Rules to Keep in a Very Safe
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"
umbrella term for the business is 'direct selling'.
Under that umbrella is found party plans, MLM or multilevel
marketing, network marketing and direct sales."
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."
Capitalization-Can you Recruit?
Do you have a great recruitment background,
the ability to recruit, or a lineup of strong distributors?
If so, your need for capital will be substantially diminished.
In the end, your ability to recruit a talented and motivated
sales network will be the number one key to your success.
In fact, your need for capital is in direct inverse proportion
to your ability to recruit. If you can recruit, you may
have a cash cow on your hands. If recruitment will go slow,
your business plan needs to allow for buffer capital to
hold you through one, two or three years of break even or
loss scenarios. That capital should be lined up ahead of
time, either through personal and close relationship resources
or through angel investors. The likelihood of public financing
for the new MLM is very remote. Time after time, the best
source of capital is literally "closest" to home.
Your ability to manage expenses will be very determinative
of your need for buffer capital and you will find that payroll
infrastructure will "eat up" capital faster than
anything else. Can you make it in this business by starting
in a back room or garage? Absolutely! The fact is that most
of today's giants started precisely this way...with little
capital, but much passion.
You need to be honest with yourself.
Do you or those who are key owners in the business have
MLM recruitment background? Without this talent, the best
products will continue to languish on the shelf. Companies
like Amway, Tupperware, Mary Kay and Home Interiors were
not only founded on a very limited budget, but by individuals
with strong backgrounds in direct selling. Develop a recruitment
strategy for initial key leaders. It may seem odd, but your
top distributors may not come to you for years. To those
would-be leaders who come to you seeking special benefits
or corporate positions, design remuneration that is "results
oriented." Do not pay high salaries to individuals
who claim to be able to recruit, but cannot demonstrate
a strong track record of success. As a general matter, if
individuals are strong recruiters, they would be distributors
because the remuneration is much higher. Obviously, track
your warmest market, then move on to lead generation systems
and advertising. You shouldn't expect initial advertising
to bring you distributors, but consider it instead a foundational
industry announcement that you have arrived on the scene.
For instance, the best place to create the institutional
announcement of your existence is in a leading trade publication.
Notwithstanding all of the hype, however, about internet,
direct mail or mechanized recruiting campaigns, history
demonstrates that this will always be a person- to-person
relationship business and that there is no substitute for
"pressing the flesh."
MLM Legal--Don't Leave Home Without It!
At first blush, one might question the role of the MLM Law
expert in a marketing driven business. However, your MLM
Lawyer may well be the single most valuable resource that
you ever utilize. This individual, and there are very few
in this gene pool, has intimate practical knowledge as well
as legal knowledge of the business, often understanding
the business better than most of his/her clients. It is
a unique melding of marketing practical knowledge and experience
together with practical legal experience that may cause
this individual to answer questions off the top of his or
her head in five minutes that would take typical business
lawyers five years to research...and, in which case, they
would still probably not understand the "issues,"
let alone the solutions.
For better or worse, the practices of the MLM industry
have induced scores of pieces of legislation and regulatory
control, such as pyramid statutes, MLM statutes, business
opportunity, securities, FTC and postal regulation. Notwithstanding
the success of the industry, there is always tension between
the regulatory community and the MLM industry. Overzealous
regulators and rogue operators guarantee that this state
of affairs will always exist. Layer these issues with distributor
relations and discipline, FDA, trademark, tax and international
issues, and it is easy to see why this individual is probably
the first person with whom you should establish a relationship
and with whom you should grow, with that person as a trusted
business advisor and member of your business team.
At a minimum, you would be totally premature to jump into
the marketplace without a legal review by MLM legal counsel
of the most basic of sales kit contents, whether they be
in hard copy, CD-ROM or on the internet. Those basics include:
representative agreement; policies and procedures; product
brochures; marketing plan presentation; and various forms
ranging from retail receipts to autoship to multiple owner
applications, etc. Responding after the fact to regulatory
agencies over deficient materials or answering distributor
complaints for slipshod documentation is too little, too
late...and too bad for the startup MLM business.
Your Trademark-Your Life!
Picture living your life without a name. To some extent,
you define yourself and your existence by your name. Obviously,
you had no choice in choosing your name, but nevertheless,
in the trademark sense, it is your branding for life. When
others think of you, they think of your name, and vice-versa.
Your choice of name for your MLM is equally important. Not
only will you brand your business and product forever, but
what may be worthless today will be your most valuable asset
in years to come. Just ask Coca-Cola, Marlboro, Microsoft,
Avon or Mary Kay. And so, this choice deserves special emphasis
in the beginning. A trademark search by your MLM Lawyer is
a must. To be told three years down the way that you must
give up your name because you did not bother to conduct a
trademark search would be a devastating blow to your business.
Also, it is essential that the name that you choose will suit
the expanding product or service offerings that will be coming
down the pike. So, what's in a name?...everything!
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 eleven, which is
"success is never a sure thing, but opportunity is
always guaranteed." Look for more detailed "rules of
engagement" in Parts II
and III of MLM Corporate
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.