The Latest Greener Pasture
Would you ever board an airplane with a 9 out of 10 chance that it will crash? Would you ever put your family and friends on such a plane? The failure rate for startup companies is over 90%. Read the Forbes article
What do we know about the other 10%?
1. The company offered a product that was perfect for the marketplace. Would involving your friends and family members, not to mention your business associates, in a venture where the product positioning is not yet known, and promoting that broadly through social media, ever be mistaken for bold leadership? It is easy to confuse bold leadership with reckless risk taking. Sure it works out from time to time, but 9 out of ten times, it doesn’t. And in the Direct Sales space, it may work out for the leader who is a beneficiary of superior tree placement and other enhancements not available to everyone else. Ask the people who have left companies for greener pastures only to repeat the process several times before landing on their latest greenest pasture, “If you had to do it over again, would you have stayed put?”
2. The company MUST BE adequately capitalized. David Bach in his book, Start Late Finish Rich writes about 13 reasons which support a decision to be involved in this industry. (See Chapter 17). He also identifies 5 Major Downsides (see pg 220). “The single biggest problem in the industry is the number of companies that pop up and disappear…” Putting the odds in your favor requires:
A. Only signing up with an established company. (id, pg 222). Says Bach, “At a minimum, would want to see revenues of $50 million per year and a solid 5 years of earnings and growth.” At a minimum with a startup company, ask yourself, “Does this management team have a history of adequate capitalization, or when things get tight will they be willing to saddle the company, and your future, with insurmountable debt?” Worse yet, will the management of the company cede control of the company to financiers or venture capitalists with whom you have no relationship and whose objectives are not necessarily consistent with the management team with whom you chose to be in business.
B. Are you being given the opportunity to look at the financials? (id. pg. 223). If the business you are considering is only intended to be your next hobby, don’t worry about this (but also don’t expect a business that you don’t treat seriously to reward you seriously). If on the other hand, the business is a serious consideration to you, understand the financials. Where is the capital coming from? Did the management team have to leverage control of the company to get the money necessary to launch?
C. Who is producing the product? What safeguards are in place to make sure the product isn’t the next Samsung phone? Has the product been tested and offers real tangible benefits or is it something that may have unknown consequences that will kill the company before it even gets off the ground.
3. The company must have a compensation plan that will allow people to be successful. If you can’t get your head around the compensation plan, you should never join, much less promote it to others. For example, an inadequate comp plan will require leaders to make their money other ways, such as on tools, events and business support materials, money not typically available to the new guy you are recruiting. Regardless of the comp plan, who is providing the system for sustained growth (or is growth going to be merely the product of hype along with the recruitment of new leaders with an existing group). Does the company have a system or are the leaders expected to provide that? If the leaders are expected to provide that, are the leaders themselves adequately capitalized? Has the concept even been discussed in the midst of all the hype about this newest greener pasture.
WORDS OF CAUTION (“DANGER WILL ROBINSON, DANGER!”): If you are leaving one company and going to another, are you respecting the contract with your current company? The battlefields between companies are littered with the corpses from litigation where the company from which the distributor is departing sued to enforce its contract. For the responsible leader, this is not just about you. This is about putting the people you care about in harm’s way.
A. Anti Raiding and Non Competition clauses. Most companies in this space have at least two provisions that make jumping from one company to another difficult. There is a strong public policy interest for that: stability in the industry. The Policies and Procedures of each company is a contract that can be enforced through the courts, often by either a distributor or the corporation itself. This contract almost certainly has a non competition clause and equally as important a non solicitation clause (also known as an anti raiding clause). The DSA has said that non competition clauses of six months to 2 years are reasonable. But the non solicitation clause is equally if not more important. When you leave a company, you cannot solicit the distributors of that company to join your new venture for a period of time defined by the contract, usually as short as 6 months but as long as 2 years. Again, stability in the industry is the public policy that supports clauses like these. If you are considering going with a company whose management team has been around the block a time or two, they will likely have experienced this first hand and will not want a repeat performance. But even if the management team is so hungry as to take on distributors without regard to that, you yourself could have the kibosh put on your business until the time set forth in the contract runs. To the brash risk taking leader, remember- this is not just about you but about everyone you recruit to your new business from your former company-putting them in harm’s way is not just negligent, it is irresponsible.
B. Don’t be fooled by thinking you can register in a corporate name or a family member’s name. It is standard in the industry that there can be only one distributor per household. Why is that? Allowing multiple business centers in more than one household increases the opportunity for gaming the system. More to the point in transition circumstances, the opportunity for cross recruiting escalates when a husband and wife pursue two separate networking opportunities. That’s bad for the industry and typically bad for everyone involved. Put more practically, a company would never want to be paying income to one household while people in the same household are recruiting people from that company’s distributor base into another company. Sure, you may not get caught. But if you do, you will likely be terminated from at least one company and perhaps both.
Finally, litigation involving a startup company can spell death to that company and vicariously death to your financial future. If you are choosing a company which is pushing the edges, make sure you have a backup plan. Under capitalized companies are at particular risk, but even those companies who believe they are properly capitalized, rarely set aside funds for litigation. The budgeted legal expense is typically operationally based (legal cost of registering to do business, opening other markets, patent and trademark expense, etc). Rarely do companies set aside money for the unexpected lawsuit from a disgruntled distributor or more importantly a raided corporation. Those unbudgeted expenses directly impact the ability of the new company to do business and the public relations nightmare is more devastating than in traditional businesses.
Whatever your decision, remember it’s a marriage, not a one night stand! Make a commitment and be willing to see it through.