Mark Rawlins—CEO and founder of InfoTrax Systems—joins us to talk about the effects of disruptive technologies on the MLM industry, trends over the last decade in the motives of sales people and sales leaders, and regulatory issues facing the industry. Check out mlm.com to learn more about the industry and infotraxsys.com to learn more about our parent company.
Welcome to the MLM.com podcast. I’m your host Kenny Rawlins. In today’s episode, we are talking with the founder and CEO of InfoTrax Systems Mark Rawlins. InfoTrax is the premier technology provider in the direct sales industry. InfoTrax delivers the only comprehensive direct sales solution on the market, from commission strategies, to advanced communication tools. InfoTrax provides the scalability your business demands for long term success. Mark’s career spans more than 35 years. He is recognized as one of the pioneers and dominant leaders in the MLM and network marketing industry. Additionally, Mark is considered the market expert on commission plan design and implementation. For purposes of full disclosure, MLM.com is owned and maintained by InfoTrax Systems. I also am an InfoTrax employee. We hope that you’ll set that aside and appreciate the insight and analysis that comes in our interview today.
Kenny: So, I’m here with Mark Rawlins who is the Founder and CEO of InfoTrax Systems, and wanted to talk to Mark a little bit about what he’s seen in the industry. He’s worked in the industry for over 35 years and obviously, we’ve seen a lot of technology changes. Really, my focus in these first few podcast episodes has been where the industry is going, and I think getting Marks perspective, both on where we’ve come from and where we’re going will be helpful. So, Mark, obviously, we’ve seen a lot of regulatory activity and a lot of shifts in the way that MLM’s are doing business. What do you attribute that too? Why are we seeing that now and has there been another time in the industry that you’ve seen that there’s been so much unease and change?
Mark: Well, I mean there’s been… regulatory has been an issue we have dealt with for as long as I’ve been in the industry. Back in the early days, we dealt with the post office investigators for postal fraud and you know, all sorts of things. You know, there was the first pyramid scam that I knew of was when I was very young, was a product called ‘Dare to be great’ by Glenn W Turner. He went to jail for it, or for something. So, it’s always kind of been there but it does seem like there’s been some high-profile cases in the last couple of years. It may just be luck, or it may just be you know, freak, you know sometimes lightning does in fact strike twice in the same place, and you had Herbalife and the reasons they were investigated, and then Vemma, the reason they were investigated was very different but they were both very high profile.
So, I think, and then the other thing that I think is, it’s become much easier for the regulatory agencies to investigate. It used to be somebody had the sign up a distributor and go off and go to meetings, you know, find out about conference calls and listens in on them. Now they just go to YouTube and listen to all the things that distributors say and they find the ones that say the most outrageous things, and some newspaper goes undercover and has a meeting with them and records them, and so I think maybe some of that’s it. But I think regulatory has always been with us and I think it will continue to be with us.
Kenny: Yeah and I think that’s an interesting point that I hadn’t considered is, kind of your technology maybe grew a bit faster than the companies knew how to deal with it, and not just in the sense of like, YouTube, and things like that, but any amateur now can do undercover camera work without hardly any work at all. So, you do get just a lot of claims that are easy to get a lot of traction, and so that is interesting to think about just, you know, you go back even 10 years ago, and it wasn’t common to have a least a very good camera on your phone, and now people have 4k quality cameras right on their phones.
Mark: And I’m certain they didn’t have enough memory to record a 30-minute meeting, whereas, and if you pulled out a video camera in a meeting, they’d kick you out. Now, nobody thinks anything about people back in the back with an iPhone. So, yeah, I think some of it’s that. Certainly, the industry needs to do a better job. Personally, I’m not a lawyer, I don’t play one on TV, I don’t want to be one. So, I leave law to the attorneys, but I personally don’t think it’s going to be the regulatory agencies that cause the rise or fall of the industry, it’s the industry itself and its practices.
Kenny: Yeah, and I would actually almost think that more of maybe the threat to the industry is just the way that the consumer market’s changing, period. I mean, and that’s not true just for the MLM industry but then you see Target and Walmart and all these people who are worried about Amazon and the fact that they’re using technology to be very disruptive, and we’ve got to respond to the same types of threats, right. There are more and more ways to get products cheaper and cheaper and MLM has always lent itself to the culture that people want to be a part of. High quality products, and products that need an education to them, and I think there’s still going to be that market moving forward.
Mark: Yeah, I’ve always said if a person has all the information they need to walk into a big box store, and find a product like yours, and select one and buy it and walk out and they have all the information they need to make that purchase and use that product, you have no chance of selling it MLM. MLM is for products that require what Paul Zane Pilzer, an economist—a great economist—, said is ‘intellectual distribution.’ It requires… I call it my METS theory: motivation, education, training, or support. One of those things have to be part of it in order for a company to be successful.
One of the very successful companies in the 1990’s was Creative Memories. What did Creative Memories sell? It sold scrap booking. You could buy scrap booking at every craft store in this country, or you could buy Creative Memories very expensive crafts, scrapbook supplies that were not standard size so you had to use their supplies. And they became a several hundred-million-dollar company. Why? Because they didn’t sell scrap book supplies, they sold scrap booking experiences. My wife went to scrap booking parties and her and her friends, and people who became her friends, sat around and laughed, and anyway, so it was the experience.
Kenny: Yeah, and your sharing ideas and that culture of support that people get from it as well.
Mark: But let’s go back to your disruptive technologies. The disruptive technology cuts for and against MLM. The internet is now so crowded, and search engines are so overwhelmed, that you can’t just go out, start up a website, and sell product. Nobody will ever find your website. So, then you have to use Amazon, or sell an Amazon store and they’ll take 30%, or sell in Apple’s store—if it’s a technology product—and they’ll take 30% and you have to go do Google AdWords buys, and that’ll take, plus you have to hire the expert to be able to do it and so for the average MLM that’s paying 40 cents on the dollar… so, most of it, if you sell an Amazon they take a third of the price. It’s what they take if you’re selling low volume items. So, that’s a 33%. Most MLM’s direct selling companies, if you’re not talking party plan, pay out 40% of the wholesale Dollar in commissions. So, you’re within 7%, but you don’t have to do all the marketing, you don’t have to do all the web analytics and so it’s become a point where direct selling, if I have a great product I can afford to pay the sales force, the same thing I’d have to pay Amazon or indeed any of these other people.
So, we’re on an equal footing with them. But we’ve got to provide a better experience, right. Now, ok great I got something in our website. Now they’re going to expect the exact same experience that they get on Amazon, and the industry as a whole has done a terrible job of recognizing that and becoming Amazon.
The other thing is, if you’re going to get customers in, then the site should look identical to Amazon. Well, not identical, but you shouldn’t log in and first see how many people you’ve sponsored this month. You should see the shopping cart because you’re a customer. So, there are things that the industry needs to do differently. You know, if you’ve got salespeople you need to treat them differently, you need to talk to them differently, you need to not put your talks to salespeople and sales leaders on YouTube, right. The pharmaceuticals don’t put their talks to their salespeople on YouTube. They end up there often times, but they don’t put them there.
So, companies are going to have to start saying, “look, we have customers and we have salespeople and sales leaders.” Customers have an experience that is like Amazon. Salespeople and sales leaders have a sales leader and sales experience when they go to the web, so that’s where I think the industry is sort of missing the boat right now and needs to catch up and wake up.
Kenny: Well, in talking about disruptive technologies that then kind of work for the industry, we live in an era where just in the last 6 months, you know, ‘fake news’ has become just such a buzzword and really what’s underneath the fake news is not whether it’s fake news or not fake news, it’s the distrust of what we hear, because with the internet you can saturate people with seeds of doubt, and more and more I think we’re going to see a return to the value of a personal recommendation, because people can manipulate ratings online. It used to be that, yeah you very much trusted the mass of people who rate a product or don’t rate a product. But I think people are more and more worried about the quality of the products they’re using especially when it comes to things their families are using, and so much of the MLM space is ‘health and wellness’ right? And that personal recommendation is going to go further and further I think, with people.
Mark: Which is why Google and Amazon try and get you rate the product. But of course, the company can create fake ratings. They buy their own product and they go put a fake rating in and people now know that that happens, but you cannot create a fake rating of somebody you have a personal relationship with. So, we have challenges but we have lots of things going for us.
When I started in this industry, that hardest thing going against us was the model itself. I had this product I was trying to sell you, back in those days you either bought from Sears and Roebucks catalogue, or you went to a brick and mortar store, and so ‘you’re trying to tell me that I just write an order to you and you’re going to deliver the product’. People just were so confused by the model, but now we’re asking them to go the internet and buy product. People go to the internet and buy product every single day. Worst thing I ever did was sign up for Amazon Prime. Because now there’s a package that shows up at my door every day.
Kenny: Yeah because it’s so easy, so yeah it’s longer this thing where we’re trying to overcome the skepticism of people, in a lot of ways now skepticism works in our favor because of the model. Right? Now it’s not skepticism about the delivery, it’s skepticism about the quality of the product, the fact that it’s very hard to go and talk to a sales person these days because so much is done online, and now you can actually, especially when you start talking party plans or distributors that do a good job of carrying a little bit of inventory they can help you use the products, see the difference in them, educate you on it. So, I think that that starts to work very much for us. I also think the training… I think we got a little bit behind in monitoring what was said and done through social media, but now with technology you can provide a much better training experience at a much lower cost to an initial distributor. They don’t have to fly in and do a training, they can do it online at their own pace. You can provide pre-canned messages, and that’s another opportunity that I think the industry has is to capitalize on that.
Mark: Yeah, so really the pro’s that the industry has right now, is selling product is about the same as going out and if you have some new product going out and selling it through amazon or using Google, all those things. So, we can be pretty cost competitive. So, the sky is the limit as far as the product, as long as the products require some interaction, personal recommendation, discussion of how to use them. That’s why you see, you know for a long time back in the 90’s and early 2000’s a lot of one-product companies. Well what does a one-product company do, for ongoing personal interaction? I set the bottle of juice in front of you and say drink the juice. If you feel better, drink more. If you don’t feel better, don’t drink more. You know, and where’s the ongoing interaction?
But now you see companies that have dozens of products or hundreds of products. So, there’s a reason for community to form to have discussions about how to use them, to have discussions about what worked and what didn’t. All those kinds of things. Obviously, companies need to monitor those because somebody will sure as heck, if there’s an Ebola scare we’ll say it’s going to cure Ebola, and you’ve got to make sure that’s cleared up. But there are tools to do those kind of things, so we have those benefits. So, if you have a product that requires that personal interaction—for either motivation, education, training, or support—and you have the web tools that allow you to really give a good customer experience.
And then in the compensation plan world, we’ve kind of gotten lost a little bit where if you’re going to have customers then you have to have people who sell to the customers and you have to have people who are committed to sell to the customers, and so many companies have this idea that the compensation plan is like an escalator, once you get on it you just continue to go up. That you start out as a customer, or whatever you want to call them, and then I’m a salesperson and then I’m a sales leader, and then I’m a bigger sales leader, then I’m a dream builder and then I’m a millionaire and then I retire. Well that’s hot how it works.
Most people who have this skill to go out and talk to people, those extroverts who can go out and sell to 50 or 100 people, or 10 or 20 people, they may be perfectly content with that. And the compensation plan needs to reward those people enough that it’s worth it to them to bring customers in and that they don’t have to go on to the next level of training customers how to bring in customers in order for it to a financially viable experience.
The other thing I think companies get trapped in, is they think that somebody making 3-4 hundred dollars a month or even 2-3 hundred dollars a month isn’t enough money. Not true! We’ve looked at the stats over and over again. People will stay at 2-3 hundred dollars a month forever! If the amount of work they put in it compares with their compensation. I call it the McDonald’s test, if the time they spend to get this $200 is more than 10 or 15 hours then they might as well go work at McDonalds. Ultimately, they’ll get up to over $15 an hour. So, you’ve got to make sure that somebody can make $20-$30 an hour selling if they’re good at.
So, that’s one group and you think of salespeople, and you have the sales leaders who can bring in sales people and train sales people, but they are a different group and it’s not an escalator. Most people who join this business know whether they want to be a salesperson or a sales leader the day they join, or a customer.
Kenny: Yeah and it’s interesting I had a conversation a few years ago with a woman who sold Pampered Chef, and the whole reason she got into it was her husband worked full time and was happy with his job, but they wanted to buy a newer car, because they had a car that just kept breaking down and had all these problems, and the whole reason she got into it was because she like Pampered Chef, and her goal was to offset the cost of a new car, and that was her only motivation, then once they had the car taken care of, she then just kept wanting to make that little bit of supplemental income and I think too often people think—like you said—a person like that is frustrated because they’re not making it to the top of the escalator where for them that was the top of the escalator. She wants to host a few parties a month, make a couple of hundred dollars to supplement their income, and she’s happy with that.
Mark: Yeah, and so, you know I’ve written two books on compensation plan, there’s my one plug for the thing and when people say what’s the one thing that people get wrong, I say, “paying their salespeople.” Your right, you’ve got to pay your sales people. And it’s not that easy to do right because you can’t pay a customer for their own sales as if they’re a salesperson, so you have to have qualifications to be a salesperson that makes sense, but if they are a salesperson who are actually bringing in customers you need to pay them enough that it’s worth it for them to stay.
Kenny: Yeah, so, we don’t have a lot of time left but you and I have talked a couple of time and I want to get your thoughts on this in how the industry has evolved over the past decade versus the industry that we had through the 90’s and through the aughts of the 2000’s.
Mark: Well in my mind if you look at the modern MLM industry from 1990 to today, there were two periods, there was before the great recession and after the great recession of 2008. I think it was Warren Buffet who said about the great recession “You don’t see who’s swimming naked until the tide goes out,” and we saw that a lot of companies were swimming naked when the tide went out. One of the big differences is up until 2008, companies succeeded by convincing people they could get rich and they could get a lot of people to sign up and throw a $100 in this product a month on the hope that they could get rich someday, and to some extent companies were forced into it because of the stock market of the 1990’s.
I had a friend who worked business, was quite successful, was getting more successful. I said “Is you husband enjoying it?” She said “No, he drives trucks for UPS and when he retires he’ll have a million half dollars in retirement,” and at the time I thought “Man if we can’t hire, if we can’t convince UPS truck drivers to move into this industry, to help support their wife who is already very successful, we have a real problem,” and the way the industry solved the problem is by promising the world—I think the pinnacle was a company who promised, if you hit their top level of achievement they would give you a ride on the space plane to fly into 2012 or whatever.
After 2008 that just died. For whatever reason, Americans woke up from this… bender, they went on from 1990 to 2008, where they just expected that the stock market would just keep going up and up and up and up and up and you put a hundred bucks a month in the stock market and you’d end up rich. And now we’re going back to where we were in the 80’s and 70’s, you know, you have to work and people are looking for a few hundred extra bucks a month, for mad money, for money to take a vacation once a year and so the companies that have succeeded are companies who have product with real value and are made for this industry because they require motivation, education, training, and support and they have a compensation plan that allows a person who has that natural sales gene in them to work 10 hours a month and make a couple of hundred bucks a month, to work 10 hours a week and make 800 bucks a month, but they can decide what it is.
Kenny: Yeah and I think along with that you see a reduction in some of the average orders, or not necessarily the average orders but the upfront purchases that people are trying to sell, the large packs, and things like that, and then fewer one product companies that you’ve already talked about right, that it seems like we have reset to a more reasonable expectation of saying “Ok this isn’t just about a business opportunity, this is about providing quality products to customers and allowing people who are entrepreneurial to come in and make either a part time income or even a full time income, but it’s an business opportunity that people need to take seriously. And separate and aside from the business opportunities, the products play a prominent role.
Mark: Yeah and the last thing I would say is—give a nod to the regulatory and the legal people—the reality is I have never seen a company where more than 40% of the people sponsored anyone, so in all of the companies I’ve ever seen that have had success of any sort, 60% of people sponsored no one. So, those people are—by definition—customers.
The problem is that because we sign them up as distributors the FTC—in the Vemma case—came down very clearly if you’re going to sign them up as distributors, then they’re distributors! Because we tend to say “Well, they’re customers, they’re buying the product.” The FTC says “No, they are failed distributors if they don’t make any money.” So, we do have to change our business practices so we bring people in. Who are going to just buy the product at wholesale and we bring them in and we call them customers, that what they are, and then we make it an easy transition if they decide they want to start referring a few friends and becoming a distributor, then we have a transition process that doesn’t have to be an onerous process, but we do need them to pop up a page and say “Hey, I’m converting to a distributor,” you know, they sign it and off they go.
Maybe they buy a small sales kit when they do that, but it doesn’t have to be an onerous process, but it has to be a process that we build on. You know if somebody knows they want to be a salesperson then great, you sign them up as a salesperson. If somebody wants to be a distributor, then great you sign them up as a distributor. But if they’re just going to use the product you sign them up as a customer and then the first time they refer somebody to the company, or the 2nd time or the 3rd time you make them a distributor.
Kenny: Yeah, or you allow for some sort of referral program that says “Hey, I’m not a business person,” and I think that is one of the things that does need to happen is a clear line in the sand for that person signing up saying “Hey, I really am perusing this as a business opportunity because it’s clear that regulators are going to hold us to that,” kind of based on the status that a person comes in as, and for too long we’ve treated this kind of like a Costco membership, when it’s clear the regulators aren’t looking at it like that.
Kenny: Well, we appreciate your time and your thoughts, and I look forward to chatting again.
Mark: Alright, thank you.
Kenny: That’s if for today’s episode of the MLM.com podcast. Thank you for listening and we hope that you found today’s information useful. You can support us by rating us on iTunes, or reaching out to us through MLM.com. We would love to hear your feedback, and the issues you’d like addressed. Also, a special thanks to Mark for his time and expertise, and thanks to the MLM.com editorial staff for support, especially Jana Bangerter and Adam Holdaway for their production and support. I’m Kenny Rawlins and we look forward to our next episode.