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Category Archive for: ‘Startup Business’

FTC Amends Door-to-Door Sales Rule (Not Really)

The FTC recently announced that it has finalized the amendments to the Federal Cooling-Off Rule, (aka Door-to-Door Sales Rule).  The amended Rule will go into effect on March 13. When the proposed amendment was published, there was some anticipation on the part of the direct selling industry that sellers would be granted some relief from the Rule.

For those not familiar, the Rule requires that customers (including new distributors or consultants) be given two copies of the 3-day Notice of Right to Cancel whenever a purchase transaction for consumer goods or services takes place at a location other than the seller’s place of business.  While there are some possible exemptions, for the most part the rule covered many transactions between distributors and their customers and between distributors and their newly recruited distributors.Read More

7 Reasons Why Owners and Management Shouldn’t Hold Genealogy Positions and How to Overcome Them

Should company owners and managers hold genealogy positions? Here are seven reasons why it may not be wise:

  1. The financial benefit for owners to hold a genealogy position is a fallacy.
  2. Owners holding genealogy positions can inhibit an IPO.
  3. Minority shareholder rights may be violated.
  4. You may be unwittingly selling a security.
  5. Ownership of genealogy positions by owners can lead to an inequitable distribution of income.
  6. Ownership of genealogy positions can lead to conflicts of interest.
  7. Termination of a business relationship is made more difficult if management holds a genealogy position.

But the challenges associated with management holding a position in the genealogy can be overcome with proper planning and execution.

So if you are starting an MLM and are considering taking a position in the genealogy, read the latest addition to our MLM Startup Series that discusses these points and how to cope with them in more detail.

Avoid Running Afoul of FTC Endorsement Guidelines

While the FTC settlement with Legacy Learning may seem unrelated to the direct selling indusry, the case actually is extremely relevant to MLM and direct selling companies.

Although you don’t typically see paid reviewers compensated for posting positive comments about direct selling companies’ products, it is common in the direct selling industry for companies to use testimonials to promote the sale of their products and services.

Oftentimes, those testimonials come from their distributors.  Just as the Legacy “affiliates” benefited financially from their reviews, MLM distributors have a direct financial interest in the sale of the products.

As the Legacy Learning case clearly illustrates, whenever a direct selling company does this, it is extremely important that the company disclose the relationship between the company and the person providing the testimonial if that person is a distributor for the company.  This can be accomplished by adding the title ‘Independent Company X Distributor’ to the identification of the person giving the testimonial.

Is Your Compensation Plan Legal?

Not a week goes by that I’m not asked by an MLM marketer if their plan is legal. Sometimes the question is slightly different (“Is my plan a pyramid?”), but those asking still expect an answer based on a review of their compensation plan as it is presented on paper.

This highlights the overwhelming misperception among network marketing executives that they have nothing to worry about so long as their compensation plan is not a pyramid. In fact, regulators rarely initiate actions based on the plan’s structure. In determing if a company is engaging in unfair or deceptive consumer practices, they look first at the  conduct of the company and its sales force.

In the last decade all of the major FTC lawsuits against network marketing companies were initially instituted under the broad umbrella of deceptive trade practices.

Continue reading about how to identify and avoid conduct commonly practiced by network marketers that regulators attack as deceptive or unfair practices.

Intellectual Property – What is It?

When you mention intellectual property, the odds are pretty good that you will be met with a blank stare. After all, our common perception of property is something that we can physically possess.

The law, however, has an entirely different concept of property. To the law, property is considered a bundle of rights, which include the right to use something, the right to possess that thing, the right to dispose of that thing, and the right to prevent other people from interfering with your rights respecting that thing.

Read more about intellectual property and how it affects MLMs here.

Picking Your Partners

Among the top reasons why MLM startups fail is clashes among the business partners. Did you put as much thought and planning into choosing the right business partners as you did working through the planning around your product line, your compensation plan, your marketing strategy, and the hundreds of other big and small decisions that you made along the way? Read more about the critical issues you should address before choosing your partners when you start an MLM in our MLM Startup Guide.