Network Marketing in 2016 Back to Basics
Kevin Thompson, the MLM Attorney has published an other awesome article about Network Marketing:
When Paul O’Neil delivered his first speech as CEO at Alcoa (the aluminum manufacturing giant), he shocked the audience of shareholders when he disclosed his top priority for his tenure as CEO.
Instead of doing the usual dance where the CEO talks about increasing sales, increasing margins and driving down costs, he talked about something that seemed completely unrelated to revenue.
His top priority: worker safety.
Worker safety!? The shareholders were appalled. After all, what does safety have to do with share value on the New York Stock Exchange? Countless shareholders immediately dumped their shares, thinking that Alcoa hired an out-of-touch powder puff CEO…someone who lacked the guts to make tough decisions and focus on the bottom line.
The result? During O’Neill’s tenure as CEO at Alcoa, shares more than tripled in value. O’Neill explained his logic when he said, “I knew I had to transform Alcoa. But you can’t order people to change. So I decided I was going to start by focusing on one thing. If I could start disrupting the habits around one thing, it would spread throughout the entire company.”
Worker morale was certainly higher; fewer injuries resulted in fewer workers’ compensation claims; it led to a focus on the machines from a safety perspective, which actually led to dramatic improvements in overall efficiencies, which led to a decrease in costs; it tightened communication channels between management and the labor force, leading to an increase in decision speed, leading to further improvements in equipment. The one seemingly unrelated thing (safety) created a butterfly effect that led to countless improvements within the company.
In network marketing in 2016, I see a similar opportunity to re-vector the industry’s focus towards one simple element. This element is commonly known throughout all circles in the industry, yet it’s the one most starving for attention. And just like with safety, this element is seemingly unrelated to revenue. It’s oftentimes referred to as the “brakes” of the car. What is this mysterious element? It’s simple.
COMPLIANCE
Compliance leads to more distributor education; better behaviors in the field; fewer consumer complaints; higher trust in the marketplace; more enrollments; better retention; it forces companies to focus on product innovation; sustainable growth; attraction of the right kinds of distributors, etc.
Why is compliance so important in 2016? The industry is maturing and we’ve reached a point where some adult-supervision is required. Between 2006 and 2013, the Federal Trade Commission shut down only 1 network marketing company. If you’re bad at math, allow me to elaborate: That’s 1 company in 7 years!
While the lack of enforcement seems appealing for some people, it actually led to a “no holds barred” environment where companies were pushing the legal limits to gain an edge. Executives started to factor in their odds of “getting caught” and excessively focused on distributor recruitment over actual product value. Instead of growing businesses by merchandising product, many executives and distributors alike heavily abused the financial opportunity in an effort to recruit new distributors. Instead of companies growing via product with legitimate market demand, they were growing due to exaggerated income claims and promises of easy riches. This “habit” leads to what I call “opportunity driven demand” where people buy products primarily to qualify for commissions. It’s a toxic habit that slowly snowballs into countless long-term problems: poor retention, consumer complaints are higher, growth can be unsustainable, operations lag behind, compliance turns a blind eye to the successful recruiters that might be bending the rules, product innovation is de-emphasized. The list goes on and on.
Candidly, the current condition is a situation I predicted several years ago. When there’s a lack of respect for standards, ethics erode in pursuit of growth.
BACK TO BASICS
“The arc of the moral universe is long, but it bends towards justice.” These were wise words by Martin Luther King. Here we are in 2016 and the arc of the network marketing industry is slowly bending back towards transparency. There’s currently a healthy amount of respect (and fear) of the FTC. In my opinion, this will lead to some much-needed positive developments. These are some areas likely to improve in 2016:
- Companies will re-visit their pay plans to ensure they incentivize a healthy balance between product sales and recruitment;
- Companies will become more active in compliance enforcement, which will help create a level playing field for all distributors;
- Companies will become more proactive in creating educational content i.e. compliance newsletters, video training, etc;
- Companies will take hard looks at their products and invest more resources to create value;
- Distributors, knowing their company is holding a firm line, will feel less pressure to exaggerate earnings to gain an edge;
In order to take the industry to a more stable environment, it needs to evolve. And in order for it to evolve effectively, the shortcomings need to be studied and acknowledged. I believe this is happening, which is why I’m optimistic for the industry’s future.
When Paul O’Neill named safety as his top priority, it served as the catalyst for some serious improvements. The network marketing industry has a similar opportunity for dramatic improvements. If we can rally around compliance and demand more out of companies, the benefits will be immeasurable. I’m optimistic that we’ll see progress on this front in 2016.
Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.