Jewelway (U.S.) (#29), in Tucson, was started by a CPA, BruceCaruth. Caruth had seen too many small companies fail, crushed bytheir overhead. So when he left his job as chief financial officer ofa Tucson real estate development company to start his own business,he chose one with the lowest possible start-up costs: selling jewelrythrough multilevel marketing. Caruth knew the field; he'd moonlightedas an independent rep when he was still a CFO. Although themultilevel marketer he toiled for eventually went bankrupt, Caruthhad "learned the power of this marketing: the loyalty of the reps andthe reps' friends and family." He knew that some people might haveconsidered buying a franchise, but that would have involved taking ondebt. "And I hate debt." Besides, he knew that franchising limitsentrepreneurs to a certain territory. Caruth's network of more than100,000 reps has allowed him to expand into Canada, Australia, andthe United Kingdom.
Caruth, too, is out to professionalize multilevel marketing. Hiscontribution to the field: he shuns sales quotas. "I wanted to be oneof the first network marketers to have no sales quotas. That meansreps who don't sell for eight months don't lose their downline." Hesleeps easier knowing that his $60 million in U.S. sales are nearlyall retail because "there's no motivation" for reps to overbuy.
Think what you will about equi-nox, but multilevel marketing ishelping the company solve its competitive problems. Bill Gouldd isbuilding a worldwide brand on the cheap. In-stead of spendingmillions on newspaper circulars and supermarket slotting fees, he'smaking millions while his disciples preach the word. "You have toreach the people who eat at Burger King one-on-one," says Gouldd."You don't get a personal experience from a catalog or a storeshelf." Gouldd says he's spending heavily on developing new productswith outside manufacturers, even taking a minority stake in some. Hislong-term goal is no less than to replace the store for hiscustomers. The Equinox product line has burgeoned to 315 items.
Excel also sees an unlimited upside. The company is planning aline of pagers and home security devices, satellite TV, and evenlocal phone service for its long-distance customers. "For this kindof product line, multilevel marketing is far superior to selling witha traditional sales force. We don't want salespeople talkingtechnology," says Troutt, adding, "Our independent reps will alwaysbe our sole channel of distribution."
But for every gung ho sales rep like Bill Contreras, there's aLayne Golan. Golan, an anesthesiologist by day and formerly an Excelrep by night, grew weary of attending meetings, "which is what youhave to do" to succeed, he says. But it was more than that. He caughtsome people lying about their sales, and that made him nervous. "Whatif I fake it 'til I make it for a few years, and I never make it?"
That's a question some financial analysts have put publicly toExcel. They want to know whether the company's cash flow is driven bymoney made on the sales of long-distance service or on the recruitingand training of reps. Troutt and his CFO Jack McLaine insistit's a 75-25 split between long-distance and rep-building revenues.Still the company was expecting 10,000 of the faithful in Dallas thisSeptember for its annual Excelebration sales meeting. The admissionprice: $165.
Somehow the idea of asking Joe and Mary Lunchbucket to pay $165for a few days of festivities--or $595 for Equinox's MillionaireWorkshop--seems, well, not quite copacetic. And that's just onereason multilevel marketing continues to be controversial. The DirectSelling Association estimates that last year the industry generatednearly $18 billion in sales at retail. What no one knows is how muchwas made at the game of transforming more than 7 million people intoentrepreneurs. The advantage lies with those network marketers whocan achieve an equitable balance between what they make recruitingreps and what they make selling their wares. *
Research assistance for this article was provided by MelodyNelson
Pros & Cons:
When Friends Sell to Friends
Why multilevel marketing is the distribution channel in yourcompany's future...
* It eliminates the need for slick advertising, which consumersobject to anyway.
* In a world of marketing noise, friends are the only salespeoplecustomers listen to and trust.
* It reduces the cost of acquiring customers.
* It reduces cash-flow risks because merchandise has to sellbefore reps get paid.
* It enables a company to build a large sales force very cheaply.
* It capitalizes on the exploding supply of soloists andhome-based "entrepreneurs."
...and why it isn't...
* It means going into the sales training business.
* There's the constant threat of consumer complaints, lawsuits,and government investigations.
* There's image angst--friends may bolt when they see you coming,for example.
