Imagine you’re Sheri McCoy, CEO of Avon. You’re standing by the window of your spacious Liberty One high-rise office looking down at Broadway traffic. It’s Friday night and you are expected at some important events where you’ll take your place among some important people. But how can you go when your company is shrinking—shrinking for all the world to see? Two years ago you lost more than two billion, last year half a billion. You don’t even want to do the reckoning on this year. If only all this were a bad dream . . . but it isn’t, despite all your efforts to turn the tide.
Avon is not the only company suffering the effects of the four trends that will threaten the direct sales business model in the coming years. McCoy and other direct sales execs would probably agree that between acquisition and retention, it’s the latter that keeps them up at night. That’s because retention means cash flow, and cash flow is every company’s lifeblood.
Avon, Mary Kay, Amway, and many others—they are all hemorrhaging, losing people and losing cash. There’s a tremor in the force. Asteroids of change are approaching. Savvy executives are already getting ready for impact, to avoid the Great Extinction. Here’s what they’re preparing for.
Direct Sales will become more about the product and less about the downline.
In the past the FTC was the mad dog direct seller CEOs feared the most. Rumors of pyramid schemeand of that dirtiest of all words—Ponzi—were heard in every corner of the land. The shock waves of lawsuits reverberated through the industry.
Today the FTC is still breathing down our necks, but there’s a new mad dog on the block: retention haywire caused by abundance. Nowadays individuals wanting to join a direct selling winner have multiple choices in each category. This wasn’t the case even ten years ago.
And here’s a law of nature: when supply grows, demand diversifies. Don’t be fooled, demand is always there. It’s not dropping. But to attract, acquire, and retain a loyal audience, modern direct selling players will have to evolve.
Competitors are offering. The lawless primordial days of direct sales are over. Like a swarm of adaptive small mammals, debutants like Le-Vel’s Thrive and Flye’s Smartcard are already stealing thousands of sign-ups from those legendary dinosaurs USANA, NU-Skin, and Oriflame.
In the next two years companies will become smaller, faster, and more personalized.
We all know that growing a small shop into a giant corporation like Mary Kay takes decades. But that’s the business narrative of the 20th century, and it’s a story that has ceased to resonate with market realities.
If direct selling has a future, it lies in the hands of start-ups. No buildings, no FTEs, no overheads, and no hassle. These adaptive, fluid business entities will storm the market in the coming years.
Why should the business behemoths care? One small, innovative and inspiring direct seller won’t make all your reps flee the ship. But imagine 100 small, aggressive, and more agile players—who pay better—and you’re under siege by an enemy you can’t defeat.
Decentralized competition is all around, and will only multiply in the years to come.
Distributors will be able to start their day with the Thirty-One Gifts, switch to selling jewelry for Stelladot.com over lunch, and do hardcore prospect wine tasting for Boisset Collection after 6. And all of this is possible while making up to 40% commissions even with basic downline, which is unheard of in big-box direct selling companies, and with relatively low-cost, nimble startup kits to get up and running fast—and then keep moving.
Start-up size and a lean approach will let new, young, and hungry direct sellers move faster than companies like Mary Kay. The new paradigm in direct sales, with its rejection of top- heavy hierarchies, will also be more attractive to a rising generation of independent women—a dynamic sales force not to be underestimated. Big sellers will be forced to adopt new approaches if they want to equalize the market. In order to stay relevant they must break their enterprises down into autonomous sub-brands infused with a start-up culture.
Profits will be redistributed.
For this is brought about by competition and connectivity technology. Information is instant and split-second purchasing decisions can be acted on in real time. In two to five years we will likely see enormous shifts in the global balance of the direct sales world.
The giants will shrink back to the size of today’s “next big things.” In predictions based on the size of the market, most successful direct sellers will stay around the $1–2 billion revenue mark, which will be more of a ceiling than a benchmark. The army of small fry struggling to make their first $100K, without billion-dollar ambitions, will continue shaking things up and affecting bigger companies with their disruptive activities.
Profits will be distributed between the two groups and direct sales will become a safer, more regulated space. This more balanced atmosphere will lead to increased trust on the part of unsigned prospects, which means more people joining more companies. And that represents a fertile field and generous growing season for sellers who know how to innovate and keep people engaged.
Direct sales will become the battlefield for the technology wars.
This is perhaps the most profound shift we’ll see in the direct sales ecosystem in the coming decade.
The sea change from analog to digital has already happened—or so they say. But where’s the proof for this fundamental shift? Most companies have IT departments, but few boast actual technology departments. Execs often confuse these for being one and the same, but that’s like saying that oranges taste pretty much like lemons, because they’re—well, also citrus. And if you’ve ever bitten into a lemon thinking you were in for an orange, you know that’s profoundly incorrect.
Simply put, IT makes sure your servers are running and your email works. Technology ensures that your customers are engaged and have the digital channels they need to distribute more product.
Many companies have tried to join the tech revolution by putting in place basic and often fairly ugly shell solutions such as Sound Concepts (yes, Mannatech, Isagenix, NuSkin et al— we’re talking to you . . . ). While these solutions are easily integrated, they make for a lackluster platform that’s indistinguishable from the competition’s—and in an abundance economy a company that fails to be distinctive never gets ahead.
Own apps and platforms. But most direct sellers’ offices are located in areas where top tech talent is scarce, so they hire overinflated egos only to fire them later when all they deliver is disappointment.
The wind will bring the fire from the field, and it’s time to evolve. Minimum technology adoption for direct sellers will soon far exceed what it is today, simply because people’s expectations for technology keep expanding.
Mainstream social technology products like Facebook are pushing the boundaries and changing the way most consumers interact daily with their world, and people will naturally expect up-to-date technology to be a part of their direct selling lives. They will demand technologies most companies will be incapable of delivering, and whoever catches the tail of the technology dragon first will lead loyal crowds into their kingdom.
Today’s largest and most successful digital companies don’t have physical products. AirBnb owns no properties and Uber owns no cars—yet they managed to unite millions of people under their technological umbrellas, making them unicorns (companies whose market valuations are in the billions of dollars) many times over. Their success lies, in part, in a technological interface that’s perfectly in synch with the way consumers live today.
The world of direct selling is on the cusp of great changes. The question is, who will anticipate the impact of these four asteroids? Which business models are going to adapt and flourish in the resulting new climate rather than fade away in the ruins of a paradigm whose time is past?
This direct sales industry analysis is brought to you by Orbirect, leader of direct selling technological innovation.