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by on May 2, 2013 9 Comments

BREAKING NEWS: FTC’s Case Against Fortune Hi Tech Removed to Kentucky

FTC - FHTM case transferred to Kentucky | MLM AttorneyIn February of 2013, the FTC filed a lawsuit against Fortune Hi Tech Marketing. The lawsuit was filed in Federal Court in Chicago. The FTC is alleging that FHTM operates as a pyramid scheme. As mentioned in my last article, the FTC passed on the scalpel and picked up the sledgehammer. Basically, they departed from their traditional, math-based pyramid scheme arguments and went for a more generic approach. This new strategy is even worse than the other one. If it sticks, it represents a significant threat to the industry. Based on the FTC’s argument, rewards triggered via distributor consumption are illegal recruitment bonuses. This is a very important case.

Time for the Update

FHTM filed a motion to get the case transferred to federal court in Kentucky. Kentucky is the home state for the company and most of the principals. The judge in Chicago punted the file to Kentucky. The factors considered when deciding on such a transfer include:

(1) site of material events relative to the case;
(2) relative ease of access to sources of proof;
(3) convenience of the parties litigating;
(4) convenience for the witnesses.

This is big for two reasons. First, the judge in Chicago thought so little of the case that he sent it south. If he wanted it, he could’ve kept it. Second, the law in Kentucky is clearer with respect to pyramid schemes. It states:

Pyramid distribution plan” means any plan, program, device, scheme, or other process by which a participant gives consideration for the opportunity to receive compensation or things of value in return for inducing other persons to become participants in the program;
(5) “Compensation” means payment of any money, thing of value, or financial benefit conferred in return for inducing others to become participants in the pyramid distribution plan. Compensation does not include payment based on sales of goods or services by the person or by other participants in the plan to anyone, including a participant in the plan, who is purchasing the goods or services for actual use or consumption…..

Again, the FTC was initially arguing that commissions triggered via internal consumption are illegal bonuses. But the statute in Kentucky says the exact opposite. This case is FAR from over. There’s likely going to be a hearing next week in Kentucky regarding the injunction over Fortune Hi Tech. If FHTM wins, they’re back in business. The judge’s reasoning for sending the case to Kentucky is included below.

If you’re reading this via email, please click this link to read the judge’s opinion.

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by on January 28, 2013 10 Comments

After Six Year Slumber, FTC Wakes Up Big And Goes After Fortune Hi Tech

BREAKING NEWS:

The FTC has sued Fortune Hi Tech marketing, alleging them to be a pyramid scheme.  As of today, an injunction has been issued.  Read below for the FTC’s press release.  Also, a copy of the complaint is provided below.

FHTM Promoted Itself as a Path to Financial Independence, But Most People Made Little or No Money

At the request of the Federal Trade Commission and the states of Illinois, Kentucky, and North Carolina, a federal court has halted an allegedly illegal pyramid scheme pending trial.  The FTC and the state attorneys general seek to stop the allegedly illegal practices of the Fortune Hi-Tech Marketing (FHTM) operation, which claimed consumers would make substantial income by joining the scheme.  The operation affected more than 100,000 consumers throughout the United States, including Puerto Rico, and Canada.  In some areas, including Chicago, the scheme targeted Spanish-speaking consumers.

“Pyramid schemes are more like icebergs,” said C. Steven Baker, Director of the FTC’s Midwest Region.  “At any point most people must and will be underwater financially.  These defendants were promising people that if they worked hard they could make lots of money.  But it was a rigged game, and the vast majority of people lost money.”

According to the complaint filed by the FTC and the state attorneys general, the defendants falsely claimed consumers would earn significant income for selling the products and services of companies such as Dish Network, Frontpoint Home Security, and various cell phone providers, and for selling FHTM’s line of health and beauty products.  Despite FHTM’s claims, nearly all consumers who signed up with the scheme lost more money than they ever made.  To the extent that consumers could make any income, however, it was mainly for recruiting other consumers, and FHTM’s compensation plan ensured that most consumers made little or no money, the complaint alleged.

“This is the beginning of the end for one of the most prolific pyramid schemes operating in North America,” Kentucky Attorney General Jack Conway said.  “This is a classic pyramid scheme in every sense of the word.  The vast majority of people, more than 90 percent, who bought in to FHTM lost their money.”

As alleged in the complaint, FHTM promoted itself as a way for average people to achieve financial independence.  Some FHTM representatives claimed they earned more than 10 times as much as their previous earnings in their second and subsequent years with FHTM.  One person claimed that another representative earned more than $50,000 in his sixth month and millions of dollars in subsequent years.  Another person promoted a recruitment meeting on her Twitter account, stating, “Bring ur friends & learn how 2 make $120K aYR.”  At its 2012 national convention in Dallas, FHTM called its top 30 earners to the stage to present them with a mock-up of a $64 million check, which several of them shared as a photo on social networking websites.

To participate in the scheme, consumers paid annual fees ranging from $100 to $300.  To qualify for sales commissions and recruiting bonuses, they had to pay an extra $130 to $400 per month and agree to a continuity plan that billed them monthly for products unless they canceled the plan.  Those who signed up more consumers and maintained certain sales levels could earn promotions and greater compensation, but contrary to FHTM’s claims, the complaint alleged, its compensation plan ensured that, at any given time, most participants would spend more money than they would earn.

According to the complaint, recruits were told they could earn high commissions by selling products to people outside the operation, but instead only minimal compensation was paid for sales to non-participants, and few products were ever sold to anyone other than participants.  The scheme provided much larger rewards for recruiting people than for selling products, and more than 85 percent of the money consumers made was for recruitment.

In addition to charging the defendants with operating an illegal pyramid scheme and making false earnings claims, the FTC charged them with furnishing consumers with false and misleading materials for recruiting more participants.  The attorneys general offices of Illinois, Kentucky and North Carolina joined the FTC complaint, as well as alleging violations of their respective state laws.

The defendants are Paul C. Orberson, Thomas A. Mills, Fortune Hi-Tech Marketing Inc., FHTM Inc., Alan Clark Holdings LLC, FHTM Canada Inc., and Fortune Network Marketing (UK) Limited.  On January 24, 2013, the court halted the deceptive practices, froze the defendants’ assets, and appointed a temporary receiver over the corporations pending a trial.

The Commission vote, including Commissioner J. Thomas Rosch, authorizing the staff to file the complaint was 5-0.  The complaint was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.

If you’re reading this via email, please click this review the FTC vs. Fortune Hi Tech lawsuit.

Filed Under: Distributor Resources, mlm attorney, mlm legal, MLM News Tagged With: , , , , ,
by on December 27, 2012 2 Comments

In a Twisted Turn of Events, Herbalife Retains Anti-MLM Firm, Boies Schiller

Humor me for a second. Suppose prominent law firm, Dewey Cheatham & Howe, initiates a class action lawsuit against cigarette maker, Marlboro. DCH alleges that Marlboro sells cancer sticks. DCH achieves a windfall settlement from Marlboro i.e. $20,000,000! Now suppose a doctor accuses Marlboro’s competitor, Winston, of also selling cancer sticks. And when it comes time to choosing a law firm, Winston chooses……Dewey Cheatham & Howe.

Do you see the problem?

Herbalife has retained mega firm Boies, Schiller and Flexner

Before discussing Herbalife’s decision, it’s important to provide a little background. Bill Ackman, hedge fund manager and founder of Pershing Square Capital Management, dropped the proverbial hammer on Herbalife. In what has been referred to as “dizzying takedown” of Herbalife, Ackman gave a 330+ slide presentation at the Ira Sohn conference in New York, arguing that Herbalife is an illegal pyramid scheme on the verge of collapse. When choosing his tools for the Herbalife autopsy, Ackman skipped right over the scalpel and went straight for the sledge-hammer.

Herbalife’s decision to retain Boies Schiller came to light in the Wall Street Journal’s story titled “Herbalife Goes on Offensive.” Out of all of the law firms in America, it’s extremely confusing to me why Herbalife would retain Boies Schiller (assuming the report is true). Currently, it’s unclear what exactly Boies Schiller will be doing for Herbalife. Given the timing, I suspect they’re being asked to help Herbalife deal with Ackman i.e. suing Ackman. If this is the case, hell has truly frozen over.

Boies Schiller recently received a settlement from Amway, resulting in legal fees “up to $20,000,000!” I’m not making this up. In late 2006, Boies Schiller initiated a class action lawsuit against Amway. In the lawsuit, they made most of the same arguments used by Ackman in his presentation i.e. there are minimal retail sales, the products lack quality, the buyback policy is ineffective, internal consumption is bad, etc. Their anti-MLM sentiment is made obvious in the first paragraph of the lawsuit against Amway (included below, written and filed by Boies Schiller!):

This pyramid scheme [Amway] is fraudulent because it induces individuals to invest in products and marketing tools and to recruit new victims into the scheme with the false promise of enormous profits. . . Because [Amway] distributors most often do not sell products to consumers who are not also distributors, they can obtain a return on their investment in the [Amway] program only by recruiting new distributors who will then buy products and recruit more distributors who will buy products.

And this firm has been asked to protect Herbalife.

Soon, I’ll be providing a more detailed analysis of Ackman’s position against Herbalife. In summary, the MLM industry is about to change, for better or worse. There’s no doubt about it. While there have been plenty of attempts in the past by lawyers and disgruntled distributors to air the dirty laundry of companies, there has never been anything like Ackman. Not even close. He’s all over the news, seemingly rubbing the FTC’s nose in a pile of poop. He’s creating the impression that the FTC has fallen asleep at the wheel. Whether that’s true or not is a topic for another post.

How can Boies Schiller effectively represent Herbalife? And really, they’re not only being asked to protect Herbalife, they’re indirectly being asked to protect the legitimacy of the entire industry. It seems bizarre for a firm to profiteer on two sides of the same issue….especially when those sides are on polar opposites.

In this fight with Ackman, Herbalife needs to restore confidence in its business model. Retaining Boies Schiller is a huge step in the wrong direction.

See below for the class action lawsuit filed by Boies Schiller against Amway

See below for Ackman’s presentation about Herbalife

There are a lot of similarities in Ackman’s arguments and those used by Boies Schiller against Amway.

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by on October 29, 2012 Leave a Comment

FTC Business Opportunity Summary – MLM

This is a guest post from top MLM consultant, Jay Leisner. Jay is the President of Sylvina Consulting. Compensation plan design, business performance reviews, and software consulting are three of Sylvina’s specialties. Jay is also a partner with me for the Direct Selling Edge conference for MLM startups. While Jay is not a lawyer, I have yet to see a better summary of the Business Opportunity regulation than this one. I could not have written a better summary than the one prepared below.

There’s a lot of uncertainty surrounding this new business opportunity regulation. In my opinion, 99% of the traditional MLMs out there have nothing to worry about. However, with the newer internet based companies that rely heavily on lead generation, the regulation poses a significant challenge. I hope you find this article informative.

——
Begin

This month, I attended the 2012 Global Regulatory Summit held by the Direct Selling Association in Washington, DC. It is an annual event attended primarily by lawyers and employees of direct selling companies who are responsible for legal compliance.

In March 2012, the Federal Trade Commission or FTC promulgated a significant new Business Opportunity Rule known as Rule 16 C. F.R. Part 437 (click here to download a full copy of the regulation). Direct selling companies are not specifically or explicitly excluded from this rule.

If your company is subject to this rule, potential buyers of your business opportunity must be given a one-page disclosure statement at least seven calendar days before the prospective buyer signs an agreement or pays any amount of money for the business opportunity.

If you have a direct selling company with independent representatives who recruit others to sell and recruit, anything that slows down the recruiting process isn’t good for recruiters or your company because during the waiting period, some new recruits will change their minds and opt not to enroll! Fortunately, there are things you can do to not be subject to this new rule.

Before explaining these things, I’d like to tell you about the one-page disclosure statement referenced above. It must include full disclosure of any civil or criminal legal actions that the company or any of its key personnel have been the subject of within the last 10 years (regardless of the outcomes). This means that if your company was sued by an independent representative and you were the prevailing party, you would still need to disclosure this legal action. The disclosure statement must also include the names and telephone numbers of at least 10 people who have purchased this business opportunity from the seller. If the seller has sold the business opportunity to less than 10 people, then all of them must be listed. In addition, the person receiving the disclosure statement is notified that if he or she purchases the business opportunity, that person’s identity may be disclosed to future prospective business opportunity purchasers.

Rule 16 C.F.R. Part 437 defines a business opportunity as a commercial arrangement in which:

  1. A seller solicits a prospective purchaser to enter into a new business; and
  2. The prospective purchaser makes a required payment; and
  3. The seller, expressly or by implication, orally or in writing, represents that the seller or one or more designated persons will
    1. Provide locations for the use of operation of equipment, displays, vending machines, or similar devices, owned, leased, controlled, or paid for by the purchaser; or
    2. Provide outlets, accounts or customers, including but not limited to, Internet outlets, accounts, or customers, for the purchaser’s goods or services; or
    3. Buy back any or all of the goods and services that the purchaser makes, produces, fabricates, grows, breeds, modifies, or provides, including but not limited to payment for such services as, for example, stuffing envelopes from the purchaser’s home.

A new business means a business in which the prospective purchaser is not currently engaged, or a new line or type of business.

A required payment is all consideration that the purchaser must pay to the seller or an affiliate, either by contract or by practical necessity, as a condition of obtaining or commencing operation of the business opportunity. Such payment may be made directly or indirectly through a third party. A required payment does not include payments for the purchase of reasonable amounts of inventory at bona fide wholesale prices for resale or lease.

Providing locations, outlets, accounts, or customers means furnishing the prospective purchaser with existing or potential locations, outlets, accounts, or customers; requiring, recommending or suggesting one or more locations or lead generating companies; providing a list of locator or lead generating companies; collecting a fee on behalf of one or more locators or lead generating companies; offering to furnish a list of locations; or otherwise assiting the prospective purchaser in obtaining his or her own locations, outlets, accounts, or customers, provided, however, that advertising and general advice about business development and training shall not be considered as “providing locations, outlets, accounts, or customers.”

The first two elements of a business opportunity as defined above clearly apply to you as your direct selling company offers a new business for which a required payment is made. It is the third element that may or may not be relevant, that is, whether your company suggests or provides customers or lead generating companies to the purchasers of your business opportunity.

Some direct selling companies provide leads to their representatives or suggest the use of lead generation companies. If a company refers prospective customers or representatives to existing representatives, will this practice cause a direct selling company to be subject to this new business opportunity rule? If a company has a relationship with a lead generation company and encourages its representatives to buy leads from this third party, will this similarly be a problem? Does it matter whether these practices are disclosed by your company to new representatives at the time they join? Does the number of leads provided as compared to the total number of new customers or representatives enrolled have any relevance? If leads are given only to representatives who have achieved a specific rank or higher in your compensation plan, does that matter?

Party plan representatives may offer a hostess who signs up on the night of the party to be a consultant the opportunity to be credited with this party as her own, that is to say, she may offer the party and its customers and sales to the joining consultant as an incentive to purchase the business opportunity. Could this practice cause the party plan company to be subject to the new business opportunity rule? If a company doesn’t encourage this practice, does that make this practice irrelevant to the business opportunity rule?

I wish I could tell you the answers to these questions, but I can’t because the rule is new and we just don’t know exactly how it will be interpreted and enforced. With this information, you can choose to change nothing and just wait and see what happens, or you can take steps now to respond to the new rule in town. The most conservative approach would be to (a) not recommend the use of lead generating companies, (b) not provide leads or customers to representatives, and (c) not suggest that representatives “gift” a party to a hostess. All of these steps are achievable, although they may be a change to how you’re doing business today.

End article
——

See below for the FTC’s short summary of the regulation.

Filed Under: Distributor Resources, mlm attorney, MLM Consulting, mlm legal, MLM startup Tagged With: , , , , , ,
by on August 5, 2012 Leave a Comment

MLM Startup Conference – DS Edge

Ultimate MLM Startup Conference

The Direct Selling Edge conference for MLM startups is back!  The event kicks off on Thursday, September 20th in Las Vegas.  Purchase your ticket before August 15 and save $50 per ticket.  See below for a link to purchase your ticket.  The details for the conference can be found on our MLM Startup Conference page.  Based on feedback from attendees, we’ve made the agenda stronger and added more content.  We’re very pleased to announce two new speakers.  There’s been a lot of discussion lately about the importance of solid compliance to ensure the safety and longevity of network marketing companies.  With this in mind, we’ve got the great Donna Marie Serritella.  As the founder of Direct Selling Solutions, she leads MLMs and leading distributors in the areas of compliance consulting and distributor compliance relations.  She’s literally written the book on the subject.  We’re very excited to have her!

We’re also excited to announce the participation of another great vendor, Karen Clark.  She’s is the founder of My Business Presence, a social media training company for network marketing companies. She began her direct selling career as an independent representative who achieved the highest title in her company’s compensation plan in just seven years. Karen now works with independent consultants of direct selling companies to master the world of internet marketing, including the effective use of social media. She’s also the co-author of two books, Incredible Business and Direct Selling Power.

UPDATE: Daren Falter will also be joining us! Daren is a MLM celebrity. Daren has experienced success both as a distributor in the field and as a company owner. Daren wrote one of the most widely read books in the network marketing industry: How to Select a Network Marketing Company. Daren will be speaking about one of the most important topics: Recruiting Top Leaders. It’s going to be fun!

See below for a complete agenda.

DS Edge – 2012 Agenda

We’re also happy to be working once again with MLM software guru, Mel Atwood, from YourSolutions.net. Mel brings an incredible level of commitment, energy and passion to his work for MLM clients.  Whether he’s serving as the Vice President at the Association of Network Marketing Professionals or adding value as a fellow DSA supplier member, Mel’s activity inside and outside of his software firm adds tremendous value to the industry.

And of course, Jay Leisner of Sylvina Consulting will rock the house with great content regarding compensation plan design. Jay has an amazing ability of taking complex principles regarding compensation design and explaining them in terms that are easy to understand and actionable.

Satisfaction is 100% guaranteed.  

At the end of each day, from 5 until 8 pm, you’ll have the the opportunity to meet with conference speakers for 30 minute appointments at no additional cost! Add the six hours up and you’re easily walking away with over $1,000 worth of consultation.

Register Now

If you purchase by August 15, you can save $50 per ticket, no questions asked.   After August 15, prices return to normal at just $199 per ticket.    

Eventbrite - Direct Selling Edge Conference for New MLM and Party Plan Companies

I sincerely hope to see you there!

Testimonials

    • Definitely worth the money. As a matter of fact, after 30 minutes, I think I got my money’s worth. I found out that my business plan was not legal and by the end of this, I’ve learned all the tools and information to make this work. It’s a really good program.  Zach Taylor
    • Thank you for the most crucial information supporting my Party Plan Business. This 2 day class was exactly what I needed! Great job by everyone! Absolutely every aspect of my business was covered. Thank you again. Cheryl Wollrab
    • I was amazed at the information. I thought it was going to be a broad stroke event to get you with different vendors. I was very surprised to see all of the targetted topics, how in depth they went into discussing very important issues, for anyone whose considering getting into the MLM business as a startup company. Mike Duke

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Filed Under: Distributor Resources, mlm attorney, MLM Consulting, mlm legal, MLM startup Tagged With: , , , , , , ,
by on January 31, 2012 1 Comment

Direct Selling Edge Part Deux!

The Direct Selling Edge conference for MLM startups is back!  After a very successful conference in September, we’ve done the impossible by adding even more content to an already stuffed agenda.  Check out what attendees said after our last event below. The event kicks off on Thursday, March 8th in Las Vegas.  I’d love to see you there and meet you.  The details of the conference can be found on our main page here.  At this event, we’re very pleased to announce three new speakers!  MLM Consulting firm, Launch Smart, will be with us teaching about important systems for customer support, operations and distributor education / retention.  As the 2010 DSA partnership award recipient, we’re delighted to have them on board.  The value David Taylor and Terrel Transtrum bring to the attendees will be well-worth the cost of admission.

We’ve also added MLM software guru, Mel Atwood, from YourSolutions.net.  Mel brings an incredible level of commitment, energy and passion to his work for MLM clients.  Whether he’s serving as the Vice President at the Association of Network Marketing Professionals or adding value as a fellow DSA supplier member, Mel’s activity inside and outside of his software firm adds tremendous value to the industry.

At our conference, we’re covering many advanced principles in creating and launching a network marketing business, guaranteed! If you’re skeptical, check out what people said after the last one.

Some testimonials

  • Definitely worth the money. As a matter of fact, after 30 minutes, I think I got my money’s worth. I found out that my business plan was not legal and by the end of this, I’ve learned all the tools and information to make this work. It’s a really good program.  Zach Taylor
  • Thank you for the most crucial information supporting my Party Plan Business. This 2 day class was exactly what I needed! Great job by everyone! Absolutely every aspect of my business was covered. Thank you again. Cheryl Wollrab
  • I was amazed at the information. I thought it was going to be a broad stroke event to get you with different vendors. I was very surprised to see all of the targetted topics, how in depth they went into discussing very important issues, for anyone whose considering getting into the MLM business as a startup company. Mike Duke

    • At the end of each day, from 5 until 8 pm, you’ll have the the opportunity to meet with conference speakers for 30 minute appoints at no additional cost! Add the six hours up and you’re easily walking away with over $1,000 worth of consultation.

    Register Now

    Starting at just $199 per ticket, the value greatly exceeds the cost of a ticket. Purchase a ticket here. Information is the only asset separating you from your competitors. If you’re not satisfied with the program, we’re offering a 100% guarantee, no questions asked.  Join us and we look forward to meeting you. Our agenda is loaded with information specifically chosen to advance your business. Check out the full Edge agenda.

    Some more testimonials

  • It’s been a very good conference really on the nuts and bolts of trying to figure out how to turn a company into an MLM. I think these people are very talented and knowledgeable and will really help you to build your business and help you to move forward. Susan Averett
  • Jay, Kevin and all other other speakers provided us with great information, in-depth, thorough, and painted a perfect picture for us so that we have a good sense of what we’re getting into. I want to thank all of them for their time, their effort, and for providing myself and my wife with the information that we need to go forward with our company and make it grow. Thanks a lot. Stanley Chang
  • As a former distributor, as a board member for a large network marketing company, as now an owner of a network marketing company myself, this conference has been extremely helpful. Great speakers, great content, A to Z, everything that you need to know as a startup. Brad Doyle
  • Attending the DS Edge was different from any other MLM conference I had been to before. I’ve been to other conferences, They try to sell you services, they do give you information, but the difference with this one was we actually left with actual steps, tasks we can take, things we can get done to make sure we are successful, so I highly recommend it. It was a great use of time. Bethanie Nonami
Filed Under: MLM Consulting, mlm legal, MLM News, MLM startup Tagged With: , , , , , , , , ,
by on June 27, 2011 Leave a Comment

Direct Selling Industry Featured in Wall Street Journal

The Direct Selling Industry was recently featured in a 40 page spread in the Wall Street Journal.  The content is fantastic!  The leadership at Direct Selling News did an excellent job putting this material together.  It’s a great representation of this wonderful industry.  See below for the full PDF, which was obtained from Ted Nuyten from “Business for Home.”

Direct Selling Industry in Wall Street Journal

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by on May 19, 2011 Leave a Comment

Old School Marketing vs. Relationship Marketing

The market rewards people that add value daily, helping others win. As the CEO of Coca Cola recently said at the Chick-Fil-A Leadercast, “Customers are increasingly basing their decisions on a number of factors that never existed five years ago. They want more empowerment and they want to know that the company is socially responsible.” I agree! Marketing is changing to a more relationships-driven environment fueled by permission. The direct sales has been ahead of this curve for decades. The space is growing substantially and it’s only going to get better.

What are your thoughts?

Photo courtesy of @Kathy Sierra

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by on April 28, 2011 1 Comment

The End of Class Action Litigation in MLM?

This is an enormous Supreme Court decision for MLM companies. In a 5-4 decision, the Supreme Court held that consumers (distributors) can waive their right to participate in a class action lawsuit. The full article can be found here. The lawsuit was a case between AT&T and Concepcion. In the original lawsuit, Concepcion served as a class representative for consumers against AT&T over a nominal sum of money per consumer: $30. Clearly, $30 is not worth suing over; hence, the purpose behind the class action. But in the fine print in AT&T’s agreement there was a clause where the consumers waived their right to participate in a class action lawsuit and instead were required to arbitrate their disputes. Clever. And apparently enforceable.

This is nothing entirely new for MLM companies. However, it bolsters the argument that all disputes should occur in arbitration instead of aggregating mass numbers and filing a class action lawsuit. There’s a little bit of healthy criticism over the fairness of arbitration proceedings. As stated in the article, “Modern arbitration practices have been the target of watchdog group
Public Citizen for several years. Bills to create an Arbitration Fairness Act were filed in Congress in 2007 and 2010. In a release supporting the 2007 bill, organization president Joan Claybrook blasted the “take it or leave it” forced nature of the clause, the lack of oversight of the process, and supposed bias: ‘…(A)rbitration companies are beholden to big corporate players for repeat business, which creates a bias. They do not bite the hand that feeds them. For example, public data show that in the portfolio of one California arbitrator who ruled in 532 cases, 526 were in favor of business – a mere 1.14 percent for the ordinary consumer.’”

Brian Fitzpatrick, law professor from Vanderbilt, said if the ruling went in favor of AT&T, it would “end class-action litigation in America as we know it.” Given this recent ruling, it just got a lot easier for companies to skim a little here and there from consumers without much threat of consequences aside from a PR backlash. There’s not going to be single agreement now where there’s no class action waiver, which really takes power out of the hands of an aggrieved community, also referred to as a “class.” I have mixed thoughts on this one. What are your thoughts?

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by on April 18, 2011 4 Comments

Ending the Hype: is it posible?

Travis Flaherty uncorked a great debate on his facebook page. Speaking of facebook, fan him up on the Travis Flaherty fan page here. In a facebook note, included below, he challenges people to end crazy hype when representing a network marketing opportunity. After reading his note, I immediately got flashbacks from when I was in the field several years ago. I’m guilty of making the same mistakes referenced by Travis in his article. In fact, I was WAAAAY worse! I never mentioned the company or its products. Instead, “I drove traffic to fortune 500 websites like Disney, Home Depot and Bass Pro Shops whereby they paid us for loyalty.” I left out the part that I only received a sliver of an affiliate kickback from those stores. When asked if selling was required, I said we simply built communities of people and drove revenue to product suppliers that paid us to transfer spend from our grocery budgets and buy products from our own business. I would say, “We’re a buyer’s club and they pay us for loyalty.”  Yep, I’m guilty of breaking the rules mentioned below. With the story I was weaving, you would’ve thought I was building the next Google. Instead, I was building Amway.

Note: I’m not suggesting how I promoted the Amway business was typical for all Amway distributors. I mention this illustration to make a point: I completely understand Travis’s call to end with hype. However, when there’s a focus on recruitment over product sales, or if the value proposition is out of line with comparables in the marketplace, it’s impossible to avoid hype and hyperbole because it takes a strong emotional pitch to overcome peoples’ gut instincts. When the value proposition is off, the glorified hype is inevitable.

The first impression when a prospect joins a business is crucial. It sets the framework for their entire experience. It’s the seed that influences their behavior going forward. When you’re in the field, education for the newbie is crucial. It’s important to inform them, at some point, they’re entering a sales and marketing business. Their function as a distributor is to move product volume, hence the word “distributor.” And companies, it’s important to publish and enforce standards designed to lead to proper positioning of your brand in the marketplace so you can properly educate and, if need be, weed out the people misrepresenting the particulars of your business. Yes, there are companies out there that are willfully (and blissfully) ignorant of how their product or service is being positioned in the marketplace. But in the end, when a business fails to deliver on some of the basic elements presented in the leaders’ presentations, it burns down quick.

Travis’s note is below.

I thought about abridging it but there’s too many good points. It’s included in full below. What are your thoughts? Do you think it’s realistic to expect hype to end?

You are entering a no Spin Zone…
Warning: This article is probably the most controversial article I have written. By continuing to read on, you run the risk of being offended. If this is you, then it is likely you need to hear this information! My intent in writing this is to raise some clarity on what it means to be a TRUE ‘Network Marketing Professional’. It’s important to point out much of what I will be talking about, the examples I will be giving, I HAVE DONE PERSONALLY! As leaders, we are eager to share our victories – but forget there is even more wisdom in sharing our mistakes and past failures. It is my hope that my trial and error can help you to avoid some of the same pitfalls I’ve fallen in over the years.

There is a serious issue running rampant in Network Marketing. In fact, I believe this issue is so big – it threatens the very livelihood of our industry. Unless we, as leaders, take a stand against this problem our profession will never be taken seriously. The issue I am referring to is “The Spin” that goes on in Network Marketing. Others might describe it as “Hype”. In other words, I am referring to saying or representing something in a manner, in which the intent is to have someone assume something, that otherwise would not be true.

Allow me to provide some specific examples of what I am referring to. (Again, picking on myself for a moment) I was recently traveling internationally with my good friend and mentor, Jef Welch. We were in a cab together on our way to a business briefing. As Networkers, we naturally sparked a conversation with the cab driver by asking the normal questions; “How long have you been driving a cab?” “Do you enjoy what you do?” etc. We had a very pleasant conversation, during the drive. When we were exiting the cab I was prompted to invite the cabby to the event we would be speaking at later that evening. (Here’s where my MLM training kicked in) I started with a quick look at my watch – to suggest I was in a hurry. I complimented the driver, I had already decided on an ‘indirect approach’ since I did not have a great report with the driver. “So let me ask you a question; WHO DO YOU KNOW that might be interested in a potential six figure income opportunity, working from home?” Of course it prompted the real question I was looking for from the driver, “What is it?” he replied. I grinned with confidence knowing that I had just gained posture in the conversation. (I thought to myself, Eric Worre would be so proud!) Then I made the invite, “If I were able to get you ticket, to a very special event on creating wealth, hosted by some very powerful people might I add – would you be able to attend?” And then I continued, “Now I’m not saying I can get you a ticket, as they are sold out. But IF I could get you a ticket, for free, would you be able to make it this evening?” Now, most reading this may not see an issue with my approach. In fact, I thought it was excellent at the time. I was doing exactly what I had been trained to do. My Mentors had always taught me when inviting to build huge audacious value.

The reality is, if you really break down what I said, I suggested that this was a ticketed event. I suggested there was a fee to attend and I implied not everyone could attend – that in some way this was exclusive. Now, I know you could argue what we were to speak on was of value, that it was exclusive or ‘invite only’ – which could justify the word “ticketed”. Believe me I tried, when I was called out on this. Later that evening, Jef and I had a discussion about leadership and how important it is to have integrity at the top. I agreed. He then surprisingly brought up my approach earlier in the day, as an example of the “Spinning” that goes on in NM.

At first I was defensive. “I did exactly what I had been taught”, I thought to myself. However, after spending 15 minutes trying to defend my position, I decided to really listen to what he was saying….And he was right! Jef Welch called me out on this and I want to thank him for doing it because it’s helped me raise my game to the next level.

“Spinning” and “Hype” have been around NM since its origination. The only difference today is it’s highly perpetuated and amplified by Social Media. Another example I often see is when people post things like “500 people just joined my business in the past 7 days”, etc. This often happens in a Binary compensation plan because it allows you to build hype around fear of loss. “Get in now or else you’re missing out!” The problem is the people who want you to THINK they’re making a fortune, aren’t! What they’re not telling you is they are part of a power leg that is growing (largely because of the people above and below them doing the same thing). More often than not, they only have a few people on their inside leg, dictating their actual pay.

How about this one: “I am looking for my next 3 people to teach how to make six figures this year.” I see this all the time on Facebook and Twitter. The sentence SUGGESTS that you have already done this in the past – when in fact 90% of the people posting things like this have not! When I started in MLM, some of the worst advice I was ever given was “Fake it till you make it”. This is still very prominent in the industry today.

Now I know many of you reading this are going to say, “Well technically what I am saying is the truth, if you really look at what I am saying”. And I hear you…The question I would ask is not, what are you saying,” technically”; it’s, what are you leading people to believe or assume? Building your business upon “SPIN” and “Hype” is likened to building a foundation on shaky ground. It won’t last! You will continue to attract the bottom feeders in your business, the people who are looking to ‘get rich quick’, or catch the next free ride. My friend Jef was right; you must have INTEGRITY AT THE TOP if you want to build something that lasts. And isn’t that why we all entered into this industry – To create a long term, residual income for our family?

In closing, if you want to be a part of raising the bar in this industry, if you want to proudly call yourself a Network Marketing Professional – then it’s time to step up and declare a “No Spin Zone!” The only true way to grow an organization is to focus on what you have to offer from a personal standpoint, a systematic standpoint and most importantly – A leadership standpoint! The moment people join your team because of what YOU have to offer, when you no longer have to rely on “Spinning” to recruit, YOU KNOW YOU’VE ARRIVED!

In the spirit of success,
Travis A. Flaherty

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