Author Archives: MLM Critic

Stupid Is As Stupid Does

f212fd68aeca509fcdbbb675e67ce9276b0d9fa965fa8bb5865c167eccb8b1d9[1]

You have to be reasonably smart to start a direct selling company and grow it to any size. And even if you have some blind spots yourself, most founders surround themselves with other smart people — compensation plan consultants, back office software providers, experienced MLM attorneys, etc.

So why is it that some companies do some really stupid things? Spencer Reese asks this in his latest blog post, pointing out that:

Whenever an MLM is attacked by law enforcement, other MLMs want to scrutinize the defendant company’s policies and compensation plan and parse every phrase in court filings, orders and opinions and quickly make changes so that the same fate does not befall their company. But it’s a COLLOSSAL MISTAKE to assume that the critical flaws all reside in the compensation plan or policies. The first step should be to identify every element of STUPID (and arrogant) in your business and fix it. The company may have turned a blind eye to the stupid practice for years or thought because a practice is not specifically illegal, it’s okay. Most commonly, the stupid practice is effective at growing the business, so they try to rationalize that it’s acceptable. But guess what? Even if it’s not illegal, it’s still stupid! And it’s STUPID that most often brings MLMs into regulatory crosshairs.

When a company is in fast growth mode, management is usually afraid to rock the boat with successful field leaders. Penny wise, pound foolish. The long-term risk far outweighs the short-term benefits. Even if your company “survives” an FTC or other regulatory action, the reputation cost directly impacts your ability to recruit new people for years to come. Even if you win, you still lose.

Ron White says you can’t fix stupid, but in this case, you can, and as an industry, we must. Don’t be afraid to hold your leaders accountable. Just take an approach that’s educational, not adversarial. Remind them that the P&Ps are there to protect both the company and them legally, as well as to protect the good name of the company, which makes it easier for them to recruit people. It’s in their own best interest to adhere to those policies.

And if they can’t get with the program, can their ass! The potential — no, almost certain — future cost to the company far outweighs the revenue of any one leader, no matter how big they are.

Never Join an MLM Without Researching the Leadership

DomainsByProxyOne of the most important things to consider before joining — or especially investing a significant amount of money — in an MLM opportunity is the leadership of the company.  If you can’t readily find out who the founders, executives and top leaders are, that’s a red flag.

I regularly read Behind MLM, and there’s just been a flurry lately of companies not being transparent about the leadership/ownership of the company:

  • HopRocket – “Unfortunately pending full disclosure by HopRocket, the executive management structure of the company is currently unknown.”
  • Hits & Wealth – “There is no information on the Hits & Wealth website indicating who owns or runs the business.”
  • Lucky5 – “Despite Lucky5 being widely promoted through Facebook, there is currently no information on the website advising visitors who owns or runs the business. Nor have I see this information disclosed in any Lucky5 marketing material.”
  • Kino Box – “There is no specific information on the Kino Box website indicating who owns or runs the business.”

And that’s in just like the past week!

As Oz puts it, “As always, if an MLM company is not openly upfront about who is running or owns it, think long and hard about joining and/or handing over any money.

Now, what if you can find out about the leadership, and they have some questionable things in their past?

That’s certainly a yellow flag, and you should consider it when making your decision. But people also make mistakes, and learn from them. And some people get wrongly accused, often very publicly, by others. Very few people are squeaky clean, in this industry or any other. Someone will always find some dirt, or make it up if they want to.

What you have to try to figure out is whether what they did was a one-time mistake that they learned from, or a pattern of behavior. There’s of course no way to know for sure what that means in terms of their future performance, but it’s still an important part of your due diligence.

Direct Selling Continues to Grow – 2014 Statistics

The DSA has released its annual stats for 2014. Highlights include:

  • 5.5% increase in retail sales over 2013
  • 8.3% increase in distributors
  • Largest growth continues to be in health & wellness sector

It’s really never too late. There is always opportunity in direct selling.DSA2014

MonaVie Financials Get Messy in Face of Loan Default Foreclosure

At one point, MonaVie was reaching nearly $1 billion a year in sales of its juice and other products, making it one of the largest network marketing companies in the world.

Oh how the mighty do fall.

The Salt Lake Tribune reports that a federal judge has issued a restraining order temporarily halting a deal that would transfer most of Monavie’s assets to a Florida company that foreclosed on MonaVie after they defaulted on a $182 million loan, for which MonaVie had placed most of its assets as collateral.

Of course, it’s more complicated than that.

MonaVie took out the loan in November 2010 from a company called TSG-MV Financing LLC. The loan was supposed to be paid in full by June 2014, but when it wasn’t, TSG-MV sold the note to Legacy Alliance Partners LLC, which has the same principal officers as Jeunesse Global LLC, another direct selling company that, coincidentally (?), announced in March that it had purchased MonaVie.

Under the terms of the “strict foreclosure” agreement, MonaVie turns over almost all assets to Legacy Alliance Partners and erases all shareholder value.

BehindMLM does a pretty good job of summarizing this in plain English…

So basically you have Monavie riddled in debt, Jeunesse buying some of that debt from TSG-MV Financing LLC and telling everyone it’s going to be business as usual… and now less than two months later announcing a foreclosure because Monavie can’t pay its debt…

Clever.

Now, ordinarily I wouldn’t feel bad for the shareholders of MonaVie. They gambled and lost. Of course the value of a defaulted loan comes off the value of the stock. That’s what happens.

But as so often happens in these cases, the collateral damange is the MonaVie employees who were part of the company’s employee stock ownership program (ESOP). The proposed class action lawsuit filed on behalf of employees who were part of the ESOP against Bankers Trust, the trustee for the company’s ESOP), claims that MonaVie principals sold $186 million in shares to the ESOP, but that the shares quickly fell nearly 100% in value. The suit alleges that Bankers Trust failed in its fiduciary duties by allowing MonaView to sell the shares at a highly inflated value using a loan with an inflated interest rate. Bankers Trust, in turn, has turned around and sued MonaVie.

Troy Dooly summarizes this in plain English:

It seems on the surface that the majority of MonaVie shares were sold to the hardworking employees of MonaVie, while the assets of MonaVie which were for the most part the only real value of the shares, were sold (I guess I should say mortgaged) off to another group, without the knowledge of the one group that should matter most… the EMPLOYEES!

And BehindMLM:

Needless to say there was also probably some major shenanigans going on between Monavie’s Founders and Bankers Trust. How else did they convince them to pay $182 million dollars for worthless shares, only to bail on the company a few years later.

What a tangled web they weave.

MonaVie doesn’t appear to be going anywhere, or Jeunesse. MonaVie distributors have ended up with more products to sell and, at least for now, a more economically stable company. But that shouldn’t be at the expense of MonaVie employees and the benefit of the pocketbooks of Jeunesse major shareholders. Jeunesse can take the financial hit — those employees can’t.

 

FTC Commissioner Praises Direct Sellers

Now there’s a headline you don’t see every day. But that’s exactly what The Hill wrote after attending the DSEF-sponsored event at the National Press Club: Consumer Protection: A Multi-Industry Conversation on Ethics & Self-Regulation.

Federal Trade Commissioner Maureen Ohlhausen Image credit: Direct Selling Educational Foundation

Federal Trade Commissioner Maureen Ohlhausen
Image credit: Direct Selling Educational Foundation

FTC Commissioner Maureen Ohlhausen had this to say: “I commend you for your partnership with [Council of Better Business Bureaus] that has increased awareness and understanding – and appreciation – of the importance that the direct selling industry places as an industry on ensuring it is an ethical and trustworthy marketplace.”

She went on to say that sometimes self-regulation is “the only option for certain advertising practices where government intervention is limited by First Amendment concerns.”

It’s interesting that she should bring up the First Amendment, since that seems to be such a gray area when it comes to direct selling, particularly around health claims. Your favorite MLM supplement may have actually cured your cold, your cramps, or your cancer.  But you can’t say that, because your testimonial is an advertisement, since you’re marketing the product, and people might get the wrong idea that those results are typical. If you don’t mention the specific product, though, now it’s not an advertisement — it’s free speech, and you can tell your story.

It’s understandable why people are confused.

Also, I think it’s a bit of a misnomer to call what the direct selling industry is doing “self-regulation”. There actually are regulations from the FTC, and they’re very, very detailed and specific. They just don’t have the manpower to proactively enforce them on a massive scale, so they wait until they have some larger cases they can make examples of and go after those. That leaves the industry needing to monitor — not regulate — itself as a risk management strategy. And with the larger cases costing companies millions of dollars, or even wiping out the business, they tend to err on the side of being overly cautious. Most companies’ policies and procedures are actually more stringent than the FTC requirements because they’re playing it safe. The challenge, of course, is how to actually monitor and enforce those policies with millions of independent direct sellers worldwide.

Like herding cats.  :-)

 

Surge 365 and SVH Digital Reach New Low in Dirty Marketing Tricks

“In Google and other search engines, it’s too easy to find “scam reports” and other negative drivel bashing just about every legitimate direct selling company, as well as the industry on a whole. For many people, this is their first impression of our industry, or a specific company they’re researching. So why don’t we do something about it?” ~ Navid Safabakhsh, Direct Selling Reputation – How to Improve It

I thought I’d seen it all when it comes to cutthroat, dirty, and just downright bad marketing, but this is a new low. A new travel MLM, Surge 365, is launching March 2nd and doing the usual round of prelaunch press releases, but with a nasty twist: they’re deliberately doing negative SEO against their competitors in their press releases.

Here’s their launch announcement:

Surge 365 & SVH Digital Unethical Press Release

And then, they did it again, the next day:

Surge365PR2

It’s fine for them to list their competitors — but the LINKS to the competitors are sent to negative sites — an iffy BBB page and a negative review for Paycation and a perennial MLM hater for the WorldVentures link. The sole purpose of this is to raise the negative sites in the search results for searches on those brands, aka “negative SEO”.

Besides being incredibly unethical, that’s a direct violation of the terms of service of press release sites like PRLog and PRZen, where the press releases were submitted:

PRLogTOS

Fair competition is one thing. But deliberately harming the reputation of a legitimate direct selling company is NOT OK (unless, of course, they deserve it because they’ve brought it on themselves, as Surge 365 has done). The industry as a whole has enough challenges with reputation without this kind of thing exacerbating the problem.

“Leaders do not have to go bad talk each other, or drag down another company. Instead they focus on what is important to creating leaders on their teams, and they do it!” — Troy Dooly

This is exactly the kind of thing Troy Dooly got onto WakeUpNow reps about last year, only this time, it’s coming from corporate and their marketing firm, not just over-zealous reps.

The other thing is that this is just plain short-sighted. That link to the MLM hater just adds authority to his site, which means that next year, when he decides to make Surge 365 his target, it has just that much authority.

Surge 365 and SVH Digital need to stop this. Besides the legal risk they’re creating for themselves, it’s simply bad for industry, and bad for their business when these dirty tactics get exposed. Would you want to do business with either one of these companies? I certainly wouldn’t. Network marketing is built on trust, and they’ve already broken it.

Party Plan Is Up, But Tupperware Is Down — Why?

If party-plan marketing is making a comeback, then why is Tupperware performing so poorly in the stock market?

shutterstock_58525630

Party-plan marketing is a term used for a wide variety of home based parties that rely on the direct selling model of a variety of items including items such as purses, jewelry, make-up and skincare, and of course Tupperware. Bringing your marketing strategy into someone’s home, which is a comfortable environment where no one is likely to feel too pressured to buy, seems like a fantastic idea that most of us have already heard of. The marketing strategy is easy, the brand is meant to sell itself, and the representatives of the brand are responsible to set up the parties and sell the merchandise. It’s not a difficult concept for a novice entrepreneur with no prior business experience. The model has been around for quite some time, with the likes of successful direct selling companies like Avon, Herbalife, Mary Kay, and Scentsy, basing their business revenue around the party-plan marketing model.

Nevertheless, those who believe that house sales parties are a thing of the past, are quite frankly misinformed. Party-plan marketing is making a comeback, and dozens of unique products are being sold in homes every month.   The Direct Selling Association estimated that retail sales in 2013, garnered $32.6 billion dollars from a variety of party-plan marketed companies.   The party-plan marketing model has opened up to all kinds of different businesses and trends. Pet parties, purse parties, tea parties, self-defence classes, tech parties, spa parties, mobile massage, nail products, and even detox supplement parties, are jumping on the party-plan train.

tuplogo1[1]

While the party-plan marketers are generally busy as ever due to this comeback, what’s the deal with Tupperware doing so poorly in the stock market? Tupperware parties were widely considered one of the leading home based sales parties, with the direct selling model and a variety of products that women want, because they are practical. What can be accredited to the market drops of the Tupperware Brand Corporation, if they are still widely popular and garnering sales all around the world? Especially during a time of economic upturn with regards to the direct selling and party-plan marketing models. It is astonishing how such a popular brand with a household name, can take such a drastic downturn over the course of a year.   Tupperware Brand Corporation is apparently known for its longevity as a party-plan marketed brand, and also for its supposed success as a widely recognized name. Its current earnings report doesn’t seem to adequately reflect this.

Tupperware Brand Corporation is one of the direct selling model based corporations that isn’t heading for a huge sales boost according their earnings report. Despite party-plan marketing making a dramatic comeback all over the globe, the brand’s recent earnings and EPS trends are looking pretty grave. This is most definitely negative for Tupperware Brand Corporation, but a relished opportunity for investors looking for a low-risk opportunity that they hope will take a turn around. In October of 2014, the brand reported 2014 net sales in the third quarter were $589 million “with emerging markets accounting for 70% of sales where there was an 8% increase in sales in local currency while established markets were down 4% in local currency.”

Even the CEO of Tupperware Brands Corporation referred to the current trends in the stock market as a “headache”, with regards to the strong dollar issue and revenue coming from outside countries rather than within the US. The CEO mentioned that they have all of the business models in place for steady growth and success, and since they are a direct selling business, “they don’t have the costs associated with a more traditional retail market.” Despite having a sturdy foundation, and a low-cost/ low-risk strategy, the brand has drastically dropped by a whopping 36 % since 2013. The company was not prepared for such a dramatic change.

The recent chart for small cap Tupperware Brands Corporation is not looking good, as it depicts a “downtrend that has turned into a double bottom.” Tupperware Brands Corporation was relatively stable until the past year, in which Newell Rubbermaid Inc. (a competitor of Tupperware) has steadily increased. Avon Products, Inc. (another direct selling model) is showing a downtrend as well since September of 2014. While Newell Rubbermaid Inc. is not associated with the party-plan model, it says something about the profitability and demand for products that are both sold by Newell Rubbermaid Inc. and Tupperware Brand Corporation. Thus, Tupperware Brand should be seeing a similar rise, instead of such a dramatic downtrend since 2013.   Since Tupperware Brands Corporation is generating sales from mainly emerging markets (approximately 70% of sales), their “earnings [could] take a hit from the increasingly strong dollar, and a continued controversy over direct selling aka Herbalife Ltd.” While their profits have greatly increased from the emerging markets such as Brazil, Mexico and China, these profits are not necessarily profiting them in regards to the dollar’s increasing strength.

Since the party-plan marketing boost is steadily rising, and Tupperware’s stock market trends are taking a drop, it can be concluded that this is due to the increasing sales within emerging markets and the current strength of the dollar that can be to blame. While Tupperware Brand Corporation was always a very neutral company with relatively stable earnings, it is a surprise to see it take such a hit in recent years. The boom in party planning may help improve the negative trend, if the brand can find a way to increase sales within the United States as opposed to the outside markets. However, stock traders are jumping on the Tupperware train while the shares are low, showing that they are confident in a revival of the popular brand and its “reputation for success.”

 

 

Solavei Tries to Block Stream Mobile Launch

“We’re thrilled to celebrate the nationwide launch of Mobile Services by Stream with our enthusiastic and committed Associates at Unleashed in Las Vegas.” – Mark Schiro, Stream President and CEO.

StreamSolaveiAnd so begins another MLM war. This time the rivals are Solavei, which operates a mobile service provider expanding into social commerce, and Stream, a Texas company that is expanding beyond its current retail electric service, and the judge is the public as both companies battle each other using numerous press releases. Most of the time, the public is quick to form their personal opinion which seems not so easy in this case.

January 24th, 2015, was the launch of Stream’s new mobile phone service in Las Vegas. However, Solavei wanted to block the launch for an obvious and simple reason: they accuse Stream of stealing their trade secrets and other intellectual property which had been disclosed to them during extensive merger talks between the companies.

Stream developed a Mobile Service branch that offers cellular services in the United States, without the usage of any commitments or contracts. The similarities are more than obvious, but the same argument could probably also be made about other services such as Cricket and Boost.

On January 24th, the day of Stream’s mobile product launch, a Dallas District Court judge blocked Stream Energy from using proprietary technology and information to launch a new mobile phone service. But that didn’t stop them from launching their new product which they managed to put together in about ¼ of the time it has taken Solavei.

“It was understood by all that Solavei’s confidential information was extremely valuable and it was not to be used or disclosed for any purpose other than consummating a deal between Solavei and Stream,” the lawsuit states.

Stream representatives put Solavei’s doubts off as a tactic to massively affect the presentation of their new product. Since Solavei released their doubts just one day before the launching, one can assume that the whole act was thoroughly planned.

Stream President & CEO, Mark "Bouncer" Schiro

Stream President & CEO, Mark “Bouncer” Schiro

Mark “Bouncer” Schiro, Stream President and CEO, then continues to highlight that the contract regarding confidentiality has not been broken by them and that they will continue to be trusting partners. The court basically just affirmed the contract but didn’t accuse any of the businesses. Therefore, Stream has not been stopped from launching their new service.

“Of course Stream is not permitted to use any proprietary information learned from Solavei during the course of sensitive merger discussions – and we indeed have not,” Schiro continued.

On the one hand, “Why would we copy the plans and tactics of a firm that drove itself into federal bankruptcy proceedings” is probably the best argument for Stream. On the other hand it makes you wonder why they considered a merger in the first place with a company that can’t work successfully and profitably. Stream has done over $7 billion in the past 10 years and is one of the most successful direct selling companies — #14 on the DSN Global 100.

The odyssey started in 2013 as both companies signed an agreement about merger intentions, including confidentiality of information shared dating back to May 2013. From February 2014 to April 2014 both companies shared their technology, social marketing strategies, go-to-market plan and customer lists with each other. Everything seemed to proceed perfectly, until Stream brought the contract to a termination just before the deal was finalized.

Just three months later, though, they published their intention to bring out a mobile phone direct marketing business within six months, which is unusually quick. They even used Solavei’s trademarked slogan “Powered by Relationships” and allegedly tried to poach Solavei’s top members by spreading false information and making negative comments about Solavei.

So it’s understandable that they want to do everything to stop Stream. Suing them on the grounds of misappropriation of trade secrets, breach of contract, tortious interference and conspiracy was just a matter of time.

The lawsuit states, “That Stream is improperly using Solavei’s proprietary and trade secret information to jump start its new business line is self-evident.”

But is it really? Both companies released both some very strong and some pretty weak statements, leaving many questions unanswered.

Why didn’t Solavei complain earlier but decided to cause a turmoil just before Stream’s launch?

Why did Stream terminate the contract just as it was about to get nailed down?

Why did Stream decide to copy their slogan “Powered by Relationships”, knowing that this is a registered US trademark owned by Solavei?

Why haven’t the companies attempted to solve the problems behind the curtains after months of successful negotiations? (or maybe they have, but it’s not evident)

And probably the biggest question of all, what confidential information did Solavei share – and Stream use – that couldn’t readily be learned or reverse-engineered from a thorough analysis of their publicly available information and research of the competition?

It will also be interesting to see if this court case affects the companies’ reputations in a negative way.

These questions should definitely get answered soon. It’s not up to us who wins this war. Personally, I look forward to hearing what they say in court, which should be more valuable than the press releases written for the court of public opinion:

Jan. 23 – Solavei: Court approves injunction against Stream in mobile service trade-secrets lawsuit

Jan. 24 – Stream Proceeds with Nationwide Mobile Launch in the Face of Solavei’s Attempt to Halt Plans