However, having been around this profession for almost thirty years, I have witnessed the demise of nearly twenty companies due to regulatory issues. We have recently seen a wave of companies being challenged by the courts. Some have been handed cease-and-desist orders and others have had their assets seized.
The adrenaline rush created by fast growth and easy money can be intoxicating. People have been known to do crazy things to experience that rush. We have all seen aggressive business builders stretch the truth to get others to sign up for their programs. In fact, there is an expression in our profession that says it all: There are the real numbers—and then there are the network marketing numbers.
Exaggeration and embellishment to entice others to join is a common practice in our profession—and it is what gets companies in trouble with the regulators. Deception is serious business. Apply this simple litmus test: if you are stretching the truth to get others interested in your program, it’s probably not acceptable in the eyes of the regulators.
Then there are the gray areas. For example, is it okay to say your company is offering “free” cars to distributors that meet certain qualifications, when in fact the distributor is getting a month-to-month car allowance based on a monthly qualifier? Usually the company is not offering a car at all; the distributor must go out and qualify for the loan or lease.
To the company’s defense, it’s usually the distributors who get a company in trouble. Corporations have clear legal guidelines, but distributors twist the truth. Again, apply the litmus test: if you are deceptive in your recruiting practices, you are not only behaving unethically but also putting your entire company at risk.
The sad part is that it takes just one person to screw everything up. A simple YouTube video or social media post can result in an investigation or legal exposure. It always starts with one.
You may think I’m being overly cautious. But do you want to be the person who sets off a chain of events that gets your company shut down, jeopardizing the financial future of thousands of families? Preventing deception is one of the regulators’ highest priorities. And the biggest tragedy of all is that deception is utterly unnecessary to build a successful network marketing business.
Keep the Money Realistic
Most people have never earned a residual check before, and the idea is naturally appealing. A $500 monthly residual income might dramatically improve a family’s lifestyle. If someone is used to making $2,500 a month, that extra $500 represents a 20 percent increase in income.
|Deception is utterly unnecessary to build a successful network marketing business.|
Getting rich is also a possibility in our profession. Many people have done it, as the endless rags-to-riches stories attest. However, the truth is most distributors don’t get rich. Showing people what’s possible is important to motivate them, but a $100,000 monthly income is just not believable to an employee making $3,000 a month. And because so few people achieve it, when we offer it as a possibility the regulators can deem it deceptive.
A pie-in-the-sky compensation presentation can attract a lot of people quickly. Flashing checks to recruit is a high-risk behavior that makes it really easy to sponsor new people. Even company owners can become blinded by the prospect of growing quickly. With the promises of fast and big money, the hype begins to escalate to a fever pitch. One overzealous reporter who attends one of your meetings can blow the whole thing up by writing an article for a local or national paper.
Don’t get me wrong—I’m not Debbie Downer, and I’m a huge advocate of our profession. I’m only trying to communicate that if you get used to driving 80 mph in the 60 mph zones, eventually you’ll get caught.
Risk versus Reward
New companies often advocate recruiting tactics that are borderline illegal, knowing there is a fairly slim chance of government scrutiny in the early stages of growth. Most companies get challenged only as they grow to $200 million in sales and have substantial consumer complaints.
The most aggressive tactics create the greatest exposure to risk. A conservative strategy, on the other hand, produces slower growth with little to no risk. It’s definitely not as sexy to grow slowly and steadily, however it creates an environment of stability and sustainability. Your company leadership, with counsel from their attorneys, will determine how much risk they are willing to absorb.
High-risk behaviors include showing checks, exaggerating earnings, paying out commissions for the sole act of recruiting, telling prospects they are going to get rich, front-end loading, and so on. Low-risk behaviors include under-promising and over-delivering, letting people know that few make the big money, and encouraging them to start small and build up their income over time.
|The word investment should never be used to describe a network marketing opportunity.|
Another area of scrutiny is customer-to-distributor ratios and what percentage of residuals and bonuses are coming from personal consumption versus sales to outside customers.
If compensation is primarily coming from start-up fees or distributor consumption, then your business may be at risk. An example of this is front-end loading, which is when your upline or company encourages you to buy large quantities of product in order to qualify for a bonus check or rank advancement. The question then becomes, how much of that product is being sold to retail customers in the marketplace? If the product is mostly sitting in the garages and cabinets of your distributors (hence the term garage-qualified), then you are probably out of compliance with the personal consumption regulations.
Here is a better solution that’s both legal and believable: tell people, “There is money to be made in our program. Let’s start with helping you earn back what you paid to get started and make some extra money to help you pay for your product each month. We can do this quickly, if you want to. Then we’ll get to work growing your business and income to something that could become quite substantial over time. How does that sound to you?”
Investment or Lottery
The word investment should never be used to describe a network marketing opportunity. The Securities and Exchange Commission regulates and monitors investments. When someone signs up with your company, they are buying a business. They are not making an investment. This is an important distinction, because there are laws governing investing that do not apply to our profession.
Sometimes you’ll hear reporters and journalists talk about network marketing as if it is some type of lottery. They will say, “100,000 people have signed up, and only five have achieved significant earnings.” They will call it a scam or a pyramid scheme, because “a few people make all the money.” The judgment error they are making is they are looking at this business as if it were an investment or a lottery ticket. Network marketing is not a business of chance; it is a business of ingenuity, resourcefulness, skill, and action.
If we were to analyze the first-year profits and losses of 100,000 traditional businesses, my guess would be that most are either losing money or out of business entirely. Why are we not calling these business opportunities scams?
Based on my observations of companies that have been challenged and shut down by the regulators, here are some simple guidelines to minimize your risk:
Network marketing is one of the greatest professions in the world. The benefits are second to none, compared to those of other business opportunities. People will join in droves when we become believable, transparent, and authentic. Anything less is building the business on a foundation of sand. You can make a quick buck through exaggeration, deception, and manipulation; however, your success will be short-lived and you’ll gradually erode your personal integrity as well as the integrity of our profession. Let’s work together to build our reputation as one of hope, honesty, and sustainability.
JORDAN ADLER is a network marketing
leader and bestselling author of Beach Money:
Creating Your Dream Life through Network Marketing.