Listen to the podcast here
Watch the episode here
Starting a business can be quite complicated, even in direct sales. There can be pitfalls in business that may have a lasting effect on your growth. In this episode, Terrel Transtrum, the co-author of LaunchSmart, emphasizes the value of a customer-centric approach in direct sales to generate leads and grow your business. The discussion also looks into the new world of affiliate marketing. It further highlights how some companies try to go fast instead of understanding the power of going slow in managing many things and how compounding works when growing slowly. Let’s dive right into this conversation with Patrick and Terrel today!
Terrel Transtrum: Customer-Centric Attorney!
I am very excited. I am with Terrel Transtrum. Terrel, you have got a fascinating background. You are an attorney. You are still holding your license as well.
I just paid the annual dues once again.
You had an incredible mentor, Frank VanderSloot, the CEO of Melaleuca. You have been around the industry for a long time to help that company. You can share a little bit of that story. You help that company in the early stages. Now, you are a consultant and know the industry well. We will talk more about it. It’s exciting to have you on the show.
Thank you for having me.
It’s going to be fun. Tell us a little bit about the background. You were working with Frank. How did Melaleuca come about? You were an attorney. What were the beginning stages for you, so people have a little context here?
Thank you for that nice introduction. I began my career, not quite sure what I wanted to do when I grew up. I did my undergrad work in Accounting. I realized I didn’t want to be an accountant. I went on to law school and got all finished. I thought I’d better do what lawyers do, and I get licensed. I got a second law degree in Tax and Business Law. I finally settled down. Here in my hometown, I had a neighbor move in across the street. His name was Frank VanderSloot. He came over from Oregon to step in as CEO at Melaleuca when they had about 25 employees. The company started in 1983. By 1985 or 1986, they were in so much trouble with bad products and an illegal compensation plan that they relaunched in 1985 as Melaleuca Incorporated.
They do business as Melaleuca. As neighbors, we shoveled snow together. I got acquainted with Frank. He invited me somewhat out of the blue. I invited him to come to our law firm and let me do some legal work. He turned around and invited me to leave the law track and come to Melaleuca as his number two. I said, “You are too small of a company. You need a full-time lawyer. Let me do your work.” He said, “No, I would like your help in building an organization that’s very customer and distributor-centric, keeping our distributors happy.” That was my job description, “Keep the distributors happy.”
I said, “I have no idea how to do that.” He says, “We will learn it together.” He was my billionaire mentor. I enjoyed five years with Melaleuca. We grew from 25 employees to about 1,200 employees. The company went from a few million to $270 million in the year that I left and moved on. It had become a big company, and it was time for me to move on. My career has become a career in direct sales, primarily as a problem solver around the main event of keeping distributors and customers happy.
That is quite an interesting background from an attorney’s perspective. You are not usually going to go find an attorney to be the guy. Usually, the attorney is going to that guy and going, “You can’t do that.” It has been very beneficial, but how has that dichotomy worked out?
To a large degree, my heart was more on soft skills than it was on courtroom skills. I realized that I didn’t want to be banging heads for a living. One afternoon, one of my children came into my office and stood there and studied the diplomas on the wall and said, “I know you are a lawyer, but what do you do?” I started doing the calculations of the cost to get those degrees and the time and, “Where am I going when I grow up?”
I had a wonderful moment of enlightenment when I realized that I spent my years learning how to be a great problem solver. There are elements that have helped in taking care of the distributors and their relationships with companies. For example, there’s a methodology we learn in law school. All accredited schools teach their first-year students a method called IRAC: Issue, Rule, Analysis, and Conclusion. That’s the legal method that starts to train your brain.
When you start to look at any of the professions, they all do the same thing, whether it’s journalism, medicine, engineering, legal, or finance. You correctly identify an issue. You apply the rule of law, regulation or indirect sales, and the distributor policy. You analyze it, apply the facts, and come up with a conclusion. Using that method, we train customer service reps and distributor support reps on how to get more consistency in policy administration by using a similar method. At first, I was trying to justify all of the education. That time I realized, it was a real gift not only to get out of the brutal practice of law but to be able to use those skills.
I have two questions in one here. 1) Your target audience. The people you work with are new companies that want to be customer-centric, that understand how important that is, then the mid-tier organizations, that $5 million to $50 million that maybe is trying to go back hopefully to their roots or get closer to the customer. My question is, when you say the customer, do you mean the distributor or in-consumer of the products, services, or both?
One of the big challenges in the world of direct sales, which I think is one of the most complex business models ever, first of all, because we combine a person-to-person selling model. We pack all of the sales into a volunteer sales force. It was the chicken and egg for many years. Which comes first, the distributor that goes and finds customers, or is it the customer that creates an excited distributor who will show them the way the pathway?
It’s an important question. I’m on the edge of my seat waiting for what you say here. I’m fascinated. It’s a big deal.
It was influenced pretty heavily by the Melaleuca model, which I think we will take a second on that if that’s okay. Where I have landed is that the customer is the center of the universe. It leads to the discovery of the debate between Milton Friedman, the economist that says, “The purpose of business is to create a profit.” Peter Drucker, whose purpose of business is to create, find, and keep a customer. That leads us to the combination that the purpose of business is to create and keep customers profitably. That’s a nice mix.
I take the side of the argument that when you have a product that is loved by a customer who will buy and consume that product over and over, you have a foundation of a forever business. As long as those customers come, they buy your products, and they don’t care if they make a dime on it or whatever the business model suggests. They are the essence of a successful distributor because they produce the volume that moves products, which creates the volume and commissions.
When you have a product loved by a customer who will buy and consume that product again, you have the foundation of a forever business.
It’s a balance. In everything we are talking about, when the company forgets the distributors, also the customer, you have got organizations today that are selling direct to the consumer, violating the trust of the relationship they have with the distributor. Finding that balance is complex.
The second part of that equation is without your salesforce, you are not keeping your customers. What you have described to me is not only not smart, but I don’t think is right.
It’s not ethical, but they do it in the name of protecting the customer. The customer wants to buy, but the distributor’s not there, we have to sell to them directly. You are like, “What are you doing?”
You make a commitment to a sales model, the direct selling model, and the channel.
I want you to talk more about that for a minute. I saw what you wrote about it. I’d like everybody to understand better, “Direct sales as a channel.”
There’s been a fun debate. You can make an argument. Is it a channel? Absolutely. It’s an evolving channel. What you are describing is that we have people who use the influence of their relationships to approach and create a sales team. Quite often the sales team begins with a customer or a consumer who, for whatever reason, becomes a product evangelist. They evolve along that track to be more enthused or enthused enough about a product that they are even willing to share that with the people that they know, respect, and love. That is a beautiful extension of the sales effort. It’s a natural evolution.
When a company takes on to advocate that type of sales model, but then competes with those sellers and takes from their pockets, the profits and the commissions that they otherwise would earn, it’s the death bell and nail. The interesting thing is some companies that get that have said, “We can have the best of both worlds for customer acquisition and do it as we bring along the distributors with us and help them to participate in the revenues that come through maybe more direct marketing directly to consumers. We will never leave our distributors behind. There are ways to do that.”
When somebody says, “I’m in the network marketing industry,” you would argue, “No, you are in an industry that sells a certain product or service. You use network marketing as a channel to move that product or service.”
It’s a channel and it works very well. Let me give you an example. There is a global giant tobacco company. It was completely out of the blue. They contacted us and said, “We have a need to have you consult with us. Would you come over to Kyiv, Ukraine?” This is a few years ago before all the troubles. “Meet with 70 of our Eastern European managers.” We are not a direct sales company, but we have a product that is being sold in a direct sales fashion. It frightens and confuses us because we have put $2 billion into research and development for this product.
We have gone out to farmer’s markets, pubs, and communities, and they were hiring. They are paying what they called community activators to create a buzz and a person-to-person sales model for this product. They said that we are not able to track more than 10% of the sales and attribute it to the seller. Ninety percent of what’s going on is like wildfire people who are referring to the product. We don’t have any way of keeping track. We don’t even know how to push those buttons.
They are paying them, but they have no idea what they are doing to sell it.
They were paying the community activators to create a buzz, and that was it. The people who were sharing with their friends were consumers that were behaving like distributors. They were introducing a product and saying great things about it because the product was a great product. That was the event that convinced me that it’s about customer sales and creating a product that is unique and interesting to customers that anybody could sell.
We are not even going to go down the road of all the companies that have it mixed up. We are talking about real companies with real products that are going to be around for a while, then there’s this whole sea of, “Get rich quick.” Let’s take a more legitimate model. Tell me your insight on the affiliate side of things, which is legitimate, but it’s not network marketing. A lot of companies are trying to bridge, “How can we both have an affiliate model, almost a retail social selling model for people that want to do a lot of product sales, a shallow comp plan and how can we still be a true m MLM network marketing company?”
How do companies bridge that? What are your thoughts or suggestions on that? Getting rid of all the fly-by-night stuff, but the real Melaleuca-ish type of companies. How do they deal with that bridge between this new world of affiliate marketing influencers and being a real network marketing company?
I had to look forward to diving into this one with you. What comes to mind is a period at Melaleuca when I was still there. It was in the beginnings, the origins, which for our readers who may or may not know, Melaleuca is now about a $3 billion company.
They are a great company and a great line of products. I don’t get paid to say that. It’s a well-known customer-centric company.
Part of the context for my thoughts on how this all works about affiliate marketing begins with an understanding of the very basics of Melaleuca. I saw Frank VanderSloot in the Forbes magazine of rich people. He was tied right next to Oprah Winfrey at an estimated $3.8 billion net worth. Many of the people that I associate with or those that I hear from have commented more than once about the ridiculousness of Frank’s assertion that Melaleuca is not a multi-level marketing company, that it’s like the King’s clothes. It sure quacks like a duck. How can you say it’s not a multi-level marketing company?
He’s been ridiculed over the years for taking that position. If you go back to the origins, the thought process was very simple and it holds up. There’s a legal component to it before its time. It’s this, “Everybody who signs on at Melaleuca signs on as a customer or consumer. The only way you can buy products is to sign up with a customer account.” On the day before we used the internet for sign-on, we had two forms. One, a form with a blue font type printed on it, so that when it came into the data center, we would recognize that as the customer agreement.
The second form had a brown font type, and that was a separate distributor agreement. The person would say, “I agree to do all these things as a distributor, and should I want to buy products, I have to also have on file my blue customer agreement because these products are consumable.” Part of the compensation plan had a limit of $100. They did not get commissioned on anything over $100 from anybody in the down line. If somebody bought more than $100 in products, it came back to the person that bought that in the form of a 25% rebate.
It drove a powerful behavior too, which is don’t oversell. Don’t garage qualify somebody so you can get paid a huge commission?
It was a slower bill, but $3 billion a year later, they have a legitimate claim that everybody that buys products is a customer. From that customer pool emerges potential level 1, 2, and 5 builders.
The biggest challenge Brian Tracy said, “We underestimate what we can accomplish in a long period and overestimate what we can accomplish in a short period of time.” Many companies are trying to go fast instead of understanding there’s power going slow. You design things a little differently when you go slow. You can manage distribution, manufacturing, inventory, and culture. You can manage a lot of things compounding interest. Compounding still works growing slowly. In many ways, it is more effective. I started to get off. It’s fascinating.
There are Melaleuca habits of people who are drawn to it and get paid Barry Weller’s leaders in the field. Yes. It is probably the most perfect example of the 20/80 rule in the 64/4 where you apply the 20/80 rule to itself. A small percentage of people do very well because they fulfill certain leadership responsibilities in the field, but you also have those people who will go out and use the hustle and the hype to create business followers. That’s relatively short.
Even in that context, they can only push the pedal. There’s almost a governor built in that it doesn’t do you any good to overhype. You can push it as hard as you want, but the infrastructure is designed well so that it protects the company and all the distributors from the FTC and overzealous distributors.
That brings us back to your original question about the role of affiliates and the new trends, which are gaining some popular foothold. That history lesson of a company that’s still doing very well in that world, we can now draw from that and build on that understanding and evaluate other companies against that fabric. There is a heavy influence and movement on the regulatory side to come down hard on companies.
A company and its owners and leaders are treated as responsible for anything that the field organization says. If you have a rogue distributor, the regulators won’t go after that distributor. They will go after the company. companies now are trying to figure out how to throttle and manage what’s said, who says it, and how they say it. It’s hard in this digital world, but the context of that starts to come into play where I see the new method of influencer and affiliate marketing as being a hidden gem for companies to respond to regulatory challenges.
Here’s how. The companies that take the approach say, “We provide supplemental income to people. We also pay leadership commissions to career-level people who built.” Break it down supplemental income and, “We pay leadership compensation.” It is probably the right way to say it. If we unpack that, most of the people, whether they are at Melaleuca, New Skin, or you pick the company, fill in the blank, and you take a look at the allocation or the distribution of revenue or commissions, it falls on that scale.
Eighty percent of those who are getting something are making supplemental income, a few hundred a month or a year, a supplemental level. That’s the reality of it. Here’s the beauty of how I’m seeing an influencer-type model working. When an influencer decides to be authentic and relatable, they get the advantage of people who are attracted to them because of that. They say, “I like this influencer. I like what they talk about. They are authentic and they are relatable, and I will follow them.” In order to stay authentic and relatable, they don’t hype. They don’t do those things. They are the perfect marketer for a company that rewards them for bringing their followers into the fold.
When an influencer decides to be authentic and relatable, they get the advantage of people who are attracted to them.
The influencers I’m talking about, the truth is they don’t want to build a team, recruit anybody or slow down to do all that. They go, “I love your product. I already have this influence. I will sell the Melaleuca toothpaste or whatever through this channel. Give me a link and some tools. I will go sell it.” We can use any company you perceive as the ideal situation. How does a company deliver on that opportunity? With a lot of comp plans in network marketing, you got to start at a low level. To get paid high commissions, you have to move through all the ranks.
The affiliate doesn’t want to move through the ranks. They want to sell the product. They may come and go. You give them the tools to sell the product and give them a retail commission. They fit in the networking structure, but they are almost in a sense of flash in the pan, not in a bad way, but like, “I believe in your product. I have an audience. I want to receive a commission. Don’t pay me 5%. Give me a chance to earn something real, but I don’t want to be part of your whole model.” Do you think in the ideal scenario in network marketing, you can create a place for both of those to exist holistically?
I do. I have a couple of thoughts on that, but I’d like to hear your thoughts on that.
I think it’s the future. If you do it correctly, you can pay that retail person ideally. If they do a certain volume, I’d have them move up the ranks fast on pure retail sales in a short window, then they can hold that as long as they continue to sell. If they did, they’d fall back to a lower volume so the network would receive less overrides, maybe 50% of what they normally get, they would receive less, but you had one guy that came in. It incentivizes people to find a good influencer that wants to retail.
You give them the tools where they can immediately push it through their network, TikTok, Instagram, Facebook, whatever tool, whatever social platform they use they can come and go, but they can do it authentically. They can move the product, move it properly with tools that are compliant. That’s all the thoughts I got. Have you seen much of that? Have you seen companies trying to bridge that?
That’s where I get excited. I know your capabilities and your programming team. You and I will go offline and we will talk separately about how rapid funnels is either supporting that or can support that with a few tweaks. It goes back to some fundamentals that I have observed over the years and that I was part of beginning as early as Melaleuca many years ago, which is the use of retail elements in the compensation plan, retail commissions which can be as simple as set aside a percentage of revenues into a pool and use that pool in a certain way. It’s a pay-for-performance pool.
The other aspect, I think you saw it. I would have to double-check myself on this, but I know that they decided to start taking direct enrollments from customers. It goes back to your opening question, “What about companies that trust their distributors by selling directly to customers?” If a layer of that would be, “Let’s sell directly to consumers through influencers,” it’s the same problem because they are using masses or bringing together masses through an influencer-type group.
I believe it’s Tucson, and forgive me if I’m picking the wrong company. They created a leadership element and it’s not a small amount. It’s a significant amount of the commission budget. They have set aside and put it into a pool that can be shared and participated in by active distributors based on their performance.
In other words, as a distributor, I’m compensated to build my organization and my leadership to work through the ranks. In addition, if I am doing my part over here and hitting whatever criteria the company puts in place, I will participate in the retail customer pool and get a share of that as additional compensation so that whatever the company’s creating on its own through influencer and customer development, they are not leaving me behind.
You are suggesting the companies are looking for the influencers versus the distributor base finding the influencer.
There’s that aspect of it. The distributors find an influencer, forgive this because it’s been years since I have been around it. One of the developments after I left Melaleuca, and I worked for hundreds of companies since then. That’s not about me. It’s the perspectives we are sharing have been shaped by being in the halls of some great companies. One of the things that come to mind is the Melaleuca distributor from the South came to the company and said, “I have a large church organization that wants to sign up. Rather than sign up all of the parishioners and members of this church, can I sign up for the church as an influencer?”
They do not want to have everybody sign up and create a downline, but they will do a big volume. I’m going to fumble through this. I’m going to talk concepts, but they said, “Let’s try this. For a qualified enterprise like the church or an influencer, we will pay them a percent of the total revenues that they generate.” To a large degree, it was already taken care of by the feature that I remember. Anything over $100 is paid back in the form of a 25% check. A $10,000 order on that church’s account by everybody ordering using that account didn’t benefit the downline much except there’s a component in the compensation plan that does reward volume.
Those are the things. They get complicated. You go to the church and they are like, “What?” I have been in that role in the field with companies where it’s too complicated versus if you said, “Here’s one link for the church. You have one position. Anybody that buys from this link because of the nature of your influence or organization, you are going to get a percentage back.” It’s clean and simple. They go into their admin panel. They can see all the sales, who bought, and their commission.
They see their commission, buy a new organ, and they praise the Lord.
The upline only got half the commissions they would normally, but you had the retail component and it works. It’s not the company selling against the field. It’s the company saying, “We live in this world where there is a different kind of micro-influencer that can affect a large amount of legitimate sales.”
The beautiful thing about that particular model is that the company has a full 1% of its revenues that it puts into a bonus pool that it shares.
To incentivize leaders to drive this affiliate stuff.
Leaders are going to say, “I love that volume for the first. Thank you very much.”
We have gone over time here. I think we should do round two sometime here and get it on the books if you are open to it. I enjoyed it. There are many more questions I’d like to ask. I think what you are doing is cool. You said to me pre-show that one of the hardest things is you have a lot of people that come to you for different things outside of your lane, but where you have focused is this customer-centric concept, whether it’s a new company or a mid-size company. You work with big companies, but a mid-size company that is trying to design things more around the customer, is that your sweet spot?
That’s our sweet spot. We love helping people to succeed both in the company and in the field. Our approach to our business reviews and customer service reviews is that customer service is a window into the entire health of a company. The sure thing is keeping distributors happy, which was my job description by Frank VanderSloot, “Keep our distributors happy, Terrel.” Making sure that we are doing that. How do we measure if they are keeping happy, and how do we do it? Let me know when’s the next time you want to jump on. I will be here for this great group of audience. Thanks for having me.
Customer service is a window into the entire health of a company.
Terrel, it’s good to have you on the show. Thank you so much for your time.
About Terrel Transtrum
Terrel Transtrum is the world’s leading consultant for Customer Service in Direct Sales. He is most widely known for attacking all inflection points from startup, fast growth, and downturn.
In his book LaunchSmart, Terrel shares his more than 30-years of experience in starting and running a successful direct sales company. He owns two successful 7-figure businesses and has supported more than 800 direct sales companies on six continents.