Networking Times - The Coming Network Marketing Boom!

Eight Reasons Why You Are in For the Ride of Your Life

By Leonard Clements

For the first time in history there are solid, logical, verifiable, reasons for you to believe in a forthcoming network marketing boom. Eight reasons will soon be coming together to create the convergence of powerful economic, demographic and psychological factors all hitting at the exact same time and place.

The Eight Reasons:

#1 The Economy

What’s bad economic news to most people is good news to network marketers. And there’s a lot of “good news” today. One of the strongest growth phases in network marketing history occurred from 1990 to 1992—coinciding with the last economic recession.

50’s - Network marketing was born in the 1930s, perhaps significantly in the midst of the Great Depression, but it began in earnest in the 1950s. It was far more popular in the second half of the 50’s, than the first. Not a single company of consequence launched from 1950 to 1955, yet the following four years saw the birth of industry giants Shaklee, NeoLife, and Amway. In the first half of the decade, unemployment averaged 4 percent, reaching 2.9 percent in 1953—the second lowest in US history. In the second half of the decade, it averaged 5.3 percent, reaching its highest level since the Great Depression (6.8 percent in 1958).

[Networking Times has an editorial policy of not using networking company names in our coverage. We felt that the historical references in Len’s cover story demanded an exception to this rule—Ed.]

60’s - In the first half of the 60’s all types of direct sales continued to flourish. Mary Kay Cosmetics started in 1963; Avon, Fuller Brush and Tupperware all achieved momentum. The industry continued to grow from ’65 to ’69, but not nearly at the same pace. And guess what? The unemployment rate of the first half-decade was significantly higher than that of the second, when 2.5 million unemployed people went back to work.

80’s - Network marketing was thriving during the first half of the 1980’s, as unemployment continued to rise. In 1982 unemployment was at its highest level in 40 years (9.7 percent). During the later 80’s, an era of MLM “slump”, unemployment dropped considerably; by decade’s end the number of those out of work was barely half what it was at the decade’s beginning.

90’s - The 1990’s saw perhaps the clearest distinction between halves of any decade. The first half saw more major company launches and more companies going into momentum than any other time in history. There was also more wealth being created through network marketing from 1990 to 1994 than in any other five-year period. The second half was not exactly the best of times for network marketing. If there is such a thing as an “MLM recession”, we had one from 1996 through 1999. Why? The very high unemployment rate from 1990 to ’94 dropped sharply during the second half of the decade, hitting a 30-year low at 4.2 percent in 1999.

Every severe economic downturn in the last 50 years has been during or immediately preceding every period of substantial network marketing expansion.

#2 Demographics

Not only is the pool of eligible prospects increasing at unprecedented levels; that segment of society most ready, willing and able to pursue networking is also exploding.

There were about 76 million babies born between 1946 and 1964, at the time accounting for almost one-third of the entire US population. Since then, it has been glaringly obvious exactly where this giant bubble in the population is at any moment in time, simply by looking at what products are most popular. The market for products that will make us look and feel younger is going to continue to expand most dramatically over the next five to 10 years, as the Boomers reach their 50s and 60s.

The Baby Boom is exciting for an altogether different reason, too. Virtually all network marketing companies require distributors to be at least 18 years old. Guess what happened about 25 years after the baby boom? Those 76 million Boomers had about 75 million babies. About 41 million of them will turn 18 over the next seven years. At no other time in history, other than the original Baby Boom itself, have this many people been added to the body of eligible network marketing prospects in this short a period of time.

Of course, the people eligible to join is not as important as the number who actually join. The Direct Selling Association (DSA) conducts an annual survey of salespeople in the industry. (Roughly two-thirds of “direct sellers” are network marketers.)

According to their figures, there was;

* a net gain of 400,000 direct sellers from 1997 to ’98

* a 600,000 net gain from ’98 to ’99

* a 700,000-distributor gain from ’99 to 2000

Not only is the number of people increasing, but the increase is increasing! Extend current growth for another 10 years and you end up with 4.7 million additional network marketers. It took network marketing over 50 years to grow to 7.5 million and we are conservatively projecting an additional 4.7 million in just the next 10 years! (By the way, that also means the average networking organization will be 37 percent larger!)

According to Gallup Polls, Americans first decide to invest in a residual income-producing vehicle, such as stocks, bonds, real estate, or perhaps in a business venture, at the average age of 42. The average age when we invest the most into such devices is 47. Graph the number of 42- to 47-year-olds in the US and you find that starting about 1988, the line begins to point upward at almost a 45º angle as the Boomers started turning 42—and that line continues to rise at a level never before seen in history all the way to the year 2009.

The average American is 36 years old. According to a MarketWave survey of over 6000 network marketers from 1990 to 2000, the average network marketer is 38.6, and that number has consistently risen over the years. An exceptional number of those over 40 do participate in network marketing, and this segment of the population which is most ready, willing and able to invest in a residual income business venture is going to continue to increase dramatically for another seven years!

#3 Wall Street

Securities investors look for companies and industries that are about to rise up fast; thousands of analysts are looking closely at network marketing right now.

Professional investors are a pretty savvy group of people. Based on their due diligence, they eventually invest their funds in companies whose growth (and profits) they expect to go up. What do they see when they turn their magnifying glass on network marketing companies? There are over 20 publicly traded network marketing companies, but the bottom third are so small I’ll focus on the top 12 well-established companies.

The benchmark S&P 500 reached its peak in September of 2000; by mid-December 2001, it was down by 23 percent. Over the exact same period our index of the top 12 network marketing companies was up by 7.3 percent! And all of a sudden, in the last 12 months, these network marketing companies are outperforming the overall stock market by over 30 percent. That level of performance really gets investors’ attention!

#4 Supply and Demand

The greatest inhibitor of MLM growth the last few years has been a huge supply-side glut of networking opportunities. That’s already changing.

Anyone with even a C in Economics 101 can tell you about “supply and demand”: an industry booms when demand dramatically increases. Tremendous increase in supply results in a down-turn. Sure enough, during the massive proliferation of network marketing companies in the latter 90’s, we had a deep industry slump. Based on a survey of network marketing company software suppliers, over 4900 network marketing companies opened from 1994 to 1997; there is anecdotal evidence to show that there were about 3600 start-ups in 1998 and 1999 alone. Bottom line: as many as 13,000 network marketing companies may have launched from 1994 through 1999; there were at least 8000. But we had a net gain of only about 600 companies—from 900 to 1500. (Have you ever heard the claim that 95 percent of all network marketing companies fail in their first two years? I thought that was a scare tactic spread by older companies, but these surveys say it’s true.)

During this same time period, the number of network marketers in the US increased from about 5 million to 7.5 million. The number of distributors went up about 50 percent—but the number of companies increased by three times that much! This means that the average networking downline actually shrunk by 40 percent. No doubt about it: in the last half of the 90’s, the supply of MLM opportunities far exceeded demand.

What’s the good news? First, since the beginning of 2000 the number of start-up companies has declined significantly. This, along with the increasing number of company mergers and acquisitions, will only make the industry stronger. When more and more companies were entering the market, the available distributor base was spread thinner and thinner, resulting in smaller downline organizations, higher attrition, and generally far fewer success stories. But think about this: if there were just as many distributors but half as many companies, the average downline would be twice as big!

#5 New Blood

Our entire industry is about to go into momentum for the same reason individual network marketing companies enter momentum: a massive influx of folks who’ve never been in network marketing before.

Momentum, as it applies to network marketing, is the stage in a company’s growth cycle where sales volume begins to increase geometrically and the company doubles, triples, and perhaps even quadruples in size in a very short period of time. Most momentum phases last about six to 24 months. Much like buying a stock right before it goes up in price, most networkers want to attach themselves to a company right before it explodes. Thus, practically every distributor will try to make a case that their company is “about to go into momentum.” How do they know? They don’t. No one knows exactly when the momentum phase will kick in, but much like stock picking, we can look for clues, such as historical trends and patterns to help us make better guesses.

An analysis of all the successful major network marketing companies shows that every momentum phase in MLM corporate history was facilitated by massive numbers of people moving into the opportunity, either as reps or customers, who had never been involved in network marketing before. Momentum is never the result of people moving from one company to another; it is caused only by a massive injection of new blood.

Where will this new blood come from? Today in the US, a little over seven million people participate in network marketing, which means that about 270 million don’t! How are we going to reach those massive numbers of people we’ve never been able to reach in the past? The Internet. Our entire industry is about to go into momentum for the same reason individual network marketing companies enter momentum: a massive influx of folks who’ve never been in network marketing before.

The Internet began to come into its own around 1996; by 1998 the number of people on the Net had almost tripled. Today over 60 percent of adults are online; experts predict that virtually all Americans will be using the Internet in some capacity by the year 2010.

The network marketing industry cut its Internet teeth painfully from about 1997 to early 2000. As with so many other industries, there were a lot of network marketing dot-com failures. Some were ugly; legal abuses resulted in several well-publicized closures. For the most part, networkers were a little over-zealous with this amazing new technology, in a magical-mystical attempt to have it build our networks for us. The result was big recruiting numbers, but very little sales volume and overwhelming attrition.

As the smoke clears, what is emerging is what the responsible, visionary companies knew all along: the awesome power of the Internet lies not in having it do all the work for us, but in having it help us present our products and opportunities faster, less expensively, and to far, far greater numbers of people… people who’ve never been exposed to network marketing before.

#6 Positive Media Exposure

Let’s not overlook the public image boost we’re getting from the various athletes, celebrities, political figures and medical authorities whom network marketing is attracting like never before. Not all are paid endorsers. Many have careers based on their reputation and positive image and they’ve openly and willingly attached their good names to network marketing.

What’s more, well-respected mainstream authors and keynote speakers, such as Richard Poe, Paul Zane Pilzer, Mark Victor Hansen, Brian Tracy and Robert Kiyosaki, are now extolling the virtues of network marketing. This kind of powerful, third-party validation has never happened before. It’s just starting, and it’s growing fast!

#7 Federal Regulation

More and better laws will be the principal legitimizing catalyst of the network marketing explosion.

Recall that in the first half of each decade, network marketing historically outperforms the second half. That’s been the case for the last 40 years, and there were more than purely economic reasons for this. The regulatory climate has also effected the performance of the industry, the most obvious example being the famous slew of federal actions back in the 70’s. Legal attacks by state or federal authorities on high-profile network marketing companies do occur from time to time. (Curiously, they seem to peak in pre-election years—surely just a coincidence.) Most of those larger companies, by the way, not only survive the attack but also come to be considered models of legality whose policies and enforcement systems are emulated by younger companies.

There have been many instances of true pyramid schemes being shut down. Typically the action is described as, “this network marketing company was shut down because it was an illegal pyramid scheme.” It drives me nuts when I hear someone say that. It’s like saying, “This really honest man was exposed as a liar.” Well, then he wasn’t an honest man, was he? Either you’re an illegal pyramid scheme, or you’re a network marketing company. You can’t be both. I want to make this very clear: Illegal pyramid schemes often try to disguise themselves as network marketing companies, because they want to appear legal. Unfortunately, when the press reports on illegal pyramid schemes, we all suffer guilt by association, and that does have an effect on our ability to retain good people and acquire new ones, at least temporarily.

The good news is that in the last few years, we’ve seen no significant legal attacks on network marketing companies, and several closures of illegal schemes. Not only does this make the industry stronger due to a smaller, higher quality pool of legal opportunities, but it also increases our ability to build businesses because we don’t have the negative public stigma creating greater resistance toward the industry and its opportunities. It also demonstrates a greater ability among regulators to delineate between pyramids and legitimate network marketing programs. This is especially encouraging and comforting to those networkers who’ve built substantial incomes in “high profile” opportunities, or those who intend to.

Once again, I’ve saved the best news for last: There is active, professional lobbying going on right now by the Direct Selling Association (DSA) and others to enact legislation that will create federal regulation of network marketing.

Not only will unified federal regulation create a clear, consistent path for all network marketing companies and state regulators to follow, but also, much like the federal regulation of franchising back in the 60’s, it eventually will require true and full disclosure. If this does come to pass, and many believe it will, it will absolutely be a good thing—very good. Not only will it tremendously strengthen the industry by weeding out the bad apples; it will also cause the massive turnover rate among start-up companies to drop to a fraction of the current level. They won’t start up in the first place—and the ones that do launch will have to be serious players with solid backing. More distributors will be involved in fewer companies, and those businesses will be only the highest quality opportunities. Federal regulation will also greatly increase the respect and credibility of our industry. This will create a tremendous boost to all established US-based network marketing companies.

#8 Current Growth Trends

The top 12 publicly traded network marketing companies provide the most reliable information, and they make up the majority of the largest, most well-established companies; so I’ll again direct my analysis towards them. (An informal survey of un-audited data provided by private network marketing companies also reinforced the following results.)

From 1990 to 1995, annual industry sales growth averaged about 16 percent, and some years was as high as 30 percent. From 1996 to 2000, average annual sales growth of these public companies—based on US revenue only—was only 8.7 percent, with a low of just over 6 percent from 1999 to 2000. The entire direct selling industry’s growth rate dropped to a 10-year low of 4.5. The growth rate of these companies from 2000 to 2001 was 14.6 percent—more than double the previous year’s rate! The slowing trend of the latter 90’s has unquestionably reversed. This is by far the strongest signal of coming momentum: not just an increase in growth, but an increase in the rate of increase.

There you have it, folks: not one, not two, but eight solid, powerful indicators of a forthcoming network marketing explosion. All I know for sure is this: if you get involved now and stay involved, you will be there when it happens. So hop on, strap yourself in, and get ready for the ride of your life. It’s gonna be a blast!