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It’s no secret that MLMs exist in a bit of a grey area. There
is no federal definition of a pyramid scheme. Over the years, regulators’
objectives and strategies change—sometimes in a major way. But have you noticed
all’s quiet on that front?
There hasn’t been a major government action against a
well-established MLM since 2016. No doubt, some of you are holding your breath
and biting your nails.
The simple truth is things are changing. Independent MLM
distributors have growing reach. So do
the anti-MLM crowd.
Your ability to do business is all about the public’s
perception of your brand. If a reputable source calls you a pyramid scheme, the
label itself can cause lasting damage. And right now, that allegation is
cropping up everywhere. What can you do about it?
We’re here with another podcast aimed at helping you as you
make good choices as you think through your current strategy. We sat down with
Spencer Reese to talk it out. Spencer gave us his insights on current trends,
common mistakes, and best practices. Listen in to learn:
What you can do to avoid the reputational harm
of class action pyramid suits
Why it’s deadly to change terminology without
How to tackle pricing problems that drive bad
Where you can find your real competitor (hint: it’s not an MLM)
What it means today to have an
opportunity-driven or customer-driven MLM model
Nancy Tobler: Welcome
to MLM.com Podcast. This is Nancy Tobler. I’m guest hosting for Kenny Rawlins.
Today we have Spencer Reese, who is a lawyer with the law
firm of Reese, Poyfair, and Richards. He has been in the direct selling space,
multi-level marketing space, since 1986. He’s been a regular participant on
MLM.com as well as on our podcast and we’re very grateful to have him here with
What’s the MLM legal climate like today?
Nancy Tobler: Spencer,
you always get a great response. It’s been a year, I think, since we talked to
you last—so, thought we should check in and see what the legal climate is like.
Now, tell us what you know.
Spencer Reese: Sure.
Well, I certainly will. And, Nancy, thanks as always for having me on the
podcast here. It’s always truly my pleasure.
We’ve been seeing actually a lot going on in the civil arena
with the class actions in the last year or so. Certainly, the civil actions
have been more active than the regulatory climate. We have seen some state
actions, but at the federal level we aren’t seeing a lot in the pyramid claims.
What we are seeing is that the FTC has shifted their focus.
I think I spoke about this last time. The FTC has shifted their focus somewhat
from pursuing pyramid claims against network marketing businesses to pursuing
claims just based on deceptive income representations. The FTC has figured out
that that’s much lower hanging fruit and those cases are much easier to bring—far,
far, less complicated than pyramid actions.
Pyramids the standard of proof—since the Burn
Lounge case was decided by the 9th Circuit Court of Appeals—the standard of
proof that the FTC has to meet is considerably higher than it used to be. And
consequently, the FTC has figured out that, “You know what, we can get the
relief we’re after simply by being in a deceptive income claim case and that’s
much easier to prove.” So that’s the avenue that they’ve been pursuing.
But on the civil side, in the class actions, we’re still
seeing the pyramid cases where pyramid claims are being alleged. And more
traditional pyramid and RICO
claims those are still certainly front and center. Now what’s driving that
is the plaintiff’s bar.
Why are class action pyramid cases on the rise?
Spencer Reese: There’s
just one or two law firms that are primarily responsible for filing a number of
class action cases. I
wish I knew how they were financing them. Class actions are not easy. They’re
You know, what a plaintiff’s lawyer hopes for is to get a
quick settlement so they can move on to the next.
Now, I don’t know how they’re financing these cases. It’s
smaller firms that have been bringing them. So, they’re not well bankrolled. I
know that. But I know they’ve settled one or two and maybe they’re using those
funds to bankroll the other cases that they’ve brought.
Nancy Tobler: So,
in a civil case they allege they’re a pyramid.
Spencer Reese: Correct.
Nancy Tobler: And
they just try to get a lot of plaintiffs on one case. Isn’t that how that
Spencer Reese: Yeah.
What happens in a class action case is that you have to have a large number of
people that are purportedly similarly situated. And then you file your claim
and say, “Hey, these people are similarly situated. They’ve all been
damaged, relatively the same. And by the same conduct.” One plaintiff, one
individual or a small group of individuals will be the designated plaintiffs on
behalf of an entire class.
Spencer Reese: Now,
the way that they work in and the leverage that they have is that they make
these allegations of a pyramid scheme which is obviously highly illegal.
They make these allegations but then because it’s a class
they’ll try to get the class certified. That is if the court says, “Yes,
this is a class of individuals that are similarly situated.” And then you
have to send notice out to the entire
So, for example, they say a class consists of “all
individuals who recruited and became a distributor for Company X during the
year 2015 through 2019.” That could be a lot of people.
Nancy Tobler: Right.
Spencer Reese: Just
depends on how much the company has grown. And chances are it’s going to be a
company that’s been a fast grower because a small company, is not a viable
target for a class action.
Nancy Tobler: Right.
Spencer Reese: They
just don’t have the resources.
Why is the pressure to settle so powerful?
Spencer Reese: But
that’s what we see, they bring these class cases and notice goes out to the
class. That is, they have to be issued notice of this allegation that there is
a claim against the company that it’s a pyramid scheme. And, of course, once
the notice goes out to the class with a claim like that, it really damages the company’s
Nancy Tobler: Absolutely.
Spencer Reese: And
so, the companies don’t want that notice to go out. So, what happens is that
gives the plaintiffs’ attorneys considerable leverage to settle the case and
get their money and move on.
Nancy Tobler: Right.
Spencer Reese: That’s
the lay of the land. Nobody ever wants to litigate—actually take one of these
things to trial. I mean, they’re extremely expensive, very cumbersome and the negative
publicity and the damage to the business that can occur from notice going out
to the class is huge. So, there’s a lot of pressure to settle. And that’s what
Nancy Tobler: Yeah.
Whether there’s anything legitimate in the claim or not. Right?
Spencer Reese: Exactly.
Nancy Tobler: You’re
gonna settle. You just want to keep your name out of paper.
Spencer Reese: Exactly.
Nancy Tobler: Well
and keep your name from being sent to every distributor that you may be a
pyramid. That was a problem.
Spencer Reese: That’s
exactly right. I mean, the stakes are so incredibly high that the pressure to
settle is enormous on companies. And that’s what the plaintiffs’ lawyers are
Spencer Reese: So,
they just want to get a quick settlement and then move on.
Warning: are you putting lipstick on a pig?
Nancy Tobler: Yeah.
That’s interesting. I had noticed in the last couple of years we’ve had more
class action. I hadn’t thought of that as a way to shut down a company, but I
think it certainly has a way to damage a company’s reputation. Maybe not shut
it down like the FTC can, but certainly a serious problem, public relations
Spencer Reese: Absolutely.
Absolutely. And anymore… I mean it’s we certainly have legal battles but
anymore the real battle is in the court of public opinion.
Nancy Tobler: Right.
Spencer Reese: And
that’s where if a company’s reputation is damaged in that regard then it’s over
Nancy Tobler: Yeah,
I think that’s interesting. I think it’s interesting that companies, since the
Herbalife case, really should be moving towards more customers and more
documentation of training. Have you seen that sort of shift since the Herbalife
Spencer Reese: You
know, it’s interesting that you asked that. I have not seen a greater emphasis
on that from a legal/regulatory perspective but that was a very very strong
pull prior to Herbalife. That’s been the attitude of the FTC since 2004. They
issued their advisory opinion and it was highly, highly, focused on driving
customers. In fact, that actually came out in the Omnitrition case back in
And so, we’ve had that heavy focus on being customer-oriented
and customer-driven. Essentially that dates back to 1996 rather than just
Herbalife. But it certainly became a focus of the Herbalife case.
Nancy Tobler: Have
you seen companies move more in that direction or it’s not something really
that you end up dealing with?
Spencer Reese: You
know what’s interesting? Everybody is trying to figure out how to crack that. I
have seen several that have taken really true material measures to drive their
Most of what I have seen, however, is companies simply
trying to repackage what they’re already doing. They really don’t want to
change much, just change their nomenclature, but do business the same way.
Which, you know, in my opinion, that’s just putting lipstick on a pig.
Nancy Tobler: Yeah. [laughter]
Spencer Reese: You’re
not gonna change the fundamental nature of it. But there have been several
sizable companies that I’ve seen make material changes trying to become more
customer-oriented. I always tell clients, “Look, you can do it voluntarily
or you can have it shoved down your throat like Vemma and Herbalife did.”
Nancy Tobler: Right.
Well, you and Kenny talked a little bit about this last time, so we don’t have
to go into too much depth, but I think it just makes so much sense to have
people sign up as customers if they’re not sure that they want to do the
business opportunity. Later on, then
transfer them to be a distributor if they find themselves recruiting people
because they’re so passionate about the product. Then, yeah, become a
distributor, do it. But if you’re not sure, don’t do it.
Why not give customers the best price?
Spencer Reese: Absolutely,
I agree with that. The challenge we have comes in in pricing strategies.
Nancy Tobler: Right.
Spencer Reese: And
so many companies want to price their products on a tiered structure so that
distributors get the lowest price and then distributors, if they’re on autoship
get the next lowest price. But, so everybody, you know, they they say that,
“Well, these people are distributors. They signed up to get the lowest
price.” But if they have to convert them to customers, well then they have
to raise the price. And, of course, you know, people know that the real price
is the lowest price, that’s the distributor price.
Nancy Tobler: Right.
Spencer Reese: They
have to fight that fight.
I mean, honestly, I think that that the best strategy is to
have your preferred customer price being the lowest price.
Nancy Tobler: Yeah.
Spencer Reese: And
that way, if somebody wants to be a preferred customer, great, they get the
best price. If they want to be a distributor, they, you know, they still would
have to be a preferred customer to get the lowest price. But then they would
also have to pay some other additional fees such as your replicated website, back
office, and technology fee or something like that. A starter kit…
Nancy Tobler: Yeah,
that makes sense to me. I think I’ve only heard of one company that actually
does that that I know of. But it makes sense to me. I think it really helps
solve sort of the income claims problem that we talked about earlier. Right?
That you have a clear distinction between what’s a customer and what’s a
distributor, so the income can be an average of people who actually run the
business, not people who are customers.
Are they joining because of pricing or income claims?
Spencer Reese: You
know in my opinion, it all comes back to income claims again.
Why is everybody enrolling as a distributor in the first
place? Is it really to get the lowest price or is it because they were enticed
to join by virtue of income claims?
I have an opinion on that and my opinion is that most people
join because they’re induced to do so based on the income claims. If that were
not the case, then it would be a lot easier to have your lowest price be the
preferred customer price and more people would be motivated to buy the products
based on the lowest price.
Nancy Tobler: Yeah.
Spencer Reese: We
just don’t see that.
Nancy Tobler: Yeah,
I think you’re right. Back to where we started on this call, the FTC is going
after income claims. Do you think part of the reason for that shift is because
it makes it so easy to catch them because of technology? They’re on social
media, and their they have their blogs and they’re making these claims out in
the open, or where it’s recorded? Is that why the FTC is going after income
Spencer Reese: Well,
I think there’s a variety of reasons.
One, they’ve been going after income claims forever. Any
time you have a pyramid claim there’s also been a fraudulent income claim
allegation in the complaint as well.
But in addition to that, yes, they’re very easy to find.
They’re extremely easy to find. They just log into some distributor’s social
media page. And there are the income claims right there. They print the page
off, they got the evidence they need.
Do you have an accurate picture of the field?
Nancy Tobler: Yeah,
yeah. Do you think companies—you talked about this last time—do you think
companies are doing a better job at training, or it’s still an issue?
Spencer Reese: Oh,
I think they’re overall doing a relatively poor job of training. You know, I
think that there’s the desire to do
so. But the unfortunate reality, from what I’ve seen, is that too many
executives sit in their offices and dictate what they think should be policy.
But they don’t get out in the field and see actually how the business is done.
They’re removed from reality or have become removed from reality in that
regard. They’d like to think that the products are driving the sales but
they’re kidding themselves. That’s my opinion!
Nancy Tobler: Yeah.
Spencer Reese: And
I said, too, they need to get an accurate picture. They need to get out in the
field and then actually attend the distributor meetings and see what’s actually
Nancy Tobler: Yeah.
Well, I mean, I think they certainly can do a better job of monitoring what
happens on the internet through technology. But I think, like you say, just to
get out into the field and find out what happens, I think could be quite eye
I think there are things we can do better as an industry. I
think having more customers is… it just makes total sense to me. I must shake
my head about that on a regular basis. Why not just make them customers? That’s
what they are. Well then you can be more transparent in your reporting and your
income claims can be more realistic. But I think we can do a better job of
training too. Technology makes training so easy now. And it also makes it easy
to keep track of who’s been trained.
Spencer Reese: Yeah,
ultimately, I think it goes beyond training. We have to identify, “What do
we need to train on?” And that means we have to identify, “What are
the fundamental issues that we’re dealing with?” That’s what I think the
real issue is.
Who are you really competing with?
Spencer Reese: And
so, what am I talking about? I’m talking about, well, let’s define ourselves
and figure out who our competitors are.
Nancy Tobler: Right.
Spencer Reese: So,
what are we going to train on? I mean, if we need to train people on getting
more customers, well, who are we competing against? Well, in my opinion, from a
customer perspective, if you’re product-oriented, your biggest competitor is
Nancy Tobler: Yeah.
Spencer Reese: Let’s
face it. Amazon, you can get anything you want. You can get next-day shipping,
if you’re a Prime member. You can get the best price. I mean, they’ve got
stainless steel precision when it comes to operations.
Nancy Tobler: Yeah.
Spencer Reese: So,
you’re competing against Amazon!
If your program is primarily opportunity-driven, your main
competitors are the gig economy. You know, your Ubers, the Lyfts, the Airbnbs,
I mean, they will generate immediate cash. You won’t necessarily be profitable.
I question the profitability of those business models. But you can certainly
get some cash flow going and get it going quickly.
Nancy Tobler: Right.
I think it’s interesting, Uber drivers, 50 percent of them drive one to five
hours a week and on average they make about twenty-five dollars an hour. And
you think about—well, at least what Mark Rawlins has always said—people want to
make $200 to $500 a month. Well, that gig economy model is proving that. Right?
“How do you get distributors to $200 to $500 dollars a month?” is, I think, a
big question that companies should be asking themselves.
Spencer Reese: Yeah.
Yeah. But, you know, the reality of the gig economy is, okay, you made 500
bucks a month, you have cash flow, but, you know, by the time you depreciate
your car, holy smokes, you’re in the hole.
Nancy Tobler: Yeah.
Spencer Reese: Anyway,
that’s that’s a whole different story.
Nancy Tobler: Yeah.
That is. It is an interesting topic too.
How can you defend against class action suits?
Nancy Tobler: Well,
thank you, Spencer. I appreciate you taking time out of your busy day. I know
you’re busy and we always appreciate your expertise. And I think the class
action information, I’m gonna go and do a little reading on it, in fact, based
on your insight here today. I think that is an issue. And I don’t know what
companies can do for that. Do you? Maybe our final thought could be what can
companies do to sort of protect themselves against class action.
Spencer Reese: Well,
there’s there are actually things you can do. The best protection is also
completely unpalatable and that is not to be financially successful. Don’t make
yourself a target.
Nancy Tobler: [laughter].
Spencer Reese: That
doesn’t work. What plaintiff’s lawyer is going to file a class action case
against a company that can’t afford to pay anything anyway?
Nancy Tobler: Right.
Spencer Reese: That
would be stupid.
Nancy Tobler: Yeah.
Spencer Reese: But
you can have an effective class action waiver in your contract. You gotta do it
right. It’s not easy. But you can do it and the courts have upheld them. So
that would be, I think, your first line of defense. Have a class action waiver—whether
you have an arbitration provision (which I encourage), or you allow people to
file a mitigation in court. Either way, you can put an effective class action
waiver in the agreement. And that would be your first line of defense.
Nancy Tobler: Yeah.
You see it everywhere. Right? When you go into your doctor’s office you sign a
waiver. You say you’ll first do arbitration. So, there are not very many places
where we don’t sign something upfront that says we won’t we won’t go to court.
Spencer Reese: All
right, Nancy, well, you have a wonderful day.
Nancy Tobler: You
This has been the MLM.com Podcast. I’m Nancy Tobler, your
guest host. We are very grateful to Spencer Reese for spending some time with
us today. He’s enlightened us on the use of class action suits as a way to get
at companies and ruin reputations. Essentially that’s the way a class action
lawsuit works. And his information is very useful as to how you might avoid or
at least minimize the potential of class action. And we appreciate you also as
listeners. And we’d love to hear from you. Make a comment. Tell us what you
want to hear more about. Like us, share us. We appreciate you as listeners.
Is your company in multiple markets? Do you want to be? Direct selling is a worldwide business model. Many direct selling companies do business in multiple countries. If you run an MLM, chances are you’re operating—or want to operate—in more than one country.
When you’re looking to expand internationally, you need to do your homework. Before you move into any country, you need to study that country—study their culture, their sales numbers, their economic realities, and their regulations. Mark Rawlins wrote an in-depth guide on these considerations.
Today let’s take a close look at the latest worldwide network marketing facts and statistics from the World Federation of Direct Selling Associations (WFDSA). The WFDSA represents 63 national direct selling associations and provides a wealth of information about direct selling and multilevel marketing around the world. The most recent worldwide MLM statistics comes from 2017.
Note: All monetary data included throughout this article is adjusted to USD.
Regional network marketing statistics
2017 worldwide industry sales were $189.6 billion—up 1.6% (adjusted to 2017 USD). That sales data breaks down into four regions:
Asia and the Pacific generate most direct sales worldwide, followed by the Americas and Europe.
Asia & Pacific $85.4B (46%)
Americas $64B (33%)
Europe $38.5B (20%)
Africa & Middle East $1.8B (1%)
Although Africa and the Middle East (represented in WFDSA data as one region) produced the least sales, they showed the greatest amount of growth in 2016—up 9.9%. Wondering what products sell in these growing markets? Check out this Africa-based MLM, Solar Sister.
Although Africa and the Middle East saw the most growth, other regions grew in 2017 as well. Europe grew 3.5%, and Asia & Pacific grew 1.8%.
On the other hand, the Americas sales numbers decreased but only by 0.1%. I don’t imagine this decline comes as a surprise to many of our readers. It seems like a lot of folks are nervous about the trend and that this is part of the drive toward international business models. But the sales numbers for the Americas are still high. In 2018, Allan Pollard of PayQuicker came on our podcast to argue that the dip is a natural part of the sales channel’s lifecycle—that the US is a maturing market for network marketing and that the business is in an evolutionary step.
Let’s take a minute to talk about distributors.
The total number of distributors increased from 103.3 million to 116.7 million. Proportions of distributors in each region follow the same order as sales numbers (largest to smallest) but they don’t line up in size. Let’s look at a comparison of the two:
In one region, the total sales might be greater and the sales effort each distributor needs to do might also be greater.
Africa and the Middle East offer a standout example of the disparity between sales and distributors. Together these regions produce 1% of worldwide sales, but they are home to 3% of worldwide distributors. It makes sense if you think about it.
I mentioned Solar Sister above. Their business model is selling small, solar electronics to poor consumers in rural Africa. If the product is for poor consumers, the price point is going to be very low. If the average price point is lower than in other regions, it will take a larger number of distributors to make the same amount of sales.
On the other end of the spectrum, the highest sales region, Asia and the Pacific produce 46% of all sales, but 56% of all distributors live there. Again, more distributors producing lower dollar amounts.
In both examples, individual distributors contribute less sales on average than their American and European counterparts.
Let’s look at a visual representation of the sales per distributor for each region:
Asia & Pacific: $1,310.31
Africa & Middle East: $519.89
Note that this is a mean, not a median. In other words, it’s very likely that high-end distributors are skewing the numbers. Mean isn’t the most accurate measurement of what the “typical” distributor makes. But it’s a much easier number to come by and it’s still an interesting number to look at.
While Asia and the Pacific are racing ahead in total sales numbers, their sales per distributor are lagging behind the Americas. The Americas, in turn, are behind Europe. Asia’s collective buying power is greater, but on an individual level they have less buying power.
If you take your products from Europe to Asia, you might need to rethink pricing, packaging, or even the product itself to maximize your potential in those markets. In one region, the total sales might be greater and the sales effort each distributor needs to do might also be greater.
And it might go without saying, but if you want to sell in the Middle East and Africa, the most competitive product might be completely different.
By the way, that’s not a caution against entering those markets. You must tailor your strategy but if it makes sense for you to do that, do it! Individuals in Africa and the Middle East might have the least buying power, but the non-monetary benefit of operating there can be substantial. Remember the work that Solar Sister is doing selling low-end solar tech in Africa. Sure, they’re making less per-sale than they would selling high-end solar tech in the US. But that’s not what matters most to their business.
Network marketing statistics by country
Let’s look at how direct sales data breaks down by country. 79% of all direct sales take place in the top 10 countries:
United States $34.9B (18%)
China $34.3B (18%)
Korea $17.2B (9%)
Germany $16.7B (9%)
Japan $15.3B (8%)
Brazil $11.9B (11.9%)
Mexico $5.9B (3%)
France $5B (3%)
Malaysia $4.7B (2%)
Taiwan $3.9B (2%)
The United States and China are neck and neck—both generating 18% of worldwide sales. The US still has an edge of about $600M.
Several countries outside the top ten grew dramatically in 2017. Indonesia, Kazakhstan, Philippines, United Arab Emirates, Argentina, Romania, Slovenia, Norway, Russia, and Turkey all had double-digit increases in retail sales.
Very few countries saw a substantial decrease. Only the Netherlands and Belgium had double-digit drops in sales.
The WFDSA also shows us the number of distributors in each country. Unlike the regional numbers we looked at above, these numbers don’t track the sales numbers for each of the top 10 countries.
While these ten countries produce nearly 80% of the sales, they comprise less than half of all worldwide distributors. This is a powerful visual representation of an important lesson:
Not all distributors will be able to generate the same sales numbers. And some of that disparity has to do with the practical circumstances surrounding distributor lives.
Again, let’s look at total sales per distributor for each top ten country. (You can of course go through the full data on the WFDSA report to do the same analysis of any country we didn’t look at here.)
German distributors are so far ahead, it seems like an error. (We triple checked our math.) China, France, and Japan also have what I would consider high per-distributor sales.
Another issue you need to look at when expanding into a country is the average income of a person living in that country. There are different kinds of averages that you can look at. Again, median income provides a more accurate picture of the average person’s salary, but up-to-date data on mean income (specifically gross national income per capita) around the globe is easier to come by. Let’s look at those numbers for the top ten countries—excluding Taiwan for which there is no reported GNI.
A few things stand out here.
Income isn’t a strong predictor of whether direct sales will do well in a given country. From left to right, these countries are graphed from greatest total sales to least sales. Their per capita incomes are all over the place.
That said, all the top ten countries (the ones that reported GNI anyway) have a per capita income greater than $8000 USD. Which makes sense if you think about it. Most (though not all) MLM products are “luxury” goods. They’re typically things consumers want more than they need. In countries where people are struggling to survive, they’re not likely to buy luxury goods.
Income also isn’t a strong predictor of average sales per distributor. The US has the highest per capita income ($58,270), but it’s among the lowest in average sales per distributor ($1,876).
The take away from these numbers seems to be that when you’re deciding if a country would be worth entering, you can’t look at the numbers alone and think you’ve done your homework. You have to learn more about the people you’ll be selling to than their income and buying power. You have to know who they are. In other words, culture—interest in and compatibility with direct selling—accounts for the prevalence of the sales model.
Episode 38 - What This Shanghai-Based Lawyer Wants American MLMs to Know About China - SoundCloud (1053 secs long, 4 plays)Play in SoundCloud
Is Your China Strategy Too Reckless? Too Timid? Nonexistent?
There’s good money in selling to Chinese consumers but the People’s Republic of China restricted direct sales to single-level sales commissions.
The Chinese economy is growing. Consumerism is on the rise. Word of mouth marketing is king in China. Are you going after this market?
Maybe you’re staying out of China entirely. Maybe you’re operating in China with a single-level compensation plan. Maybe you’ve been quietly selling your products into China with cross-border e-commerce—without making any changes to your compensation plan—and you’re looking the other way while distributors do whatever they do onshore. Is there a better way?
We reached out to MLM.com contributor Mark Schaub to find out. Mark is a lawyer who lives and works in Shanghai. On this episode of the MLM.com Podcast, Mark discusses the strategies he’s used to successfully navigate PRC law for MLM clients.
Listen in to learn:
Does the single-level route—used by Herbalife China and Amway China—make sense for smaller brands?
How safe is the popular offshore e-commerce strategy?
What were the real objectives behind Chinese MLM law?
Is there a way to navigate MLM Law and pay Chinese sales leaders for their work while operating onshore?
Nancy Tobler: Welcome to MLM.com Podcast. This is Nancy Tobler. I’m guest hosting for Kenny Rawlins.
Today our guest is Mark Schaub. He has worked as a lawyer in Shanghai since 1993. He specializes in foreign direct investment and restructuring in China. He has advised on foreign investment projects in all major sectors in China, with a cumulative value exceeding USD $20 billion. He’s familiar with China issues faced by companies of all sizes and is a trusted advisor to many companies ranging from family-owned businesses to Fortune 500 companies. He is also the global co-head of King and Wood Mallesons consumer practice.
So, welcome, Mark!
Mark Schaub: Thanks, Nancy.
Nancy Tobler: So, we’re so excited to have you on the call. We get a lot of reader response when we talk about China and how to do business in China. I think, perhaps, the very first question that needs to be cleared up is that there’s a difference in how direct selling or network marketing, multi-level marketing occurs in China. Would you talk about that difference?
Mark Schaub: Sure. I think we’ll talk a bit later about the opportunity in China. Multi-level marketing or network marketing has a very big presence in China and it’s growing quickly. And I think it also really gels with Chinese culture. There’s a large domestic presence. But American companies do dominate the multi-level marketing. And they basically have three different ways they do it.
Single-Level Direct Sales—How MLM Titans Enter China
Mark Schaub: Perhaps the most traditional way is the direct sales model—so, companies like Amway or Herbalife, these kind of guys. They will actually get a direct license—a direct sales license. That’s the PRC (People’s Republic of China) alternative to traditional network marketing structures. The PRC has a total ban on having anything more than one level of commission. So, you need to have a direct sales license. For many companies it really has stopped them entering the Chinese market because the requirements to do it are very high.
So, you have to put in a security deposit of about three million U.S. dollars and this has to be adjusted to include about 15 percent of sales revenue each month. You have to hire the direct sales people directly. And the remuneration has to be paid monthly.
So, it takes away a lot of the flexibility which is attractive to a lot of people in network marketing.
And then you need a direct sales license which requires a minimum capital of about 12 million U.S. dollars. And there are a slew of other requirements…
But I think for many companies, unless they’re very big and they’re very confident about the Chinese model…
And it also doesn’t encompass all types of goods. It’s mostly for cosmetics companies, supplements, household type appliances. So, I guess it is a model, but it is quite inflexible and quite expensive. So, do you have any questions about the direct sales model?
How Growth in the Chinese Economy Dovetails with Direct Sales
Nancy Tobler: Maybe talk just a little bit more about what kind of growth they’ve seen in the Chinese market in the last 10-15 years. Has it been 15 years?
Mark Schaub: I mean, the economy itself would have grown probably five times in the last 15 years. Supplements and cosmetics, they’re still the biggest part of MLM companies in China. And these are two of the hottest things growing at the moment.
So, even though the Chinese economy has slowed down to 6.5% [growth], supplements are still growing at a rate of about 12% to 20% and cosmetics are growing around 15%. There’s a lot of demand. And I’d say that China’s really the largest market for cosmetics. It’s not the largest one yet for supplements. But it’s a big market that’s still growing far faster than anywhere else. Also, I think direct sales is roughly growing at about 20%.
So, it is a very buoyant thing and when people look at the 6% or 7% growth that we’re seeing in China, it doesn’t really impact the retail sales. So, the Chinese government’s trying to push domestic consumption, and there’s a much bigger consumer base than maybe five years ago. So, now is probably the right time to come.
The Popular Offshore E-commerce Strategy
Mark Schaub: And maybe that would be a way to segue to the second model, which is a bit of a gray area, and it’s basically an offshore e-commerce model. And I’d say this only came about maybe five years ago, and it kind of shows you how new the Chinese consumer class is and how quickly it grew.
So, companies like Alibaba, Taobao, Tencent… all these companies really have grown a lot in the last five years through e-commerce. So, China has about 880 million Internet users. They do buy a lot online and e-commerce is basically where… say a US company will be operating offshore and then they will bring the products into China via cross-border e-commerce. And then they basically operate the business like they do in the States—having more than one level of commission.
And typically these businesses grow very very quickly.
We have seen a number of MLM clients where China was a secondary or third market or even a fourth market—wasn’t very interesting—but within a year, it grew bigger in the domestic market for them.
When you’re small, people won’t notice. But the problem is once you get larger, this e-commerce model—because it really is directly in breach of the Chinese regulations in respect of multi-levels of commission—it’s inherently fragile.
So, a lot of these companies might be deemed to be illegal pyramid schemes. This will perhaps damage the reputation at home. But it will definitely interrupt the operations in China. And, you know, the Chinese authorities can do all kinds of things. They can arrest your affiliates. They might block the marketing channels like your website, your WeChat account. And we’ve also seen cases where company executives get arrested once they get into China. And then the argument that, “Oh, we’re offshore” won’t really hold much water because They’ll say, “You might be offshore, but you’re operating in China in an illegal way.”
So, I think this is a very prevalent model in China, but I think it’s like building a castle on sand. You know, once the castle gets too big, it might fall apart.
Nancy Tobler: Yeah. An interesting model. And I think you’re right. I think there are a lot of companies that have gone that way.
A Better Way to Navigate Chinese MLM Law
Mark Schaub: So, what we’ve done recently is we’ve come up with a compliant model which we call the SOSO (sales offshore, service onshore) model. And, “so so” (at least in Chinese English) means, “not bad.” But it is a bit of a middle ground type thing where it combines the benefits of the offshore e-commerce model and the direct sales model.
So, we had a client that had tried the offshore e-commerce model, got into trouble, came to us. And then we had to put out the fires. But they still wanted to continue the business in China. And so, we came up with a more compliant model which was based on cross-border e-commerce but having the downline or the affiliates in China actually owning service companies and then being paid based on the number of people they service.
This model stood the test of at least 12 months.
Prior to instituting it, the client was having major problems with the Chinese authorities on a monthly basis, people being arrested, etc. And now we actually have not had any issues since we did that.
Yes, You Can Pay Chinese Sales Leaders Without Breaking the Law
Nancy Tobler: I think that the SOSO model, as you call it, is very interesting. So, people are paid to provide service on products that have been sold rather than being paid down many levels. They’re just paid for additional activities beyond the actual sale of the product.
Mark Schaub: Some of the MLM companies who are doing it more like a distributor basis. So, the more you buy, the cheaper the products. This actually isn’t that way, structured. So, basically the affiliates will have their own companies. So that’s another layer of protection for the MLM company.
Nancy Tobler: Right.
Mark Schaub: And the concept is, the more people you have in your downstream the more services you provide. So, there’s things like the social media aspect, providing these people with education on how to do it…
And, you know, we had devised a way that there would be perhaps… if you have more people in the downstream, and then they have people in the downstream, it could be argued that you would also have to provide services to those people.
But that actually has not arisen. So, in practice it actually has stuck at one level of commission. And the affiliates… I mean, this was not like a brand-new thing. What we had was a client that—obviously I won’t say who the company was—but the really bad day was in 2013, where the police came, raided a rally, arrested 53 people and put most of them in jail, seized all the computers. There what we had to do was stop the bleeding. We had to get a PR firm to help with reputational damage. And then we had to recalibrate the model.
So, it’s not easy.
They had a very big business in China. They had a lot of affiliates who were working that way, were familiar with the business. And, you know, we were able to implement this new model and that was back in 2013. Now, 2019, it’s actually been running for six years without any hiccups. And even the affiliates seem very happy.
Nancy Tobler: Yeah. That’s fascinating. I think our listeners will be very interested to know of this different approach and they certainly, I assume, can contact you if they want more information.
Three Powerful Reasons Why Network Marketing Thrives in China
Nancy Tobler: You talked just a little bit about this in your in your opening, but let’s talk just a little bit about culture and why direct selling does so well in China.
Mark Schaub: At the moment, the Chinese consumers—especially for anything you ingest or put on your skin—there’s still quite a large preference or a strong preference for imported goods. So, you know, typically, most of the MLM goods are either imported or they may be just the packaging or the bottling of the cosmetic companies like the last stage of it. So, I think that’s one cultural thing that people may not be aware of is that there’s a lot of cachet in having imported goods.
Secondly, I think the Chinese social system, now over many generations, is a relatively low trust society. People have a network of their friends, their family, and, you know, it’s interlinked communities. And people really trust each other rather than perhaps, outside sources. So, I think if somebody was going to buy something, it’s not that they would go on and check a consumer choice magazine and the ratings. They will ask people they know what they think of the product. We call it “guanxi.” It’s connection. And so, I think this is something which has been culturally there for a long time. They like to have these communities and reach out within their networks.
And I guess the other thing, which is not really a cultural thing—well, it’s a new cultural thing—is how the Internet and mobile devices have exploded here. And so, I’m spending a little bit more time overseas now and so I’ve come up across this “WhatsApp.” In China, everybody uses WeChat. And the only thing I have to say about WeChat is it’s 100 times better than WhatsApp. So, you know, it’s the statistics on it are crazy. WeChat is basically… you communicate, text people, you do 100 different things on WeChat. And there’s 880 million people using it. And I think the average hours of use per day—and you’ve got to think, “Well, this can’t be right,” but it is—6.5 hours.
Nancy Tobler: Wow.
Mark Schaub: So, people are constantly on their WeChat. And so, WeChat has just instituted this WeChat sells, which is an application that allows users to sell via WeChat with a commission base. So, I think these are the three things. Firstly, having a network and using your network is a very normal thing in China. Secondly, the fact that people want imported goods. And then thirdly, this ability to connect to more people quicker.
Nancy Tobler: People trust that social media, WeChat? Is that working in their favor?
Mark Schaub: Well, I think the thing is they probably don’t trust talking heads. Even though KOLs are very important—key opinion leaders are important—they’re probably less important than in the west.
So, I think very often, people will have focus groups… So, we had one client that was targeting pregnant women or women who just gave birth—supplements for women who just had given birth. And there it was more important to them to actually have mothers who were actually just experiencing it. So, I think the real experience is more important.
Nancy Tobler: Yeah. That’s fascinating.
Lost in Translation—the Objectives Behind Chinese MLM Laws
Nancy Tobler: I’d love for you to talk about the crackdown that happened in 2017. And maybe you’ve really already discussed it, but what kinds of things got companies in trouble in 2017? And is that sort of waning now and not happening as much? What’s your opinion on that?
Mark Schaub: That 2017 crackdown was a total… was totally unrelated to US MLM companies. You know, the media picked it up. And it did affect some of these MLM companies’ share prices. But it was actually very unfair.
What it was targeting was that these Chinese [MLMs]—and I would use the term MLM very loosely. They were more like cults. And they were doing things that were absolutely illegal, much more Illegal than just pyramid schemes. They were basically kidnapping people, sleep depriving them, and making them sell product this way.
It really was something totally beyond, you know, even perhaps the most vehement opponent of MLM. Nobody would actually categorize what they were doing as “being MLM.” They were basically criminal gangs.
And so, I think the western media either knowingly—or just didn’t understand the context—misunderstood what the crackdown was about. So, I don’t think it was really something that was directed at foreign MLM companies at all.
Nancy Tobler: Okay, great. Well, I think that’s—that will clear it up a lot. In fact, I still see, periodically, a news article that will talk about the crackdown on pyramid schemes. That’s usually what they call it. But people in the US equate pyramid schemes with MLMs a lot. Whether or not that’s… It’s not a good comparison obviously.
Mark Schaub: Well, I think that’s not fair.
Nancy Tobler: Yeah. It’s not fair.
Mark Schaub: I would say that’s not fair. But, I think, you know, legitimate network marketing companies in America, I think the short of it is, as far as I know, none of the major ones who were here were involved in the crackdown or suffered. And I think their share prices recovered quite well. So, I think it was misinformation, misunderstood.
Nancy Tobler: Yeah.
Yes, You Can Operate Your MLM in China Without Breaking the Law
Mark Schaub: I think legitimate MLM companies, they just have to realize it’s a different system in China, and you’ve got to work out how you want to act in a compliant fashion. Because otherwise you might do great business here but someone might destroy it very quickly. So you probably want a compliant, long-term business rather than something that just won’t work, you know, in the long term.
Nancy Tobler: Well, I want to thank you for spending some time with us this morning. Well, it’s afternoon there, but it’s morning for us still. I haven’t had enough caffeine yet, really. Anything else you want to share with us this morning?
Mark Schaub: No… China is a big opportunity. But I think most of the risks can be mitigated with just some commonsense measures. And, we’re very happy with any of your listeners… we’re happy to have a chat or send them some information. You know we just want to make people… demystify China and let them think about it. And they may decide not to come here or not to come right now. But, you know, it’s probably better to have an informed decision rather than rely on media or other reports which may you know paint a, you know, inaccurate situation.
Nancy Tobler: Good. Well, I think you’ve dispelled a couple of myths today as well as enhanced our understanding. I think your SOSO model is very interesting. I think our listeners will be very interested in how you’ve put together this, as you say, sort of a middle approach. And again, thank you for your expertise. We appreciate you and we appreciate your articles, there are a couple of them on MLM.com and we look forward to future work with you.
Mark Schaub: Right. Well, thanks very much!
Nancy Tobler: All right. Thank you so much. Goodbye.
Mark Schaub: Thanks Nancy. Bye!
Nancy Tobler: This has been the MLM.com Podcast. Today’s guest has been Mark Schaub. His offices are in London and he works in China. And he has explained to us some fascinating things about culture there as well as the legal climate and their model and how they approach direct selling in China. And it’s been a fascinating lesson. I hope you enjoyed it. If you like what you hear here we want you to share it. And we’d love to have you comment. And we’d love to know topics that you’d be interested in. We’ll try to find an expert to interview. Thanks again for joining us at MLM.com Podcast.
Did we get to the topics you wanted to hear about? If you have questions you’d like us to ask Mark—or his colleagues—in a later episode, please let us know!
These days, a lot of network marketing companies are in a rush to expand internationally. Markets outside the U.S. are gathering steam and technology is making the leap easier and easier.
My first experience working with an MLM company that was going international was nearly thirty years ago. Back in those days, companies were slower to expand overseas. Most companies waited until they were doing $50–60 million dollars a year in business and until they had been in business for several years.
Now, we have clients that have been in business less than a year moving to open two or more international offices almost immediately. In the last three decades, the international landscape has changed dramatically.
The process of opening an international market used to take a year of planning and preparation. Now companies are turning it around in mere months.
Is this a good thing?
I don’t know. But it is a reality.
There’s a wild west mentality about international network marketing—a follow-the-business mindset. Distributors expect you to go where they can sell. It’s their business, and it had better go where they want it to go. Sound familiar?
It’s true, you need happy distributors and—to be happy—your distributors need to sell. But you need to remember you have skin in the game. You also need to remember that what’s best for that one squeaky-wheel distributor might not be best for your entire field.
How do you do what’s best for the most people?
You have to balance the demands of your distributors with the economic, legal, and practical realities specific to opening each market. Don’t get me wrong. There are good things happening in this “wild west.”If opening a market makes sense for your company, do it! But, if you’re rushing in before you’ve done your research and carefully considered all of the issues surrounding a market, you don’t know if what you’re doing makes sense.
Let’s get into some of the issues you’ll face as you expand your company’s reach internationally.
Where are network marketers making sales?
Do the math. Make sure a market will be worth the trouble it takes to break in. Don’t pass up the value of the markets you’re already in to chase after less lucrative markets overseas. If California were a separate country (and sometimes it seems they are), it would be in the top 5 largest economies in the world. If you’re in the US, you’re in California. Are you selling there? Could you sell there?
This is something that a you must keep in mind as you plan to take your company into the international marketplace.
People see that network marketing sales numbers are rising in other parts of the world and they forget the fact that the US is still holding down first place. Instead of listening to the talk, look at the numbers.
According to WFDSA, in 2017 world retail sales numbers in direct selling reached over $182.6B (in U.S. dollars). Almost 80% of the revenue came from the top 10 countries in which direct sales take place:
United States $35.5B
South Korea $16.9B
United Kingdom $3.8B
Here’s the deal. You don’t have to avoid smaller markets. You do need to educate yourself as to why some countries do better than others. Many factors influence how well an MLM will perform in a country—laws, technology, distribution systems, and social networks. Do your homework.
We see MLM companies opening offices in 10, 20, even 50 different countries. This is a very expensive way to do business. Each different country has different laws. The labeling requirements for products are different. You have to deal with each country’s equivalent of the Food and Drug Administration (or whichever organization regulates your product). That’s a lot of work and its only part of what goes in to opening an office in a new country.
You might be thinking, you’ve gotta spend money to make money. Well sure, but you can also spend a lot of money without getting any return. Remember, almost all the direct sales business in the world is conducted in 10 countries. Be choosy! Don’t set up base in every country possible—set up in the countries that show true promise for your company.
What legal issues will you face in new markets?
When you open multiple international offices you create new legal issues for yourself. Although there are some ways to get around labeling and product approval laws, you still need to plan for different legal environments and regulations in each country.
For example, the “Not for Resale” business model allows people in other countries to buy product directly from a U.S. based company, as long as they don’t resell the product to people in that country. The company ships directly to them and thus bypasses the labeling, import, and product approval laws. But this strategy isn’t legal in all countries.
China restricts network marketing commissions to a single level. Multi-level marketing is unlawful in China. And, on-the-ground direct sellers in China can only sell certain types of products. But China’s economic power has been growing steadily. And as I already mentioned, their network marketing sales are second only to the United States. Some MLM companies work around the restrictions on direct sales by selling to Chinese consumers through cross-border ecommerce. Of course, this method doesn’t allow distributors to build lucrative downlines on the mainland.
Although changes have been (and are being) made, Korea strictly regulates the total percentage a company may pay out in commissions; a company cannot pay more than 38% of the wholesale price paid. This is a vigorously enforced law. So any company that enters the Korean Market that pays more than 38% must change their commission plan to meet this requirement.
How average income impacts your company’s viability
In different marketplaces, the way direct sellers do business is very, very different. One of the biggest reasons for that difference is the income of the average customer.
Let’s look at the top two countries in the list above: The United States and China. The per capita income of the United States is around $60,000 per year. In China, it’s less than $9,000 (USD). (Of course, you’ll have to adapt to more than the average income, if you want to sell in China.) In some countries popular among direct selling companies—like Peru, Thailand, and Columbia—the average per capita income is closer to $6,000 per year.
You must adapt your business model with this in mind. You might have to change the product, it’s price point, or (if it’s a consumable good) the size of its packaging. On the other hand, your product might not be viable at all—even if adapted—in a low-income country. You might also have to change your distribution method.
Income differences can be especially problematic for the commission plan. A plan that works well in the U.S. won’t work well in Argentina (per capita income: approximately $13,000). And it may not work at all in Peru. Why? The qualifications for personal volume, group volume, and organizational volume are all designed around the consumer buying patterns of a country with an income of $60,000.
If you try to use a commission plan with roughly the same qualifications in Peru and the United States, your Peruvian distributors must sell to ten times the number of customers just to meet the qualifications!
But there’s more to meeting the needs of distributors who are living on $6,000 a year. The basic needs of these distributors are totally different from those of distributors in the U.S. Here, the distributor may be in the business to make some extra money each month—”mad money” that is outside of their family budget. On the other end, a distributor may be in the business to make a living and replace their entire yearly income! These are meaningful differences. If you’re not taking them into account, you’re not doing right by your field.
In the last 15 years, the standard in the industry has been for companies and distributors to push for seamless, worldwide commission plans. Companies bragged about their worldwide plans, and distributors demanded them.
Hopefully, I’ve dispelled the idea that one compensation plan could serve the needs of every market in the world. The same commission plan will not work everywhere. Instead of a seamless commission plan, I’d argue that the real goal for companies should be a seamless worldwide downline. What do I mean by that?
With a worldwide downline, your distributors can sponsor new recruits anywhere that the company is doing business. You then pay commissions based on the commission plan of the country in which the sale was made, rather than where the commission recipient lives. So, Charlie lives in the United States, but he goes overseas to build a new team in Malaysia. Here’s his organization:
For the volume generate by Charlie’s U.S. team, you’ll calculate his commissions using the rules of the U.S. compensation plan. For volume generated by his Malaysian team, you’ll calculate commissions using the Malaysian compensation plan.
This allows a company to make changes in the commission plan for each country’s specific needs, but still allows the distributors to sponsor whomever they want.
By the way, the adaptations you make to your commission can be small. Your new plan can stay as close to the original plan as is reasonable given the new market. In most companies, the different commission plans will still be recognizable from country to country. The different permutations of your plan will most likely be based on the same general ideas.
Making the transition takes patience and maturity and a good hard look at the issues that will come up in each country. I’ve detailed what some of those issues are. But it is a big and ever-changing world. I can’t warn you about every problem you’ll run into. My hope is to put you on course to ask the right questions and commit to finding the answers. Best of luck as you expand your company into international markets!
Wouldn’t it be amazing to put an end to world hunger? Of course, it would. No one wants children to go hungry. Why do so few people try to make a change? We don’t do anything because deep down we know one person can’t do enough. Global problems can’t be solved at the level of the individual. Big change comes from the actions and policies of big organizations.
Brian Paul, President of the Usana True Health Foundation, joins us on this episode of the MLM.com podcast to talk corporate social responsibility (CSR).
The Usana True Health Foundation works to feed children around the world. They’ve distributed more than 25 million meals. And they work to create sustainable programs—programs with the objective of getting people out of dependency.
Listen in to learn more about Usana’s philanthropic efforts and philosophy.
Nancy Tobler: Welcome to The MLM.com Podcast. I’m Nancy Tobler, your guest host. Today we have Brian Paul from Usana. He is the president of the Usana True Health Foundation, which is their philanthropy project that they do. He’s been there for over 20 years. He’s been deeply involved with their charitable efforts. He is committed to helping impoverished children—I like this, I’m going to read it right from his bio—”Impoverished children and families reach their full potential by providing them with food and nutrition.”
He has an extensive background in film and television, digital communication, and hosting live events for global audiences. Brian uses his expertise to share the foundation’s stories.
Before joining the foundation, Brian worked as Usana’s Creative Media Director, inspiring others to achieve their health and financial goals by helping others. So, welcome, Brian.
Brian Paul: Wow, thank you!
Nancy Tobler: Yeah.
Brian Paul: How are you?
Nancy Tobler: Good. I’m really good. Thanks so much for joining us.
The Usana Story
Nancy Tobler: Just in case people don’t know what Usana is, in terms of the company, would you give people just a little background on Usana?
Brian Paul: Yeah. Usana the company started in 1992 and it was founded by a scientist, a cellular microbiologist, basically looking for a way to fight degenerative disease. He spent many years trying to help people get over their sicknesses rather than preventing the sicknesses. So, that’s when kind of Usana was born. And it’s a health supplement company that creates some of the highest rated nutritional supplements in the world. It’s a network marketing company. So, we have distributors all over the world, 26 different countries who build businesses with our products to help people achieve their optimal health. So, that is the company in a nutshell.
You Can’t Improve People’s Lives If They’re Hungry at Home
Nancy Tobler: Great, great. So, tell me about how your corporate social responsibility program got started at Usana.
Brian Paul: Yeah. So, from the beginning… Dr. Wentz, who was the founder of Usana, he is very much a philanthropist. He’s always been looking for ways to help people get healthy, here and abroad. So, from the beginning we partnered with an organization called Children’s Hunger Fund and their whole mission is feeding children around the world.
And so, what happened was after many years of soliciting donations from our distributors and working with that partner and helping, we decided to start our own charity so that we could reach people in the countries we do business in. So, Children’s Hunger Fund was unable to reach all of the areas. And so, that’s when we decided to create the True Health Foundation so that we can reach those people.
We kind of call our distributors part of the Usana family. So, it’s one big family. And the foundation is here to help the Usana family help others who are in desperate need for hunger and who are very malnourished around the world. And that started in 2012.
Nancy Tobler: Oh, great. I’m sure you can tell the audience a lot more than I can, but when you think about what can make a difference—food and nutrition is basic. Right? You can’t go improving people’s lives in other ways if people are hungry at home. It’s just it’s such a foundational effort to make a change in the world. So, I applaud that. What are some of your most successful or memorable projects that you’ve worked on?
Wow. We still work with our partner, Children’s Hunger Fund. We help deliver these food packs which are basically boxes that contain 48 meals that are really custom to the area of the world that they’re being sent. And they have rice, beans, non-perishables. There’s proteins, there’s vegetables. And it’s kind of tailored for different things for that area of the world.
And so, we, Usana and Children’s Hunger Fund, just a couple of years ago we surpassed over 25 million meals distributed worldwide. And we’re pretty proud of that. And that’s just the beginning. We’re just getting warmed up and we’re hoping to double that in the near future here.
What’s the Plan to Get People Out of Dependency?
Brian Paul: So, we’re very proud of just feeding children and you know all of what the foundation does is we really try to come up with solutions.
So, we’re not just passing out meals and hoping for the best—that these people figure it out for the future. But we work with different partners around the world to, you know, create sustainable projects that are built on agriculture, that are built on children being fed at school so they come to school and we have meals provided for them so that they’re incentivized—the children themselves and for the parents—to send their kids to school.
And so, we try to come up with ways where we can really reach the children. They’re the future. It’s not their fault, the situation they’re in. And so, you know, we focus on getting them fed and then we look for ways to make it so we don’t have to keep bringing them that box. What’s the plan to get out of the dependency of the box?
Nancy Tobler: I think that’s huge. Right? It’s a two-punch solution. Right?
Brian Paul: Right.
Nancy Tobler: You can’t really get people to work out of poverty if they’re still hungry because their primary focus is to get food. So, that two-punch system, I like it.
Donating Is One Thing, But Giving Your Time Is A Whole Other Level
Nancy Tobler: Do your distributors or employees go help with those projects or is that—you really turn it over to another organization?
Brian Paul: No, yes! That’s what I’m very passionate about. I mean when you think of a charity, you think of the side of the people receiving the benefit from the donations from the service. But we’re really providing something for both sides. You know, we have over a half a million distributors that are working to build a business. They’re focused on achieving their own financial freedom and improving their health. And we’re here to also help them give back. We’re there to break their hearts, show them that there are people in the world that aren’t receiving the basic elements of life. And so, we look at kind of making them better and all of us better, so we really get our employees and our associates involved.
Donating is one thing, but giving your time is a whole other level. And that’s what we focus on.
So, we have programs here in our corporate offices where we feed children and in different school districts here in Utah around the corporate office. And our employees go and volunteer and deliver these bags, they pack these bags and take them to schools every week. We have other partners here just around the corporate office where employees can go teach about health, where they can go serve meals to the homeless.
We’ve really turned up the gas on just doing more activities here as a corporation.
And then on our associate side, like you said, we have an ambassador program where we have leaders. It doesn’t matter how long you’ve been with the company. If you want to be a leader in philanthropy you can be a part of that. And so, all you’ve got to do really is just, you know, donate to the foundation, any amount. There’s no required amount. And to serve at least once a quarter with your teams.
So, you know, we’ve got these leaders with big teams that can go show up at the partners that need help. And, you know, it really is leveraging thousands and thousands of people to do good in the world.
Does Corporate Philanthropy Improve Employee Engagement?
Nancy Tobler: Yeah. I think it’s wonderful. The next question I think we’ve already answered is: what is your focus? I think you’ve already talked about that. Right? To bring nutrition to children and then to change their lives. I think we’ve really hit on that one already.
But the other thing I wanted to know is we’ve talked a lot in the last month or so here at MLM.com about employee engagement and distributor engagement. Right? How do you get companies or employees and distributors to feel connected to you? And I was just thinking that CSR and philanthropy are one way to do that. And I thought maybe you could share how you think that works for your company? Or maybe it doesn’t work for your company?
Brian Paul: Yeah, I think, as far as just employee engagement… I mean, you really have to show where their efforts are going and how they’re making a difference. You can never tell the story enough.
People are very focused on, you know, their lives and bettering their families. And so, it’s just kind of a natural thing, it happens to me sometimes, you get in this mode of like, “Oh, I’ve got so many troubles in my own little world.” You know, and I need to be reminded that I’m very blessed. I have an abundance of blessings in my life and there are other people that are struggling with way less. So, we try to really share that in a positive way.
So, we’re not just engaging with our employees and associates with terrible images of malnutrition and suffering. We know that happens. We want to show them that we’re solving it. We’re making a difference. And so, that is a constant effort.
Don’t Just Talk About Poverty—Give People A Chance to Do Something
Brian Paul: And having them involved in the service where they get to be hands-on and deliver food to the actual people who are in need—I mean, that’s the best way. I mean, it’s sweet. We take our associates on service trips around the world.
And one thing about service trips is, you know, it’s easy to take a group of people and sort of take them on a field trip of how poor people live. You know? It’s like, here’s poverty, it’s terrible. Now let’s move on and go back home and hopefully you guys take some action.
We like to go and pre set up projects where we ask the people in the areas we’re going, “What is the need? How can we actually be of help? How can we leave this place better than when we came?” And we bring our associates out to help really connect them to that work. We ask them to support it. They lead the charge, a lot these leaders, they’ll donate, they’ll start these awesome projects. And then we go back to these large events where we have five, ten, thousand people and we ask them to help out as well.
And it’s a formula that’s working and it’s helping a lot of people.
Nancy Tobler: Yeah. The thing that the research really tells us is that if you involve people in these events and they get a chance to do instead of just, like you say, watch.
It used to be called slumming. That’s where the word comes from. Rich people used to just tour poor parts of town to see how they lived. They did. They didn’t want to change anything.
But having them do is so good for your organization and the connection that both employees and distributors will feel.
Creating Programs in the Places Where Distributors Live
Nancy Tobler: I love that you do so much locally in Utah. I didn’t see that on your web page, but I think that’s also a key to your program that we’ll want to highlight is that you’ve really worked hard to have the programs be in the places where the distributors live.
Brian Paul: Yeah. We’re in a funny place of you know in the last couple of years, I always say we keep biting off more than we can chew. We keep just starting things in action and going and we haven’t done a great job of telling our story.
Two years ago, we started with one project like that. And now we have 26 active projects, feeding projects, sustainability projects going right now.
Nancy Tobler: Wow.
Brian Paul: And so, now, this year we got to do a good job of telling the story.
Nancy Tobler: Yeah, right. We haven’t even hit on this, but if your company gets known for particular service and it also makes selling your product easier, people want to buy it because they know in the end it’s going to support values that they have as well. So, it’s a whole other aspect of how corporate social responsibility helps the company.
Why Big Organizations Have the Greatest Responsibility
Brian Paul: For sure. I mean, if you’re going to start a company and you’re going to start employing thousands of people, I think you have a responsibility to really put those people to work giving back to the community that’s giving to them.
I mean, why not?
We have so many associates, distributors, employees—it’s like, we have a way of leveraging their efforts. We do a thing every year called World Service Week where for seven days, around the world, associates just go give back to their communities.
So, they serve multiple days. These service projects that they send back to us just excite me so much. It just blows my mind how giving these people are.
They’ll send a photo with 30 people that go clean up neighborhoods or they go serve at the hospital or they go pack meals for the homeless and deliver them, and it’s just like, that’s what it’s all about. You’ve got these people. Let’s make a difference. You know, we can focus them on one thing that they can really do something for the good in all of their communities.
Nancy Tobler: Yeah, that’s wonderful. That’s a wonderful connection point. As well as it’s a tradition and traditions help bond your people to you. And it’s good for the people, I don’t want to sound one sided, that it’s just good for Usana, what you’re doing, it’s good for the other side. Right? They get to feel good about themselves. They have a chance to do something they know is safe to do. Right? Cause you’ve already vetted the situation and… just all around is a way that everybody gets to win.
What Are We Doing? Are We Doing Enough?
Brian Paul: For sure. And it does benefit the company as far as you know people that come to work here, people that decide to start a Usana business, we make it more meaningful. We add more to it.
And you know it’s really very important, a huge priority from the top down. I go to an executive management meeting every month and I stand before all of our executives and they’re like, “What are we doing? Are we doing enough?” And they put so much pressure on and it’s because it’s very important to them. So, it makes me feel good. I walk out of that room so overwhelmed but I’m also like, “I’m in the right place.”
Nancy Tobler: Well, that’s really nice. That’s a really nice thing to hear. Right? That you don’t have to justify your program. They already see the benefit. It’s very clear to everyone that this benefits all parties involved.
Well those were all my questions, is there anything else you want to tell us about your program?
Brian Paul: That covered a lot. I mean, we’re very passionate. One thing that’s very neat is the True Health Foundation staff is a team of five people in the hundreds that we have here at Usana. But what’s so awesome is all of our employees are so involved. We get support from our corporate office here and from all of our offices of countries that we’re registered in. So, there’s a lot of marketing managers who take on double roles of organizing teams to go serve on the weekends and then they come to work on Monday, and they do their normal job. And it’s pretty humbling that they’re so involved in it and willing to give that kind of time.
A Culture of Giving
Nancy Tobler: Yeah. That’s wonderful. Well, it’s a culture of giving. Right?
Brian Paul: It is.
Nancy Tobler: It’s impossible to boil it down to a simple phrase but it really is a culture of giving and that’s fantastic.
Well, I want to thank you, Brian, for taking the time today to meet with us here at MLM.com. And again, good wishes in what you’re doing. I’ll have my eye on your web page to see what stories you’re telling. And again, thank you very much.
Brian Paul: Thank you very much, Nancy.
Nancy Tobler: Thank you so much for joining us today on our MLM.com Podcast with Brian Paul. He is the president of the foundation at Usana. He shared with us some wonderful programs that they do locally and around the world in all 26 countries that they are in where their distributors are located.
I like their focus. Right? They focus on children and bringing nutrition and food to children but also on providing sustainable programs that will provide food for those children over time.
It’s a great episode, I hope you enjoyed it.
And if you like the episode, we’d love for you to have you share it with others. You can also join our newsletter. We send out a newsletter, every Monday, that tells either about the podcast or the article we have for the week that we’re focusing on. You can also comment in the comments section. We’d love to hear about topics that you might be interested in. And again, I want to thank you for joining us here on the MLM.com Podcast.
Today we want to celebrate powerful female entrepreneurs in the direct sales space. Women who beat the odds to get to where they are today.
Now, maybe you’re thinking, “Wait a minute! Women dominate the MLM world.” You’re right! Women make up the majority of people involved in direct sales—and they always have. But there hasn’t always been space for them back at headquarters. In that sense, direct sales companies have—historically—been a lot closer to mainstream companies.
It shouldn’t surprise you to learn that female-founded companies are the minority. But here are some numbers to illustrate the situation:
“Female-led businesses only make up 30 percent of companies around the world” (Entrepreneur).
When you zero in on big business, the numbers get worse:
“Of the 134 VC-backed US-based companies valued at $1 billion or more… just 16 have a woman co-founder” (PitchBook).
In other words, women own less than 12% of billion-dollar companies in the US. And what about the capital those women are raising from VCs?
“Female-founded startups… raised just 2.2 percent of venture capital investment” in the first 10 months of 2018 (Tech Crunch).
That’s tiny, right? Wrong! It’s record breaking. Female founders have never had a better year.
The same holds true in MLM. Women are launching more startups than ever before. Some of the most exciting MLM companies today are woman-owned. We find all of these women inspiring and we hope that in honoring them we’re doing our part to encourage the female founders of tomorrow!
Before getting involved in direct sales, Katherine Lucey spent over 20 years as an investment banker on Wall Street working in the energy sector. In 2009, Katherine founded Solar Sister, a direct selling company that distributes clean energy technologies in rural Africa.
She saw that the people in these communities were using harmful, fume-producing fuels—fuels that cause respiratory problems and premature deaths.
She also saw that solar technology was shrinking down to hand-held sizes, increasing in durability, and decreasing in cost. In other words, the technology had advanced enough to be useful to the poorest people in the world, living in the middle of nowhere. It just hadn’t reached them yet.
So, she decided to do something about it.
Katherine gave a talk at TEDxBerlin in 2011 that’s still powerful today.
Last year, on our podcast she explained her reasoning: “I knew that on an infrastructure level, at the country level, no country comes into the modern era if they don’t have access to electricity. It’s the first and most fundamental aspect of development.”
From SolarSister.org: “Children in particular benefit from reliable, bright lighting to study by at night. Over 90% of parents reported improvement in their children’s academic performance thanks to solar light.”
The Solar Sister website is full of data and insights derived from their work. As an example, these are the numbers of total people they’ve reached by year:
We are so impressed with Katherine’s mission and with her gumption to get incredible tools into the hands of some of the least fortunate people in the world. And we happen to know from working with her on our podcast that she’s genuinely nice, and courteous.
Gretchen Huijskens, Holly Wehde, Chelsie Antos, Elisabeth Huijskens
These four women founded Trades of Hope in 2010 in an effort to go above and beyond the charity work they were already involved in. Trades of Hope microfinances women’s artisan collectives in impoverished parts of the world. In other words, they create jobs for people who had no opportunities.
The data shows that charity work just doesn’t have the long-term impact that micro-financing and job creation do. Trades of Hope give fair-pay jobs to women in 16 countries. There’s more to say about how amazing that is than we have room for here.
Trades of Hope artisans create jewelry, accessories, and décor items which US-based distributors sell using a party plan model.
As of 2018 Trades of Hope employ 13,000 artisans around the world and they have 6,000 American distributors—called compassionate entrepreneurs.
We are so romanced by Trades of Hope. Their business model is incredible. Two years ago, two of their founders joined us on our podcast to talk about their work. Here is a little bit about each of these four amazing women:
Gretchen co-founded an orphanage, school, and medical clinic in Haiti before starting Trades of Hope. She uses her passion for job creation and her talent for innovating to grow and lead the company.
Chelsie was 17 years old when Trades of Hope launched. Over the years, her focus has been on the operational side of the company—helping to create processes essential to healthy growth.
Elisabeth was only 15 years old when the company began. Her early first-hand helping others in developing countries created a passion for social justice. She has used that passion to build Trades of Hope’s socially conscious brand.
Holly has a background in both business and ministry. She loves to see people become all they were created to be. That passion shaped the team environment and culture that is Trades of Hope today.
We reached out to Trades of Hope to ask them about their leadership ideology. They gave us a list of the seven core values they live by:
We honor God and others.
We value scrappy determination and a can-do attitude.
We value each other’s differences.
We strive to always get better.
We value collaboration.
We believe the best.
We celebrate people.
They went on to say “These seven values add up to our main mission—people first. Sustainable, people-first business truly changes things for everyone.”
In 1992, Nicki and her daughter Grace Keohohou founded the Direct Selling World Alliance (DSWA). The DSWA teaches coaching skills and other skills to direct sellers around the globe. Toward that end, they run coaching schools and offer DSWA coaching certifications.
What’s the difference between coaching and the usual training direct sellers give their downlines? Why is coaching so important?
It can be a bit tricky to understand the difference without seeing it first-hand. We were fortunate enough to attend one of Nicki’s coaching schools a few years back and to witness first-hand the powerful work that she’s doing with distributors. One stand-out notion that she teaches:
This is one of the unique strengths of the direct selling industry—it creates the opportunity for individuals to grow as people and as leaders. This isn’t widely available in the mainstream business world, and its absence disproportionately affects women. We believe that the training, personal development, and coaching that go on in direct selling impact people far beyond the bonus check. We believe that Nicki and DSWA provide a critical service that is more and more meaningful as time goes by.
Nicki has worked with hundreds of direct sellers and with many powerful direct selling companies such as Avon, Mary Kay Cosmetics, USANA, Ignite, Thermomix, Juice Plus, Intimo, Norwex and Tupperware.
You can find some of her powerful insights about the industry here on MLM.com—she’s one of our favorite contributors.
Or you can go straight to the source by attending any of the DSWA’s courses.
Recently DSWA brought forth a tax kit and webinar series to help direct sellers. They are coming out with social media and business management courses in 2019. And they’ve recently updated their Elite Leadership program which has been running for 15 years.
Jesse MicKinney, Genie Reese, and Amanda Moore launched Red Aspen in October of 2017. When they opened their doors, they had one product line: premium false lashes. Their lashes are cruelty free and can be worn up to ten times with proper care.
On the decision to launch a lash company, Reese said she “had seen tons of growth… I was wearing them. My friends were wearing them.” They weren’t the only ones predicting that false lashes would boom. And they weren’t wrong.
This meteoric rise is remarkable. Even 2018 Miss America, Nia Franklin, wore Red Aspen lashes the night she was crowned. These clever entrepreneurs have caught hold of a wave of interest and are working away to spin that stroke of product placement genius into something even greater.
They now have a more extensive line of makeup products.
In their own words, they’ve spelled out their four core values on the Red Aspen blog:
Playful: We believe in showcasing enthusiasm in our work by creating cheerful communication, building imaginative products, and causing just a little bit of mischief.
Courageous: You are cordially invited to be the hero of your Red Aspen adventure (white knight not included). We experiment with new ideas, try and try again, learn from failure, celebrate success, and seek to become the best versions of ourselves.
Curious: Opportunity rarely comes knocking on your doorstep, so let’s go out and find it! Ask yourself “why?” instead of “why not?” Be flexible in your assumptions. Be smart. Be inquisitive. Be nimble. Never forget to share the rewards of learning and success with others.
Fulfilled: Seek an authentic life and fill it with what matters most. Create more time to dream, to live, to grow. Design the life you’ve always dreamed of!
The first iteration of Traci Lynn Fashion Jewelry launched in the 1980s. Lynn… “earned her first million in 1989. She was 26. But she walked away from the business world, too young to understand the nuances of a startup company” (Delaware Today).
She relaunched Traci Lynn Fashion Jewelry in 2008. In her own words: “I started the company in Delaware with a small investment of $200 and it has grown organically into a multi-million-dollar enterprise with nearly 35,000 independent sales consultants nationwide.”
“If I couldn’t drive to a location, then we couldn’t open up that market for recruiting. I used to go to every business opportunity meeting, every training. I wanted to know the field. I needed to build relationships” (DSN).
Her commitment to slow growth and to that personal connection to her field is inspiring. We see some companies that hit periods of hypergrowth that they weren’t prepared for, get swept up in the excitement, start cutting corners to meet demand, and totally lose the faith of their distributors. It’s a terrible thing to watch unfold. But it wasn’t the Traci Lynn way.
We applaud Traci for holding strong against this vicious cycle to protect not only herself and her company, but the businesses of her distributors and the livelihoods of her employees.
“My goal is to motivate people to step out of their comfort zones, inspire them to achieve greatness, and change their lives” (Female Entrepreneurs).
In 2016, Traci Lynn was appointed second Vice Chairman of the Board of Directors for the Direct Selling Association—the national trade association for direct sales companies. Today Traci serves as Vice Chairman of the Board.
Doctors Rodan and Fields are dermatologists turned entrepreneurs. They saw the need for science-backed products in the beauty world all the way back in 1995—a need that’s just as real today as it was then as evidenced by their huge sales numbers.
Their first foray into the business world, Proactive, is a household name in the US. The acne-fighting product line still sells around $1 billion in products a year. In 2017, their second skin-care line, Rodan + Fields, hit $1.5 billion in sales.
The skincare industry is full of snake oil—products that don’t even come close to delivering on their promises plus products that make your skin worse because they’re full of irritants. These entrepreneurs realized that beauty consumers were hungry not only for products that work but for products that are easily identified as efficacious because they’re endorsed by legitimate skin care authorities. So, what’s their story? How did they get to where they are today?
They launched the Rodan + Fields line in 2002. Sold to Estee Lauder, as a traditional retail line, in 2003. But they bought the company back from Estee Lauder in 2007. It’s an unusual thing to see, but their reasoning was sound and the gamble paid off. Why did they do it?
They realized that word of mouth (not Estee Lauder’s marketing) was the critical factor moving their product (Bloomberg Businessweek). They knew that they could get better sales if they started incentivizing that word our mouth marketing with an MLM model.
“We were witnessing this whole decline of retail and the rise of social media… During the recession was when entrepreneurs were born. People were hungry for different opportunities,” said Rodan.
Ten years later, the payoff for that unusual decision is still growing.
As of this writing, Doctors Katie Rodan and Kathy Fields are tied for 13th place on Forbes’ list of America’s Richest Self-Made Women. According to that list they are both worth $1.5 billion today.
These two women have some incredible insights into business and personal development. For example, “you have one reputation, which you’ve probably spent your whole life cultivating. Even one instance of failing to practice the golden rule of “do unto others as you would have done unto you” can destroy that reputation, so be mindful of your actions!” You can read more about
Episode #29 - Changing People's Lives For The Better - SoundCloud (1698 secs long, 91 plays)Play in SoundCloud
Most companies today have philanthropic initiatives but they’re often superficial or even counterproductive. How can a company design a charity program that does real good in the world? We sat down with Russ Fletcher, CEO of Xyngular, to hear about how he and Xyngular have risen to the challenge.
Russ tells us about how Xyngular has fostered a culture of giving, about the ways their distributors give to each other, and about the ways their distributors encourage each other to do good. He also gives us an inside perspective on their relief work in Puerto Rico during 2017’s hurricane season—how they matched distributor donations and then made sure, in-person, that those donations went to where they were most needed.
We’re so grateful for Russ’s contribution to our show and we hope you’ll listen in!
Kenny Rawlins: Hello and welcome to the MLM.com podcast brought to you by InfoTrax systems. I’m your host, Kenny Rawlins, and today we’re joined by Xyngular’s CEO Russ Fletcher. Russ and I have gone back a long time. I’ve learned a lot from Russ as we’ve worked around each other in different capacities and I’m excited to have him on the show today. How are you doing, Russ?
Russ Fletcher: I’m doing really well, thanks for having me, Kenny.
Kenny Rawlins: Thanks for making the time for us! So, Russ, one of the things that recently—through the grapevine—we’ve heard about is last year when there was a hurricane in Puerto Rico, that you guys did some really awesome philanthropic work, both going and visiting there, and some help with your distributors. And it got us here at MLM.com kind of talking about the different ways that MLMs give back and the different ways that they approach philanthropic efforts. And so, I wanted to talk to you a little bit, and I wanted to get a little bit of background and some insight from you on kind of how you guys at Xyngular approach philanthropy and giving back.
Russ Fletcher: Okay, well, again, I appreciate the opportunity to talk about this. You know, we have some strong feelings about what it means to be philanthropic. And here at Xyngular, you know, if you take a step back, you look at the grand spectrum of what network marketing companies do, many of them have charitable arms that they spend a lot of time with, and some of them that’s their whole reason for being. We applaud that. But there are some where it feels a little shallow. Where they have a philanthropic organization or a charitable organization that they contribute money to, but it isn’t part of their DNA. And so, when we started to talk about the way we wanted to do it here at Xyngular, we wanted it to be part of our DNA that we believe first and foremost the company exists as a philanthropic organization. Now having said that, we’re not a non-profit right, we’re a for-profit business, but we believe in our mission of helping improve people’s lives and financial situations through independent businesses—so much so that we try to throw everything we can into that, and we think that that by itself is a is a form of philanthropy, so we have to start with that. You know, we believe in the mission of changing people’s lives for the better. And it actually was kind of an a-ha moment when we came to it a couple of years ago—when we realized that we don’t actually change anybody’s life, all we can do is empower them to change their own lives. So, we believe very strongly in that.
Having said that as a backdrop, right, so that’s sort of the background, if you will, I get frustrated with what I call big checks from stage. Where an organization, out of the abundance of their profits, donates money to another organization and their connection to that organization is tenuous at best. I’m sure the money is well received and I’m sure it’s well intentioned. I’m not trying to make light of that. But it just doesn’t feel like it’s as sincere as we wanted to be. So, when we set out to do more philanthropic things, our first thought was we wanted to serve and help in the communities where our distributors and our Xyngular members live. And so, beginning, you know, a number of years ago, I came on board in 2014 as the CEO here, and starting right up in 2015 there were some floods in West Virginia and we have a number of strong leaders in the West Virginia area. And so, we decided we would donate to a specific organization in the community where our people live, to help the actual relief efforts as opposed to just a check to the Red Cross or to some other general relief fund. We actually flew out, sent an executive representative from the company to see the damage and see the concern for himself, and to make a monetary donation to an organization in the city of Logan, West Virginia, that we knew would actually go directly to solving the problem where our members live. And that’s kind of been the model that we followed ever since. Does that make sense?
Kenny Rawlins: Yeah that does. And I think it’s very interesting. One of the points I take from that is that giving kind of has to fit your culture, right? So, you guys have said, you know, “What makes sense for us culturally?” And then applied it. And the other thing that I think is powerful about what you’re saying is that it is so direct, right, which is interesting in this industry because you naturally have a relationship with your distributor base and your customer base—and it’s a relationship that I think a lot of people outside of this industry don’t fully appreciate—but I think it’s powerful that you guys have let that relationship inform how you give back to the community.
Russ Fletcher: Yeah, I mean, so many network marketing companies when they start, they have very personal relationships with their field leaders because its small, right, the company is small. And as we’ve grown over a hundred million last year, one of the things we made sure, or stressed very intentionally, is we want to make sure that that connection to our field leaders—and not just the leaders but to these sort of rank-and-file, if you will, people who are just part of our company—that that personal connection never gets lost. Now there’s only so far you can go, right? You know, you only have so much time in the day and so much ability to connect to people. And so, to make it a point of saying we are, we call ourselves member-centric—which means everything we think about and do we’re trying to do to foster that communication with the members and make sure that they understand that it’s not just a number on a spreadsheet or a name on a recognition webpage or something like that. There are real people with real challenges and real lives that we’re trying to affect for the better. And so, all of that together encompasses our philosophy, if you will, around philanthropic activities.
Kenny Rawlins: Yeah, and that I also find interesting because, you know, one of the benefits, quote-unquote, of having an organization that you support or that by default that’s your organization, is it takes a little bit of the work out of it, right? Whereas what you’re talking about is really powerful to me in the sense that it seems that it would be kind of ongoing. You guys are constantly assessing the needs throughout the world and especially where your distributors are. And I guess that kind of leads me to the hurricane last year, I believe it was Maria, and I’m curious how you guys made decisions to respond to that and just kind of how that continually assessing the situation plays into what you’re talking about.
Russ Fletcher: Well the interesting thing is, the hurricane season last year was particularly devastating. If you remember, we had Hurricane Harvey that hits Houston just a couple of weeks before Hurricane Maria and we also had Hurricane Irma which hit in the Caribbean also just a few weeks before Hurricane Maria. So, it was a rough hurricane season. And when Hurricane Harvey hit Houston, some of our owners and a number of our key distributors live in and around the Houston area, and our initial reaction was “What can we do for them?” Because you’d never know what else is gonna come along, right? And so, we reached out to them, and they were all doing well, and the ability for emergency response to Houston was great and they had, you know, relief people on the ground within hours and they could get to high ground. You know, the devastation in Houston was real and significant, but so was the ability to respond.
And so while we were concerned about what happened in Hurrican Harvey in Houston, when Hurricane Maria hit Puerto Rico and hit the islands dead-on…we have a large group in Puerto Rico that are members of our Xyngular family and we were really taken aback by how bad the devastation was and how little support they were going to get—because they’re an island and because you can’t just, you know, drive trucks in from Mississippi to help clean up the damage. Everything has to come by boat and plane. You know, the infrastructure in Puerto Rico isn’t as strong as it is in Houston so we immediately began thinking, “How do we help our people in our Xyngular family in Puerto Rico?” And communication was bad, it was hard to get information out there, and so we said, “Well, the first thing we can do is we can open it up to our Xyngular families.” So, we had an event in the few short weeks after Maria hit and we had one of our annual conventions in October—I believe the hurricane hit the latter part of September—in the first week or so of October we had this event. So, we said from stage, to our member community there attending our convention, we laid out the problem, we showed pictures of the island, we showed messages we were able to get out from our members and distributors there that they were without power, without water, without gasoline, even if they had a generator—and many of them were without generators. And we said, “Look, we’re going to match dollar-for-dollar everything that you donate here at this convention. We set up a SKU in our in our back-office so you can donate that way, if you’d rather. We’ve set up a Venmo account and you can donate that way, if you’d rather. We will match it dollar for dollar and a hundred percent of that money will go into the hands of our Xyngular family members in Puerto Rico.” Well, the response was very heartwarming. Part of our recognition program is people earn a certain amount of cash we give them. They get to walk across the stage for hitting a certain rank. We literally hand them cash in their hands. And several other people we would hand the cash and as they walked off the stage they would turn around and hand it right back to us and say, “This should go to Puerto Rico.” And you know the feeling that we get from that, you can’t pay for that, you can’t buy it, it’s not fake. It’s because they understand that our mission about empowering people to change their own lives is real. And mostly they didn’t know these people from Puerto Rico, right, this is just—they know they’re part of the Xyngular family and they trusted us that we would make sure they got the money. And so, we raised, you know, tens of thousands of dollars at that event. I’m reluctant to give the exact amount, but we raised tens of thousands of dollars.
Kenny Rawlins: It’s just amazing, that kind of response, and yeah, the trust that it requires from the field. But I’m also wondering, I want to hear a little bit how you think it changes the dynamic of your field when they see the company that they’re associating with and that they are a part of being proactive in that way and being generous in that way. How do you think it changes the dynamic amongst the field and between the corporate office and the field?
Russ Fletcher: Well, so it’s interesting because there are two things at play. I think that they appreciate the sense of community that we’re trying to foster—where people from across different walks of life in different areas of the world understand the heart of what we’re trying to do and that’s why you get people walking off the stage and turning around and giving their money back, because they understand that the overall goal here is not just to make money. The overall goal is to empower people to live the life they were meant to live. And when they were seeing the devastation and understanding that their Xyngular family wasn’t there because they couldn’t get out of Puerto Rico—they couldn’t come to the event because they were literally trapped on this island. They understand that that they needed to help.
The trust factor is another interesting one, you know. We’ve all read the stories about how 90 percent of charitable donations go to running the terrible organization and ten percent of the dollars make it into the hands of the people who need it. And while that’s an anomaly and the exception not the rule, it does happen. People become cynical about donating to charities and things like that when they’re saying, “Well, no, they’re never going to get the money.” And one of the things we made sure is that we were accountable to the dollars.
And so, within short order, two of us from the corporate office—and I say us because I went, we flew to Puerto Rico. I speak Spanish and so we were able to fly to Puerto Rico as soon as we knew we could fly back out. Flights in were easy, flights out were hard, right? And as soon as we knew we could fly back out we flew to Puerto Rico with cash in hand as well as supplies: water purification tablets, gas cans for waiting in line for gasoline, pumps and purification, ways to purify water. We flew down there and we met with as many people in person and assess their situation and said, “Look, your roof is gone, you need more money.” And we literally handed them cash in their hand and then we reported back to our field that this is what we’ve done, of course, took pictures and things like that but it wasn’t about that. It wasn’t about the publicity, it was about the accountability to say, “Look, you donated this money and here’s who got it.” And in fact, because of the kind of community that we’re trying to build, a few of the people that we went to visit said to us, “Look, I know I’m without electricity and without water, but I have a way to get it. Take the money you were gonna give to me and give it to somebody else!” Even on the island of Puerto Rico they were willing to share with each other because they recognized what we were trying to accomplish.
Kenny Rawlins: That’s amazing and that’s one of the things that I think is really powerful about what you guys do is that it encourages people to be involved and to be invested in it, right? Especially when you’re talking about matching donations and then reporting back to people and, you know, going directly in and making sure that the funds get into the right people’s hands. I can see how that would have a powerful effect in spreading the atmosphere of generosity, right? And even to the point that you just made about people saying, “No, I’m okay, go help this person who’s even worse off than I am.”
Russ Fletcher: Well, I’ll tell you a story that’s not corporate-related that indicates how this trickles into our field. Because of this culture that we have, we’re all in this to try to help each other live better lives. There was a woman in our field who was a fitness model and a CrossFit athlete before she ever was part of our Xyngular family. And she was in a terrible car accident and was paralyzed from the waist down and kind of became despondent and put on a bunch of weight. You know our products are weight-loss focused. And so, sometime after this, she came across the Xyngular opportunity and used our products to lose a bunch of weight. And she had competed in these Spartan sort of obstacle course races. Are you familiar with those?
Kenny Rawlins: Yep, yeah.
Russ Fletcher: So, she had, before her accident, she had done those, and after she lost the weight with us she started back into going back to the gym and working out. Well, her former Spartan team said, “We want you to do another race.” And so, she actually went, and together with her Spartan buddies, not associated with Xyngular, they basically—everything she could do with her upper body she did, but if she needed to do something with her lower body, they carried her. Well, we kind of made a big deal about how exciting that is and shared her video of that experience on our official corporate Facebook. Well, a distributor that lives in Canada—this woman lives in South Carolina—two of our distributors in Canada saw this video and reached out to her and said, “What do you need for your medical help?” And she said, “Well, you know, there’s this experimental electric nerve stimulation which would give me the ability to walk again, albeit with a walker and with the artificial nerve simulation, but I can’t afford it.” And they paid for it for her. They’d never met her, all they knew was that she was part of the Xyngular family and she had a need. And the first time they met her she was walking with the help of those devices. So, we didn’t do that, that’s not a corporate thing, we didn’t even know about it until after it had already happened. But it’s the idea that the company culture is helping to bring these kinds of people together that makes me just excited for what we can do.
Kenny Rawlins: Yeah, I mean, that’s the type of story that just gives you goosebumps. And, you know, a lot of critics outside of the industry find ways to pick on it, and certainly there have been companies that you can point to that they haven’t been the most aboveboard, but those are the types of stories and the community that this industry can really foster, right, where people feel a sense of togetherness and a sense of belonging and wanting to help one another, that I think is truly incredible. And you know we’re running short on time here, but there is one last story I want to have you share, and that’s—go ahead, and if you wouldn’t mind, I’d love to have you tell our listeners about your experience on your leadership retreat and the service project that was kind of informally organized there.
Russ Fletcher: Oh yeah. I’d almost forgotten about that. So, we do these rewards trips. We have a very robust travel program that our distributors can earn by doing certain things in their organizations. So, we had a trip last January to the Dominican Republic and as part of the trip we just, almost on a whim, we reached out to a local organization here in Utah where we’re located that helps place girls that they’ve rescued from sex trafficking into orphanages. The company’s called Operation Underground Railroad and they do great work. We’d heard about them here local and we said, “Hey, we’re going to the Dominican Republic, is there an orphanage that you can vouch for, where you place some of these girls, that we could help? Could we bring supplies or, you know, something like that? We’re coming down with a group of a hundred plus people and we’d sure love to help out.” And they immediately responded and said, “Sure, here’s this organization, here’s the directors name.” So, we reached out to them and said, “We’re coming down, we’d love to bring in some supplies.” So, the first step was we just reached out to our people who had earned this trip. Now this is a vacation, right, all expenses paid for a week at a resort in Punta Cana—which is one of the most beautiful beaches in the world. This is them taking their vacation time and saying to us, “Yeah, we’ll bring stuff.” Well, so in the process of gathering lists of stuff they might need, one of our distributors said, “Well, can we go visit? Can we visit the orphanage?” And that evolved into, “Well, can we help out in ways that are more tangible than just bringing supplies?” So, we went back to the orphanage and said, “What do you need in terms of like a service budget? What could we do?” And we took—I can’t remember how big the group was—but several dozen people away from the resort town of Punta Cana and went to this very small orphanage that had been given some buildings that just needed painting. And we bought paint at our expense and these people took time from their vacation to just go and paint walls and classrooms and dormitory rooms in this orphanage.
Well, okay, we’re there on site now, we’re painting and one of the girls was there, sort of amazed that these people would come from there because they know the resorts and so they’re like, “You came from the resorts to come here and paint?” and so I said, “Yeah.” And they struck up a conversation and they were saying, “If you could have one thing that you wanted that I could send you from the United States in the mail, what would you want?” And they meant it’s sincerely, right, they were they were thinking they would help out. And this girl very humbly said, “I’d like a pair of shoes. All I get to wear around here are flip-flops and I would like a pair of shoes and it would be great, you know, I’m a size whatever and, you know, if you could send me a pair of shoes that would just make my day.” She didn’t ask for, you know, an iPhone or a Nintendo or any of those sort of material things, she just was humbly saying, “I’m tired of wearing flip-flops, if I could have a pair of shoes.” Well, she said, “What size are you?” And she told her and they were the same size. And so, this woman took off her shoes and gave them to her and she said, “I could go home barefoot. These fit you, why don’t you give them a try?” And pretty soon, the whole room was turning to the girls that they were they were trying to serve and they said, “What size are you?” And I get a little emotional when I talk about this because, you know, these aren’t necessarily millionaires. Yes, they’d earned a trip to the Dominican Republic, but these are people of sort of normal regular lives just getting literally the shoes off their feet and going home happy as they possibly could be. And we took a picture of the girls in their new shoes and these other women barefoot, all of them beaming ear-to-ear, this just incredible moment. Again, if I had gone to them and said, “Could you pay for a pair of shoes?” They would have. They would have done it gladly, but that’s not the point. The point is to have these opportunities where a giving heart and a person in need can be connected and it just made the whole trip just that much more powerful.
Kenny Rawlins: Yeah and then just hearing that, I mean, it’s a heartwarming story and I think it’s incredible both in the actual experience and also in the representation of the culture that you guys are working to foster over there. And Russ, I genuinely appreciate you taking some time out of your morning to come on in and talk about this because I think it is important for everyone, whether it’s in the corporations that they run and manage or are part of, or even in their individual lives. I think the thing that I really appreciate about Xyngular and your guy’s way of going about this is the creativity, is the willingness to say, “Hey, what can I do in in my sphere of influence and in this situation?” And it’s powerful. It’s powerful to see. So, I appreciate your time this..
January is the time when many of us set out to change our behavior. An internet search on personal development yields 181,000,000 results. Topics range from positivity, to self-esteem, to leadership, to overcoming obstacles, to effective public speaking and many more topics. Personal development requires we fill the gap between real me and new me. Feedback provides the key to fill the gap. As the trainer, you must give feedback in a way that motivates the trainees to change to meet the new me. As a trainee, you need to learn to listen to feedback and use the information to your advantage.
Today’s topic on feedback follows the common phrase, “It depends”. In a 1996, researchers Kluger and DeNisi reviewed 131 research studies to see if providing feedback can improve a trainee’s performance. The feedback process is complex. Research found that sometimes feedback improves performance. Other studies found that feedback provides no difference to performance, and sadly, some research shows that feedback can make behavior worse.
Some feedback hinders progress and other feedback helps. One surprising finding was that praise is not as effective as predicted. Initially this finding seems counter-intuitive. However, the research suggests that the farther away from the task or behavior the feedback is, the less impact it has on change. Feedback occurs in a hierarchy from task feedback to self-esteem to thinking about how behaviors get changed. If I spend most of my time telling you how great you are doing, rather than tell you that effective speakers understand the audience and adapt the message to audiences, then I have moved away from the task (effective public speaking) to the self-esteem level (how great you are doing). Praise can be helpful after a goal is complete. We all like to hear that we are good people doing good things.
Another finding on reduced effectiveness of feedback was any feedback that threatens self-esteem. Of course, most of us know that negative attacks on how successful we are going to be at a task tend to move us toward helplessness. “You will never be a great speaker” is not helpful. Again, this feedback is away from how to do the task. Perhaps here a more physical task will help you see the impact of focusing on self-esteem (either positive or negative). If I am trying to teach you how to change a tire, and I spend my time telling you that I am sure you can do it, yet I do not tell you “how to change the tire”, then you are not likely to learn.
On the positive effects, feedback that directs attention to the task is effective, and feedback that suggests a “correct solution” are effective. The key in feedback appears to be giving specific feedback that is not personal (attack self-esteem). For example, if I give you feedback on how to find sources of information to add support to your speech, that will be more helpful than saying seems like your speech needs more depth.
Now the question remains, how does a person learn to receive feedback? Can you get better at learning new behaviors? Of course you can learn. Two key elements appear to influence your ability to receive feedback and change your behavior, high self-esteem and high self-efficacy (ability to accomplish goals). The more comfortable you are with your talents and limitations, the easier it is to make improvements. We are now in a conundrum. What do you do if you have low self-esteem and low self-efficacy? One way to be ready for changing your behavior is to start with these two key elements. By setting small goals and attaining those goals you can increase your belief in yourself.
Feedback, both giving and receiving, is key to personal development. The process is complex. However, if you are aware that not all ‘givers’ of feedback are the same, and that your self-esteem and self-efficacy will influence your ability to receive feedback, you are ahead as you develop personally and professionally.
Kluger, A. N., & DeNisi, A. (1996). The effects of feedback interventions on performance: a historical review, a meta-analysis, and a preliminary feedback intervention theory. Psychological bulletin, 119(2), 254.
Nancy and Kenny just wrapped up their series of podcasts about employee and distributor engagement. Those episodes detail evidence-based approaches you can use to make your company a great place to work. But we wanted to give you more than just the theories and strategies. We wanted to answer the question:
What does it look like in practice?
In this episode, Nancy sat down with Matt Layton—LegalShield’s Vice President of Network Strategy—to find out how they’ve made DSN’s list of great employers (not once, but twice). Matt talks us through the attitudes, values, history, and traditions that make LegalShield a wonderful place to work.
Nancy Tobler: Welcome to MLM.com Podcast. Today my guest is Matt Layton from LegalShield.
We have been talking about, for the past couple of months, what makes a company a great place to work, and LegalShield has been on the great places to work… uh… “winners list”—I don’t know what we’d call it—for the last few years.
I have the wonderful opportunity to talk to Matt about LegalShield and what they do and how that makes them unique in the industry.
Matt is the Vice President of Network Strategy and he’s been at LegalShield for 20 years. Welcome, Matt.
Matt Layton: Thank you. Hey, it’s a most certainly my pleasure to be on with you guys today.
Nancy Tobler: Thank you. So, the first question I’d like to start off with is how would you describe your organizational culture at LegalShield?
Plan, Do, Check, Adapt
Matt Layton: Sure, thank you. That’s kind of a broad question but yeah, we like to—We started business in 1972. Right? So, we’re a 45 plus years old. We like to call ourselves the 45-year overnight success. Right?
Nancy Tobler: [Laughs.]
Matt Layton: A 45-year-old start up. Because that’s—that’s kind of the mentality we try to take. Especially, you know, in the more recent years, the last five, six, seven years.
It’s a can-do attitude, we’re always thinking about continuous improvement. Especially in the kind of direct sales field. We’ve got a force of sales associates out in the field making sales and recruiting new team members.
So, really, how can we just make those slow continuous improvements that, build on each other? It’s really, plan, do, check, adapt. How do we constantly, put new plans into place, review them, check them, get rid of what didn’t work, improve upon what did work. “What gets measured, gets done,” is really the mantra that we hold to.
Nancy Tobler: Yeah, great. I didn’t realize you’d started in 1975. Was it was called LegalShield at the beginning?
Matt Layton: It was actually 1972. Right? So, we started as a Sportsman’s Motor Club. So, it was really just like traffic citations and it’s just like a motor club for car tickets and accidents. And then we became Prepaid Legal shortly after that. Now LegalShield.
Nancy Tobler: Oh, that’s right. I remember when you went from Prepaid to LegalShield. But I wondered if you’d started out as Prepaid.
Matt Layton: Nope. Yeah, it was 1972, actually. We were started out as Sportsmen’s Motor Club and that really gets into the story of our founder. Right? And how how we even came to be.
He had a car wreck. He had insurance to cover his car, he had health insurance that covered his health. Actually, he was found at no fault for the accident, but he got sued by the other party.
What he didn’t then have was insurance to cover those legal needs. While he had his car and his health taken care of, he got sued. There wasn’t any protection there.
So, that really kind of spawned the idea of our entire business.
Nancy Tobler: Wow. Well, that’s a great founder story. I think many people don’t realize the need they can have for legal fees to be covered.
Protecting the Rights of Those Who Can’t Afford Counsel
Matt Layton: That’s really at the core of our mission and vision. I mean, we kind of take it upon ourselves and we believe that we’re correcting an injustice in the legal system today. Right?
We’re protecting the rights of individuals who, have legal issues but may not be able to afford the protection and the counsel. And in order to ensure they receive those rights.
We kind of hate to think about it, but you could probably get as much, you know, legal help and protection as you can afford. And that really shouldn’t be the way it should be. All of us should have equal access to our rights.
Nancy Tobler: I have access to my son. He’s a lawyer. But he doesn’t do all kinds of law, that’s the trick. His response is, “I’m not that kind of lawyer.”
Matt Layton: That’s one of the main objections we get, like, “Well, I may not need legal services, or I may not need your plan. My friend’s an attorney or my son, or my father.” It’s like just what you exactly said. Well, one, I don’t know that they’re going to want to, you know, answer your call 24 hours a day.
Nancy Tobler: Right.
Matt Layton: I don’t know if they’ve got all the expertise in all the different areas of law.
Nancy Tobler: Yeah, he just dismisses me. But, you know, that’s fine. He still loves me, so it’s okay.
Unique Ways LegalShield Benefits Employees
Nancy Tobler: So, let’s talk about your employees and unique benefits you offer to your employees.
Matt Layton: Sure. I mean, we’ve got a, you know, a gym on campus here. Our building’s really in, southeastern Oklahoma. Ada Oklahoma, if anyone knows where that is. We have a 60-acre campus here that our building sits upon.
Like I said we’ve got a gym. We’ve got a restaurant that we subsidize the healthy food options there at the restaurant.
But, really, probably what I think are some of the most unique and the best benefits, right, is, you know, all of our employees have the legal protection that we just talked about previously. All of our employees have the identity theft protection plans that we market.
But probably what’s the most exciting benefit is that we encourage and offer all of our employees the ability to participate in the LegalShield opportunity. And really, that opportunity is, you know, selling and marketing our legal plans and identity theft plans. And then, even going out and building a team of independent contractors that, do the same. Go out and sell and market our products.
Nancy Tobler: I think you are unique there. I can’t think of another company where employees can participate in the compensation plan.
Matt Layton: That’s that’s how our company runs. Right? They send us membership plans that they’ve sold. We send them out advanced commissions. So, we strongly encourage all of our employees to participate.
Nancy Tobler: Yeah. Yeah, I think that’s great.
How LegalShield Supports the Community
Nancy Tobler: So, the next question I had is what service [you offer]? I think that one of the things that makes for great companies is that they have a vision—not just about their products, but they have a vision about how the community should be. And I’m just wondering what services you provide to the community?
Donating to Charities
Matt Layton: Sure. One of our One of our main focuses is on the United Way. So, we have a year-round collection there. I mean, that’s always front of mind for all of our employees. We’re the largest contributor in our in our area.
The employees kind of run this on a yearly basis. And then the company always comes over the top and matches that 100 percent.
Right now, we’ve got a, a holiday food box that we’re collecting. Our goal is to feed 500 families for an entire year. So, I mean, that’s our goal there.
We always, we’ve got a strong participation in Relay for Life. You know, they collect money for cancer research and awareness. That’s kind of during the summer. We create teams all around the company and then we compete against each other, who can raise the most money.
One of the recent things that I’ve been doing with my team, especially in the vein of community service is, how are we out in the community participating in and getting either awareness for ourselves and the and the company out?
So, myself, I always maintain a seat on the board of directors, you know, of a local community service.
One of my team members was just voted on to the Board of Directors of the United Way since we are such a big big participant there.
We have another young lady who was just voted onto the Chamber of Commerce Board of Directors.
So, we like to raise money. We like to get out in the community and help those that need it the most. But we also like to, you know, get out and actually participate and help build what is all around us.
Nancy Tobler: Yeah. That I think that’s wonderful I hadn’t really even thought about people serving on board of directors for service programs as a service to the community but it’s a great one. It’s a wonderful activity.
Matt Layton: Yeah absolutely. So, writing your check is, one good thing. Everybody wants money and that’s certainly helpful.
But really, if you can instill that idea in all of your people—and by all of our people I mean the folks that are employed and all of our team members here at LegalShield. If we can really instill that servant-leader mindset in everyone, I think it helps, you know, us as a company, it helps the community, you know, it helps you personally and professionally.
Nancy Tobler: Yeah. Well, the research really suggests that community outreach has a great impact on employee morale. And I think you’ve got some wonderful things that you’re doing. I think United Way is a pretty solid program.
But I love the idea of feeding 500 families for a year. I’ve never even heard of anyone try to do that. You know, usually it’s collect for one meal, essentially, you collect for a Thanksgiving dinner or a Christmas dinner. I applaud what you’re doing.
Matt Layton: And that’s certainly actually where it started. Right? Several years in a row that was our focus. How can we collect enough food for, you know, a Thanksgiving meal for folks that may not have it otherwise? We saw that, you know, we were doing such a good job there. Why not step it up a little bit? You know, set up higher and bigger goals for ourselves.
Nancy Tobler: Well, it’s your same mantra. Right? Plan, do, check your progress, and then react. It’s the same.
Matt Layton: Absolutely.
Nancy Tobler: Same process, so I love it.
Matt Layton: Yeah. And then just kind of, again, back to the service to community and kind of going out ourselves into the community, really. That’s one of the four truths of LegalShield. Right?
Personal and Professional Development Are Core
Matt Layton: Personal and professional development are at our core. So, really, not only are we interested in doing the best for our company, you know, selling the most memberships, recruiting the most people. I mean, we’re interested in building up the best employees possible, both personally and professionally.
Nancy Tobler: Yeah. Well, I think that’s another area that we’ve talked about here on the podcast, actually, is that training and development are huge. People feel valued when you offer those goals and meeting those goals and the training and how to do that. I think that’s just wonderful.
Nancy Tobler: So, the next question I have is what traditions do you have for your employees, what traditions do your employees value?
Matt Layton: Sure, so yearly, and again, we go back to our founder—we were lucky to have our founder from 1972 up until about six or seven years ago. But, his annual company picnic.
So, historically, we had it at a local park here in Ada, Oklahoma. More recently once we came out to our new building in 2003, where we’ve got the 60-acre campus, the party’s held here. And it’s almost like a county fair atmosphere. Right?
So, we, kickoff of work a little bit early that day we’ve got food booths set up all around the campus. You know, there are inflatable toys for everyone’s family. There are games. We have a band. We have a dunk tank.
So, it’s really almost like, just a full day at the county fair that we set up here at the corporate office.
And really, we’ve been doing this certainly through my entire 20-year tenure. And it was happening long before that as well.
Nancy Tobler: Wow, yeah. Wow. It’s amazing how yearly traditions can spark that unity. And it, creates an opportunity for people to see each other outside of work. In that social environment and create relationships, so, I think that’s a great one.
Matt Layton: Yeah, that’s certainly what it’s about. Right? So, how do I step out of the professional atmosphere. We may be hitting up against deadlines, I mean, I may not necessarily agree with all of my co-workers. I mean, it’s it’s stressful. We’ve got deadlines to meet. But, you know, what are those regular events that we can plan, that we can step outside of that? You can let all of that other other stuff go and just have, you know, a heck of a time with the folks that you’re working with all day.
Normally the company picnic’s in the middle of summer.
Christmas and Holiday Party
Matt Layton: At the end of the year we have a Christmas slash holiday party that’s really almost the same structure. It’s not the full on, faire atmosphere. But we cut off our work early we’ve got a half a day. We have a talent show. It’s really, again, celebrating our people.
Nancy Tobler: Yeah.
Matt Layton: Everyone has the opportunity to show what they can do. So, it’s normally a talent show. We bring a band in and really the culmination of that event is where we name the Employee of the Year. So, every single month we have an Employee of the Month. So, of those 12 Employees of the Month, we bring them back up again. You know, everyone loves recognition. That’s how you get a group of folks moving. And from that 12 we picked the one Employee of the Year. So, that’s kind of the culmination of the year.
Nancy Tobler: Great. I think that’s wonderful. I think that thinking about the Employee of the Month that leads into my next question which is:
How LegalShield Rewards Employees
Nancy Tobler: What unique rewards or what rewards do you use with your employees?
Matt Layton: Sure. I’m sure we’re like everyone else. Paid time off. We’ve got a 401k that—I don’t know how everyone else does it—but our company has and continues to match 100 percent of the contributions to the 401k.
Another big one, we kind of hit on it earlier about that personal and professional development, tuition reimbursement program. Again, personal and professional development are at our core. So, not only do we want folks, doing a good job in the office at their day to day work. We want them to be becoming better people outside of the office because, if you’re better personally, or if you’re building upon yourself, you’re going to bring more skills into the office.
Matt Layton: And really, to me, a really exciting one—and it’s kind of a relatively new change—it’s a quarterly profit-sharing bonus. What that is that it immediately and strictly aligns all of the employees with the core goals and missions of the company. So, every single quarter, we issue profit sharing bonuses to all employees based upon the results the company’s seeing.
So, it really helps everyone in the company understand, “Okay, what is our what is our mission this month?” Or, “What is the company goal this month?”
It gets cascaded down from the top to the bottom. Everyone’s moving in the same direction. Everyone’s got the same goal and everyone’s going to get rewarded. Right? When we hit and/or exceed our goals.
Nancy Tobler: Yeah. Yeah, I think that profit sharing, is very popular. I think all of us like that. Well, all of us like… not just the money. It’s the idea that we all are invested in this company’s future. And profit sharing reflects that the company sees us as part of the future.
Matt Layton: No, 100 percent. And we like to think about it, it’s all about, candor and responsibility. Right? We want everyone to know what the company is shooting for. I mean, there isn’t any secrets up in the C-level suite.
Everyone knows what everyone else’s goals are. Everyone’s moving toward that same point of view into the future.
I think you hit it exactly on the head. Everyone feels and knows “what I need to do to individually contribute.”
When all those contributions are added up, that’s when the company meets their goals.
We started off and We started this with an annual profit-sharing bonus and then we moved to, every six months. Now we’re to quarterly. In the perfect world, this goes down to a monthly or even a pay period profit sharing bonus.
Nancy Tobler: Yeah. Yeah, that’s nice. I like the progression of it.
So, the next question I have is a little different than what people normally ask on benefits and how companies run. But I think it shows a lot about how your employees see you. And the question is:
In A Tight Knit Community, Word Gets Out
Nancy Tobler: Do your employees recommend your company as a great place to work?
Matt Layton: Yeah, that is a that is a good, good, good, good question. So, I think I’ve mentioned this earlier, so we’re headquartered—our home office—and really for, 40 plus years, our only office, was located in Ada, Oklahoma.
That’s, you know, southeastern Oklahoma. That town is, 20 to 25 thousand people. So, really, the only way that we could, stay at full employment or the only way we could attract new people is through that word of mouth. Right?
So, I mean, yes there could be advertising in the in the local paper or with you know the job postings on the internet, but really, because the community is so small and so tight knit. Word did get out. Right?
So, everyone knew who Prepaid Legal or LegalShield was. So, you couldn’t help but get new prospective employees out [of that community]. They had already heard of us. Right?
So, no one was coming to our doors having never heard from us.
So, really, for 40 plus years that was really the only way that we did and could attract talent is through word of mouth. Most, you know, everyone knows somebody or is related to somebody in a small town. That’s really the foundation upon which our entire company is built.
Nancy Tobler: Yeah, that’s, I think that’s very powerful. I think that really speaks to the culture you were talking about at the very beginning of the call. Right? That you can see yourselves as a company that plans, does, checks, and then reacts. Right?
Matt Layton: Yeah.
Folks Work Better When They Have Personal Relationships
Nancy Tobler: But that’s that family sort of atmosphere. Right? We are always working through issues and trying to do a better job. I think that that’s just great.
Matt Layton: And I think that kind of goes back to a lot of the buy in you were talking about the profit-sharing bonuses. Because, most of the folks here at the home office are from the local community, we all know each other. Right?
Our kids went to school together. Our families see each other at the local supermarket. So, there is that sense of community.
And, I think folks work better when they have those personal relationships like you’re talking about.
That’s the reason you have the company picnics. That’s the reason you have the holiday parties. It’s to build that, personal relationships among all of your employees. I think, we have the benefit of… That’s already in place a lot of times when folks, come out here to work.
Recently, I mean, we now have an office down in Richardson around Dallas, Texas. New York City, we’ve got an office now that’s relatively new. We’re making headways in the United Kingdom. Going to have an office there.
Nancy Tobler: Oh wow. Well, congratulations.
Matt Layton: We’ve got potentially up in the north, northeast.
But I say all that to say: those people are coming on board. They don’t necessarily know or see a lot of us at the home office, but they’re coming into a culture where that’s all already built.
Nancy Tobler: Right.
Matt Layton: I think we’re going to only be stronger. Because they’re going to immediately be acclimated to the way we’ve done business for 40 plus years.
Nancy Tobler: Yeah, yeah, that’s great. Well, that’s pretty much the questions I had. Is there anything else that you want to add about being a great place to work?
Matt Layton: No, hey, I certainly appreciate all of your questions. I think they’ve ran the gamut.
A Strong Core of Long-Term Employees
Matt Layton: Probably one of the things that we’re most excited about is the tenure of our employees. We have you know 200 plus people that have been here 10, 15, 20, years.
So, we’ve got that family atmosphere. Right? We’ve got a lot of, ingrained knowledge. So, it’s not like there’s just a whole bunch of new people coming in and out the door every week.
We have a strong and large core of employees that have almost been here since the beginning. I mean, there’s a lot of knowledge there that you just can’t recreate.
Nancy Tobler: You can’t replace it.
Matt Layton: You can’t put that in the cloud and go up there and get it. So, we think, we’re uniquely positioned to take this company light years ahead.
Nancy Tobler: Yeah, that’s great. Yeah, I didn’t realize you were going international. I think that’s wonderful. I think that’s a great move.
So, thank you so much. I congratulate you again on making the list of great places to work on DSN’s list each year. I think you’ve been on two out of the last three years? Can’t remember.
Matt Layton: Hey, just go ahead and pencil us in from here on out.
Despite gloom in the global economy and fears of a US-China trade war, growth in China’s retail sales (and direct sales in particular) remain robust.
Chinese culture lends itself to the proliferation of network marketing models as it is very much a network culture where word of mouth marketing is king. However, multi-level marketing is illegal under Chinese law. It is crucial to avoid non-compliance with China’s strict laws. Fortunately, international MLMs hoping to tap in to the Chinese consumer market have options for doing so, if they’re willing to check their multi-level commission plans at the door.
Chinese Culture Lends Itself to Network Marketing
Networking marketing is alive and thriving in China. This can be seen in the dynamic and innovative nature of the business in China. Wildly successful domestic and international networking marketing companies have tapped into China’s relationship culture, known in China as “guanxi”.
Indeed, anyone who has done any business in China has very likely heard the term guanxi thrown around. A local partner will likely tell you he has the right government guanxi to get the deal done. A supplier will advise he has guanxi with customs. Guanxi is the concept of close personal relationships that define Chinese social and personal networks. Guanxi is a web of personal connections that are often crucial to successful business in China. Guanxi is a key reason why network marketing is such big business in China.
Word-of-mouth marketing has a much higher conversion rate than traditional forms of marketing because of the importance which the Chinese place upon trusting their close friends and family. This nurturing of relationships is what drives the prevalence of networking marketing businesses in China.
However, network marketing is not static in China – the market is still growing and innovative programs are constantly popping up. Hundreds, if not thousands, of new network marketing business are founded in China each year so competitive companies need to innovate, whether in business model, compensation or reward mechanisms. Differentiation is key.
The 2017 Crackdown on MLMs Does Not Prohibit Single-Level Network Marketing
A number of international network marketing companies have shied away from China due to the 2017 multi-level marketing (“MLM”) crackdown in China. The 2017 crackdown involved the PRC authorities taking strong action against pyramid schemes. This was a response to serious, criminal misconduct on the part of a number of Chinese MLM companies.
It is important to note that the crackdown was clearly focusing on illegal activities by Chinese gangs that engaged in violence, kidnapping and other criminal activities that bear no relation to the business of legitimate network marketing companies. In our opinion, international network companies were more affected by overseas media than by the authorities within China.
Crypto Network Marketing May Trigger a New Crackdown
2018’s cryptocurrency boom inspired many new network marketing companies. China had many new projects which allowed participants to invest in mining operations. In return, participants were promised a percentage of the tokens mined.
One recent network marketing concept that is booming in China is “AI Sheep” by Game Ranch. This concept is cashing in on keen interest in artificial intelligence as well as longstanding affection for sheep. “AI Sheep” is marketed as a foreign project with a foreign team. Interestingly, there is no publicly available information on the English language internet in respect of “AI Sheep”. We assume that AI Sheep wishes to leverage the strong sense of trust Chinese consumers have in foreign companies. AI Sheep are purely focused on the China market – 1.4 billion consumers seem to be enough. It seems the game collects data of users and rewards users through accumulation of USDT (the stable coin tether) for participating and providing such data. Users manage their digital sheep and can see their USDT accumulate in real-time. This is a major selling point for recruiting new users.
Despite the massive success of this game and other crypto-related network marketing businesses it is clear that they are extremely high risk for both operators and participants.
On September 4, 2017, the Chinese government banned all initial coin offerings (ICOs) and any mention of selling tokens can be very risky.
This combined with the longstanding Chinese prohibition on multiple levels of commission means that any network marketing company that combines these two concepts is engaging in a very high-risk enterprise. In addition, participants will face the risk of being stuck holding the bag as the Chinese government is swift in shutting down illegal operations. In such cases, companies may quickly disappear leaving nothing more than a team of angry downline affiliates who paid their subscription fees but have no product. To the detriment of the reputation of all network marketing companies among the Chinese people and government. We expect that the next crackdown will be against such types of companies.
Cross-Border E-Commerce, A High Growth Option for Product Sales
Chinese retail regulations are loosening to allow foreign network marketing companies to directly benefit from China’s consumer market growth. Cross-border e-commerce (CBEC) is growing exponentially in China as Chinese consumers’ appetite for foreign products—in particular skincare, cosmetics, and health supplements—increases.
The two key benefits for international companies operating under the CBEC model is that they are not regulated under Chinese telecommunications laws and at least for the foreseeable future they do not need to comply with the filing and registration requirements for these types of products.
In November of 2018, Prime Minister Li Keqiang announced that the grace period for registrations and filing, which was originally set to expire at the end of 2018, for CBEC will be extended for at least another year. This was an unexpected boon to network marketing companies that are selling cosmetics, supplements, health food and infant formula as these products, when sold via CBEC, are exempt from needing Chinese product registration.
While CBEC has opened up a channel for international network marketing companies selling lifestyle and wellness products into China, the risk remains that these activities, if not structured properly, may be deemed to be illegal pyramid sales. As such, international companies taking advantage of CBEC must ensure their compensation structure is compliant with Chinese laws and regulations.
Multiple levels of commissions are still illegal in China. To demonstrate the importance of this issue with the Chinese government, there are currently only a handful of Chinese regulations that exercise extraterritorial reach, including the Cyber Security Law of 2017 and the Regulation on Prohibition of Pyramid Selling.
Violation of this regulation is considered a criminal offense. Therefore, international MLM companies which operate in China must change their compensation model for that specific market. If such companies continue operating the same compensation model of multiple levels of commission within the borders of China as they do in their home market, they can be hit with criminal liability under Chinese law.
The SOSO Model—Selling Product Cross-Border, Serving Customers in Country
SOSO, short for sales offshore service onshore, is a model that allows for representatives to earn single-level commissions for direct referrals and then additional service fees for services they provide the company instead of earning multi-level commissions on product sales. The SOSO model takes advantage of the option to conduct sales through CBEC.
The SOSO model allows international network marketing companies to:
Access the Chinese market
Avoid any suggestion of being an illegal and fraudulent pyramid scheme
Create service jobs for Chinese citizens
Pay Chinese taxes
In other words, it’s good for the company, good for China, and good for the reputation of the direct sales channel in China.
Instead of paying multiple levels of commission to sales affiliates onshore in China, SOSO companies pay a single-level commission for direct referrals to buy through CBEC. This type of commission is in compliance with Chinese law. Companies can pay additional service fee compensation for services affiliates perform.
What do network marketing affiliates do on a regular basis? They promote and market products and services. They also train and support their teams. Both activities—promotion and support—are services provided by these individuals. Chinese law allows companies to pay single-level commissions as well as payment for these services.
Under the SOSO model, affiliates earn compensation for promoting the products to Chinese customers and providing customer support on behalf of the international network marketing company.