told me that after he moved into a new development
in Simpsonville, South Carolina he referred 19 of his friends to that
community. They all bought homes based
on his recommendation! I asked him
whether the home builder had sent him a check to thank him for the roughly $4.5
million worth of business he sent their way, and with a resigned shrug he
simply said “No.”
MLM allows that natural human tendency of sharing good news
free rein, with great financial rewards to boot.
A good product can generate excitement, emotional attachment
and above all, stability, for years, even decades. In contrast, all dial tones pretty much sound
the same, so it’s hard to get attached to a commodity-like product or service. Ironically, when Excel collapsed they sold
their database to the Shaklee Corporation and encouraged their distributor force
to rebuild their networks within Shaklee’s venerable, stable brand name.
I have a good friend who is the top distributor in a
nutrition-based company. His motto is
“Build it once, build it big, build it for life!” It’s crucial for anyone considering becoming
a home-based entrepreneur in the MLM arena to carefully investigate the company
he wants to get in bed with. The
management and vision behind a company are as important, if not more so, than
the type of compensation plan or even the product itself. Once the hand is on the plowshare there
should be no looking back, no jumping ship.
Explosive growth usually occurs after a certain tipping point, and great
patience and trust is required to keep pushing past this point.
Timing is another crucial element. The mavericks in this industry are the ones
who get in early and help build out a company distributor force in its
unstable, start-up phase. Those who back
the right horse are usually the stuff of MLM legend, who go on to earn ongoing
royalties of $10,000 to $100,000 a month or more for decades thereafter.
Back to my own story, now.
As I became more and more intrigued by the leverage element of MLM, I
became a voracious reader. There’s a
saying that “leaders are readers,” and I began to soak it all up. While I still held down a traditional “J.O.B”
I began to turn my vehicle into a rolling learning center. Incidentally, residual income snobs like me
always say J.O.B instead of “job” when referring to the unhappy fate of linear
income wage slave cubicle convicts. It’s
an acronym for “Just Over Broke” or “Journey of the Broke.”
While at my place of employment, I could not wait for 5
o’clock, when I could merge onto the parking lot also known as 635 LBJ Freeway
in Dallas and escape into my world of MLM dream-building, listening to hours
and hours of recorded motivational talks by MLM deities such as Tom “Big Al”
Schreiter, Kim Klaver, Mark Yarnell and Randy Gage.
A third major lesson I learned is that to be successful in
Network Marketing you have to change your mindset. Just as new wine should not be poured into
old wineskins, so the idea of making a living as a home-based entrepreneur has
to eventually crowd out and completely eliminate any desire for the false
security of a steady paycheck. At one
meeting I attended the speaker said, “Go and hold your head under water for 3
minutes. When you want success as badly
as you want air, there’ll be no stopping you in this industry!”
Fortunately, you don’t have to become a superstar to have
genuine success in Network Marketing. It’s
been said that having $300 a month in passive income would make a huge
difference in most people’s lives. The
bulk of network marketing organizations is made up of part-timers and
bread-and-butter product-users. As in
any other area of life, the Pareto Principle applies. 80% of the money is going to be made by the
top 20% of all distributors. MLM is no
different in this regard from real estate sales, car sales, insurance sales or
even traditional business models.
Another paradigm shift I had to face is that most people are
like ropes. You can't push them, only
pull them by the "law of attraction."
My distributor organization is an all-volunteer army, and so leadership
in Network Marketing involves being a good coach, mentor, teacher and inspirer.
In contrast to working one’s way up a corporate ladder, MLM
is definitely a level playing field.
Chances are, corporate VP’s do not earn more than the CEO, but in MLM I
can sponsor someone who goes on to build a bigger check than I do. How this is possible is explained in great
detail in your Brilliant Compensation
CD.
In fact, ask any distributor with a large organization
(let’s say 5,000 distributors or more) and they’ll tell you that 80 to 90% of
their business comes from the efforts of 2 to 4 people at most. Tom Schreiter, says that if your organization
has one leader, you’ll be financially free.
If you find two leaders, you’ll be rich.
If you find three leaders, you
probably miscounted!
This is most definitely true in my case. A little over 4 years ago, around the same
time I moved my family from New Hampshire to the Carolinas, I was introduced to
a product quite offhandedly, by a friend who told me in passing about a bad
case of poison oak he had just managed to get under control by means of a juice
made from the mangosteen fruit. I
jokingly asked him if a mangosteen was a “Jewish mango,” but I stopped laughing
and became intrigued when I saw his results with my own eyes. I asked him to send me some information on
this product called XanGo Juice, which had only been on the market for a little
over a year, and I did some research.
Being attuned and open to new opportunities, I realized that
this company and this product is what I had been preparing to find over the
course of my ups and downs in this industry.
Remember, “Luck is when preparedness meets opportunity,” so after 8
years of looking I “got lucky” and became an overnight success.
I got out my rolodex and began contacting key business
associates from my previous MLM experiences.
My initial efforts rapidly began to snowball, because all the magical
ingredients had finally come together for me:
timing, great management, a killer unique product and a fantastic
compensation plan.
In my opinion and experience, opportunities like these come
along maybe once a decade, and I am very grateful I paid the price and stayed
in the game long enough to be rewarded for my network marketing efforts!
Today I have an organization of over 25,000 independent
distributor/customers, which produces a monthly sales volume of around
$700,000. This amounts to an $8.4
million dollar business I operate in shorts and a t-shirt, from a spare
bedroom, which continues to grow and thrive whether I work it or not. I couldn’t stop the growth of this business
if I wanted to!
In a recently published book called “Beach Money,” Jordan Adler
said something that really hit home:
When you have a residual income, the more work you do the less you get
paid! How’s that for irony? In other words, if someone makes $20,000 a
month and works 20 hours a month to maintain that level of income, he’s
essentially making $1,000 an hour. But
if he can keep making that amount of money and reduce his monthly workload to
say 5 hours a month, he just gave himself a 400% raise and is now making $4,000
an hour.
In deference to my esteemed parents, and in order not to
fail with respect to the 4th commandment, I relented and agreed to reduce
my hourly rate this month by writing this talk and being with you tonight! However, it has truly been a pleasure to
engage in this exercise, and I hope that at the very least you will be attuned
to the wide world of opportunity and excitement that Network Marketing can
afford you.
There is so much more I left unsaid about this beloved
industry in which I have found a permanent home, but suffice it to say that
after all the hard work, ups and downs, failures and successes, I can truly say
to you: It’s well worth it! I hope that all of you find your own Holy
Grails, and I wish you all the very best.
Thank you.
The following talk was presented to a live audience
at La Catterina Restaurant in Asheville, NC. on April 30th, 2008. In attendance
were about 20 members of a local