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February 02, 2010

Company Spotlight

Mannafest Destiny

by Brittany Glenn, with additional reporting by Nancy Laichas

Randy Bancino Bob Sinnott Steve Frenstermacher
Randy Bancino Dr. Robert Sinnott Steve Frenstermacher

In his book Twilight of the Idols, Friedrich Nietzsche wrote, “What does not destroy me, makes me stronger.” Although Nietzsche was referring to the human journey, this same truth is embodied by companies that rise, fall and rise again. When faced with unexpected changes and assaults, a company may wither under the pressure or strengthen its resiliency. Although Mannatech has endured ups and downs, these changes have compelled the company to stand strong today.

Founded in 1994, Mannatech Inc. was ranked No. 29 in DSN’s 2009 $100 Million Dollar Club, boasting more than $332 million in annual net sales and and 500,000 independent sales associates worldwide. The company employs 350 people at its Coppell, Texas-based headquarters and is publicly traded on the NASDAQ (MTEX). Mannatech’s flagship product is Ambrotose® complex, a patented blend of plant polysaccharides made from natural sources that is formulated to promote cell-to-cell communication.

“Mannatech is a very different company today.”
—Dr. Robert Sinnott, Mannatech Co-CEO and Chief Global Science Officer

Mannatech has a global presence in 16 markets, including the United States. Internationally, one of Mannatech’s most successful markets is South Africa, and the company sees growth opportunity among the Asian markets as well. But Mannatech is still primarily a North American company.

“About 60 percent of our revenue comes from North American markets and 40 percent from international markets,” says Dr. Rob Sinnott, Co-CEO and Chief Global Science Officer.

In recent years, Mannatech has been the subject of speculation, due to a civil suit instigated by Texas Attorney General Greg Abbott for alleged violations of the state’s Deceptive Trade Practices Act. In July 2007, the attorney general filed litigation against Mannatech with “operating an illegal marketing scheme” based on “dubious claims about the health benefits of its products,” according to the attorney general’s Web site.

Although Mannatech did not admit to any wrongdoing, in February 2009, the company settled the civil complaint by agreeing to pay $4 million in restitution to people who purchased products and $2 million to the state to “cover the costs of its investigation.”

“The civil action related mainly to some actions by our salesforce,” Sinnott says. “We were embarrassed and also financially impacted by the attorney general suit. We learned from that chapter and it is closed. We’ve reached a settlement and we’ve paid the fees associated with it. We’ve done everything in our power to correct that and make sure we’re in compliance in the future.”
In response to the civil action, Mannatech has developed a strong distributor compliance program and invested heavily in scientific studies that prove the efficacy of its products. “Mannatech is a very different company today,” Sinnott says.

MANNATECH

Reaching Resolutions

As a result of the civil suit, Mannatech has made many positive changes internally, including a strengthened distributor-compliance program and a renewed emphasis on scientific validation of its products.

In December 2009, a new leadership triumvirate—known as the Senior Executive Office—includes Co-CEOs Sinnott and CFO Steve Fenstermacher, with Randy Bancino serving as President of Global Business Operations and Expansion.

Bancino explains how the new structure works. “How we move the business forward is shared between the three of us, while, at the same time, we maintain our specific areas of discipline and focus,” he says. “Our associates are excited about this latest change. There are a number of companies, even in the industry, that use this model. I spent a lot of years at Amway, which has a similar arrangement.”

There is a similar structure at Google, where Co-Founders Larry Page and Sergey Brin work so closely with CEO Eric Schmidt that they’re considered de facto co-CEOs. Motorola, Research in Motion, SAP and other companies have also gone the co-CEO route.

“One figure (at the top) is not always the best answer,” Sinnott says. “There’s actually a lot of evidence that some of the best-running companies’ leadership roles are shared by co-CEOs. That’s why we chose to employ that model.”

In addition to implementing a new management structure, Mannatech has overhauled its distributor-compliance program. “We’ve employed some new methods that we have not used in the past for actively seeking out noncompliance,” Sinnott says. The company has implemented an online surveillance program that audits the use of its trademarks and any linkages to disease claims. Also, associates can, and do, submit the names of associates who violate Mannatech’s policies.

If associates are caught violating the terms of their agreement with Mannatech, they must face the consequences. “If it’s a diminutive infraction, they’re given an appropriate probationary period, plus training,” Sinnott says. “If it’s a repeat infraction or they are incompliant deliberately, they can lose their business. That’s pretty serious since a lot of associates have invested years into building their businesses.”

 “We’ve increased our investment in compliance by more than 1,000 percent in the last two years.”
—Dr. Robert Sinnott

However, knowing all too well the price of noncompliance, Mannatech errs on the side of conservative caution. “We’ve increased our investment in compliance by more than 1,000 percent in the last two years,” Sinnott says. “We’re putting a huge investment in distributor compliance because we realize there’s a lot at stake. The last several years were not comfortable, but we feel so comfortable today. We’ve got our systems in place.”

Thanks to hard-won experience, Mannatech may now run one of the tightest ships in the industry. “Our standards of compliance, enforcement and surveillance are very thorough,” Sinnott says. “We send in reports to the Texas attorney general on a regular basis; we have a self-reporting responsibility that we take very seriously. We’ve alleviated some of the risks that are inherent in the downside of managing a direct selling company.”

MannatechMannatech has always emphasized the importance of sound science, and the company adheres strictly to the industry gold standard—double-blind, placebo-controlled clinical studies that are conducted by major universities or research organizations. “We’ve just completed studies recently with the University of Ghent in Belgium, and we’re also working with Flinders University in Australia,” Sinnott says.

Mannatech has even created a Web site, MannatechScience.org, solely devoted to the science behind Mannatech’s dietary supplements and skincare products. With an entire section dedicated to peer-reviewed scientific studies and publications, the site features detailed information about the ingredients in each of the company’s products.

Leading Change

The changes at Mannatech are not only reactive, they are proactive. In many ways, Mannatech is leading change rather than following it. For instance, Mannatech recently implemented a new initiative, a Web site called MannaThink.com, where associates participate in the brainstorming of new product research and development.

“The site is powered by software that we licensed from the Wharton Business School of the University of Pennsylvania,” Sinnott says. “Wharton had developed this software for academic tournaments, but we saw the opportunity to use it commercially to tap into people’s minds and collect ideas for new products.”

Associates who log on to MannaThink.com submit ideas for new products and are asked to rank the ideas of others, with the best ideas naturally rising to the top. “Now we don’t have to sit in our ivory tower and imagine what people are asking for,” Sinnott says. “We just go directly to them and find out exactly what they want. Then we build it for them.”

Mannatech has also emerged as a leader in the dietary supplement industry. Sinnott now serves as Chairman of the Council for Responsible Nutrition’s Senior Scientific Advisory Council, whose role is to assist in developing and implementing scientific strategy relating to the publications, policies and programs of government agencies. Sinnott also holds Mannatech’s seat on the Council for Responsible Nutrition’s board of directors.

Sinnott’s service for the Council for Responsible Nutrition highlights Mannatech’s emphasis on science and puts the company in a position of leadership. It also provides a bird’s-eye view of the machinations of policymakers in Washington, D.C.

Referring to the recent strengthening of the Food and Drug Administration and the Federal Trade Commission, Sinnott believes big changes are impending for both the dietary supplement and direct selling industries in the United States. Having already prepared for the strictest scrutiny, Mannatech believes it is ready to meet these changes head-on—perhaps more so than many companies today.

“We’re expecting the United States to become more like Australia or Canada, where the level of substantiation that’s required for dietary supplements is a lot higher,” Sinnott says. “I think it’s a good thing. A lot more preparatory work and scientific proof will be required. We’re investing a lot of time trying to stay ahead of that change, knowing that it’s coming. And I’m certain it’s coming.”

As a result of these tighter restrictions, Sinnott foresees an industry shakeout. “I think you’ll see a lot of consolidation,” he says. “The smaller companies that don’t have the funds to invest in thorough science are going to fall by the wayside. In about 10 years, there will probably just be a few big players left standing. We’re positioning Mannatech to be one of those companies.”

Product Power

Mannatech upholds strict standards of product safety testing. Although it’s not required, the company tests all new and existing products for toxicity and safety, Sinnott says. “We’ve had very few cases of adverse effect reporting,” he adds. “In fact, in the history of Mannatech, we’ve never had a product liability issue, period.”

PhytomatrixMannatech recently launched a new product—a direct result of the brainstorming site MannaThink.com—called PhytoBurst™ Nutritional Chews, which are food-sourced vitamin, mineral and phytonutrient fruit chews. According to Sinnott, PhytoBurst chews pack a powerful antioxidant punch and taste good, too.

“PhytoBurst is enjoying tremendous global success way beyond our expectations,” Sinnott says. “We actually got that idea directly from consumers; it was a highly rated idea on MannaThink.com. We built it for them and put it out there, and it’s just taking the world by storm.”

The development of PhytoBurst also stems from Mannatech’s new family products focus. “We’re focusing on alternate delivery forms that make it more convenient for the entire family to take dietary supplements,” Sinnott says. “When we came across the PhytoBurst technology—it’s chewable, it’s delicious and it’s got all the nutrition your body needs—we knew we were on to a huge winner.”

PhytoBurst was launched in November 2009 and has already become very popular. “The product launched in South Africa recently, and I’m told that within a matter of a couple of days the product had sold out completely,” Sinnott says.

GlycoLeanMannatech has also renewed its commitment to Real Food TechnologySM by ensuring that its products feature natural, food-sourced ingredients backed by sound science with no synthetic or chemically derived additives. Real Food Technology solutions include products that contain standardized levels of natural and plant-sourced nutrients at nutritionally effective levels.

“There’s quite a bit of research that shows that vitamins and minerals that are obtained from natural sources are absorbed into the body better than synthetic vitamins,” Sinnott says. “Based on new research, we’ve found that vitamins and minerals sourced from plants and other natural sources are superior. So we focus on producing products that are from all-natural sources.”

Pointing to the growth of the organic-food industry, Sinnott believes consumers appreciate this focus on real-food technology, especially today. “Organic food has seen tremendous growth, which shows that people value getting back to nature rather than commercial agriculture,” he says.

Despite Mannatech’s foray into new product development, Ambrotose—a glyconutrient product originally launched in 1996—is still the company’s best-selling product.

“Ambrotose is our flagship product, and it is still our best-selling SKU globally,” Sinnott says. “We continue to invest in research for Ambrotose because people use it for so many things and we want to be able to make substantiated claims related to the product. We’ve invested many millions of dollars in continuing to research and develop Ambrotose even though it’s already on the market.”

Mannatech recently validated that Ambrotose has beneficial effects on the immune system, digestive tract and cognitive functioning. “All of these have emerged as statistically significant in large, double-blind, placebo-controlled studies,” Sinnott says.

Since Ambrotose was introduced to the market in 1996, Mannatech is currently in the process of developing subsequent generations of glyconutrient products. “We’re developing third-, fourth- and fifth-generation glyconutrient products, which will have enhanced effects on the body,” Sinnott says.

Future Expansion

Having put the past behind, Mannatech is confidently moving into the future, which includes innovative product development and additional global expansion.

Sinnott believes there is tremendous opportunity in the family products market, making nutrition convenient for all ages. Mannatech is currently researching drink technologies, a new area of product development for the company.

“I think a lot of people are reaching the point of pill fatigue; there’s only so many pills that they’re going to take in one day,” Sinnott says. “So we’re spending a lot of time and effort looking at ways of delivering nutrition in alternate forms that are more in line with what people do on a daily basis.”

The company is also researching the correlation between Ambrotose and probiotics or the science of live microorganisms. “It turns out, there’s a strong interaction between these two kinds of products,” Sinnott says. “We’re looking at ways of combining them in innovative ways to make it convenient for the consumer.”

In addition to expanding its product line, Mannatech plans to increase its presence globally. Bancino believes Mannatech has merely scratched the surface of its potential for international expansion.
“Going forward, our emphasis on additional global expansion is going to be hot,” Bancino says. “We are doing our due diligence on a number of openings.”

Bancino says Mannatech is poised for expansion not only internationally, but domestically as well. “We’ve got a lot of untapped potential here in North America,” he says.

“We’re ready to tap into our potential in all our wellness technologies combined with our global compensation plan, which is unlike most of our competitors,” Bancino says. “Mannatech is uniquely positioned to be able to address both these issues in a powerful way.”

Having surmounted past difficulties, Mannatech appears to be poised for expansion and success in the future. Through the years, Mannatech has earned a place in the direct selling sun—a position hard-won and well-earned.