The Business Models Drive
the Behavior in the Field
Part 5
Alright. With this being understood, let us go back and discuss “XYZ Company.” This company decided to create a business model that was so streamlined that they could pay more money back to the field. This company is now taking 97% of their product orders and distributor enrollments over the Internet. Today that is not such a big deal, but five years ago, it was. So in 2002, they did not even have a phone number to call and place an order for six months. They wanted to train people. So you could only call in a product order and enroll online.
The monthly cost to do this is called server space. This overhead per month is less than $200.00.
So “ABC Company” is spending $2,000,000.00 in overhead per month by using humans just to take product orders and distributor enrollments.
“XYZ Company” spends less than $200.00 using technology to accomplish the exact same thing.
If you are in a network marketing company, do yourself a favor and do the math. How many people would you need in your organization or downline to make $10,000 per month? If you are in “ABC Company” you will have to develop, train and mentor 2857 people. In “XYZ Company” you will need about 359 people. Can you clearly see how the business models drive the behavior in the field?
Back when “ABC Company” started, it did not seem like a big deal. Just put the 20 people in the office and that will do the trick. Well the business grew to 100 people. Then to 250. Now they have 400 people working in the office and their overhead is too high. The technology changed along the way and the company was not able to make the change fast enough for the technology. So what did they have to do to keep up with the competition? They could either cut the employees or their benefits, or they could change the compensation plan to deliver less to the field.
When “XYZ Company” started, they used technology. The Internet does not call in sick. You do not have to have worker’s compensation on it. You do not have to have a benefits package in case it gets pregnant or has to have its teeth fixed. You do not have to pay it time and a half for overtime. It does not ever file a sexual harassment suit.
It is all about overhead. The business models always drive the behavior in the field.
OK. Now let’s discuss how this high-overhead business model affects YOUR ability to build your business.
High overhead demands higher prices for goods and services. This is straight economics. At some point this puts the company in a position where they can not compete. If all of the competitors of a product are selling it at two or three times less than the price of the product that the company is charging, only the uneducated person will pay that price. There is a perfect example of this and how this behavior drives the behavior in the field. But first it would seem pertinent to have a short discussion and understanding of publicly traded companies in network marketing.
Here’s how some network marketing companies talk to people. They say, “Look at us. We’re on the New York Stock Exchange. We’re important. We’re a publicly traded company. So you know you’re getting the best company out there.”
This is an actual quote of a lady I was talking to when I was thinking of joining their company. Nice lady. Bad company. Good thing I did my homework. I could have lost out big time.
So, you might be thinking, “Why not? Publicly traded sounds like a pretty good thing. That means that they are going to be here.” Sure they are going to be there, but can you make a profit in this company? What you have to realize is that for network marketing, publicly traded is far from a good thing.
In a publicly traded company, there are investors that must make a profit. It is the company’s responsibility to make that a reality. If they do not make a profit, the investors will withdraw the remainder of their funds and the company will lose their money even further. So the loss is two fold. Loss of profit from sale of goods and services means loss of money from the investors. But the money that is made in profit is the money that would normally be paid to the distributors of the company.
Another thing is the fact that corporations are separate taxable entities. They pay several taxes not borne by proprietorships or partnerships, including an annual franchise tax levied by the state. The franchise tax keeps the corporate charter in force and enables the corporation to continue doing business. The federal government treats the corporation as if they are a real living breathing person. So corporations also pay federal and state income taxes just as individuals do.
Corporate earnings are subject to a concept called “double taxation.” First, corporations pay income taxes on corporate income. Then, stockholders pay personal income tax on the cash dividends they receive from the corporations. Proprietorships and partnerships pay no business income tax. Instead, the tax falls solely on the owners.
So you can see the behavior that is driven. The company has to soak up a lot of money from the income that is earned just to pay the taxes. The stock and shareholders need the extra money to pay their taxes as well. Talk about a two fold way to rob the distributors of their bonus checks.
There are huge problems to be had with a publicly traded company. Not the least of which is who is going to run the thing. And who is going to run the thing is rarely going to be someone who is rep friendly. Let me give you an example.
There was a company a few years back that had some really strong leadership. They had people who were really experienced in the business and rep friendly. That company grew and grew because of that leadership and relationship building. That is perfect. Leadership and relationship building drove the behavior of growth of the business. So the company grew and then went public. Great idea!!
The company had not counted on the extremely high overhead that would be incurred by this decision. The following is another example of why the overhead is driven to such high levels in a publicly traded company. The company has to have book keepers to keep the books straight. We all know what can happen when this goes awry, someone makes a mistake or honor forbid someone throws their ethics out the window and lies through the numbers. Enron, and WorldCom come to mind. So you have the CPA’s looking over the shoulders of the book keepers. You have attorneys on both sides looking over the shoulders of the CPA’s ensuring that everyone is law abiding and is on the up and up. You have the President, the Executive, Junior and Senior Vice Presidents, of the company. You have the C.E.O. and the Chairperson of the Board and all of the Board Members. These are extremely high paid corporate professionals. Every one of them has a secretary. Every one has an expense account. Talk about high overhead.
Well what happened was, that leadership that was so good, was thrown out of the company. The investors thought, “Well we have to make some money here. We have to do it our way. Let’s get rid of that pesky leadership and make ourselves some money.” The investors had never built a downline and did not understand how the leadership could have made them extremely wealthy if they had just let the leaders do what they were already doing. Instead, they changed the compensation plan and basically cut out the people who were building and building big. The Chinese have a saying that roughly translates to “The fish rots from the head.” If the head of the company begins to go sour, so will the rest of it. That company is all but bankrupt today.
THE BUSINESS MODELS DRIVE THE BEHAVIOR IN THE FIELD
Kristopher Curry
Mentoring For Free
“Be a Mentor With a Servant’s Heart.”