Considering Network Marketing?

An Evaluation Guide to Long Term & Profitable Business Development

Let's start with a few assumptions: 1. You are ambitiously discontent (In a job or a business that's ok, but not your life's mission) 2. You have decided one solution would be to take control with a business of your own. 3. You've discovered the traditional business startup approach takes too much time, money, education, and - most importantly- risk. 4. You've started to explore less traditional approaches, and discovered there's a whole world out there of solutions, but how do you tell good ones from bad ones?

If the above describes you, then you have a need that should be explored. [Even if the need is there, timing may be wrong: new house, new spouse, new baby all create a need for extra income, but the reality of these higher priorities makes it difficult to focus on other ventures. This shouldn't stop you from collecting information and exploring options for future use when the timing is better]. If you've shared your concern with family, friends, or associates, then you may have already been approached about the network marketing solution.

If you aren't directly looking for them, "they" are most certainly looking for you, which could be good news, if you know the questions to ask. By the way, "they" are the providers of "network marketing" solutions [or in the dim past of the '70s, "multi-level marketing"]. The beneficial reasons you should be looking for each other follow.

Common Sense vs. Myths

First a bit of basic business development common sense: No business can succeed without growing and making a profit. Profit is good, not only is it how businesses keep score, but it pay's your bills when you are the owner. Unfortunately, most people, especially traditional business owners and middle management executive, don't know how to make a profit in networking businesses. When people don't understand something, rather than appear uninformed, they frequently make up intelligent-sounding explanations. Thus have developed the myths:

"You get a whole bunch of people to sell for you"
That works if you own a department store and have lots of employees, but doesn't if you are trying to help independent businesses - all of who are volunteers - work together & grow. The truth is that Network Marketing companies work more like a Franchise than a traditional retailing business. The owner of a traditional retail business only has two ways to grow: create volume by getting more customers, and when that is successful, start more locations. A successful franchise makes money by charging entrepreneurs to learn their system (the franchise fee), and then also making a percentage on the gross sales of the independent locations. A franchise grows by adding locations, not adding extra rooms to existing locations. A successful Networking business is run like a franchise, not a retail location. In other words, focus on adding new locations [i.e. Find people who are discontent and help them learn a system for starting a business], rather that focusing on adding lots of customers to a single business. None of these new entrepreneurs are selling for anyone except themselves.

"It's a pyramid"
So is every church, business, and government organization that requires effective communication to succeed. The geometric shape of an organization in not what makes it legal or effective. Note there are illegal and legal business pyramids (more about that shortly), but in the context of today's economic and legal climate, none of the current networking companies get past the State Attorney Generals for very long. There are some simple rules to determine the likelihood an illegal pyramid: Is there a significant up front fee that is used to repay those who enter previous to you? Are there multiple entry levels where the amount of your fee determines how high you start? Are there multiple wholesale prices to different levels? Is it required to purchase a large inventory up front? If one or more of these exist, then there is a high probability that a State Regulator will require major changes if the business wants to survive.

"You have to inventory a bunch of products"
Virtually no major Networking Company today requires an inventory of products. Many companies focus on services (pre-paid legal plans, investments, telecommunications), and those that deal in products now all have efficient drop-ship and computerized ordering procedures for both the entrepreneurs and their customers.

"I have to contact all my friends & relatives"
You shouldn't have to do anything, since you are the owner of the business. Two examples: 1. If you found a sale on an item that you knew your neighbor was looking for, would you tell them? So, if you have a business idea that might help some people earn extra income or help them gain some independence from a bad job situation, would you tell them? 2. If you opened a store, wouldn't you want to have a grand opening and let as many people as possible know about it? Here's the challenge: we all know people who don't know how to hear the word "no" or "not interested". Don't be one of those. If you decide to share your new business excitement with someone else, and they aren't interested, please listen! If you're polite, when and if their situation changes, you may be the person they come looking for.

Common Sense Questions

Assuming you have an open mind, and a need to look at a non-traditional approach solution to your problem, how do you become educated, and how do you determine whether this new business of yours is going to provide real income over an extended length of time? The following are questions you want to ask yourself and those willing to show you their networking business:

Is it a long-term business?
What is the history of the business- pretend you were an investor (you are, even if it's sweat equity), and find out common sense things you would want to know about any business: how long has it been established?; has it had any legal challenges? (even IBM, AT&T, and Microsoft attract attention once in awhile, but they continue to grow in spite of challenges, since the intrinsic value of their products and services is high and in demand); are the owners committed to long-term growth?; has the company survived external pressures and a variety of economic challenges? (i.e.- recessions, inflation, strikes, etc.). If you are going to associate with a company to provide replacement income at some point in the future, make sure the company has organizational and financial stability to be there long term when you need it.

Are the products and services any good?
Can you read the product claims without laughing? Yes, new technology comes along and fortunes are made, but do you want to bet your mortgage on the marketplace wanting your product or service 30 years from now? One quick clue: is there a "no questions asked" buy-back policy? If the supplier charges significant "re-stocking" fees or discontinues your business if you request a refund, that is a clue that they don't expect to be able to get rid of their stuff, so why should you? Based on your own common sense, do the products and/or services fulfill common needs, thus assuring a long-term market for your business.

Is the compensation plan designed to reward achievers and not punish underachievers?
Every marketing plan [the description of potential income] looks good - but there are some guidelines to explore if you want a viable, long-term business. Three factors are important:

Timing- Any company that manufacturers products needs to keep roughly 35% of the retail value of the products [services such as telecommunications or legal plans are of course computed differently]. Thus how the 65% is paid to independent businesses is essential to long term growth. If too much is paid in the beginning - for instance, to gross profit, then there is a danger that there will be little left to reward you when you reach increasing levels of responsibilities. In most business, turnover, attrition, and a learning curve normally mean that entry level pay is lower than long term employees. In networking business, incentives should be less in the beginning, learning curve activities.

Structure - The structure of the bonus system makes a major difference in income. Without going into details of various structures [matrix, binary, and breakaway are the most common], the more flexible a system is, the more likely people are going to stay long term. Several essential long term considerations: Will the compensation plan allow fast growing business to earn more that slower growing business, no matter when the business gets started, or where the business is in the organizational hierarchy? If a business experiences a period of slower growth, either due intentional or unintentional reasons, is there an opportunity for the business to "catch up" at some point in the future?

Walk-away Income - At some point, the effort you have expended in building a successful business will in large part depend upon the size of the organization. [How many other business locations have started due to your efforts and the efforts of those you helped?] Do you have the opportunity to develop income from the lowest levels of the organization? Can your income be passed on to children or succeeding generations, like any business asset? Can you eventually retire from business activities, and still have a residual income from previous efforts.

What happens when things go wrong? Anything can work for awhile, especially if the founders are enthusiastic, and the products or services have some value. Eventually, the reality of sustaining a long-term business occurs, and people and companies make mistakes. When this happens, depending upon the severity of the errors, people will quit, become discouraged, and the survivors pick up and continue. However, a few essential safeguards should exist to make sure that both those who chose to leave and those that stay are protected:

Can inventory be returned? If products are involved, they should be able to be returned without penalty if they are still merchandisable. What happens when people quit or go inactive? If you have built and organization over time and someone quits, do the lower levels "move up" to you or the founding company? Like a successful franchise, if you help establish enough locations, the income should continue as long as those locations are also profitable. Are there monthly quotas or minimum order requirements? If a company's products do not have a wide market, then the only way to sustain volume is to require either minimum order volumes or minimum monthly volume to remain in business.

Final Cautions
Here are some cautions on situations to avoid if promoters of networking companies use the following phrases:

"Ground Floor"
Here is a subtle, but deadly attraction: most people look for investments that could be the "buy low, sell high" opportunity. However, especially in business, the best philosophy is one of acting like you were walking through a minefield: follow someone who's done it successfully! In networking, a "ground floor opportunity" usually means there are those who want you to start your business quickly so they can take your money and begin another different business.

"Developed by successful distributors in Xxxx Company"
Another siren song, that a bit of common sense should give you caution: if they were really successful in a previous business, why would they leave to start something else?

"Sign Up Today, and …."
If the business is a good, long-term opportunity today, then it will be next week, next month, next year. Do your homework, ask plenty of questions, think about your goals and dreams, and talk to new, experienced and successful [not always the same people] businesses. Then make your decision and go forward

FINALLY, once you've done your homework and are comfortable with your mentors, listen to their advice. Remember, 1. There is no free lunch - every business will require work, effort, commitment, and change. That's what you get paid for - creating new business volume and profits. 2. One of the reasons you started on this adventure is that you had goals that couldn't be achieved with a traditional business. Therefore, a networking business requires a whole different set of assumptions and working relationships to be successful. Believe in yourself, ask for advice, and focus on your new future.

Ralph Helwig is president of Economic Strategies, Ltd., a consulting firm that specializes in assisting entrepreneurs in starting and financing businesses. He can be reached at 877-553-8073 or via e-mail rdh @bww.com.

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