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March 1999

 

Feature - Wave Four

Network Marketing: the Most Powerful Business Force of the 21st Century - Richard Poe

Intro by John Milton Fogg: By the time you read this, the premiere issue of our new Network Marketing LIFESTYLES will be out and about. (Probably sold out and about the only way you can get a copy is to phone in your one, two or three year subscription.) Lots of Upline readers have asked me-- confidentially, honestly John, just between you-an'-me-- "How good is the magazine, really?" Well, this being Network Marketing, I thought we'd show and tell you just how "good" it is. To tell you: Network Marketing LIFESTYLES is absolutely incredible! The articles, the pictures, the people we've profiled-- truly incredible! Duncan Anderson and his staff have done an extraordinary job on the first issue and promise to make the next one and the next even better! You cannot afford to miss a single issue-- ever-- of your magazine. Yes, it is that good! To show you: Here's Wave Four by Richard Poe, reprinted with generous permission from the first issue of Network Marketing LIFESTYLES. Flat out, it's the best third-party credibility article I've ever read (and wish I'd written). Friend Poe is the best writer in the business-- and I have the right to that opinion-- and there is no greater champion of Network Marketing on the planet. None! If you like Poe's piece, and you think you'd be interested in seeing Stephen Covey on The Seven Habits of Highly Effective Network Marketers, and reading about The Young Networkers-- Generation-X superstars-- and Nikken's Team Diamond, and Tom "Big Al" Schreiter, and Robert Allen of USANA, and Ray Gebauer of Mannatech, and Kim Klaver, and Laura and Richard Kall of NuSkin/Big Planet, Dave and Coli Butler of FreeLife, George and Deedee Shaw of Shaklee, and Brilliant Compensation, and MLM and the Law, and learning about Your Money, and, and, and all the other people and pieces in this jam-packed first issue-- order your subscription today!

Call Poe's piece an appetizer. Chew well and enjoy... --JMF

Blood was running in the streets. Angry mobs toppled cars, smashed windows, siezed hostages and stormed government offices. Violence raged through several cities across China. When it ended, ten people lay dead and more than a hundred injured.

Was this a scene from the Boxer Rebellion? Chairman Mao's Cultural Revolution? The massacre at Tienanmen Square? No. It was the Chinese people's reaction, just last April, to a government ban on Network Marketing and all other forms of direct selling.

"It's necessary to stop the operation of pyramid sales," said Wang Zhongfu, director of China's State Administration for Industry and Commerce, "since it has begun to hurt social stability and economic development."

The crisis aroused little interest in the foreign press. But for millions of Chinese, the ban threatened their deepest hopes and dreams. So what else is new? Network Marketers and government regulators have been locking horns in every corner of the globe for 50 years. Somewhere, at some time, most successful multilevel marketing companies have been condemned as "pyramid schemes." Cynics could easily dismiss the Chinese ban as but one more example-albeit an extreme one-of Network Marketing's familiar regulatory woes.

But something was different this time. Unknown to China's Marxist rulers, a new era had dawned in Network Marketing, an age of unprecedented power for the industry. Chinese officials would discover, in just a few weeks, that they had picked a fight they could never hope to win. They had stumbled directly into the path of an onrushing tidal wave.

This wave was set in motion by technological advances, drawing momentum from man's natural yearning for liberty, propelled further by the corporate drive for quick, cheap access to markets. This gentle ripple we call Network Marketing had grown to a storm surge, an irresistible maelstrom of freedom and enterprise that I call "Wave Four."

In the years ahead, Wave Four will shake our economy to its roots. It will leave this world a freer and more prosperous place. And it will transform Network Marketing into one of the most potent business forces of the new millennium.

Network Marketing-- the Choice of Presidents

"You strengthen our country and our economy, not just by striving for your own success, but by offering opportunity to others . . ." The man who spoke those words was President of the United States at the time. It was a videotaped statement specially prepared for sales representatives of Direct Selling Association (DSA) member companies. The DSA is a trade organization based in Washington, D.C., composed mostly of Network Marketing companies. He went on: "I've followed your industry's growth for years now . . . Your industry gives people a chance, after all, to make the most of their own lives and, to me, that's the heart of the American Dream."


In the years ahead, Wave Four will shake our economy to its roots. It will leave this world a freer and more prosperous place.

Could it be Ronald Reagan, singing the praises of free enterprise and individual initiative? George Bush, on a feisty day? Neither. That was William Jefferson Clinton. When even big-government Democrats have to reach over and toss you a bone, you know that you've become one of the Big Dogs. Not bad for an industry that was nearly abolished by the Federal Trade Commission only 20 years ago.

Network Marketing did not attain such power overnight. The process has been unfolding for more than 50 years. According to Nicole Woolsey Biggart, management professor at the University of California (Davis), the first multilevel compensation plan was introduced by Nutrilite (now a division of Amway) in 1945. This inaugurated what I call "Wave One," the Wild West phase of Network Marketing. As described in my book, Wave 3 (Prima, 1994), this was the industry's frontier period. Companies grew with reckless abandon. But government regulators targeted them with equal recklessness, often making up the rules as they went along.

The chaos of Wave One came to an end only in 1979, when, following an acrimonious investigation, the Federal Trade Commission ruled that Amway-- and, by implication, Network Marketing in general-- was a legitimate business, not a pyramid scheme. Encouraged by the friendlier legal climate, the industry entered what I've called Wave Two. Breakthroughs in computer technology let entrepreneurs run companies from their desktops. The 1980s saw unprecedented growth in the sheer number of startups.

But during Wave Two, the average person still faced fearsome obstacles in building a distributor organization. Former International Business Machines salesman Don Held experienced first-hand the rigors of networking during Wave One and Wave Two. Starting his Amway business in 1969, Held built his downline the hard way. Not only did he have to recruit and train new distributors, but he had to hand-write their commission checks every month. The 900-square-foot house he shared with his wife and six children was transformed into a warehouse. Every bulk order from his downline had to be processed, packaged and shipped by hand. During the summers, when Held's children were out of school, the whole family would pile into a 30-foot motor home and travel the country like gypsies, building the business as they went. "Network Marketing, in those days, was as primitive as a Model-T," Held recalls.


In future years, the 90s will be remembered as the decade when Network Marketing became a serious industry.

Held was blessed. He had the drive and persistence to succeed in the face of every obstacle. He became a millionaire within five years, and today collects hundreds of thousands annually. But he often wonders how much more quickly he might have achieved his dreams had he started out today. "It's a whole lot easier for those fellows now," Held muses.

Like other multilevel companies, Amway revolutionized its methods in the 1990s. Customers now order products from an 800 number and receive shipments directly from the company. All a distributor has to do is collect his commission check, issued each month from a company computer. Prospecting videos, audiotapes, teleconferences and satellite TV broadcasts have largely automated the recruiting process. Dedicated voice mail systems have streamlined communications within downlines. Fax-on-demand services have freed upline leaders from having to answer repetitive questions. Three-way phone calls let raw recruits listen while their more experienced sponsors close new prospects. Compensation plans have larger commissions flowing to distributors for less work.

Held points to a couple in his downline, Joe and Doris Shaw, who became Executive Diamonds-earning the same commission level as Held-after only three years in the business. "I've got people in my organization who are making, in their second year, what I made in my tenth year," Held says.

Wave Three had begun.

 

A Decade of Growth

In future years, the 90s will be remembered as the decade when Network Marketing became a serious industry. According to a June 23, 1995, article in The Wall Street Journal, the total number of Network Marketers in the US increased 34 percent between 1990 and 1994. The number of full-time distributors doubled between 1993 and 1994 alone. Network Marketing today is a $90 billion-dollar global business, with some 27 million Networkers participating around the world, according to the Direct Selling Association. A weighted measure of publicly traded MLM stocks called the Upline Index outperformed the Dow Jones Industrial Average and the S&P 500 by nearly 80 percent in 1995.

Network Marketing also has transformed the direct selling industry. Ten years ago, most direct sellers worked on straight commission. They were not allowed to recruit others to sell, or to draw commissions from the sales of recruits. In 1990, 75 percent of the Direct Selling Association's member companies used such non-multi-level compensation plans, according to DSA president Neil Offen. Nine years later, all but 22.7 percent are full-fledged Network Marketing companies. One of the most important converts to Network Marketing has been the multi-billion-dollar direct sales giant, Avon Products.

Many rank-and-file sales reps opposed Avon's first experiments with Network Marketing, called the Leadership program.

"What if Avon gets a bad name over it?" Avon lady Lisa Wilber asked herself at the time. Rattled by all the MLM exposés she had seen in the press, Mrs. Wilber told her district manager, "I'm not going to do it."

But after a year and a half selling full-time in Avon's non-multilevel program, she was working 80 hours per week and earning only $10,000-to-$15,000 per year. "Even at the top earning level of 50 percent," she says, "in order to earn $100,000, you had to sell $200,000 worth of product. That's one heck of a lot of lipstick."

Mrs. Wilber finally gave in and joined Leadership. The first year, most of her $12,000 in earnings had to be reinvested in the business.

To make matters worse, Avon offered little training or support for the fledgling program. "Multilevel marketing, back then, was viewed just as a pyramid scheme," remembers Walter Bracero, head of Avon's Network Marketing program. Bracero admits that MLM's poor public image contributed to Avon's lukewarm support. "So what we did was we played it low key, and didn't push it very hard."

With no corporate infrastructure to rely on, Mrs. Wilber was forced to build her own. She started a newsletter for her downline, filled with tips and inspirational stories. She sent chocolates to her people on their birthdays and postcards to remind them of key events. She also started a "thousandaire" club for people selling more than $1000 per month, and awarded certificates to top achievers. She made frequent visits to downline leaders in other states, and offered training seminars.

By 1997-- Mrs. Wilber's fourth year in Leadership-- she was earning $137,000 per year. Avon executives had begun to take notice. Spurred by Mrs. Wilber's success, and that of other Leadership pioneers, Avon threw its weight behind Network Marketing.

The company will not disclose how many on its sales force are now MLM distributors, but some estimate it at 10 percent of the company's domestic direct selling force of 500,000. According to Bracero, Avon is making its Network Marketing program "one of our key priorities for 1999."

Wave Four: The Tsunami

Avon's conversion is but one example of a movement now sweeping corporate America. For years, Fortune 500 executives have observed the Wave Three phenomenon from afar. Emboldened by Network Marketing's growing respectability, they are finally starting to cash in on it themselves. Network Marketing, in the new millennium, will no longer be the exclusive preserve of entrepreneurial mavericks. Through distribution deals, strategic alliances, mergers and acquisitions, Network Marketing sales forces are, even now, being integrated into the global strategies of the largest and most powerful corporations.

"In the future," says marketing consultant Faith Popcorn, "we'll be looking at Network Marketing the way we look at regular marketing,"

Popcorn has observed this trend in her New York-based BrainReserve consulting practice, which serves blue-chip clients such as IBM, American Express and Eastman Kodak. A few years ago, Popcorn recalls, BrainReserve clients routinely dismissed her urgent warnings to prepare for the Information Age-- two key facets of which, she told them, would be competition from the Internet. "They would say, `Oh, we're not worried about the Internet,'" Popcorn recalls

Then sales conducted over the Internet quadrupled in the past two years, leaping from $2 to $8 billion. "Now when we do our futurescapes, we show clients who their most worrisome competitors are likely to be," she says. More and more, the competitors who arouse her clients' greatest fears, she observes, are turning out to be Network Marketing companies.

Paul Zane Pilzer learned to respect the industry's power-the hard way. For years, he attempted to sell his educational CD-ROMs through conventional channels, such as direct mail, retail stores and schools. His company, Zane Publishing, based in Dallas, poured $25 million into marketing. But every distribution channel lost money. All, that is, except one-- Network Marketing.

Pilzer was introduced to the industry in 1991, he was promoting his book Unlimited Wealth through TV talk shows and other media. On an audiotape he made with Tony Robbins called Powertalk, Pilzer explained that the big money in the 1990s was to be found, not in building better mousetraps, but in finding better ways to distribute those mousetraps.

In the movie The Graduate, Pilzer related, a well-meaning businessman offers Dustin Hoffman's character, Ben, a single word of career advice: "Plastics." That was good advice, back in the 1960s, when the best money was to be made in finding ways to reduce the cost of manufacturing-by making objects from plastic instead of metal, for instance. But this was no longer true.

"As a result of advancing technology," said Pilzer, "the actual production cost of an item has fallen to where it typically represents less than 20 percent of the retail price." There's not much room anymore to push production costs down. Distribution costs, on the other hand, now account for 80 percent of an item's price. For that reason, said Pilzer, the big opportunity now lies in finding ways to distribute products more cheaply.

Pilzer had been a professor of Economics, a vice president at Citibank, N.A., and an economic advisor to Presidents Reagan and Bush; he had never heard of Network Marketing. But Amway distributor Don Held, listening to the Robbins-Pilzer tape, was thunderstruck.

"He was saying that the big money now was in distribution," Held remembers. "When I heard that, I said, ´My God, that's what Network Marketing is!'" Held tracked down the famous economist and retained him to speak at an upcoming Amway rally.

"When I got onstage, everybody took out a pad and paper and started taking notes," Pilzer recalls. "They got very serious. I felt I was with my students, prepping for a final." Pilzer became a Network Marketing celebrity overnight. For the next few years, he spoke at scores of Amway and other Network Marketing conventions. In 1996, he started distributing his CD-ROMs through Amway, as a sideline to conventional marketing methods. "I wish I could tell you I saw Network Marketing as the opportunity from the very beginning," says Pilzer. "But I didn't."


Wave Four Network Marketers will provide a Distribution Freeway through which thousands of client corporations will move their wares.

As his other income streams dwindled to nothing, Pilzer's sales through Amway increased each year, until Network Marketing distribution accounted for every penny of his $8 million revenues. Just last year, Pilzer bowed to the inevitable, reorganizing his company to distribute exclusively through Amway. "We have failed at retail," he admits. "We have failed at direct mail. But we have succeeded beyond any of our expectations Network Marketing."

The Distribution Freeway

Why did Pilzer's product sell so brilliantly through Network Marketing? The industry, says Pilzer, offers the personal touch. Customers browsing through a Barnes & Noble or Blockbuster store are looking for books and videos, not educational CD-ROMs. They hardly even noticed Pilzer's displays. But Amway distributors use the CD-ROMs to help their own children succeed in school. Their personal testimonies to friends and family arouse interest in the products, and close sales.

Hundreds of prominent companies now distribute through multilevel firms. Transnational behemoths Dupont and Conagra have teamed up to launch Legacy USA, a Network Marketing subsidiary that sells proprietary nutritional products. IBM is selling Internet training programs through Big Planet, a division of Nu Skin International. Amway sells cars for GM, Chrysler and Ford, appliances for Hotpoint and Whirlpool, and long-distance service for MCI. "Our catalog today looks like a small version of the classic Sears catalog," says Held. It is a sign of our times that the Sears catalog in fact no longer exists, but the Amway catalog does.

In the old days, smart entrepreneurs invented better mousetraps and used Network Marketing to carry them to market. But, in the years to come, MLM companies will no longer need to invent new products. Their business will be selling everyone else's "mousetraps." Wave Four Network Marketers will provide a Distribution Freeway through which thousands of client corporations will move their wares. In the 21st century, Network Marketing will emerge as the most powerful way to reach consumers.

Internetworking

The fast lane of the Distribution Freeway will be the Internet. Shrewd observers of the high-tech scene noticed years ago that Network Marketers were leading the way in commercial applications of the World Wide Web. At a time when corporate America dismissed the Net as all hype and no substance, Network Marketing distributors were building downlines through website promotion and e-mail blasting.

"Network Marketers look at every edgy opportunity," says Faith Popcorn.

Avon's Walter Bracero agrees. "`Internet' is short for `internetworking.' MLM is about networking, and there's probably no quicker way to establish a network than through the Internet today. We are looking at leveraging the Internet very heavily." Avon has already made a good start, in that direction, with Avon.com, named the number-one retail website of 1998 by Computer World.


"With the downsizing of big companies, the whole economic structure of work is becoming different from anything it's ever been before." -- Michael Gerber

America Online has become a hotbed of recruiting activity through its Network Marketing message boards. Amway plans to launch a "virtual mall" later this year. One of the hottest sites in the business is MLM.com, launched in 1997 by Craig Wennerholm and his partners. This online Network Marketing newsroom gets more than 100,000 hits per month, after only a year and-unlike much-touted Net-based companies such as Amazon.com-MLM.com has already broken even through ad sales.

And now that mainstream business has begun to catch on to the basic use of the Internet and World Wide Web, some Network Marketing companies and distributors are taking it to the next level.

"Back in 1996," says Wennerholm, "MLM'ers were using web pages mainly as an electronic brochure, to tell their story. Now we're seeing more and more companies utilizing e-commerce capabilities. It has become an interactive business tool to process orders and new applications, to query databases for customer information, or even to notify people of upcoming events. I really think that's where the industry is going."

Network Marketers of the future will use the Internet to receive real-time corporate videos of training sessions, company announcements and opportunity meetings-- programming they can now get only through pricey satellite broadcasts. That's the prediction of Stuart Johnson, whose company, VideoPlus in Lake Dallas, Texas, sells communications products and services to Network Marketing companies.

"All that's needed is more bandwidth," Johnson says, "which is going to come from cable modems and higher speed DSL telephone connections. Right now, there are only one or two million homes, out of 100 million, that have that technology. That's going to grow substantially over the next two years."

The Death of Jobs

In their 1991 book The Great Reckoning, economic forecasters James Dale Davidson and Lord William Rees-Mogg predicted Wave Three, pegging the 1990s "a decade of Tupperware parties, Avon ladies and Amway dealers." Now their latest book, The Sovereign Individual, forecasts nothing less than the "death of jobs."

"Before the industrial era," they point out, "permanent employment was almost unknown." The word "job" used to mean a one-time task that you were hired to do-- never a permanent position. No one expected lifetime employment, much less a pension or gold watch.

Rees-Mogg and Davidson predict that "jobs" in the Information Age will once again refer to specific and temporary tasks. "Already, major corporations such as AT&T have eliminated all permanent job categories," they observe. "Positions in that large firm are now contingent."

The change from permanent jobs to temporary ones will traumatize many people unused to fending for themselves.

"With the downsizing of big companies, the whole economic structure of work is becoming different from anything it's ever been before," says Michael Gerber, author of The E-Myth and president of the E-Myth Academy, a small business consultancy. "But it's not going to be six billion people out on the streets selling pencils. People are going to have to have a system, a framework, a context." Gerber predicts that "turnkey" businesses such as franchising and multilevel marketing will provide the support structure necessary for easing the transition from evanescent "jobs" to enduring self-employment.

A Turnkey System

Last year, Citigroup-- the world's largest financial services company-- cut its workforce by six percent, laying off 10,400 people. But its Network Marketing subsidiary, Primerica, kept on growing. Citigroup personifies the Wave Four transformation, in which "jobs" fade, while turnkey self-employment opportunities grow.

"Standard & Poor's views Primerica's agency force of over 110,000 . . . to be its primary competitive strength . . ." says a 1997 S&P report. Evidently, the analyst who wrote that passage had never heard of Network Marketing before. He describes it in the clinical but wonderstruck terms of a lepidopterist encountering a new species of butterfly. "The system is . . . very low-cost . . . yet the agents bear many attributes of a controlled system. Agent compensation is enhanced by a multi-tiered system of commissions that promotes new agent recruitment and allows each agent to build an organization for himself."


People in this industry have long observed that when overall unemployment rises, Network Marketing recruiting goes up. 

Primerica representative Tyrone Taylor uses that "multi-tiered" system to fight a one-man crusade against poverty. Reared on the mean streets of Detroit, Taylor's mission in life is to spread prosperity among his fellow black Americans.

"My downline is 98 percent African-American," says Taylor. "The only thing that separates a poor person from a rich person is knowledge. My passion is to produce financially independent people in my community." In the process, Taylor has built a considerable degree of financial independence for himself. He earned over $425,000 last year from his downline.

Hard Times = Good Times

Experts agree that the Information Age will bring hard times to many people. "Technology makes companies more and more efficient-- with fewer and fewer people," says Pilzer. "The most profitable companies are the ones doing the most downsizing. That process will continue to accelerate. But downsizing is positive, because it frees up quality people for new opportunities elsewhere."

Opportunities such as Network Marketing, that is. People in this industry have long observed that when overall unemployment rises, Network Marketing recruiting goes up. Many veteran networkers insist that hard times are really the best times for the industry.

"Most people aren't self-motivated," says Don Held. "They really don't do anything until they absolutely have to. During a recession, people who have been procrastinating say, `Wait a minute, what other choice do I have?' I've been with Amway 30 years, and I've seen all the cycles. Amway grows unbelievably during rough times, because people need the money."

Rod Cook, editor of MLM Insider, decided to test this folk wisdom by looking up some statistics from 20 years ago on three major Network Marketing companies. Cook found a 50 percent growth spike during the 1973-75 recession. "When the recession came, they took off like a rocket," he says. "Even after the recession petered out, their growth rates remained higher than before."

The Juggernaut

The industry's defenders have argued for years that Network Marketing was an idea whose time had come. But, in the Wave Four era, MLM will no longer require defenders. The massive power of its corporate clientele will be the only calling card it will need.

In last year's Chinese crisis, we gained a glimpse of the power MLM will wield in the future: No sooner had the Chinese outlawed direct selling than they began to feel its backlash.

"It is a serious matter," said US Trade Representative Charlene Barshefsky, at a news conference in Beijing, only three days after the ban was announced, "when a government simply bans the activities of legitimate, indeed legitimately invested, companies." Speaking on behalf of American corporations such as Amway, Avon and Mary Kay Cosmetics, Barshefsky continued, "These companies have invested over $120 million in China and provide income to over two million Chinese. Obviously, the goal here is to re-establish these companies' operations as soon as possible."

In remarkable show of corporate solidarity, insurance, consumer products, electronics and even airline companies expressed support for Amway and other direct-selling companies hurt by the ban, according to Richard Holwill, Amway's Director of International Affairs. They recognized that an attack on direct selling was an attack on all legitimate businesses in China.

"The ban could spark a US-China trade dispute on the eve of President Clinton's state visit in June," warned Business Week magazine. Direct Selling Association president Neil Offen discussed the ban in a personal meeting with the President, who made the issue one of five priority items on the agenda for his June 1998 China visit.

By the time the US delegation arrived, the Chinese had already repealed most of the ban. Negotiations continue over certain issues, and the parties involved are close-mouthed on the details. But Chin-ning Chu, president of Asian Marketing Consultants Inc., of Antioch, California, confirms that Network Marketing has resumed in China, with the government's tacit approval.

Only 20 years ago, our own government questioned the very right of this industry to exist. But today, the world's greatest superpower champions Network Marketing across the globe. Major corporations flock to MLM. Dictatorships crumble before its onslaught. This is the roar of Wave Four, thundering like a distant but fast-approaching tsunami. Someday soon, that tidal wave will strike. When it does, work and commerce will never be the same.

 

RICHARD POE wrote the best-sellers Wave Three and The Wave Three Way to Building Your Downline. He is also co-author, with Dr. Win Wenger, of The Einstein Factor. His most recent book is Black Spark, White Fire. The forthcoming Wave 4, will appear from Prima Publishing Inc. later this year. Mr. Poe is based in New York City-- you can visit his website at http://members.aol.com/richardpoe.

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Reprinted with permission from Upline, Poe Feature - March 1999, 888-UPLINE-1, http://www.upline.com

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