Regulators

Make sure you understand this industry and its dynamics well. Not all businesses here are innocent but not all are fraudulent either. Take the necessary time to differentiate the legitimate and illegitimate practices. Do not put them in the same basket. When penning the regulations, phrase them accordingly. Make certain that what you write are precise, clear, fair and enforceable by the authorities. Any public announcement coming from you can make a huge impact on the industry as a whole. So, be extra cautious in what you are saying.

Media

Communicating information with the utmost ethical norms in mind, should always be the guideline. Disseminating only the good news is not what the direct sales industry is after. That said, when placing the industry as a whole or an individual direct selling company under the spotlight, listen carefully to all sides involved in the story. As the majority of individuals involved in direct selling are female, positive discrimination in this respect would be appreciated.

Direct Sellers

Do not fall into the trap of over-exaggerating your company, the business opportunity and the products when representing them. If you suspect a company that you have come across is doing so, stay away from it. Refrain from jumping from one company after another. Spend reasonable amount of time with the company you chose to partner with. Oh, also never forget that there is no easy money in direct selling. Neither your company nor that one on the other side of the fence will be able to make this happen for you.

Direct Sales Companies

Be fair to the members in your sales organization. Always keep in mind that today’s part-timer can easily be one of your best leaders tomorrow. Keep all your communication channels open and listen well to your sales force. Make use of all the modern tools available to pass information to the field. Make realistic promises to consumers, direct sellers, to the society and keep them! And please, refrain from bad-mouthing your competitors. At the end of the day, this will only damage all, including yourself.

Trade Organizations

While lobbying is an essential part of your job, do not ignore media relations. Make embracing the direct selling industry as a whole a top priority, putting more efforts to acquire new members with legitimate practices. Be really harsh on the other hand, on your members that do not comply with your codes. Place more emphasis on upgrading the digital tools you use like your website and the social media platforms. Remember, these are usually a professional’s first points of interaction with the direct selling industry.

The list of expectations here is by no means an exhaustive list. Feel free to add yours on the comment form below.

…..

Hakki Ozmorali is the Principal of WDS Consultancy, a management consulting firm in Canada specialized in providing services to direct selling firms. WDS Consultancy is a proud Supplier Member of the Canada DSA. It is also the publisher of The World of Direct Selling, global industry’s leading weekly online publication since 2010. Hakki is an experienced professional with a strong background in direct sales. His work experiences in direct selling include Country and Regional Manager roles at various multinationals. You can contact Hakki here.

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Let’s hear what Ben has to say on his experiences.

Your last corporate role was with Nikken. Could we start with your educational background and work experiences before joining Nikken?

I hold a BA (hons) in English Literature and Language. Prior to joining Nikken, I was the General Manager for Amway UK, European Sales Director for Melaleuca and General Manager of Europe for Agel. That is my MLM history. Prior to this, I worked in advertising as a creative in New Zealand, and was also the Manager of Training for the Preston, England Missionary Training Centre for The Church of Jesus Christ of Latter-day Saints.

You worked for Nikken for over four years. What responsibilities did you have there?

I joined Nikken as the Director of Sales for their European region. This saw me travelling extensively across the region working very closely with the field. I was then appointed as Managing Director and from there, became President of Nikken. This move took my family and I to California where our global HQ is. During my time as Managing Director, I also served on the Council for the UK DSA and on the CEO Council for Seldia. I found this association with the DSA to be richly rewarding and very instructive.

And then, you decided to move into field to become a Nikken Consultant. What made you take this decision?

It was a total sense of ownership of our strategies and a huge commitment to see it through. In 2015, we introduced some very important and positive changes to our business strategy. In a nutshell, we radically changed our pricing strategy to ensure that the customer was truly at the center of our business. Not just in the message, but in the true expression of their experience. We are continuing to invest in the customer experience, as we know this enhances the distributor experience. We also removed the ability to qualify for commissions with any self-consumption. Any experienced leader will know that strategy is one thing and execution is another. Critical to strong execution of the plan is the culture of the organization. For me as President, one of the biggest challenges I faced was to help change the culture in the field to adopt the new approach to business building that offered greater balance in field activities. So, I rolled up my sleeves and jumped into the field to work side by side with them in making the change.

There were a small number of leaders that chose to move to other companies, so I took a position that gave me the chance to lead the field. Most of the organization in Nikken is my downline now. I must say how humbled I have been in seeing the field leadership openly accept me as their upline. We had close relationships when I was President and now the relationship is even closer. We are all working very closely together to integrate the corporate vision and direction. The leadership group is incredibly unified and focused on a single message for growth. Anyone who has lead a mature market or business will know – that can be unique. But we have that and it is inspiring.

It has not been so long but I am sure you have enough first hand experiences and observations to share with us. What are the major differences between being on the corporate side and on the field? 

Communication and change is much slower in the field than in the office. In the office, the team is together every day. They have clearly defined roles and their personal proximity makes alignment easier. In the field it is different. Everyone is the head of their own business, they are all volunteers and they are spread out. Coordinating efforts, vision and activities takes more time and more discussion. Seeing it roll through the organization requires time, repetition, consistency and persistence to get the whole group in the right place.

I was very interested in the power of social media when I was in the office. I saw people outside of our industry with hundreds of thousands of followers and wondered why we couldn’t do the same. The reality is, this takes time and monthly sales targets govern the field. This sets the priorities for them every time. The fastest way to bring someone into the business is through established relationships. Getting leads on Twitter or Facebook is good but not as powerful as in person activity. Your conversion rate is much lower online and maintaining loyalty and interest is a demanding job.  Online activity has great potential and I see its importance but it is a slow burn approach.

What would you recommend to a corporate person thinking of making the same move as you did?

I was always very close with the field in my corporate roles and felt I had strong understanding of their experience as a result. This change is really opening my eyes to what is required to grow the business. I wholeheartedly recommend it. In fact, I would be inclined to make it a necessary part of the journey with some field facing corporate roles to broaden their understanding and deepen their appreciation of the business and our partners. Many companies forbid an employee being a distributor. Now I wonder if that makes any sense at all.

Would you like to add anything before we close?

My first mentor in this business, John Doughty, taught me an important lesson in marketing. He said, “Always communicate to the lowest common denominator. And never underestimate the lowest common denominator.” Seeing how quickly things can dilute in the field or how fast messages can go missing with such a large team has taught me that both field leaders and company leaders will always be better served when we keep things simple, minimize change, and keep the business exciting. I knew that before – but now I really see it!

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Guest Post by Jeff Babener
Vemma:  Preparing for the FTC Ambush

Oh sinnerman, where you gonna run to?
Well I run to the rock, please hide me
But the rock cried out, I can’t hide you
– Nina Simone

Times Have Changed… We Live in a Fish Bowl…

On August 17, 2015, the life of Vemma (and its owners) was completely upended by an FTC lawsuit which challenged the company’s practices as a pyramid scheme. A Temporary Restraining Order resulted in the close of the business, an asset freeze and a receiver in charge. Everything came to a screeching halt. As it turns out, in the court filings, the FTC sought to “hang” Vemma with its own words… a product of a world of instant communications in which everything, we do or say, is on public display.

Was this action avoidable? Probably.

By the tenor of the FTC filings and press release, the FTC seems to have felt provoked, almost to a personal level, trumpeting to the public and the court that this program was promoted less as a direct sales program and more as a recruiting system program:

1. Where recruits were instructed to buy and recruit… running afoul of Koscot/BurnLounge;
2. Where recruits were promised wealth when few, in fact, would make any money;
3. In which a vulnerable class, with precious little money to spend, college students, were targeted.

In the end, the actual facts will determine the winner. However, no matter the outcome of the Vemma litigation, the Vemma filing has changed everything for direct sellers. Direct selling companies should consider it their wake up call to prepare for their turn.

For this discussion, two suggestions for direct sellers: What You Say… What You Do (or Don’t Do)… That May Haunt You… are two key factors to protect against the Vemma scenario and the FTC ambush (ambush is used here, not in its “this is a hold up” context, but rather that such litigation comes as a complete “surprise,” and in a time sequence where the FTC has had a long time to prepare declarations, affidavits and briefs, but the direct selling company, on almost no notice, is caught unprepared to adequately respond. To a certain extent, it is not a fair fight… the direct selling company was not informed nor prepared that its opponent would bring a gun to a fist fight… maybe, it is time to even the odds…).

First the legal standard and then two important tasks to consider…

The Legal Standard… Legitimate MLM vs. Pyramid

The current legal standard for legitimate MLM vs. pyramid was set forth in the BurnLounge appeal case, requiring a fact “driven” analysis of whether a program is product/sales driven or recruitment/purchase driven.

The BurnLounge standard requires emphasis on sales to ultimate users, which includes nonparticipant retail customers and distributor personal use in reasonable amounts. Primary motivation for distributor purchases should be its destination to ultimate users and not to qualify in the plan for compensation.

For an in-depth analysis of the legal environment on the issue of pyramid vs. legitimate direct selling, please read these other articles by this author: BurnLounge Appeal Decision: Guidance on Pyramid vs. Legitimate MLM and the Role of Personal Use in Pyramid Analysis and Vemma vs. FTC: Guidance for the Direct Selling Industry

Your Fate: Two Critical Factors:  What You Say and What You Do (or Don’t Do)

Factor One: What You Say Will Come Back to Haunt You

Times have changed.  We live in a transparent and instant world of Twitter, YouTube, Facebook, Google, Instagram, Snapchat. What is said in company webinars, conference calls, back office messages, tweets, Facebook, conferences and conventions, is recorded on smart phones, captured on computers and uploaded immediately… i.e., it’s all public and the world is invited to listen.

To paraphrase the Field of Dreams, if you say it, they will come… and that includes distributors, recruits, customers… and yes, the FTC.

And the FTC is looking for “low lying fruit” to submit in its lawsuit and application for an injunction.  If you give it to them, they will use it… and it may be too late to play “catch up” and “explain” to the court.

In the Vemma case, the FTC quoted from the company’s own communication to argue that the program was “recruitment/purchase driven” as opposed to “product/sales driven.” It is not possible, without extensive discovery, to know if the FTC was “cherry picking” the evidence, but, it must be remembered that the FTC filing/documentation creates a first and lasting impression for the court.

Said the FTC in its press release:

“…. an alleged pyramid scheme, Vemma Nutrition Company, that lures college students and other young adults with the prospect of getting rich without having a traditional 9-to-5 job.”

“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization,”

From the FTC perspective, Vemma invited regulatory action. It drew on Vemma public presentations to say that the emphasis was not on use or retail, but on purchasing to qualify:

(1)        Distributors were told to give away product.

(2)        There was little evidence of retailing or emphasis on retailing or teaching or training to retail.

(3)        There was up-front emphasis on buying fast-start packs of $500-$600, plus sign up for $150 per month autoship to qualify for commissions, rather than service an actual need.

(4)        The FTC asserted the evidence showed that Vemma targeted vulnerable college age students with promises of fast wealth from working “the system” of buying and recruiting.

(5)        The FTC cited to Vemma’s earnings disclosure, claiming it was inadequate and deceptive to show the entire picture by limiting disclosure to earnings of active distributors rather than disclosing earnings of all individuals who signed up, of which the vast majority had no income.

Lesson Learned in anticipation of the FTC encounter:

Every breath you take, every move you make… I’ll be watching you…
– Sting

Every direct selling company should take this opportunity to carefully vet company and distributor public discussions and presentations to assure that the focus and emphasis is on teaching a program whose purpose is to create a customer base and not a “system” of finding recruits who purchase, who find other recruits who purchase… i.e., rewards for sales to ultimate users rather than recruitment of distributors to buy and recruit.

Factor Two: What You Do (or Don’t Do) Will Come Back to Haunt You

Of course, nothing is new about all the long known practices that should be followed:

1. Avoidance of earnings representations without an adequate earnings disclosure that does not play fast and loose with statistics… particularly, showing percentages of all signups who make or don’t make money in the program.
2. Policies that adopt Amway standards, including stated and enforced retail customer mandates, enforced 70% anti-inventory loading rule, reasonable buy back for terminating distributors

But, post-Vemma, a new imperative task is mandated for direct selling companies to avoid and be prepared to avoid the Vemma scenario. For the most part, few, if any, direct selling companies have committed their resources to tracking the destination of product and to objectively assuring that product is bought in amounts that are reasonably needed rather than amounts to qualify in the plan for commissions. In an FTC ambush, they are caught completely “off guard.”

1. Tracking Product Movement.

Track product to its final destination. The bottom line is that companies should be able to document that product makes its way on to “ultimate users” and is used.  Although this task is a “no brainer” for party plan companies, consumables MLMs have resisted development of systems to track product to assure that it is either purchased in reasonable amounts and consumed for personal use by distributors, or that it is purchased in reasonable amounts and is sold and used by nonparticipant retail customers.  The time for “resistance“ has passed. If Fed Ex, Amazon, UPS and every major online retailer can develop tracking systems, then direct sellers can invest in tracking software and systems to assure that product has met its correct destination and not been “dead-ended” in a closet, basement or merely “given away” as part of a plan to meet volume requirements.

The tracking initiative may be expensive and challenging, but, if Vemma has undertaken such an initiative, it would be in a position to immediately rebut the FTC position that fast-start packages and autoship subscriptions exist merely to inventory load to qualify for commissions.

When must the tracking initiative be done?… Yesterday is not too soon.

2. Create Surveys and Systems to Determine Reasonable Ordering Needs.

Companies that are ambushed by FTC injunction actions have not only missed out on their ability to rebut the accusation that product is not making its way to the ultimate user, but that fast-start kits and autoship orders are merely inventory loading tactics … and that such purchase options are about qualification for commissions rather than servicing the honest needs of distributors. Companies need to take a close look at the needs of novice and experienced distributors to determine what are reasonable needs requirements. This task may entail extensive user studies, focus groups and the creation of objective criteria to determine that the ordering patterns of distributors, new or experienced, is matching to “reasonable needs” and not merely to qualifying in the plan.

Again, few, if any companies, may have undertaken this task. However, when the FTC files and challenges whether or not the pattern of “ordering” represents a “needs based” system or a “qualification driven based” system, a company should be in a position to rebut the inventory loading accusation.

Starter packs and autoship are merely options for ordering. If a company has data to support “reasonable needs,” the accusation that purchasing is made merely to qualify in the program becomes far weaker. And this is the test under BurnLounge, i.e., the primary motivation for ordering.

The time for taking on this task is “yesterday.”

Your Character is Your Fate…
– Heraclitus

In a world with instantaneous communication and where you operate in a glass bubble, what you say and what you do may be pivotal to your survival. In the post-Vemma era, direct selling companies are now apprised of new tasks, heretofore unmet, that may be essential to their future.

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