recruiting

I saw an interesting segment on the TODAY Show this morning – an interview with Wal-Mart’s new CEO, Mike Duke. Among other things he talked about various product categories that are doing particularly well during this economic period that has few bright spots. It caught my attention because many of these same products (or products that consumers are choosing as alternatives) make up a large percentage of products sold through direct selling – thus underscoring the reason why direct selling has historically performed well during recessionary periods.

For example, Mr. Duke said health and wellness products are a particular bright spot, he theorizes because people feel they need to take better care of themsleves as they can’t afford to be sick or miss work. Wellness products account for nearly a quarter of sales in direct selling. Let’s face it – people aren’t willing to give up their favorite vitamin, even if they are cutting back in other areas. Based on Mr. Duke’s experience, there are also many others who might be adding wellness products to their regular routine.

There may be a similar mindset when it comes to other products – “The Lipstick Factor” has become a popular buzz word, but it really applies to more than cosmetics. It applies to any product that a consumer views as a “little luxury” that makes him or her feel better but doesn’t put a huge dent in the pocketbook. In the case of direct selling, this could be cosmetics (which I’ll tell you would not be the first thing most women would cut from their shopping list!), costume jewelry, home decor or a variety of other items.

Mr. Duke also noted with some surprise that electronics were doing very well. He attributes this to the fact that so many families are opting to stay at home instead of going out so they tend to spend money on the latest video game as home entertainment instead of eating out or taking a vacation. The increase in the home products category underscores this observation and applies to direct selling in categories such as home decor, and food products and associated kitchen accessories. (Really, who wants the boring meatloaf grandma used to fix when you can have gourmet meatloaf made with a simple mix, accompanied by hand-smashed potatoes, covered with freshly grated cheese and twice-baked in an attractive stoneware dish? – still cheaper than eating out and you can feel good about the meal while spending quality time with your family.)

The one area cited in a Wal-Mart press release that does seem to be significantly different in direct selling is the jewelry category. The release states jewelry sales have been soft, but anecdotal reports from several direct selling companies in this category have indicated strong sales. This is likely do to consumers who are not stopping their spending altogether, but are instead making different choices. For example, a consumer might forego buying a new suit, but instead decide to accessorize the one she already has with a $25 necklace. That little luxury is enough to satify the consumer in all of us but keeps total spending in check.

Wal-Mart may be the biggest traditional retailer in the country (with about 1.4 million associates), but direct selling’s 15 million salespeople make up an important part of today’s economy and will play an important part in recovery. As people tend to stay closer to home, their buying habits shift and direct selling offers relevant and appealing products and services, a comfortable shopping environment with knowledgable salespeople, and even a brief escape from all the negative economic news. It’s only a matter of time before Americans are spending full-tilt again, but until then direct selling offers appealing buying options and a way to earn supplemental income at exactly the time when people need reasons to be hopeful.

I was waiting at a traffic signal today when an Army Recruiter vehicle made a left turn in front of me. It got me thinking about all the different types of organizations and businesses that recruit people. Colleges, sports teams, and even retail stores and restaurants are constantly looking for new people to join their ranks. The military is also great example – with a volunteer army, it’s constantly necessary to educate people about the opportunities the military offers and encourage interested individuals to sign on. Some will say yes, but most will say no. For some who say yes, it’s an opportunity to build self confidence. For others, it’s a way to earn money for college, or it may just sound like an exciting adventure. Once recruited, some will drop out after the first day of boot camp. Others will make a career out of it. Some will be criticized by their families for signing up. Others will become the heroes of their hometowns. The motivations are many, as are the ways to define success.

I’m sure you can see where I’m going with this – try inserting “direct seller” into any of the scenarios above. There are a lot of similarities. Unfortunately, the recruiting techniques of some more passionate direct sellers have become the stuff of legends, sometimes becoming fodder for late-night variety shows, but in the end resulting in a public that has a lot of preconceived notions about direct selling and recruiting.

But the truth of the matter is that recruiting is important to almost every type of business. Turnover requires bringing on new people on a regular basis, and there is a natural hierarchy in any business where a few people at the top manage progressively larger numbers of people below them (and are rewarded accordingly). But, in the end, no business can be successful, regardless of the number of “recruits,” without the sale of products and services. As a result, the emphasis on selling versus recruiting must be balanced.

It’s likely that at some point everyone will be approached with a direct selling opportunity. The opportunity may sound intriguing, or you may not be interested right now (never say never). Either way, just be straight with the person who’s trying to recruit you – don’t be afraid to say no, but also keep in mind that they are approaching you because they like what they do and as a friend, neighbor, colleague, etc. want you to be involved too. If you say no, don’t be surprised if they continue to try to convince you, and know that they’ll probably try again later. Can you imagine if consumer products companies ran one ad for a product and then never tried again? Or if colleges sent only one marketing brochure to their top prospects?

And sellers, if someone says no, accept it and consider trying again later if it’s appropriate. It’s not worth your time or effort to recruit people who aren’t really interested because they’re not likely to be successful. Let the person know that you respect their decision, but if they change their mind, you would love to have them on your team. The next person you meet might say yes and become the next star seller – imagine if you had wasted your time on someone who would only resent you and the opportunity later. Plus, remember that your friends and neighbors are that, first and foremost. Don’t risk your relationships when you have a whole world of potential customers out there – it’s just a matter of meeting them.

So, the Army recruiter I saw this morning was probably on his way to a high school or community event. He probably talked with dozens of people about signing up. Maybe one or two will ultimately do so. It’s possible, but not likely, that one of those people will one day be a five-star general. But either way, the recruiter will probably be out again tomorrow, doing the same thing again. Along the way, it’s likely that he’ll run into a direct seller. They’ll certainly have lots of stories to share with each other. Who knows, maybe that army recruiter will decide to earn a little extra money by selling financial services, pet products, personal care products or any of a multitude of products and services sold through direct selling.
 

I was suprised today when I came across a January post on bloggingstocks.com characterizing Avon’s corporate restructuring plan, which began back in 2005, as necessary because of a flawed business model – reliance on recruiting, and not enough recruits to be had. It’s an interesting, if somewhat naïve, assertion about a company and business model that are more than 100 years old – having survived decades of economic ups and downs and societal shifts.

It’s particularly interesting given Avon’s positive early 2008 forecast – predicting mid-single digit growth in 2008 despite a questionable U.S. economy, according to this Reuters story. It hardly seems like a company in trouble.

Even more interesting are the post’s assertions about the direct selling model in general.

Point #1: Companies “live and die by how many new representatives they can recruit.”

Nope, that statement misses the point entirely. Of course recruiting is a critical part of the direct selling model, but companies rely on those recruits to sell products, not just to sign up. Recruiting alone doesn’t result in income for sales reps or the company. With low start up costs (usually less than $100, and in some cases, far less than that) money is made in direct selling when products move. Products move when sellers sell product.

Point #2: “While MLM companies like to focus the public’s attention on the selling of products, the reality is that it is through the recruitment of new representatives that these companies grow.” No, the reality is it’s still product sales that matter. If a company has 10 reps that each sell $5000 in products, that’s always going to be better than having 100 reps that sell $100 each. Just adding more representatives doesn’t increase profits – which is why many direct selling companies are focusing on making the “career opportunity” more attractive. By nurturing promising recruits to sell more and, yes, recruit more motivated sellers, sales and profits rise. Any business, direct selling or otherwise, has an interest in cultivating leaders who can be top performers and inspire others to do the same, thereby building the business. Not everyone will rise to the top, but those who do will be the next leaders.

Point #3: “Representative turnover is high, however, in large part due to the fact that the representatives don’t make much money from selling products.” Turnover in direct selling averages about 56%, comparable to turnover in retail, which is about 53%, not really that notable. Yes, there are plenty of people who try direct selling and decide it’s not for them. There are also lots of people who might try a new brand of cereal and decide it’s not for them either. That doesn’t make the cereal bad, and quite frankly the financial risk for either scenario is about the same. But beyond those who just decide not to continue, you have the equivalent of seasonal workers in direct selling (who may sign up and drop out every year like clockwork) and you have people who achieve their modest goals and then see no need to continue, each of whom contribute to the turnover rate, but none of whom is unhappy with their experience.

Point #4: “My hope is that this outdated method of doing business is something that more and more women are avoiding.” Sorry to disappoint, but more and more women are choosing direct selling because it offers a flexible alternative to a 9-to-5 job. There’s minimal upfront cost, low risk (especially given the generous buyback DSA members are required to offer) and ultimate flexibility. When fears of recession are rising, people are looking for additional income sources – and direct selling provides a perfect fit. Combine that with relatively low-cost, consumable products that the average consumer doesn’t abandon in slow economic times, and both recruiting and sales are in a position to increase.

Point #5: “With over 99% of distributors losing money in the MLM schemes, it’s no wonder that recruiting representatives may be harder and harder.” It’s absurd to believe that 15.2 million American direct sellers (and 60 million sellers worldwide) are the mindless followers suggested by this assertion. With $32 billion in sales in 2006, direct selling provides opportunity and success for millions every year. As in any type of business there are people who are not successful. However, there are many more who achieve their goals – both financial and non-financial – and consider their direct selling experience to be a fulfilling one.

Considering all these points reminds me what a solid business model direct selling really is. Companies like Berkshire Hathaway, Hallmark, Reader’s Digest, Jockey, The Body Shop and myriad others operate, or have invested in, direct selling companies – something they wouldn’t be doing if the model were questionable. So, don’t count the Avon lady out quite yet – she’s alive and well.