Master Distributors: good or bad?

    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.

    Regarding the subject of master distributors…

    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 financial incentive, which is always in addition to their payout via the compensation plan. These incentives range from small percentages on gross revenue, receiving pre-existing volume in a position, cash signing bonuses, bridge loans, being flagged at higher ranks, 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, “If they can be bought in, they can be bought out.” 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.

    If you’re looking for specific guidance on how to properly disclose this arrangement, I’ve written extensively on the subject of disclosure requirements here.

      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.