A group of companies on this year's Inc. 5000 have expanded rapidly by adopting the approach made famous by companies such as Mary Kay and Tupperware.
Four years ago, Jere Thompson spotted an opportunity in Texas's newly deregulated energy market. The Dallas entrepreneur, whose grandfather founded the now ubiquitous convenience grocery chain 7-Eleven (No. 4,929), had worked for years in the telecommunications industry. He founded a long-distance company, ultimately known as CapRock Fiber Network, that topped 1,300 employees in just its first few years.
CapRock's model was to persuade customers to switch from one long-distance provider to another. In 2006, Thompson's new company, Ambit Energy, sought to persuade customers to switch electricity providers – something of which most consumers were skeptical, at least at first. "We knew it would take years for people to become aware of deregulation and to get comfortable with the idea that their lights wouldn't go out," Thompson says.
Unwilling to spend a lot of money on marketing in order to try and convince Texas residents that they could save money by switching their power provider, Thompson instead hired Chris Chambliss, an executive who had successfully built a direct sales force at another long-distance company. By recruiting thousands of independent contractors tapped their social networks and got paid every time they got someone to make a switch, Chambliss helped Excel jump from $20 million in revenue to $1.5 billion in just two years.
Using a similar game plan, Ambit Energy, which now fields a direct sales force of some 70,000 independent consultants, has experienced meteoric growth of its own. Sales have increased by 20,369.4 percent over the past four years, from $1.5 million to $325 million. The numbers are so flashy, in fact, that they earned Thompson's company the No. 1 spot on the 2010 Inc. 500 list and the title of the fastest growing private company in the United States. "We could have never achieved that kind of growth through any other model," Thompson says.
This kind of one-on-one informal sales approach made famous by direct-selling pioneers such as Mary Kay, Avon, and Tupperware, has been experiencing a kind of renaissance in recent years. Not only have fast-growing start-ups such as Ambit Energy and other Inc. 500 companies embraced it, so have billion-dollar corporations such as Mars, which launched a direct-sales chocolate company called Dove Chocolate Discoveries in 2007. Even famed investor Warren Buffett, has gotten into the game. His company, Berkshire Hathaway, acquired the Pampered Chef, a direct seller of kitchen supplies, in 2002.
The trend has become even more pronounced over the past two years as the economy has struggled to recover from a recession. "We have long held that direct selling does well in poor economic times," says Amy Robinson, a spokesperson for the Direct Selling Association, an organization that represents some 200 direct selling firms. "This is particularly true for products that are 'recession-proof,' such as cosmetics or kitchen utensils, which are things people won't give up regardless of the economy."
The trend also applies to companies that service the direct selling industry. Take NetSteps, a software company in Pleasant Grove, Utah, that powers the websites and databases used by direct selling companies, or "network marketers" as they are known within the industry. Demand has been so great of late for custom websites suited to direct selling that NetSteps has seen its sales grow by some 1,942 percent over the past few years, which helped it land the No. 137th spot on the 2010 Inc. 500 list. "The recession has been very good for my business," says founder and CEO Derek Maxfield.
The record number of unemployed workers has also come into play as a reason for the industry's growth, says Robinson of the DSA. While direct selling has traditionally appealed more to women than men, people of both genders have turned to direct sales as a way to earn supplemental income or to tide them over until they land another job. "People are also looking for ways to work closer to home, which makes direct selling especially appealing," she says, noting that there were some 15.1 million people involved in direct sales in 2009 – a number she expects to jump substantially when the numbers for 2010 are finalized. That jump in interested sellers is confirmed by Sarah Baker Andrus of Vector Marketing Corp, the marketing arm for Cutco, a member of the DSA, which has long employed individuals – primarily college students – to sell its knives. "Everyone in our industry is reporting an increase in interest from potential recruits," she says, noting that interest is particularly high from those college students having trouble landing more traditional jobs or internships.
Companies rely on a variety of pitches to recruit sellers, who typically get paid as independent contractors. Many companies typically require sellers, who are often referred to as consultants or demonstrators, to pay an upfront fee to cover training materials or possibly even specify that sellers must buy a set amount of inventory to get started. Approaches to selling a company's products or services can also vary. Some sellers might simply use the phone or e-mail to contact members of their social network. Others, like sellers working for Uppercase Living (No. 138), a 2010 Inc. 500 company based in Salt Lake City, Utah, are encouraged to employ a "party" approach, a term made famous by Tupperware, where a seller invites friends, family and acquaintances over to a home to watch a demonstration and sample the product for sale. "With a party plan, no one ever feels like they are in a high pressure situation to buy anything," says Richard Fankhauser, CEO of Uppercase Living, which makes decorative vinyl home décor.
