Lessons from Network Marketing

Secrets from the top network marketers every business owner should know

Network marketing, or multi-level marketing, is one of the fastest-growing business models of the past few decades. Between 1993 and 2003, total direct selling revenues grew by 7.1% annually, dramatically above the rate of growth of the economy -- and of total retail sales (according to the Direct Selling Association).

The most prominent examples of direct selling companies include Amway, Avon, Mary Kay, Nu Skin, Xango, and Herbalife, which recently went public. In 2003, U.S. total direct selling sales totaled more than $29 billion, or almost 1% of the over $3,397 billion for total U.S. retail sales (U.S. Census Bureau).

Any business model that has achieved this kind of success probably has lessons that all business people can learn from. We define this family of business models as a method of distribution in which people are paid for sales volume generated by people they have recruited into the distribution network.

20% of American adults reported they are now (6%) or have been (14%) a direct selling representative -- defined as "the sale of a consumer product or service, person-to-person, away from a fixed retail location." In 2000, 55% of American adults reported having, at some time, purchased goods or services from a direct selling representative.

A significant number of network marketers have negative experiences with the industry. That is why 70% of all people who have ever been a direct selling representative are no longer in the industry. For the purposes of this column, we will not go into the challenges and problems in the network marketing model. There are plenty of Web sites on that topic.

We all work for ourselves. Gone are the days of being a "company man" -- your career is your business. Multi-level marketing just makes that explicit. Yet one of the things that makes the sector most attractive, the low barrier to entry, also creates some its greatest dangers. Many people get into it without the necessary skills to run a successful business.

We are primarily interested in what lessons all business people can learn from successful network marketing practices. We recently interviewed some of the industry's top experts and found seven lessons that all sales and marketing professionals can use to be more effective, regardless of their industry:

Every business is a relationship-based business
So says John Milton Fogg, founding editor of Networking Times, author of The Greatest Networker in the World, and one of the most successful teachers of network marketing. You cannot sell an inferior product with a superior relationship, but you need at least a functional relationship to sell your product. That is particularly apparent in multi-level marketing, an industry built around belly-to-belly sales.

Think analytically about your network
Shaul Gabbay, in his book Social Capital in the Creation of Financial Capital: The Case of Network Marketing, reports that the fastest-rising group of entrepreneurs [of the direct selling representatives whom he studied] were those who had initial weak ties to dense networks. In other words, successful salespeople penetrate an untouched market, and then work to gain a high market share in that market. This is easier to do if that untouched market is highly dense; everyone in it knows all the players. Why? Because word of mouth in that type of network will spread more rapidly about the value of your product or service. This principle is particularly evident in network marketing, an industry where "networks go to work." However, the same idea applies to almost any business.

Create a community around your product
One of the great ironies of the software business is that not only do many software companies outsource their development off shore; many also outsource their customer support to their own customers! When Best Software encourages you to visit their user forums to discuss your issues in using Act! software, that is a very cheap way for Best to support their product. Multi-level marketing companies rely almost exclusively on their communities for sales, support, follow-up, and recruiting.

Leverage the unleveraged
In 2002, 79.9% of the direct selling sales force was female. 56% completed only a partial college education, technical or trade school, or have only a high school education. This sales force looks very unlike the traditional American corporate sales force, which typically is much more male and has a higher level of education. However, the direct selling sales force looks just like their customers. People can be very effective salespeople when selling to their own community, because the common culture and interests create a foundation to build strong relationships more quickly.

Build a relationship first
"Internet marketers and network marketers share a common, terminal disease," Fogg says. "If you think of the whole process like dating, we bring someone to our Web site, and then we ask them to have sex immediately. There has to be some courtship first." One of the delicate aspects of network marketing is that people leverage their personal relationships to sell a product. Although that leverage makes some people queasy, the success of the network marketing model shows that many people do comfortably build multiplex relationships: Their friends are their customers, and vice versa. With delicacy, you can do the same thing.

Not everyone is a prospect
One mistake some network marketers make, as do many other sales people and marketers, is thinking of everyone they meet as a prospect.

In network marketing, this is known as the "Three-Foot Rule", i.e., anyone within three feet of you is a prospect. But top network marketers don't do this. Max Steingart, creator of the "Success Online" training course for network marketers, says that it's not just about figuring out when to make your pitch, but even if to make your pitch. "You just build relationships with a lot of people. Some will become prospects and some won't," he says. "There's no timetable. If the time is right, you'll know."

Use online networks
The network marketing industry is a particularly good industry for leveraging online networks. Steingart teaches people how to "make the world your warm market," specifically by using online networks. He reports that when he instant-messages someone to start a conversation about potentially joining his distribution network, 50% of the people he contacts will respond to the conversation. More and more sales and marketing professionals will use online networks to accelerate their sales.

What else can traditional businesses learn from the best practices of successful network marketers? We welcome your comments and feedback.

David Teten and Scott Allen are authors of the forthcoming The Virtual Handshake: Opening Doors and Closing Deals Online, the first book to discuss how online communities and other social software can be used to connect with the right people to help you grow your business and advance your career. For more information, visit TheVirtualHandshake.com.

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