So what do I mean when I say “beef up the compensation plan?” This happens when companies charge a monthly fee (i.e. $30 a month) or a one time training fee (i.e. $500 training fee) from each rep in order for them to remain eligible for commissions. In exchange for this fee, the distributors get back office support, training and usually wholesale pricing on products and services. The money can be used to “beef up” the plan when its collected by the company and inserted into the commission pot. As an example, if a company charges $30 a month as a service fee and the distributors get a percentage of the service fee for each personally enrolled rep, it can spell trouble. However, if the monthly fee is more like a subscription fee and the subscription has relevance for people beyond the network, it’s a more palatable story.

The problem with injecting a pay plan with monthly fees is simple: the only way to tap into that money is via recruiting more distributors. When there’s no real market for the product or service for nonparticipants (people outside of the network), the transaction is viewed mainly as a money transfer from new investors to older ones. When Burnlounge was shut down by the FTC, they were pursued largely because their commission structure was allegedly fueled primarily by the usage fees paid by the distributors, not via the sale of their products. It’s a problem.

The old MLM mantra remains true: Companies should never pay commissions on sales aids. “Service fees” or “membership fees,” when there’s no real market for the fee outside of the distributor base, falls in line with this old mantra. What do you think? Can you think of any way around this rule?

Related posts:

1. Master Distributors: good or bad?

Recap

I want to quickly recap some events over the past few weeks. It starting with Rod Cook’s report about MonaVie’s decline in web traffic. Rod put out a video titled “MonaVie’s Death Dive.” He gave his opinion about MonaVie’s 60% drop in web traffic over the past year.

Fast forward to last week. Ted Nuyten publishes a report “from an anonymous source” stating that MonaVie was experiencing a dramatic decline of over 20% in revenue in 2010. He made a mistake when failed to provide the source of the information: Tracey Coenen’s site. Tracey is a forensic CPA, she’s accomplished (she worked for Arthur Anderson) and she’s a known anti-MLM person.

Fast forward a few days. MonaVie sends Ted Nuyten a threat of legal action. Ted responded and I chimed in. I’ll be honest: I get angry when I see big guys pick on little guys. MonaVie’s threat was unfair. But despite the threat, people are still teeing off on Ted questioning his decision to publish the data, which MonaVie has yet to deny as false. I’m not sure if most of you readers have ever been threatened with litigation by an enormous company. It’s not fun!

Dallin’s response

Update: I originally and accidentally included commentary from Troy Dooly as Dallin’s quote. This has been corrected.

Fast forward to today. Dallin Larsen published his official response. After Troy asked him a specific question about the rumors of a decline, Dallin responded as follows:

-Start quote-
“Troy, with our webcast in October, we will unveil the next phase for MonaVie. Let me simply say that in the words of Mark Twain,” the reports of my death are greatly exaggerated.

We are a private company and don’t release our numbers bus let me simply say that I just returned from 10 countries over the last 90 days and we are growing. Up in some markets and down in others. There’s a cycle in business and there’s a cycle in this industry. . .

Since MonaVie began operations in January of 2005, we’ve paid commissions accurately and on time, each and every week, and we will continue doing so.”
-end quote-

I’m not doubting in Dallin’s ability to take charge of his business and reposition it to win. I’ve met Dallin. I like him. That’s not the point. There’s a decline in traffic. There’s a plateau. So what. Companies cycle up and down. And when people opine on those cycles, it’s inappropriate to threaten them with litigation, especially when there’s a kernel of truth. Instead of commenting about the successes of prior years or the natural cycles of business, the focus of Dallin’s response should have been placed squarely on the issue that started this controversy: the reports of a serious decline in revenue.

If we, as a community, cannot discuss obvious facts about challenges faced by various companies, how can we improve? Ted’s article sparked a great debate. Now people will be watching MonaVie in October to see how they re-tool their business for the future.

This is very simple sequence of events: Rod Cook posted a video about a decline in web traffic. Ted posted an article about MonaVie’s decline in revenue. Ted was dubbed “irresponsible,” accused of publishing “half truths” (without any facts to shed insight about the half that was not true) and threatened with a lawsuit. MonaVie via Dallin Larsen did nothing to dispel the rumors. And yet, we’re beating up on the guys that reported on this in the first place…Does anyone else see a problem?

Rod and Ted

Rod Cook’s report was confirmed by Dallin. He’s off the hook. There’s nothing wrong in publishing a decline in web traffic. When compared to other companies, the web data is important and lines on a graph that go down are not as good as lines that go up. Pointing out the obvious should not cause widespread panic. Ted’s decision to comment on MonaVie’s plateau was not inappropriate. The issue really lies in whether those stats are accurate. This leads me to a special request.

Second chance

Troy Dooly, I know you have the golden phone to Dallin Larsen. If you see fit to do it, please send him a message or give him a call and ask him if MonaVie is experiencing a 20% decline in revenue in North America as stated on Ted’s site (give or take a few percentage points). If the answer is yes, ask him why they threatened Ted with a lawsuit. I think those are fair questions and they get at the very heart of the issue.

If we are to remain in the dark about the specific figures (MonaVie is under no obligation to provide this info; however, after accusing Ted of publishing malicious lies, I think they’ve opened the door and it would be appropriate) and if MonaVie reports a 20% decline in North America at the end of the year, I think a lot of people will owe Ted Nuyten an apology. What do you think?

Related posts:

1. MonaVie threatens Ted Nuyten
2. MonaVie and the Push for “Proprietary”

In Ted’s post, he links to the source of the stats about MonaVie’s revenue decline. Here it is. As Troy Dooly pointed out in the comment section of Ted’s response, the source of the info is not a MLM friendly source. Nonetheless, Ted made a Disclaimer Sandwich by starting the article with a disclaimer and ending it with a disclaimer. When was the last time you’ve read an article with TWO disclaimers;)? Maybe the information is inaccurate, maybe it’s not. But to lead with the litigation hammer and levy such strong allegations is really sad. In my dealings with Ted, he’s a nice guy. As far as anyone can tell, he’s not out to harm MonaVie no more than Rod Cook is out to harm MonaVie by talking about their 60% reduction in web traffic over the past year (Note: MonaVie has since lost another 20,000 visitors per month since Rod’s report). It’s simple: MonaVie is a large company and the rumblings about a decline is newsworthy. People are standing by to see how they respond. What new products will they offer? How will they tweak their pay plan? Companies with binary pay plans are especially paying close attention.

In my opinion, it would simply be a lot more productive for MonaVie to address their problems instead of dealing with the symptoms. What do you think? Did MonaVie overreact and draw more attention to their issues or should they turn the dogs loose on Ted?.

Related posts:

1. Negative Lies vs. Negative Truths…
2. MonaVie and the Push for “Proprietary”

In February, Jim’s wife, Carole, succumbed to cancer after a long and arduous battle. She was simply the best and she was loved very much by her husband and kids. In honor of Carole, Jim forged ahead with his business because he made a commitment to finish what they started together. He knew Carole would never permit him to walk away from a project when there was so much potential for good. Recently, Jim sent the following message to people and I found it very inspiring. Please take a moment to read and reflect on the message below. “Live as if you are inevitable!” What powerful and inspiring words. If you’re willing to pay the price, success is inevitable, is it not?

[message begins]
Aug 5th will be 6 months.

. . . I have been scanning pictures to make a slide show. Boy what a life we have had 34 years together living, loving, working, side by side every day. The World of Network Marketing has given us this freedom and income to do most everything we ever wanted: To live our lives in a style most people could only imagine or understand not having a job. . . This life is so very short so with that: When in doubt, show up early. Think less. Feel more. Ask Once. Give thanks often. Expect the best. Appreciate everything. Never give up. Make it fun. It’s ok to Regroup or Yield. Smile lots. Always order dessert. And live as if you are inevitable. REMEMBER thoughts become things. Pick the best ones!

Your Friend ~ Jim Moore

Remember, Carole. She was an awesome lady. Passed Feb 5th 2010.
[end message]

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The legislators in Tennessee are looking for input about the bill. This is an important bill for residents in Tennessee as well as fellow professionals in the network marketing industry. Please send your input in support of the bill to the Commerce Committee’s research assistant, Anna Richardson: anna.richardson@capitol.tn.gov. Also, be sure to CC the Chairman of the Commerce Committee, Jack Johnson at: sen.jack.johnson@legislature.state.tn.us. If you have any suggestions or ideas about the language in this bill, feel free to share your thoughts here or with the legislators.

House Bill 2843_Draft

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1. Tennessee House Bill 2843
2. Seven Reasons Why Amway Should Support House Bill 2843

Click the image to see original article

Rod Cook, MLM Consultant and editor of the MLM Watchdog site, referenced some of MoanVie’s struggles in a video and cited a few reasons for the decline: expensive monthly autoship requirements, lawsuits against distributors after publicizing their “Open Door Campaign” and changes in their compensation plan.

Experience is the best teacher

There’s a lot to be learned by watching companies work their way through struggles. There’s a saying that says: “The best teacher is experience and the best experience is someone else’s.” In 2007, Amway went through a bad regulatory experience in England and made subsequent changes that literally saved their business. There’s a lot to be learned from their adjustments in England and in the United States.

So how is MonaVie responding? They’re dropping their prices, increasing their PV and rolling out a free shipping program for distributors on AutoShip. In short, the story of the acai berry no longer supports the hefty margins from the early days. They’re also doing something a little more subtle: they’re locking down intellectual property rights to give their product a clear point of difference from other comparable items in the marketplace. I’m calling this a “Push for Proprietary.”

The “Acai berry” is an amazing product with incredible health benefits; however, it’s no longer a strong selling point to say “we have the acai berry” because the berry is EVERYWHERE. It’s in shampoo, countless juices, ice creams, smoothies, coffees and energy drinks. It’s even in vodka, which is just weird!

In the past, I’ve written about the importance for companies to commit to innovation to keep their distributors armed with relevant products. It’s a challenge for companies because the speed of innovation across the world has accelerated. Companies can either innovate fast or lock down the proprietary rights to their products via patents.

Since the Acai berry is not proprietary and MonaVie is not able to lock it down, they’ve recently patented a “brand” of acai (dubbed “AcaVie”), which I’m guessing includes a unique extraction method. The “AcaVie” logo will now appear on the MonaVie bottles in their effort to build up the value of the mark “AcaVie,” which they own. So when a prospect says “Why would I pay $X for a bottle of monavie when I can get the same thing for $Y at Walgreens?”, distributors now have a stronger point of difference by saying “We have the exclusive rights to AcaVie, which offers the most health benefits associated with the acai berry.” It gives distributors another point of difference to justify the price of the product.

Leveraging Proprietary

Understand, this is not MonaVie’s first patent but it’s an example of leveraging “Proprietary” to protect a product from price erosion. “Proprietary” is an important word in the direct sales industry. If a product is proprietary, it serves as an assurance for the distributors that they’re not building up the brand awareness of a product that will eventually devolve into a commodity once it gets duplicated. “Proprietary” insures the sales force that their sales efforts will stick. Right now, brands hanging their hat on the Maqui berry or any other hot ingredient should learn from MonaVie and think of ways to at least patent the process by which the ingredient is extracted or used.

What do you think about this? Is MonaVie making good changes to protect their margins? What can other companies learn?

Related posts:

1. MonaVie threatens Ted Nuyten
2. Oprah’s Production Company Sues MonaVie
3. Commitment to Innovation

Len is a tireless contributor to the betterment of the direct sales industry. It’s amazing how much work product he produces each week. He does work for clients, he conducts interviews with various industry leaders, he’s an extremely active leader for the Association for Network Marketing Professionals, he’s been a keynote speaker and he’s one of the most sought after expert witnesses for companies in litigation.

In addition to his professional abilities, I also value Len Clements as a friend. Whether I’m filing a class action lawsuit or trying to pass an anti-pyramid scheme bill, Len was always there to spend hours with me providing his perspective and guidance. Instead of reacting emotionally to rumors, Len has always struck me as a guy that “seeks first to understand.” No matter the circumstance, he’s always trying to get all of the information before forming his opinions, which is another reason why I value Len’s friendship.

If you’re in the market for a MLM Consultant or an expert witness, Len Clements is certainly a person to keep in your roladex. His resume is provided below.

Len Clements – Resume

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I recently wrote an article about “Master Distributors” and explained the pros and cons of cutting special deals with top networkers. In the end, I see nothing wrong with businesses cutting favorable deals with top performers. HOWEVER, I think it’s important for companies that cut these deals to disclose the relationship to the public. There’s a provision in the guidelines that’s directly on point:

§ 255.5 Disclosure of material connections

When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed. . . . Additional guidance, including guidance concerning endorsements made through other media, is provided by the examples below.
. . .
Example 4: An ad for an anti-snoring product features a physician who says that he has seen dozens of products come on the market over the years and, in his opinion, this is the best ever. Consumers would expect the physician to be reasonably compensated for his appearance in the ad. Consumers are unlikely, however, to expect that the physician receives a percentage of gross product sales or that he owns part of the company, and either of these facts would likely materially affect the credibility that consumers attach to the endorsement. Accordingly, the advertisement should clearly and conspicuously disclose such a connection between the company and the physician.
End Quote

Analysis

With master distributors, assuming a special deal has been cut, there’s certainly a material connection that would not be expected by the audience. In this case, as stated by the guidelines, the connection would need to be disclosed because absent a disclosure, regulators will perceive the endorsement as deceptive or misleading. In example 4 above, the endorsing physician was earning a cut of gross sales of the product. In that context, the guidelines clearly state that his relationship with the company should have been disclosed.

Let’s play around with the characters in the example 4 hypothetical. Instead of an anti-snoring product, let’s say it’s a water filtration system sold via network marketing. And instead of a physician, let’s say she’ a distributor. We’ll call her Susan. Additionally, as with the physician in the above example, let’s say Susan is receiving a percentage on the gross revenue of her downline volume. Since Susan is getting a special deal that’s not available to the public (again, there’s nothing wrong with this), let’s call her a master distributor.

Now that the scene is set, let’s play around with some facts. Susan is at a convention talking about the incredible benefits of the walter filters and about how they zap salmonella and chlorine. She also talks about the incredible financial opportunity referencing the unique binary/two-up/matrix/unilevel hybridization, patent pending, copyrighted pay plan. Since Susan is the recipient of a lucrative deal (percentage on gross revenue), it could be perceived as a fact that would “materially affect the credibility that consumers attach to the endorsement.” If consumers knew about Susan’s deal, they would be in a better position to weigh in on the veracity of the endorsement being made. Consumers might think to themselves “Of course this is the opportunity of a lifetime…for her!” Or, if Susan and the company handle it well, Susan can build trust with her organization from a position of full disclosure whereby her endorsement would still merit attention.

When companies and distributors do not disclose these deals, it’s my opinion that’s it’s an abuse of goodwill accrued by the distributor. Clearly, their opinion means something or else they’d be unable to draw over the hundreds and thousands of new participants. People trust their leaders and that measure of trust has value for companies looking to beef up their sales. If new participants were aware of a special deal, they would at least be operating with all of the facts. And in most cases, the participants would still follow their leader.

What do you think about this FTC provision? Do you think companies should disclose their deals with master distributors?

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1. Master Distributors: good or bad?
2. Making Sense of the FTC Staff Advisory Letter

“On or about November 20, 2009, Plaintiff Laurel Cook filed, on behalf of herself and those similarly situated, a Complaint and Demand for Jury Trial in the San Diego Superior Court against efusjon, Inc. and several individual defendants. Plaintiff alleged that the efusjon Energy Club was an illegal pyramid scheme. Defendants vigorously defended the action and continue to deny that the efusjon business is an illegal pyramid scheme or violated any law. The Parties engaged in a confidential mediation and through this process were able to settle their dispute under mutually agreeable terms. Defendants’ agreement to settle this matter is in no way an admission of liability.”

The specifics of the settlement are confidential.

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