“Why People Hate Direct Marketing”

This is my first blog about Network Marketing and will be followed by additional articles that I hope will bring facts and perspective to what I believe is a real alternative  to a traditional job. I am not advocating the abandonment of one’s job. Network Marketing is something that someone begins on a part time basis while providing our families with the support that they deserve and expect.  My goal is to bring some facts and credibility to an idea whose time has come.  Do you doubt this statement? I challenge you to read the following very compelling reasons why everyone should consider this business model.

My hope is to bring some clarity to the idea of a Network Marketing business  opportunity to those who are considering getting involved, or who may not be aware of the potential offered by this viable business model. . The idea of Network Marketing is often viewed as a pyramid scheme unworthy of serious consideration, but is this true? It is true that many times these opportunities are presented by un-professional and greedy people who are in it to get rich and who are not concerned about the moral considerations of selling something that does not measure up to its claims (lies and mis-information) a very bad idea, or that may cost more than a similar product purchased at a retail store. Most of us strive to be frugal, especially in this economy, so why should what we pay more  for something offered by an MLM Company that we can get cheaper somewhere else?  Man, do I have some good reasons to do this!!!  ( the later, that is).  We are all very skeptical of anything that seems too good to be true. The old adage that says; “If it is too good to be true, then it probably is!” comes immediately to the minds of thoughtful people. While most of us know that no one give us anything for free, and a regular income from a traditional job is necessary to support our families, then traditional wisdom says we should just pass on this whole idea. Wait a minute!  I think that this view may be very short-sighted.

Here are some very compelling and thought provoking facts  that all of us should consider before we ignore this timely and lucrative phenomenon.   No opportunity comes without risks, and I will talk more about these in the next article., as well as the pitfalls and moral considerations that are essential to one’s success.( I promise ) That being said, remember this;

“One hundred percent of the shots you don’t take, don’t go in.” – Wayne Gretzky

“The men who try to do something and fail are infinitely better than those who try to do nothing and succeed.” – Lloyd Jones

“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.” – Mark Twain

So then, please consider these reasons, compiled by the research of Leonard Clements,  for getting involved with your eyes wide open!

Reason Number One – The Economy.

What’s bad economic news to most people is good news to network marketers. And there’s a lot of good news.

I’ve always had the belief the U.S. economy did influence Network Marketing, but not significantly. I mean, was there ever an economy where people didn’t want more money and free time? B ut when I began to do some digging to support my contrarian position, I soon discovered I was wrong. That one of the strongest growth phases in Network Marketing history occurred between 1990 to ’92 and coincided with the last economic recession should have been a clue. And there was so much more.

When we compare the popularity trends of Network Marketing to unemployment rates, on a semi-decade basis, there are some very exciting revelations.

Although MLM was born in the 1930s – in the midst of The Great Depression – it began in earnest in the 1950s. Network Marketing was far more popular in the second half of the 50’s than the first. Not a single company of consequence launched from 1950 to 1955. However industry giants Shaklee, NeoLife, and Amway all started between 1956 to 1959. The unemployment rate the first half of the decade averaged 4%, and was the second lowest in U.S. history in 1953 at 2.9%. However, it averaged 5.3% the second half of the decade reaching its highest level since the Great Depression in 1958 at 6.8%. Translated into today’s numbers that would mean almost 6 million more people became unemployed between 1953 to ’58.

The first half of the 1960’s all types of direct sales continued to flourish. Mary Kay Cosmetics started in 1963, and Avon, Fuller Brush and Tupperware all achieved momentum. Although the industry continued to grow from ’65 to ’69, it was not nearly at the same pace. The unemployment rate the first half of the decade was significantly higher than the second half when 2.5 million unemployed people went back to work.

Jumping ahead to the 1980’s, Network Marketing was thriving the first half of the 80’s while unemployment continued to rise. In fact, in 1982 unemployment was at its highest level in 40 years at 9.7%. During the second half MLM “slump” unemployment dropped considerably, and by the end of the decade the number of those out of work was almost half of what it was at the beginning of the decade.

The 1990’s saw perhaps the clearest distinction between halves of any decade with more major company launches and more companies going into momentum than any other time in history. There was also more wealth being created by way of MLM from 1990 to 1994 than any other 5-year period. The second half wasn’t exactly the best of times for Network Marketing. If there ever was such a thing as an MLM recession, we had one from 1996 through 1999. Why? The very high unemployment rate from 1990 to ’94 and the sharp drop during the second half of the decade where it hit a 30-year low at 4.2% in 1999.

The only exception to this half-century long pattern is the 1970’s, but that was an exceptional decade.

Remember the last half of the 60’s industry growth slowed as unemployment dropped to a post-war low. During the first half of the 70’s Network Marketing started rocking as unemployment rates jumped. Unfortunately, all that started rocking some boats, and the result was over five times as many MLM related law suits from 1970 to 1974 than all of the 50’s and 60’s combined, and in 1975, there was a federal action, which essentially questioned the legality of Network Marketing itself.

Fortunately, one company, Amway, had the financial ability to defend themselves and the entire multilevel marketing industry. This case lasted until late 1979 when the court ruled in favor of Amway. As a result there was, for the first time, a clear delineation between illegal pyramids and legitimate Network Marketing companies. There was a pretty dark cloud hanging over the industry the last half of the 70’s and there wasn’t a lot of expansion in spite of the even higher unemployment rate.

The last and arguably greatest MLM growth phase began in 1990, the same year the U.S. went into our last economic recession.

1980 to ’84 were boom years for Network Marketing and we experienced recessions in 1980, part of ’81 and most of ’82.

1970 to ’74 were also boom years, and our economy was in recession almost all of 1970, and 1974.

Remember how the last half of the 50’s and into the early 60’s were years of great MLM expansion? We were in recession from ’57 to ’58 and most of 1960.

Now, most recessions last 12 to18 months, but the end of a recession doesn’t mean that’s the end of a slumping economy or high unemployment rates. We’ve had eight recessions in the last 50 years, and during the 12 months immediately after the “end” of the recession the unemployment rate went up! Every time.

Strong evidence. And we’re only on Reason Number One. Let’s talk about an even more powerful justification to believe in a coming Network Marketing explosion.

Reason Number Two – Demographics.
Not only is the pool of eligible prospects increasing at unprecedented levels, but the segment of society most ready, willing and able to pursue MLM is also exploding.

There were about 76 million babies born between 1946 and 1964, which at the time accounted for almost one-third of the entire U.S. population. Since then, it has been glaringly obvious exactly where this giant bubble in the population is at any moment in time by simply looking at what products are most popular. And when in comes to charting the market size for what most Network Marketing companies offer, we’re not even half way up the curve yet! The market for products that will make us look and feel younger is going to continue to expand most dramatically over the next 5 to 10 years as the boomers reach their 50s and 60s.

But this baby boom is exciting for another completely different reason. Virtually all Network Marketing companies require distributors to be at least 18 years old. Well, guess what happened about 25 years after the baby boom? Those 76 million boomers had about 75 million babies. And about 41 million of them will turn 18 over the next 7 years. At no other time in history, other than the original baby boom itself, have this many people been added to the body of eligible MLM prospects in this short a period of time.

Of course, the people eligible to join are not as important as the number who actually are joining.

The Direct Selling Association (DSA) conducts an Annual Survey of salespeople in the industry. (Keep in mind two-thirds of these direct sellers are Network Marketers.) According to their analysis, there was a net gain of 400,000 direct sellers from 1997 to 98. A 600,000 net gain from ’98 to ’99, and a 700,000 distributor gain from ’99 to 2000. Not only is the number of people increasing, but the increase in the increase is increasing!

If we do nothing more to extend this current figure forward for another 10 years, we end up with 4.7 million additional network marketers.

To put that in perspective: It took MLM over 50 years to grow to 7.5 million, and we’re conservatively projecting adding another 4.7 million in just the next 10 years! (By the way, that means the average networking organization will be 37% larger!)

And as far as demographic reasons for believing in an upcoming MLM boom, we haven’t even discussed the very best one!

According to Gallup Polls, the average age of all Americans when they first decide to invest in a residual income-producing vehicle, such as stocks, bonds, real estate, or perhaps in a business venture, is 42. The average age when we invest the most into such devices is 47. If we were to graph the number of 42 to 47 year olds in the U.S. we’d find that starting about 1988 the line begins to point upward at almost a 45º angle as the boomers started turning 42 – and that line continues to rise at a level never before seen in history all the way to the year 2009.

We are barely past the halfway point of that dramatic upward curve!

Does this really benefit us as network marketers? Are 40-somethings more open to MLM opportunities?

Well, the average American is 36 years old. According to a MarketWave survey of over 6,000 network marketers from 1990 to 2000, the average network marketer is 38.6, and that number has consistently risen over the years. An exceptional number of those over 40 do participate in Network Marketing, and this segment of the population which is most ready, willing and able to invest in a residual income business venture is going to continue to increase dramatically for another seven years!

Reason Number Three – Wall Street.
Securities investors look for companies and industries that are about to rise up fast, and thousands of analysts are looking closely at Network Marketing right now.

Professional investors are a pretty savvy group of people. Based on their due diligence they eventually invest their funds in companies whose growth (and profits) they expect to go up. So, what do they see when they turn their magnifying glass on Network Marketing companies?

There are over 20 publicly traded Network Marketing companies, but the bottom third are so small I’ll focus on the top 12 well established companies. If you were to chart their stock price over the last 5 years, starting with December 1996, in almost every case you’d see a line that looks a lot like the path of an airplane – coming in for a landing. With few exceptions, MLM company stock values flattened at their all time lows and stayed there for about two to three years. Clearly, Wall Street wasn’t impressed with Network Marketing’s growth potential the last half of the 90’s.

What do they see now?

Well, the benchmark S&P 500 reached its peak in September of 2000, but by mid-December 2001, it was down by 23%. Over the exact same period our index of the top 12 Network Marketing companies was up by 8.2%! And all of a sudden, in the last 12 months, these Network Marketing companies are outperforming the overall stock market by over thirty percent…. That level of performance really gets investors attention!

Number Four – Supply and Demand.
The greatest inhibitor of MLM growth the last few years, has been a huge supply-side glut of networking opportunities. That’s already changing.

Anyone who got even a C in Economics 101 could tell you about Supply and Demand: An industry booms when demand dramatically increases. When there is a tremendous increase in supply, it results in a down-turn. And sure enough, during the massive proliferation of MLM companies the last half of the 90’s, we had a deep industry slump.

Based on a survey of MLM company software suppliers over 4,900 MLM companies opened from 1994 to 1997, and there is anecdotal evidence to show that there were about 3,600 start ups in 1998 and 1999 alone. What’s even more troubling is that perhaps half of all MLM start-ups don’t go to the major software houses, but rather hire in-house programmers. Therefore, it’s possible that the actual number of start-ups could have been double these figures.

As many as 13,000 Network Marketing companies may have launched from 1994 through 1999. There were at very least 8,000- but we only had a net gain of about 600 companies, from 900 to 1,500. Have you ever heard the claim that 95% of all MLM companies fail in their first two years? I thought that was just a scare tactic spread by older companies, but these surveys say that’s true!

Now, during this same time period the number of network marketers in the U.S. increased from only about 5 million to 7.5 million. That means the number of distributors went up about 50%, but the number of companies increased by three times that much!

If you do the math, you’ll learn this means the average networking downline shrunk by 40%. There is no question that the supply of MLM opportunities far exceeded demand the last half of the 90’s.

So, what’s the good news?

Well, some very encouraging things began to happen in the year 2000.

It’s very clear that the number of start up companies has declined significantly since the beginning of 2000. This, along with the increasing number of company mergers and acquisitions, will only make the industry stronger. As more and more companies entered the market the available distributor base was spread thinner and thinner. The result was smaller downline organizations, higher attrition, and generally far fewer success stories. But think about it: if there were just as many distributors, but half as many companies, the average downline would be twice as big- yes?

I’m not suggesting the number of companies will contract to half, but any reduction in supply will certainly help increase demand, which will then expand the number of those men and women getting into profit and reaching their income goals. The more success stories we have, the more motivation and less resistance we have to building our organizations even larger- and the cycle continues upward, rather than down or flat as it has in the past.

Reason Number Five – New Blood.
Our entire industry is about to go into momentum for the same reason individual MLM companies enter momentum- a massive influx of folks who’ve never been in Network Marketing before.

Almost every Network Marketing company today would like to think they are about to go into momentum. Momentum, as it applies to Network Marketing, is the stage in a company’s growth cycle where sales volume begins to increase geometrically and the company doubles, triples, and perhaps even quadruples in size in a very short period of time. Most momentum phases last about 6 to 24 months.

Much like buying a stock right before it goes up in price, most networkers want to attach themselves to a company right before it explodes. Thus, practically every distributor will try to make a case that their company is “about to go into momentum.” How do they know?

They don’t. No one knows exactly when the momentum phase will kick in, but much like stock picking, we can look for clues- historical trends and patterns to help us make better guesses.

An analysis of all the successful major Network Marketing companies shows that every momentum phase in MLM corporate history was facilitated by massive numbers of people moving into the opportunity – either as reps or customers – who have never been involved in Network Marketing before. Momentum is never the result of people moving from one company to another. Momentum is ONLY caused by a massive injection of new blood.

Where is this new blood going to come from?

There are a little more than 7 million people participating in Network Marketing in the United States. That means there are about 270 million who are not involved! And that also means that there are literally tens of thousands of success stories just waiting to be written.

So, how are we going to expose those massive numbers of people to our products and opportunities that we’ve never been able to reach in the past? (How many you saw this coming…?)

The Internet.

You may be thinking, yeah, yeah… but the Internet’s been around for years. Well, the Internet may have been around in 1990, but it didn’t come into it’s own until after 1995. By 1998 the number of people on the Net had almost tripled. Today over 60% of adults are on-line and many predict that virtually all Americans will be using the Internet in some capacity by the year 2010.

And it wasn’t until around 1997 or so that the Network Marketing industry really began to use – or a better term might be “abuse” – the Internet. There are exceptions, but for the most part MLMers got a little over zealous with this amazing new technology. Rather that use the Net to help us build our downlines and sell our products, it was used in a magical-mystical attempt to have it build our networks for us. The result was big recruiting numbers, but very little sales volume and overwhelming attrition…

The Internet was also abused in other ways.

Like so many other dot.coms there were a lot of failures. Some were ugly. There were numerous legal abuses resulting in several well-publicized closures. The Network Marketing industry painfully cut its Internet teeth from about 1997 to early 2000. And now, as the smoke clears, what is beginning to emerge are the remaining responsible, visionary companies that knew all along the awesome power of the Internet was not in having it do all the work for us, but rather having it help us present our products and opportunities faster, less expensively, and to far, far greater numbers of people. New people, who’ve never been exposed to Network Marketing before.

The Internet is a sales, training and prospecting tool with unimaginable potential. And it’s an industry that itself looks to expand by 100 million users domestically over the next 10 years. As this happens, Network Marketing will soon go into momentum the same way everyone of it’s post-momentum companies did- by a mountainous wave of new blood.

They say a rising tide raises all boats, and this Internet tidal wave could even cause an unprecedented event in Network Marketing history – the “secondary momentum phase,” where large, post-momentum companies actually achieve momentum again!

But the Internet isn’t the only reason I believe we’re on the verge of massive “outer circle” recognition. Another fact that’s hugely compelling is…

Reason Number Six – Positive Media Exposure.
If the mainstream media were to find a way to make money from this industry (that typically doesn’t advertise) they’d have a much greater incentive to promote the positive side- yes? They’ve found a way.

Radio, television, magazines and newspapers all exist primarily on advertising dollars. But Network Marketing is an industry that doesn’t advertise in the mainstream media. After all, we’re the “word of mouth” business. Not only has the media had no financial incentive to promote MLM, it actually has a financial incentive not to…

Well, that too is changing. The mainstream media is just now discovering how to cash in on Network Marketing.

The first big step in this direction was back in 1994 when Success magazine published a front cover focusing on Network Marketing and a lengthy and extremely positive feature article about our industry and its people. Sure, the companies that knew they were going to be mentioned ran big ads, but that’s not where Success made the most money. The people of this credibility starved industry sold out the entire run of that issue and Success magazine broke their all time single issue sales record by almost double! The result was a lot more positive portrayals of Network Marketing companies in future issues. But even this isn’t where the greatest promise lies in terms of positive media exposure.

Let’s say, instead of paying for an advertisement, a network marketer worked out an arrangement where he sponsored the publication itself, got the ad for free and the resulting sales volume and downline commissions that were generated from the ad went to the magazine? They could potentially make far more income from overrides than from ad fees, even long after the ads stop running. It’s more than just a win-win scenario- we get the positive press and the media gets even more money than if they charged us for the ads. But would this work?

It already is. Slowly, quietly, such a movement is taking place. I know for a fact that there are currently over 100 radio stations in the U.S. attempting this, and some are succeeding, big time. Yet, virtually the entire Network Marketing industry is oblivious to the fact this is even happening. It’s simply a matter of time until the media grapevine picks up on this phenomenal ad revenue resource.

And let’s not overlook the public image boost we’re getting from the various athletes, celebrities, political figures and medical authorities Network Marketing is attracting like never before. And not all are paid endorsers. Many of them have careers that are based on their reputation and positive image and they’ve openly and willingly attached their good names to Network Marketing. We’ve also got well-respected mainstream authors and keynote speakers such as Richard Poe, Paul Zane Pilzer, Mark Victor Hansen, Brian Tracy and Robert Kiyosaki, extolling the virtues of Network Marketing. This kind of powerful, third party validation has never happened before. It’s just starting, and it’s growing fast!

And finally, in the recessionary wake of the dot com disasters with high-techs at all time lows and the fears of finding yet another Enron- or three or four-do you think the media can continue to ignore all those corporate and individual Network Marketing success stories? They can’t. And they aren’t!

Number Seven – Federal Regulation.
I know it sounds scary, but it’s not. In fact, more and better laws will be the #1 legitimizing catalyst to the MLM explosion.

Earlier I showed you that in the first half of every decade MLM outperformed the second half- and that’s been the case for the last 40 years. But there were more than just economic reasons for this. The regulatory climate has also effected the performance of the industry. The most obvious example being the previously mentioned federal actions back in the 70’s.Legal attacks by state or federal authorities on high profile Network Marketing companies do occur from time to time. Curiously, they seem to peak in pre-election years (but that could just be a coincidence:-). Most of those larger companies, by the way, not only survived the attack, but also are considered today models of legality whose policies and enforcement systems are emulated by younger companies.

Yes, there have been many situations where pyramid schemes have been shut down, and typically the action is described as “the Network Marketing company was shut down because it was an illegal pyramid scheme.”

It drives me nuts when I hear someone make a statement like that. It’s like saying, “A really honest man was exposed as a liar.” Well, then he wasn’t an honest man was he? Either you’re an illegal pyramid scheme, or you’re a Network Marketing company. You can’t be both.

I want to make this very clear before we go any further: Illegal pyramid schemes often try to disguise themselves as Network Marketing companies, because they want to appear legal. Unfortunately, when the press reports on illegal pyramid schemes, we all suffer guilt by association. And that does have an effect on our ability to retain good people and acquire new ones, at least temporarily.

The good news is that the last few years we’ve seen really no significant legal attacks on Network Marketing companies, and several closures of illegal schemes. Not only does this make the industry stronger due to a smaller, higher quality pool of legal opportunities, but it also increase our ability to build businesses because we don’t have the negative public stigmas creating greater resistance toward the industry and its opportunities. It also demonstrates a greater ability among regulators to delineate between pyramids and legitimate MLM programs. This is especially encouraging and comforting to those networkers who’ve built substantial incomes in “high profile” opportunities, or those who intend to.

Once again, I’ve saved the best news for last.

There is active, professional lobbying going on right now by the Direct Selling Association (the DSA) and others, to enact legislation that will create federal regulation of Network Marketing. As it is now, operating a Network Marketing company in the United States is kind of like trying to do business in 50 different countries. Each state has it’s own set of laws pertaining to business opportunities, some specifically about MLM, and all have statutes pertaining to pyramid schemes. Although, for the most part, each state’s definition of an illegal pyramid is consistent with the other 49, the interpretation and implementation of those laws has been somewhat haphazard and arbitrary over the years. It’s true that there was a significant legal precedent created by the federal court’s decision in the Amway case in 1979, but still, enforcement actions have been inconsistent not only between state and federal precedent, but from state to state, and sometimes even from case to case within the same state.

Many of these cases involve judicial opinions as to whether distributor’s personally consumed products by should be recognized as legally commissionable sales. This the focus of the federal legislation currently being proposed and several states, including Texas and California, have already recognized such volume as bona fide.

Not only will unified federal regulation create a clear, consistent path for all Network Marketing companies and state regulators, to follow, but also, much like the federal regulation of franchising back in the 60’s, it will eventually require true and full disclosure. If this does come to pass, and many believe it will, it would absolutely be a good thing- very good. Not only will it tremendously strengthen the industry by weeding out the bad apples; it will cause the massive turnover rate among start up companies to drop to a fraction of the current level. They won’t start up in the first place. And the ones that do launch will have to be serious players with solid backing. So not only will more distributors be involved in fewer companies, but those businesses will be only the highest quality opportunities. Federal regulation will also greatly increase the respect and credibility of our industry. This will create a tremendous boost to all established U.S. based MLM companies.

There are some people who are still apprehensive about the prospect of federal regulation. They fear regulators may throw their entrepreneurial baby out with the legal bath-water. Not a chance. Not only are there over 1,500 Network Marketing companies in this country, employing tens of thousands of tax payers, and generating literally billions in sales and corporate tax revenue, there are about 5 million MLMers who are also registered voters. That may not be a big percentage, but as the 2000 presidential election clearly demonstrated, it’s enough to make a huge difference in who has the political power in this country. I’ve heard the argument made that back in 1963, congress came within 11 votes of outlawing franchising. Not only didn’t they, but the post regulatory era of franchising created an industry that now moves over one-third of all the goods and services in this country! Federal regulation was the catalyst to the biggest boom in entrepreneurial history.

Not only do I not fear the concept of federal regulation, I find the vision of this new era of Network Marketing to be absolutely exhilarating!

Last, and certainly not least;

Reason Number Eight – the current, positive and powerful Growth Trends of the Network Marketing Industry itself.

Since the top twelve publicly traded MLM companies provide the most reliable information, and they make up the majority of the largest, most well established companies, I’m again directing my analysis towards them. (Although an informal survey of un-audited data provided by private MLM companies reinforced these results.)

From 1990 to 1995 annual industry sales growth averaged about 16%, and some years was as high as 30%. However, if we track the growth of these public companies – based on U.S. revenue only – the average annual sales growth from 1996 to 2000 was 8.7%, with a low of just over 6% from 1999 to 2000. And the entire direct selling industry’s growth rate dropped to a 10-year low of 4.5% around this same time.

Based on this information it would seem that industry growth was about to come to a grinding halt – yes?

But instead, the growth rate of these companies from 2000 to 2001 was 14.6 percent – more than double the previous year’s rate!

Without question, the slowing trend has reversed. This is by far the strongest signal of impending momentum, when there is not only an increase in growth, but the rate of growth is also accelerating dramatically.

Now, one year of doubling growth rates certainly does not guarantee a boom, however, one thing is certain – every company momentum phase throughout MLM history began with that first exciting period of doubling growth rates. What do you think the chances are the same phenomenon holds true for the entire industry, as well…?

There you have it folks. Not one…. Not two…. But eight solid, powerful, verifiable reasons for finally believing in an upcoming Network Marketing explosion. No one knows exactly when it will happen; it could be next month…. It could be next year…. It could be anytime in the first half of this decade, before 2005.

All I know for sure is, if you get involved now, and stay involved, you will be there when it happens. Gold was at $43 an ounce , but is now at $1312.80 .  So hop on, strap yourself in, and get ready for the ride of your life. It’s gonna’ be a blast!

Seraphim

 

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