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April 01, 2015

Cover Story

Don’t Forget The Basics: A Cautionary Tale

by Andrea Tortora

Click here to order the April 2015 issue in which this article appeared or click here to download it to your mobile device.


When companies leave direct selling, their stories present keen lessons for the entire industry. Interviews with industry experts and business leaders, as well as extensive research, show many common challenges and mistakes. The most notable? Forgetting the basics. As companies mature, they become complicated and drift away from their core. This can create weakness in a business’ culture and attitude.


“There has to be a synergy between the efforts of the corporation and the efforts of the field to work together as partners. You have to always respect the field and care about them and love them to be truly successful.”

—Neil Offen, former President and CEO, Direct Selling Association


To remain strong and growing in the industry requires an understanding of many complex issues, but foremost among them is a foundational principle—what makes direct selling tick are personal relationships. This remains true regardless of product offering, level of new technology utilized, or even what label is attached to the process—whether it’s group selling, party plan, social selling or one-on-one.

While it remains important for nearly every business today to maintain a commitment to technology expansion in some form, the manner in which each company embraces technology should never supersede the organization’s commitment to its people who function within that technological framework. Parties and gatherings may move to a more virtual landscape, but the people involved are still the ones engaged in the process and business channel. Indeed, the rapidly evolving landscape in business in general requires everyone to stay nimble enough to respond to market pressures and consumer preferences in ways that align with their company’s true principles.

People First

Every time a good company exits direct selling, it hurts the industry as a whole. There are many recent examples from which we can learn, including two energy companies that closed their direct selling segments: North American Power and NRG, whose business unit operated as Independence Energy Alliance. Other companies include At Home America, lia sophia, Lindt Chocolate RSVP, Gigi Hill, Jamie Oliver At Home, Jockey Person to Person and Body Shop at Home, to name a few. The fundamental thing to remember is that the industry is totally dependent on a volunteer army of individuals who can leave at any time, says Neil Offen, former President and CEO of the Direct Selling Association. Independent consultants want to be proud of the company they represent.

“There has to be a synergy between the efforts of the corporation and the efforts of the field to work together as partners,” Offen says. “You have to always respect the field and care about them and love them to be truly successful.”

The field can make or break a company. Which is why when a company moves out of direct selling—for any reason—the most difficult issue for leaders to work through is managing and taking care of its independent consultants. Sometimes, corporate leaders are able to prepare their field for the change. The end of business operations often is a shock and a hardship to the thousands of consultants who bought into the company—financially and emotionally—and they must face the loss of their livelihood.

“People decide to join a direct selling company because they trust the brand and the people representing it,” says Sue Rusch, who led Crayola’s Big Yellow Box direct selling business through its closure in 2007 and now works as a consultant for top direct selling brands. “It is a relationship business. People have a belief system that says if they dedicate themselves to the brand, and work smart, it will be there. That trust is broken when they pull the plug.”

The strong attachment to a company’s culture and mission can make it difficult for consultants to find another home, says Lisa Brandau, who founded decorative home products company At Home America with her sister Becky Wright. The company closed in 2012 after new owners and investors took over. At Home America was active for 30 years. For Brandau, the saddest part of watching the company she started fold was the loss of people. “When the company goes away that attachment is hard for them and hard for other companies to overcome,” Brandau says.

A Closer Look

lia sophia

The Chicago-based jewelry seller announced its closing in December 2014. The company said it would cease operations by the end of February 2015, ending 28 years in business. Lia sophia worked with more than 27,000 advisors who sold more than $100 million in jewelry a year.

The company started in 1986 as the jewelry division of Remington Products Co., which sold personal-care products. Owners Tony and Elena Kiam relaunched the business under the lia sophia brand, named for their two daughters. The company cited market pressures and economics as the cause of its downfall. It held a conference call to tell consultants the news. Within two hours of the announcement some consultants were already receiving recruiting calls.

North American Power

The Norwalk, Connecticut, power supply company discontinued its direct selling operations in January 2015. This affects its North American Power and Thrive customer referral programs.

Independent representatives can no longer refer new customers but will continue to receive residual payments. In 2014, North American Power reported $256 million in revenue, earning it the No. 47 spot on the DSN Global 100.

North American Power is still actively marketing to and enrolling new customers, and serving all of its existing customers, including those enrolled through its direct selling channel.

Independence Energy Alliance

The Princeton, New Jersey, power supply subsidiary of NRG Energy Inc. ceased direct selling operations in February 2015. Customers enrolled by direct sellers will continue to be serviced by NRG, and applicable Associates will continue to receive monthly residual income for the customers they enrolled.

Lindt Chocolate RSVP

Lindt & Sprungli is a premium maker of Swiss chocolate. It launched its direct selling home party business in April 2011. It shut down the venture in December 2013.

The company refunded annual fees if paid within 30 days of the closing announcement, and it did a product buy-back at 90 percent of costs as long as products were in good condition and not used.

Gigi Hill

Friends Gabrielle DeSantis-Cummings and Monica Hillman founded Gigi Hill in Yorba Linda, California, in 2010. The company designed and manufactured handbags and totes and attracted millions in venture capital. It closed in July 2013 after failing to secure additional funding or reach an acquisition agreement. Its credit line had been pulled in January 2013. The company sold more than $23 million in handbags, tote bags, luggage and accessories while in business.

Jockey Person to Person

Deborah Waller started Jockey Person to Person in 2004. The direct selling division of Jockey International worked with “comfort stylists” to sell its line of attractive active wear.

Waller announced the closure in a letter posted on the company website. As of this writing, operations were to cease in March 2015. The company was selling its last collection at a 50 percent discount.

Jamie Oliver At Home

Tim Brown started Jamie Oliver At Home in 2013, after a year of planning. With a license from British chef Jamie Oliver himself, Brown was ready to boost Oliver’s brand recognition in the U.S.

Everything quickly came to a halt in November 2014, when the new CEO of Jamie Oliver’s enterprises began a strategic change for the chef’s empire that did not include direct selling.

Solavei

Opened in 2012 by Ryan Wuerch, Solavei uses a customer referral model to provide mobile phone service for $49 a month. It also offers loyalty cards that entitle customers to various discounts.

Solavei filed for Chapter 11 bankruptcy in June 2014, restructuring its debt to be more “manageable with current operating income.” In March 2015 the company announced the completion of this restructuring by merging with Netherlands-based ASPIDER, a global mobile infrastructure and services company. Solavei will continue to operate through the direct selling channel.

The Antioch Cos. (former parent of Creative Memories)

The Antioch Cos. first filed for Chapter 11 protection in 2008 as the popularity of digital photos took hold. After emerging from that filing, the company still was struggling. The St. Cloud, Minnesota-based firm was the parent to Creative Memories, the scrapbooking company. The filing cites $28 million in debt and $33.5 million in assets. It filed again in 2013, renaming itself Ahni & Zoe and offering predesigned albums and pages. But operations shut down in August 2013, with the business employing less than 100. That’s a big change from the 1,100 staff supporting 70,000 consultants in its heyday.

CM Holdings Group, new owners of the Creative Memories brand, relaunched it in November 2014, making some Creative Memories and Ahni & Zoe products available for former consultants and the public.

Essentials to Success

How can direct sellers avoid pitfalls that may have contributed to recent challenges—and in some cases closures—of other companies? By keeping a laser-sharp focus on a few key factors crucial to success. These points differ between the corporate and field sides of the business, but both are equally important.

From the corporate viewpoint:

  • Product. Whatever a company is selling, it needs to be a compelling offering, and not simply a commodity product, which might be found in numerous other channels. The product needs broad appeal to people of all ages, with a balanced price point. The company must also give customers a reason to come back for more.
  • Channel clarity. A lack of channel clarity is often at fault when direct selling companies stumble upon hard times. The corporation must craft a compensation plan that rewards the field for the work it does to benefit the brand. Consultants need to know that the work they are doing furthers their own business, too.
  • Entrepreneurial culture. Parent brands that are large often put this quality in the rearview mirror, but it is so important. Small companies that retain entrepreneurial qualities can react and change faster than a large corporate player. Being nimble means being willing and able to act on new insights and innovation.
  • Patience. It takes time for direct selling firms to grow, and business expectations must be a result of well-thought-out, realistic strategies.

From the field perspective:

  • Prospecting. In her book Selling It Softly, Rusch writes, “Success is not the result of reacting to interest; it is the result of creating interest.” Sellers, or independent consultants, should not rely on brand recognition to carry them forward. Instead, they need to generate that curiosity themselves. Technology and social media elevate prospecting to a new level.
  • Time. Building a successful business does not happen overnight. It takes time, even if the direct sales are backed by a well-known name such as Lindt or Jockey. The reputations of those brands open doors and cause people to be interested, but consultants must still do the work on the sales side.
  • Team building. Companies grow when teams grow, and teams grow when leaders have a passion and commitment for investing in their people—both consumers and their salesforce.

Plan for Success

Companies need leaders who can guide them through difficult financial times and market fluctuations as well as ensure that they are properly funded for growth. They need leaders who know how to manage order fulfillment and distribution. They need leaders who put a premium on training and motivating their consultants to sell and recruit. And they need leaders who are willing to change the corporate infrastructure in the best interest of the company and its people. “Recognize the Peter Principle and make the changes necessary to keep growing,” Offen says.

A solid business plan goes a long way toward making sure leaders are empowered to make the tough decisions often required when a company hits a rough patch. Leaders from other selling avenues, such as retailing or direct marketing, need to learn direct selling principles. They also need to know when and how to incorporate other channels of distribution into their model and how to utilize new technologies, Offen says.

Offen notes that many direct sellers overcomplicate their business as they become more mature, especially the compensation plan. Even if a change in a comp plan benefits the field, taking the risk of making a mistake here can derail the trust between the company and its sellers. Paying out too much can also mean trouble.

Employing people with direct sales as well as other business backgrounds may also avoid simple yet costly issues. For example, before Rusch joined Big Yellow Box, parent company Crayola had already decided that each kit would be sold in a large yellow box. The boxes cost a lot to make and ship, and the decision was a costly one that could have been avoided with different insight.

Offen says a solid business plan sets up milestones that leaders need to strive for before they launch into the next successive growth phase. This is planned and controlled growth that keeps costs in check and requires proper investments to make additional growth happen.


Don’t forget the basics. As companies mature, they become complicated and drift away from their core. This can create weakness in a business’ culture and attitude.


When Closure Is a Must

Smart companies think about all aspects of their enterprise, including what to do when things go wrong. Doing this accomplishes several things: It can save reputations for the brand and its people, it preserves trust, and it takes care of the field.

When parent companies Crayola and Hallmark closed their Big Yellow Box direct selling arm in 2007, they made good-faith gestures to honor their relationship with the field in several ways. A cash award replaced an incentive trip that went unfulfilled, travel expenses incurred by the field were refunded, and consultant investments in unsold materials and supplies were refunded.

For Jamie Oliver At Home, the company’s end was a fast surprise for Founder Tim Brown. He started the U.S.-based business with a licensing agreement from British chef Jamie Oliver in early 2013. He is passionate about Oliver’s mission of “better food for better life.” A similar direct selling entity called Jamie at Home began in the United Kingdom about nine years earlier, and Oliver’s team shared that model and leads with Brown. The startup launched strong, growing by 32 percent in September 2014 and up 50 percent by last October. Brown had approval to add more Oliver brands to his offerings and was lining up more financial partners.

Then things changed with Oliver’s business. A new CEO came onboard, charged with doing “fewer things better,” Brown says. The change in strategy dictated a lesser interest in the direct selling channel, which meant Brown would lose his license in 2015, resulting in the closure of Jamie Oliver At Home in the U.S.

What lessons did he learn? “Our company did not fail, but we didn’t project correctly what we thought we could do in the first few years because we had a huge lead base coming from the U.K. I would have started with lower expectations.” That fact is something Brown hopes others take note of, especially if they are starting up a direct selling venture based on an existing big brand.


“Our company did not fail, but we didn’t project correctly what we thought we could do in the first few years because we had a huge lead base coming from the U.K. I would have started with lower expectations.”

—Tim Brown, Founder, Jamie Oliver At Home


Operating Pressures

On the surface, running a direct selling company may look simple, but as those in the know will share, it’s not easy. Many entrepreneurs who start companies excel at building and growing a business initially but are not as skilled at managing it well in the later stages of the business. Early successes are not sustainable if company leaders have large gaps in financial management, or in operational issues such as supply chain management. Hiring the right people can be challenging, especially in a fast-growth company.

Company founders must remember that the need to work 24/7 continues long after the early profits roll in. Executives must recognize the need to hire people with additional skill sets who can help them maintain and sustain the business. Capital investing and spending acumen are essential, because companies need enough money to maintain inventory to avoid backorders. And analytics are also vital to the process to accurately forecast what is needed. A backorder means making excuses to the field and customers—and can be a sign of weaknesses in various functional departments.

In fact, troubles in the back-office side of the business—customer service, inventory management and order fulfillment, for example—can create disruption throughout the entire business. An inaccurate forecast can cause backorders, which create frustration and stress in the sales organization as independent representatives sell product that can’t be shipped. With the world-class delivery systems of Amazon, Zappos and other retailers continuing to put pressure on all businesses to meet growing customer expectations, we cannot fall far behind.


How can direct sellers avoid pitfalls that may have contributed to recent challenges—and in some cases closures—of other companies? Our research shows that while every situation is unique and nothing is ever clear-cut, it starts with embracing the field, focusing on the essentials, and having a fail-safe in place. But don’t forget about holding operations in check, monitoring trends and having a positive attitude. That can go a long way. 


Several companies we observed hit bumps, some fatal, when they sought financial help from outside investors. In this environment overleveraging a direct selling company’s assets can create enormous debt. When investors are involved, financial goals may not always incorporate enough focus and investment on the development of the people who are the company’s most precious asset, resulting in even greater challenges.

When these companies close, competitors may act quickly to snap up newly available salespeople, leading to the “vulture mentality.” Sales leaders often find themselves desperate for income to make a mortgage or car payment, and they might company-hop to maintain their income while losing that most important passion for the product. The moves to a new company may look like growth for the firm that gains new members. But often that growth is incorrectly perceived. And in some cases, the strongest selling factor—the consultant’s passion for the product—can be completely lost.

Attitude Is Everything

The human dimension is what makes direct selling work, and in some cases it is being ignored in favor of new tools, new technologies and the promise of bigger payouts. As the market evolves, companies will continue to come and go. When Southern Living at Home burst into the direct selling channel, it was the first big-name brand to join the industry. The firm found quick traction as it hit its stride just as the Internet was being leveraged as a sales tool. The rapid success story inspired other name brands to try their hand at direct selling, too.

It’s a fine line to walk, however. Technology as a tool can aid any company seeking to grow, but sometimes technology can be perceived as a substitute for that personal connection. As social media use in business sharing continues to grow, people seem to continually find new networks to connect on and new ways to sell. Currently, it seems that online parties may be more convenient than in-home get-togethers, thus becoming more and more popular, though this may simply be the current trend. It’s critical that companies do not lose touch with the sales field and that the sales field does not lose touch with their own leaders and customers. It is essential to create and sustain the attitude that electronic communication and access are merely tools, not the endgame.

Technology has certainly broadened an independent representative’s ability to reach a larger audience at one time. The speed of communication and the number of people touched by a single message has increased enormously in just the past 10 years.

But the critical point here is that executives need ways to assess what works for their brand. A strong technological shift might not be the right answer for everyone. How do you know? Embracing the sales field as a strategic partner can actually provide companies with a built-in and knowledgeable focus group to test new ideas. Company executives could find out a wealth of information from attending a home gathering or being on the buying end of a sales associate.


It is essential to create and sustain the attitude that electronic communication and access are merely tools, not the endgame.


Research Advice

Our research did turn up plenty of advice from individuals who’ve been involved in companies that have closed. Here’s some of it: Plan for success. Remember that plateaus can hit at any point. Monitor trends in sales and in salesforce development. Think about fresh ways to attract new talent and enter into different demographics within the U.S. market. U.S.-based companies should saturate the American market before going international. Remember that an aging field is a sign of an aging company, so appeal to younger generations.

Positive attitudes can move mountains. Embrace the field. They are proud of their company and want to see it succeed. Remain close to the consultants and sales leaders, and they will provide excellent input about the changes they see every day.

While we may not be able to point to one common denominator as the reason that companies leave direct selling, we can certainly point to one common result: Closures hurt all the people involved who invested their time and money in an opportunity they had belief in. When companies close, it’s the people who lose.