RENEWAL: Leading Direct Selling Turnarounds

Executive, consultant and author Brett Blake presents the variables every company needs in its turnaround plan.

Countless events can contribute to success or failure, but I believe that failure is certain if a company’s leadership doesn’t understand and address key variables during a downturn,” says strategy consultant, speaker and author Brett Blake. Having served as president, chief executive or general manager for seven different companies (both within and outside the direct selling industry) during his more than 20-year career, Blake has witnessed the inevitable ebbs and flows associated with running any business and put the wisdom of that hard-won experience to work, leading turnaround efforts at five companies based on a formula he developed.

“Knowing that no direct selling company will have continuous, uninterrupted sales growth should be both frightening and comforting to executives.”
—Brett Blake, Strategy Consultant, Speaker and Author

That formula is the subject of his latest book, Renewal: Leading Direct Selling Turnarounds. “I didn’t realize how common the need for Renewal was until I completed the research necessary to record and graph the sales of dozens of direct selling companies … during that research, I came to understand that every direct selling company has gone through a period of Renewal,” Blake says. Even billion-dollar powerhouse companies, he emphasizes, have experienced at least one period of declining sales. Those organizations that have been on the scene for decades likely have weathered multiple cycles of Renewal. As the continued success of those legacy companies suggests, these downturns don’t signal inevitable failure. In fact, they can be an opportunity for growth provided leadership heeds the warning signals of an impending slump, then assumes the right focus at a time when it’s easy even for the most seasoned pros to become sidetracked by deceptive numbers and assumptions about what has worked in the past.

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5 Lifecycle Stages

Every direct selling organization, Blake says, experiences five lifecycle stages at some point in their history—and, again, this cycle may occur either once or on repeated occasions, depending upon the organization in question.

  1. LAUNCH: During this initial phase, which can last anywhere from several months to years, the company is figuring out its product, marketing, field compensation and selling system. It is recruiting field leaders who can use those systems to grow a business—and, in turn, the company.
  2. HYPER-GROWTH: This period of sharply increasing profit generates lots of cash, but it’s often consumed by capital investment and inventory purchases required to keep up with hyper-growth. Some companies may experience so much growth, in fact, that they can’t fund that growth from their operating cash and must borrow to keep pace. The good news, however, is that it’s usually not difficult for them to find lenders.
  3. GROWTH BY PROMOTION: The company continues to grow, but to do so requires more effort and expense than it did during the hyper-growth stage. In an effort to sustain that growth, they often implement a more ambitious promotion schedule and introduce more products more frequently. According to Blake, the pace of growth peaks during this stage then begins to slow down. Growth doesn’t require the investment it did in the Hyper-Growth stage, so companies in the Growth by Promotion stage have more cash on hand.

This phase is fraught with land mines. “The combination of cash available for distribution and continued sales often mask this stage, and many founders do not recognize that they have entered a new stage of growth that should cause them to save cash and begin retooling their strategies,” Blake says. Common mistakes companies make during the Growth by Promotion stage include: the decision to continue hiring as the field becomes increasingly overwhelmed by the number and complexity of programs designed by these employees; long-term lease commitments and/or real estate purchases, which will eat up the cash these companies need during later phases of development; and broadening their product lines to provide the field with more to sell or buy. The revenue per SKU begins to decline dramatically, suggesting that these new products aren’t as successful as the company hoped. “Companies quickly learn that more products mean more cash consumed by inventory and less available to fund needed investments to reverse future declines,” Blake says.

Interestingly, he adds, cash doesn’t hit its peak until late in this stage — often not until the company’s sales have begun to decline. “Thus, using profits and cash flow as key indicators to warn of trouble ahead will leave executives responding too late.”

  1. SHAKE-OUT: The Shake-Out stage presents a fork in the road. At this point, Blake says, the company will take actions that lead them toward Renewal and growth, or they’ll make decisions that speed their decline and lead to a crisis. During the Shake-Out stage, a company’s cash reserves are depleted rapidly, sometimes taking executives by surprise. “This surprise is often brought on because the company has never had declining sales, and all of the forecasts (even during the decline) continue to model optimism. The company is actually operating under a plan that predicts sales growth.”
  2. DECLINE OR RENEWAL: This final stage, too, is a time marked by critical decision making. The company either makes changes to improve its sales, or it continues to lose cash and moves deeper into the red zone. When that happens, Blake says, direct sales companies are at a particular disadvantage because the industry is often overlooked by capital providers.

“Corrections happen, but whether they prove to be little bumps in the road or a continuously declining experience for your company can be influenced by the decisions you make and your ability to focus on all the right things.” —Brett Blake, Strategy Consultant, Speaker and Author

Orville Thompson, Co-Owner and Co-CEO of Scentsy, spoke on the very topic of renewal in December during the Direct Selling Association Sales & Marketing Conference in Lake Tahoe, California. He says that direct selling companies often mistake a dip as a sign that something’s wrong when, in fact, it’s a signal that something’s gone right. He uses the example of a company that helps ten people get out of debt successfully. While the reality may be that you can help only those ten people, 100 people believe you can do the same for them—and that’s where hype comes into play. Hype is the driver of hypergrowth.

There’s an important distinction between hype and hope: Hype is the irrational belief in a better future state, while hope is the rational belief in a better state. All successful companies, Thompson says, experience hype “because we live in a social world. The perception is better than what exists, and there has to be a correction—you can’t live in the fantasy forever. The longer and deeper the divide between reality and belief, when there’s correction, it’s so large that it becomes extremely risky to the organization.”

The initial launch of a business is when its culture is created, and a tipping point occurs when “your culture is strong enough that others want to share it, and that creates a viral propagation of your culture.” If that viral propagation is positive, “it creates irrational expectations, and you grow faster and people think you’re better than you are. At some point, what you are will win.”

Thompson continues, “Dips are necessary for every direct selling company, and renewal often is simply getting back to the reality of the business. Most people feel like a dip is a repudiation of their culture, and they look for things that’ll save them from decline when in reality it isn’t something wrong; it’s natural and healthy. That’s the time to lean in, not turn away, from your culture. If you can lean in, you’ll get caught where you are. A good company won’t go down.”

The most important part of leading a turnaround is preparing for it—and that has to start long before the decline. “Executives who believe their own hype are

especially vulnerable to being blindsided by a decline, and then they’ll be wholly unprepared for it,” Thompson says. He uses one of his favorite analogies—a crest known as “Chicken Out Ridge” in his home state of Idaho, where climbers often turn back after deciding the summit isn’t worth it. “Companies rarely if ever have made into orbit or long-term sustainability on the first ascent,” he says. “Most have had to regroup, retrench and make another summit attempt.” However, the more prepared the company, the less the organization will have to descend before trying the summit again.

Direct selling companies can establish strong “base camps” with several solid investor and vendor relationships. No one vendor should take you out, he says, if they abandon you; nor should you put all of your value into the hands of a few field leaders will dictate if you succeed or fail. “That’s where naive companies find themselves behind the 8-ball in a decline.” A broad-based supply chain, along with a resilient executive team and a succession plan two to three layers deep, will strengthen your base camp. Additionally, companies use the trajectory of their mature markets to forecast sales and avoid placing undue emphasis on newer markets in hypergrowth.

“Renewal often is simply getting back to the reality of the business. Most people feel like a dip is a repudiation of their culture, and they look for things that’ll save them from decline, when in reality it isn’t something wrong.” —Orville Thompson, Co-Owner, and Co-CEO of Scentsy

Blake recommends three tactics to restore hope to your company and your field during a downturn:

  1. TEST AND VALIDATE: communicate to your employees and field leaders that you’re in this together, and you’re going to figure it out together. Set the expectation that this is a period of experimentation to find out what works. While you’ll need to refine your strategy along the way, you’re committed to Renewal and the long-term health of your company.
  2. HAVE A PLAN TO FIGHT FOR HOPE ON SOCIAL MEDIA: Direct selling was contending with more than a few misconceptions before social media come into the picture. Now, misinformation travels faster than ever, including falsehoods that have an agenda. With that mind, direct selling companies must have a social media strategy that builds goodwill and ensures a constant flow of factual information, success stories from the field, leader perspectives, and even a little industry myth-busting. While it might be tempting to pull inward and limit social media conversation during periods of downturn, remaining visible and communicative will help your company maintain hope and confidence among all of your stakeholders—and that’s key for successful Renewal.
  3. DISTINGUISH BETWEEN NEW AND NEWS: Direct selling companies regularly introduce new products throughout the year in an effort to keep distributors and customers engaged. Over time, however, those companies have learned that more products don’t necessarily equate to more profits. Instead, all of those launches may just increase costs and tie up much-needed capital in inventory. New products mean distributors have to educate themselves on properties, benefits, selling and cross-selling strategies. Depending upon the product, that expenditure of energy may generate confusion and detract from distributors’ ability to sell your bread-and-butter core product lines.

“Before, during and long after any Renewal, a direct selling company’s most powerful tool is their community.”
—Brett Blake, Strategy Consultant, Speaker and Author

New products aren’t the only way to create excitement in the field; however, distributors just need something to talk about. Direct selling companies, then, should create a calendar of good news they plan to share throughout the year—for example, a philanthropic partnership; media placement; human-interest story about a distributor, customer or employee; a company event or unique aspect of your culture. The best part: social media makes it easy to share your news, and for it to go viral. “I’ve become convinced that when companies don’t have a plan that feeds good news to the field,” Blake says, “the tendency is for the field to fill that communications void with rumors and worries that may or may not be true but will most assuredly destroy hope.”

A downturn, Thompson adds, “is not a time to start pulling away from your leaders and downsizing events. They’re a time to drive a deeper connection with each other through the culture you’ve committed to collectively, so you’re a united front facing the challenge.” He adds that, while Scentsy was experiencing its own downturn in 2012, the company broke ground on its new campus, launched a series of incentive trips that were easy to earn for new participants, and communicated open and honestly with its consultants, assuring them that the leadership team remained invested in the company and that this decline was an inevitable phase of what would lead to a brighter future. “Those things weren’t consistent with a failing company,” he says, “so people didn’t believe the downturn.” If your sales force is also feeling the effects of decreasing sales, and they see you cutting back on perks, “they start to believe this downturn is an inevitable collapse because the business is acting that way.”

Before, during and long after any Renewal, a direct selling company’s most powerful tool is our community. From fellow executives to field leaders, “this is an industry with an abundance mentality,” Blake says. The time for building your network is now—on the phone, at industry events, among your longtime vendors and distributors who know what you stand for and where you want to go. No direct selling company is exempt from the inevitable operating cycles that come with doing business, but with insight, preparation and partnership, Renewal is possible.

Direct Selling’s Seven Systems

By Brett A. Blake

When I talk about “systems” I’m talking about a recorded way of accomplishing something that eliminates the need for someone to figure out how to do “it” themselves. Author and educator Eric Worre said that you know you have a great system when “everyone knows it, everyone does it, and it works.”

I discovered systems accidentally as we grew Team Beachbody from $35 million to $380 million in just three years. In my opinion, the key to exponential growth is for a company (or its sales leaders) to have a few of these seven systems in place:

  1. CUSTOMER ACQUISITION— a simple and repeatable way to start a discussion with a prospect and to convince them to make their first purchase.
  2. DISTRIBUTOR UPGRADE/ACQUISITION—a simple and repeatable way to approach your most enthusiastic customers and convert them to becoming a seller.
  3. NEW DISTRIBUTOR TRAINING SYSTEM—a simple and repeatable way to help a new seller achieve success and confidence.
  4. DISTRIBUTOR ADVANCEMENT SYSTEM—a simple and repeatable way of helping new distributors advance to a place of profitability within the compensation system.
  5. CONVENTION ATTENDANCE SYSTEM— this is all Eric Worre and not something I had discovered on my own, but after listening to him I’m convinced that companies need a system in place to get serious distributors to their annual convention.
  6. COMMUNICATIONS SYSTEM— a simple and repeatable way to provide ongoing information and training to distributors.
  7. LEADERSHIP DEVELOPMENT & TRAINING— a simple and repeatable way to help field leaders acquire the business and management skills necessary to lead a large organization and effectively influence their team. While I’ve come to believe there is great value in understanding and methodically implementing all of these systems, it is my experience that growth and Renewal can take place by effectively focusing on the first one: customer acquisition.