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While it can be difficult, change is often very good. Take, for example, the collection of direct selling business acquisitions, mergers and even closings that have changed the face of the industry during the last two years. The business consultants who spoke with Direct Selling News say that they have actually strengthened the direct selling industry.The list of acquisitions and mergers is long. World Ventures acquired Success University; Univera acquired Matol; Home & Garden Party acquired the assets of Home Interiors and created a new brand, Celebrating Home; Bill and Robin Shaw, Eric Schrier and other private investors acquired Taste of Home from Reader’s Digest and rebranded the company as Entertaining at Home. That’s just a start. Kyäni merged with Enliven, and PartyLite absorbed Two Sisters Gourmet. And Youngevity has brought a whole collection of companies into its family, including Suzanne, Ancient Legacy, Supralife and others.
Like any industry, direct selling has seen companies close. Swiss Colony Occasions, Sarah Coventry and Body Shop at Home were three that had grown out of corporations with traditional business models. Others simply couldn’t hang on, like Weekenders, Seriesse, Warm Spirit and South Main Designs.
All that activity—especially mergers and acquisitions—means that companies have combined their strengths to create more robust, competitive entities that can offer a greater opportunity to their distributors.
“In some sort of cyclical way, this sort of thing has to happen every now and then,” notes Paula Antonini, who leads Antonini and Associates. “It lets the people who are able to stay and want to stand to get their act together, streamline some things and ask themselves the hard questions. Companies are taking a step back and asking, What do we have to do differently so that this doesn’t happen to us? That’s a healthy thing.”
Sue Rusch, of Sue Rusch & Associates, points to the struggles of today’s retail marketplace.
“It suggests that we have assets that those retailers don’t have,” Rusch says. “We know that it works to build our business around a foundation of the salesforce and their entrepreneurial experience, helping them become, grow and feel that they’re contributing. We have to learn to embrace our strength: We leverage people’s need for social connection and their desire for true service that’s missing in today’s economy.”
Consultant Dan Jensen sees mergers as an optimistic event for the industry as a whole and for the salesforces of the merging companies. He shrugs off the company closings.
“Closings are always going to happen,” he says. “When a merger does not happen and a company closes down, it can leave sales representatives out in the cold to fend for themselves. They’re often left with a sour taste in their mouth—discouraged, disappointed, beaten down. If circumstances had been different, they could have succeeded. A merger can be a great step to fix things that are inherently flawed and make them right, while retaining good, productive people in our industry.”
While most closings of the last couple of years, as well as mergers and acquisitions, have been in party plan companies, industry experts don’t see any real significance for that business style. Instead, most see the economy and—in some cases—unrealistic expectations by management as major contributing factors.
Respected industry consultant Alan Luce takes a historical view. He notes that between the late 1990s and 2006 the industry experienced tremendous growth in the number of new companies. His firm alone helped launch more than 30 companies during that period. Yet, he points out, the number of distributors increased only 1 or 2 percent during that time. The size of the market actually expanded very little.
“The minute the economic downturn came, you were going to see consolidation,” Luce observes. “A combination of two things happened: We had had a tremendous growth in the number of companies, and not all of them were profitable yet; and the fragile economy meant that they were unable to acquire financing. Then we saw factors like L’Oréal buying Body Shop at Home but not being interested in maintaining the direct selling division.”
Several consultants noted that when retail merchants launch direct selling channels, the results are often disappointing. Antonini and Rusch have personal experience to prove it. Executives at Body Shop at Home and Big Yellow Box by Crayola, respectively, they note that retailers have high expectations but low direct selling expertise.
“When Warren Buffett purchased The Pampered Chef, it validated this business in a way it had never been validated,” Rusch notes. “That caused many corporations to take notice that this is a viable business model and decide that they wanted in.”
Antonini adds, “If a non-direct selling company looks at a direct selling company as just another way to diversify its approach to the customer, it’s making a mistake. The people element is such an important part of direct selling, and it isn’t in other kinds of businesses. If you don’t gravitate toward direct selling because of that factor, you’re at risk of falling flat on your face.”
So, what’s the right way to bring two companies together? The first thing to look for is similarity. During initial discussions, company representatives must be completely candid with each other about management styles and cultures, not just balance sheets. Consultant Jack Crowley, who worked with Univera on its recent acquisition of Matol, notes that a rigid, process-oriented management team won’t combine well with one that is freewheeling. Those cultures translate to the most important consideration—the field salesforce.
“The salesforce is the biggest asset any direct selling company has,” Crowley says. “It’s really important how that salesforce is viewed and treated. It’s very difficult to move a salesforce to another product line or to change the culture of a salesforce. You need direct contact with them, explaining what will take place and its impact on them and their teams. You must show them that you have their best interests at heart. If there’s doubt in their minds, you won’t accomplish what you need to accomplish the most: having the salesforce support you and the benefits of the merger.”
One of the elements that will encourage the salesforce to stay with and support the company is a compensation plan that helps them grow their business. Newly combined companies have to make a key decision: Do they default to one comp plan over the other, try to take the best elements of each or start fresh? Jensen, a compensation plan specialist, says that compensation plans are salesforce behavior drivers.
“There are five key behaviors that a good compensation plan will support: selling; recruiting; building managers and team leaders; building leaders, who are the leaders of leaders; and retention,” he explains. “Any successful compensation plan will support, entice and engender those five behaviors in a reasonable balance.”
Combining two companies is a big job with many tasks involved. Most companies don’t have in-house expertise for doing all of it, especially while they’re still engaged in business as usual before the merger or acquisition. That’s where consultants come in.
Celebrating Home, the new company formed from party plan companies Home & Garden Party and Home Interiors, relied heavily on consultants with specialized expertise to quickly research, develop and implement everything from sales communications to compensation plans to information technology systems.
Company President Heather Chastain believes that company managers need to set their egos aside and look for experts with the specific skills and capabilities needed for the merger or acquisition process. She adds that consultants can become true partners who are able to take a fresh look at the business.
“We were not staffed or equipped to handle this kind of massive change in a short time,” she notes. “If you don’t go to consultants, then you use your senior executives on projects that take them away from the things that require their ongoing expertise. Companies go wrong when they’re so close-minded to outside help that they misuse the resources they have. A key to our success is our willingness to rely on partners in such a strong way.”
As complicated as combining companies is, the result can be a new company that thrives and weathers difficult economic cycles because it has reinforced its strengths and reduced its weaknesses. In the best of all possible merger/acquisition worlds, balance sheets notwithstanding, one plus one will equal three.
When Home & Garden Party acquired the assets of failing company Home Interiors, it became direct selling’s Cirque du Soleil, performing amazing feats of energy, skill and creativity that most companies wouldn’t even attempt. The industry watched as, in a few short weeks, it birthed Celebrating Home.
The new company was far more than a new name.
“We actively think of it as a new company because we made such widespread change,” says President Heather Chastain. “All the experts would tell us we couldn’t do all that at once, but because we did change so much, I think we actually tipped the fulcrum the other way and did things we might not be able to do otherwise. We pushed past the point of discomfort about change. No one is working under the old compensation plan or party format or collateral or even the old order-entry system. Everything is new to everyone, so the whole company seems new.”
She says that the key has been clarity of vision and the ability to articulate it to everyone involved with the change—the internal staff, field leaders, and the numerous consultants that helped guide and support the process.
“You execute by getting everything together, communicating the vision very clearly and working really, really, really hard. And don’t sleep very much! It truly is a lot of work,” she says. “But you can’t drag it out. The field cannot deal with uncertainty.”
The key was communication with the field salesforce, which the company calls designers. Celebrating Home’s management recognized that numerous emotions were in play—confusion, resentment, uncertainty, even a lack of trust—because Home Interiors had declared bankruptcy. They needed to send a strong message to the Home & Garden Party field that there was great value in Home Interiors. Likewise, the Home Interiors consultants needed to embrace the new company as their home instead of seeking an alternative. How to make that happen? Communicate, communicate, communicate.
Celebrating Home used multiple media to deliver the message, and also to listen to designers. Blogs, video, conference calls, personalized communications, and lots of face-to-face discussions.
“We held a big meeting for leadership teams to come together and meet each other in Dallas. At one of those sessions, I stood onstage for three and half hours answering tough questions. There was resentment, confusion, all the emotions you’d expect,” Chastain explains. “You have to be confident enough to stand up and take it head-on. But it helped us make better decisions because we knew that every decision we made would be onstage to be scrutinized.”
Communication is still continuing, but the pace is slowing gradually. For example, initially, Chastain wrote her blog daily. Now she does it every three or four days.
The merger made clear sense. Both companies sold home-decorating and entertaining items, and both were party plan companies. But, more important, they had similar cultures. Celebrating Home confirmed the match by working with ReThink, a consulting company that helped identify the two companies’ shared values and strengths and pull the best of each company together into the new culture of Celebrating Home.
“We needed to answer the questions, What do people think now, and what do we want them to think after we launch the new company? We let those answers drive the branding,” explains David Singer, ReThink Companies Creative Imagineer. “It was really a blessing that there was not a single strength that one company had that the other either didn’t have or wasn’t striving to achieve. They had the same core beliefs.”
Each company was based on a proud Christian foundation, and each was public about putting God first in how they lead the business. The driving force behind each company went far beyond selling home-decorating products. It was really about making a home a haven. Those key principles have eased the transition from two established companies—one 52 years old and the other 12—into a brand-new company.
Singer says, “That gave us the opportunity to take the best of both worlds and start over with a new company that is modern and up-to-date and takes advantage of the best compensation plans, the best hostess plans, the best of every aspect of their business.”
Chastain reports that the transition is going well. Designer retention is three to four times as high as she had hoped, and she’s also pleased with the number of parties being held. Recruiting lags a little, but she believes that as designer comfort in the new company increases, they’ll gain the confidence to offer the opportunity more often.
“We have to be patient with our field as they’re learning and understanding something new,” she says. “They have to go through that process before they can share it with someone else. I think we’ll have a strong summer because our field is now getting comfortable with the story, our new systems and our compensation plan—all those things that lead them to feeling confident and feeling good about what they’re doing.”
Meanwhile, Celebrating Home gets to reap the excitement and enthusiasm of a startup while leveraging the foundation of two well-established companies.
