FTC Action for Herbalife
What if the recent FTC action against Herbalife is a good thing, specifically as it relates to the separation of customers and distributors? Perhaps hidden in this settlement is a clue to a more efficient, profitable business with more mainstream acceptance and appeal. A business that no longer attracts the scrutinizing eyes of short sellers and regulators.
Direct Selling has been around a long time, and the desire to do it the way it’s always been done is strong. Einstein famously reminds us, “We cannot solve problems by using the same level of thinking we used when we created them.” So let’s look at where we are now with fresh eyes. Right now, most companies are recruiting a ton of people that never activate. While we make a lot of money, the fact that between 70-90% of many a direct selling company’s (with a multi-level comp plan) field will quit in a given year is an understandably sore subject. In fact, only a small minority of our field yield most of the profit while the vast majority either never intended to sell (though once they’re in there’s plenty of evidence to suggest there is pressure to sell by up-line or sell to maintain a discount) or quickly realize they didn’t have it in them to build a direct selling business.
With minimal conversion costs and low cost of entry for a rep, the practice of what we call “recruit first, find out later” has been totally justifiable until today. It has also been one of the most profitable, until now. After all, the stories we hear seem to prove that there’s no way to predict who will and won’t be successful as a direct seller. And who are we to deny someone an opportunity? Justifiable for sure. But a new kind of thinking has arisen. If you were at this year’s DSA annual meeting, you saw Dan Burrus’ keynote about this new type of thinking. He calls it becoming an Anticipatory Organization, meaning a company that sees into the future with incredible accuracy and acts preemptively. It might seem hard to believe, but technology has evolved so much that we can actually predict your distributors’ future with stunning accuracy.
This begs an ethical question: If you could predict with great accuracy that a business recruit will never turn a profit, is it ethical to recruit them anyway? What if you could know that a recruit would never activate and instead have a higher LTV (Lifetime Value) as a customer than a rep? Knowing all of this, would you still recruit them into the business? Would it really be ethical to do so? But ethics aside, it doesn’t make financial sense to recruit them either, as that’s actually a losing proposition for everyone.
What would it be like if you understood each and every distributor in your field so deeply, that you could predict what they are most likely to do tomorrow? Will they quit the business and take their team to another company? Are they finally ready to “activate”? Are they already gone and not worth the effort to try to recover? Will the lifetime value of a potential recruit be higher as a customer, preferred customer (PC) or business recruit? Is a PC ready to join the business? There are so many insights to be had, it’s mindboggling and can often create a “paralysis from analysis” as we feel we have to do so many operational changes in order to make this all happen. If you want to tackle it all, that’s true. But there are plenty of simple ways to start seeing gains almost immediately with little to no operational changes. And thinking through big plans before acting has proven to be an arcane, expensive and less effective way to do business (read The Lean Startup for more on this).
The technology to answer these questions and much more is called Predictive Analytics and Machine Learning, and it has the power to completely transform the way direct selling is done. (Click here to see a video that can show you how ubiquitous and important this technology already is). It’s a type of artificial intelligence that is modeled and trained by experts known as Data Scientists, a cross between a statistician and programmer. These mathematical and technical pros are like a data analyst on steroids. Combine a team of data scientists with a master technology architect who can operationalize their statistical models and you’ve got an unstoppable competitive advantage that can drive exponential growth through your business.
So bringing this all together, what’s a direct selling company to do? Data science today is a young, hot and misunderstood field. Recruiting, leading and getting ROI from an internal team is possible, but extremely expensive, time consuming and may not lead to the outcome you desired. But the business that isn’t using machine learning in the next 3 years is going to find itself in serious trouble. Don’t trust me, here’s Forbes giving it to you straight:
As Dan Burrus reminded us, things are moving much too fast these days for us to be in a “wait and see” mentality. How will you be able to compete when your competition understands its customers and distributors so much more deeply than you do?
You’ll be out predicted and they’ll be able to create better products, training, recruiting and retention practices, marketing and communication campaigns, pricing models and overall service than you can. It’s like competing against a psychic who can see the future when you’re still stuck in the present.
Hidden in your data is a world of insights that can revolutionize the way you do business. So start small. Find a partner that understands your business model and has a track record of not only building out predictive models, but operationalizing them. All of the intelligence in the world is worthless unless you can put it in to action. It’s worth re-iterating: Start Small. A top data science team can cost you millions of dollars to hire and maintain. If you bog yourself down in strategy meetings about everything that you could be doing, you’re going to fail. Every DS company is different and your partner should know where and how to get you started, offering you terms that allow them to prove their value to you each step of the way. And you should be ready to experiment with them, using a small amount of internal resources to put their early predictions into action. If you’re using their predictions in a focused way, you’ll see the ROI almost immediately and increase their influence over your operations over time. Once you take the first step towards predicting the future, you’ll wonder how you did it any other way.
Michel Bayan is the CEO of DirecTech Labs Inc. DTL is a data science company focused on working with direct sellers to increase retention, and discover the “DNA” of their salesforce and much more. Michel is also the host of the DirecTech Podcast where he interviews direct sales CEOs and other executives. www.directechlabs.com
See Michel’s interview with Daniel Burrus and variety of direct selling CEOs and other executives: http://bit.ly/29zdufU