Is it better to raid in secret or raid in plain sight?

Epic Era_MLM_Pre-Launch Founding Leaders

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The purpose of this article is to explore the current “deal making” culture in the MLM industry. Quite frankly, it’s getting pretty stupid.

Raiding in Secret

Another word for “raiding” is “stealing.” But I’m not taking it that far. “Raiding” typically occurs when a leader strikes a special deal with a new company, violates his contract with his or her existing company, solicits the downline for the next new thing, conveniently fails to disclose the existence of the special deal, generates a decent commission for a year or two, possibly gets sued, seeks out another deal, wash, rinse, repeat. This is what I call “raiding in secret.” It’s a dirty / uncomfortable secret we deal with in the industry. It’s one that rarely gets discussed outside of the inner-circle because both parties instinctively know that it’s wrong. In the scenario of the private deal, there exists an understanding between the company and the recipient that there’s going to be a contract violation somewhere between the networker and their existing (or previous) MLM. This contract violation can even be factored into the contract negotiations i.e. “if you get sued, we’ll cover the legal fees.” I have always known about this side of the industry. There are companies out there like to cut deals and then turn around and sue their own distributors when they leave for other deals. It’s naive for me to think that these sorts of deals will end. After all, there is the occasional special deal that’s legitimate i.e. the networker waits for his or her old contract provisions to expire, starts from scratch and leverages his or her skill to build a large downline FAST. But…that’s rare.

I’ve written about this process in the past in two separate articles. The first is titled Master Distributors: good or bad? In the article, I talk in general about these deals and discuss the importance of disclosing the existence of these deals. In the second article, titled Revised FTC Endorsement Guidelines: Part 1 (Master Distributors),” I talk about the new disclosure requirements published by the FTC when it comes to these sorts of deals. Bottom line: disclosure is key.

Raiding in Plain Sight

Epic has recently announced, very publicly, that they’ve got $100,000,000 available for “experienced networkers.” The payment terms are published in a separate PDF, found below. Basically, if leaders can keep up with various performance metrics, they can earn additional income. While it caps out at $20,000 per month, Epic leaves room for some negotiation:

Are these still not big enough for your dreams and what you know you are capable of? Contact us for details on Epic Performance Programs beyond our $20,000 program.

How is this raiding in plain sight?

Watch the video above, titled Epic Puts $100,000,000 on the table for deals. In my opinion, there’s more to this than “paying for performance.” When you offer networkers $20,000+ per month in addition to commissions in exchange for 120,000 group volume points in six months….you know it’s quite likely (I’m putting it mildly) that the networker is transitioning distributors from another downline. And when that happens, it’s likely the distributor has some contractual restrictions for that kind of activity i.e. non-solicitation, non-compete, etc. There’s a better way to go about building a business. Plus, this sort of activity will invite mass litigation from the industry in general as leaders start migrating towards Epic (if that ever occurs). The claim will likely be “tortious interference,” which occurs when one company encourages people under contract with another company to violate the agreement.

Is this good for the industry?

In my opinion, it’s not. Companies invest years (sometimes decades), thousands of hours and millions of dollars building up their brands and goodwill with its leaders. If all of that effort can be taken by way of a confidential agreement with one of its top leaders, it’s bad for our profession. And what about the distributors in the downline? They’re the people that trust the leader to make good decisions. If they’re not in the know on the special deal, they’re really not in a good position to make an informed decision. They get lost in the shuffle. They get used. Is it in their best interest to uproot their organizations and follow the leader? In most cases, the answer is no.

Disclosure: I’m a conservative, free-market man. I believe in the power of the markets. However, in order for markets to work, information needs to be freely exchanged. In the case of these special deals, the public is never made aware of the deals; hence, the public / distributors are at a significant disadvantage. The market is manipulated.

Conclusion

There are no shortcuts to success. When I competed in the decathlon in college, I was met each year with one or two athletes that talked big. They were motivated for a month, bragging about their inevitable success. Within months, they quit. Success is a grind over time. It’s a long, arduous process. Through week after week, year after year of work, the power of compounding takes over. When I see a company trying to skirt around the work, I just shake my head… If you’re not willing to grind it out, you’re not developing the muscles necessary to win. Cutting these sorts of deals to take advantage of the investments made by other companies…it’s dishonorable.

What do you think? We’ve never had a company publish these sorts of deals before. Is it good or the industry? Bad?

+Kevin Thompson

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5 Reasons Why More Disclosure Is A Bad Idea

To misquote Billy Shakespeare: “To disclose or not to disclose, that is the question.” Troy recently received an email from someone expressing concern about the practice of companies “buying leaders.” I’ve written in the past about the practice of companies offering special sweeteners for top performers. In the video below, Troy says the lack of transparency creates “an integrity issue” and cites a book on Integrity by Henry Cloud. Troy says when there’s a lack of information, the “integrity of the whole” is questioned, which threatens to undermine the reputation of the industry we all fight hard to protect.

Under the video, I list 5 reasons why Troy is wrong and why more disclosure IS A TERRIBLE IDEA!

(be prepared for sarcasm)

5 reasons why more disclosure IS A TERRIBLE IDEA!

1. It gives prospects an extra factor to consider when making a decision

When you need people to buy into the character of the leader before joining, opening the door for questions on motive is a non-starter.

2. Prospects will reach crazy conclusions

If there’s a “special deal” that’s available only to certain people on stage, prospects might say, “He’s not here for the product, he’s here for the money!” Prospects should never engage in this line of thought.

3. It casts a cloud

When the leader is talking about the amazing properties of product X, prospects might naturally be distracted with the fact of the “special deal” they’re never going to get.

4. It’s nobody’s business!

Leaders drive the numbers, build the communities and should be allowed to enjoy the fruits of their labor. So for all the whiners that want more transparency, go build a bigger business and negotiate your own deal!

5. It’s the law

And laws are boring.

SOLUTION

Take the “special” out of “special deal.” Instead, publish a unique reward whereby ANYONE can qualify if they hit certain metrics within a certain timeframe. As an example, create a bonus whereby someone that climbs the charts fast i.e. Diamond in two months, give them a continuing reward i.e. pay them an extra 2% on the gross revenue they generate. Make these rewards public. And since they’re available for everyone, and they’re fully disclosed, they’re no longer “special.” Once the company is seeded with enough talent, they can shut off the reward and honor the terms with their top leaders.

The word “Transparency” should be more than a buzzword designed to foster trust. Instead, it should be part of a broad commitment to excellence and integrity. When there’s trust in the marketplace, it creates synergy that benefits everyone. When there’s a flavor of distrust, the “integrity of the whole” is compromised, which affects everyone. Until we realize that we’re all playing in the same sandbox, we’ll never be in a position to improve the state of the industry.

$50 million is burning a hole in a company’s pocket…

…and if you have a large network, those dollars might trickle your way. I received information from a credible source that one of the larger companies in the MLM space is looking to go back on offense and spend $50 million this year to help recruit top distributors. Given this company’s losses in 2010, they’re looking to go big in 2011 and buy some talent as they’ve done in the past. When recruiting top distributors, it gets tricky. First, as I’ve written in the past about master distributors, it’s perfectly fine to negotiate deals with top-talent. However, there’s usually a few land mines that need to be considered before a company writes checks.

First, top distributors are usually saddled with either non-compete or non-solicitation provisions from their prior companies. The non-solicitation clauses typically restrain distributors from contacting non-personals in their downline for a period of two years following their resignation or termination from the business. If a distributor is being recruited because of their large network, it’s very likely that their current company has them committed to a non-solicitation clause. If this is the case, the recruiting company can be accused of “tortiously interfering” with the contractual relationships between the company and it’s distributors by encouraging the distributors to break the contract and solicit. We saw this kind of lawsuit between Amway and MonaVie, which has recently been settled and MonaVie and XOWii (click the link to review lawsuit, start on page 9). When a company decides to get aggressive and cut some deals, it boils down to a simple truth: it’s a matter of calculated risk. If they poach an organization, earn over $10 million from the downline and pay only $5 million in litigation fees, they win. If the numbers are opposite, they lose. As the saying goes, “Nothing ventured, nothing gained.”

There’s another issue that needs attention from companies looking to cut some deals. The FTC recently published it’s revised marketing and testimonial guidelines. In a section titled “Disclosure of Material Connections,” it states:

When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed. . . .”

With that particular provision in mind, companies seeking to negotiate confidential deals should at least consider disclosing these deals to the public lest they find themselves on the wrong side of a lawsuit by either a class of distributors or the Federal Trade Commission. It has yet to happen; however, the revised FTC guidelines are only two years old.

What do you think? Does the benefit of recruiting large organizations outweigh the costs of litigation and potential FTC investigations?

Master Distributors: good or bad?

Master distributors: good or bad?

I was reading on Art Jonak’s facebook group, Network Marketing Revolution and a post got me thinking on this subject.

The Good

In this industry, a lot of startups try to seed their businesses with people known as “master distributors.” These are the professional networkers that command a large following and can deliver anywhere between 500 to 30,000 people depending on their scope of influence. These master distributors offer a lot of value because they help young companies capitalize their businesses with excitement, momentum and, more importantly, people. While Company Z might have the best product in the world, they’ll fade into obscurity if they’re never able to attract a committed group of people.

Show me the money

Master distributors are provided a financial incentive to join a business via some sort of special bonus, which is always in addition to their payout via the compensation plan. These bonuses vary but they’re usually a small percentage of the gross revenue from the downline i.e. 1% of gross revenue, 2% of gross revenue, payout from a special position, etc.

The Bad

The master distributor subject is also very controversial. Some companies are choosing to stay away from these arrangements because they’re afraid that when they hire “mercenaries” (a term used by a client, not me), the leaders would be more loyal to the money instead of the company. Master distributors also have the reputation of being “opportunity jumpers” where they stick with a company for a couple of years, recruit a brand new base of followers, and transition them over to the next company. This one particular client of mine had an interesting perspective. He said, “I want to grow an organic base of people that are loyal to our brand. If we start paying distributors to come over, they’re coming for the wrong reasons.” Interesting take and I respect it.

Solution

In my view, there’s nothing wrong with master distributors leveraging their talent for a fee. In fact, I’ve done this type of agreement for multiple clients. If the master distributor commands an audience, it’s clearly worth something for a fledgling business. The problem arises when these “special deals” go undisclosed. As a mentor once said, “If you do something, assume it’ll be written in the sky.” There’s no secrets in this industry and when there’s a special deal, usually people catch wind of it. We’re not in the 80s anymore.

Disclosure is important because when the master distributor is promoting the viability of the opportunity, the prospective members are not eligible for the same opportunity; thus, it might be perceived as misleading. Recently, the FTC has required that paid endorsers disclose the fact that they’re paid by their sponsors. As an example, Michael Jordan says, “Gatorade is awesome!” If he was paid by Gatorade, he would now be required to disclose his affiliation with Gatorade. The rationale is simple: consumers should know that the testimonial might have been influenced by money. The same rule should apply with master distributor arrangements.

Free advice


Am I suggesting that the master distributor disclose this each time they present the plan? “Oh, and by the way, I make a lot more money per recruit than you ever will.” Nope, that won’t work. I would suggest that the company provide a page on their website that discloses which distributors are being compensated in addition to the traditional pay plan. The details are not necessary, just the basic fact that there’s a deal. Therefore, it can never be said that a company was withholding material information from the public that would have been influential in their judgment. Just a thought. What do you think?