Your Bounce-Back Blueprint for Getting Out of Decline
Managing change is always a vital task for any business that seeks to be competitive in the marketplace. Each year we are reminded that managing change is critical to success. Business leaders must understand that growth and profitability are the only path to stability. In this article, I will address two key questions.
- What has created a climate of decline for many direct selling companies?
- How can these companies get back to growth and profitability?
How Did We Get Here?
There are eight fundamental principles that are critical for any direct selling company to embrace.
1/ We are in a momentum-driven business—the loss of momentum can cause severe consequences over time. It would be challenging for any company to recover from a multi-year decline in revenue. As entrepreneur and venture capitalist Reid Hoffman said, “It is like jumping off a cliff and trying to build an airplane before you hit the ground.” Unfortunately, many will hit the ground.
2/ Sales occur when customers buy products or services from a company. Failure to build a growing base of loyal customers will severely diminish the ability to have consistent momentum.
3/ The field is your most important driver of sales. Losing their trust creates grave consequences.
4/ The culture and community of a direct selling company must be managed in a way that drives distributor engagement. Culture is the foundation of a competitive direct selling company.
5/ We are in the relationship business. While hope is an important component to success, hope is created and maintained by experiences. In short, we are in the business of creating great experiences for those in our culture.
6/ We are in a “people-centric” business. Managing a business from a transactional vs. experiential mindset will not work effectively to drive or maintain momentum.
7/ Without financial stability, you cannot invest back into your business. This will eventually lead to an inability to remain competitive in the marketplace.
8/ To remain competitive, you must have a DNA of innovation, and you must be capable of adapting to a changing marketplace.
The graph below will provide perspective on the road map to decline and the long-term consequences. I’ve been in direct selling for 35 years, and I’ve come to believe it is not external factors that control our future. Rather, it is the decisions of management that determine the success or failure of any direct selling company.
What Factors Are at Play?
The term omnichannel is not unique to business. It is a common diversification strategy. From a branding perspective, omnichannel can have major value. However, if you compete with your distributors, you will lose their trust. Over time, your field will disengage which will likely lead to a decline in revenue and a loss of profitability. Once that occurs, the probability of a company moving away from the traditional direct selling model will increase. This is especially true for legacy companies.
We have seen a growing trend of operations managing sales. Operations play a key role in any company, but the main priority must be to support the growth in revenue—not run the company from an operational vs. sales perspective.
Over the last few years, we have seen a historical amount of change with ownership and senior leadership unlike anything we have seen in the history of direct selling. Leaders who understand our business model are being replaced by traditional management that have no relevant direct selling experience.
A big driver of this change is an influx of private equity investment in the channel. It’s important to understand that these companies answer to shareholders. They are driven by a return on investment and an exit strategy—not the longevity of a direct selling company.
Another growing trend is taking field leadership out of direct selling companies. This has been fueled by companies moving away from a multi-layered compensation model and embracing an affiliate or full ecommerce model.
Many traditional leaders don’t recognize the importance of field leadership in successful direct selling companies. They view leadership as an unnecessary cost that hinders profitability. This is a perfect example of a “transactional mindset.” The goal should not be to get rid of leadership, but to engage leadership toward productivity and sales growth.
Other issues such as branding, technology and having a competitive product line are created by failing to keep the business relevant and competitive. We have never had more competition for both customers and distributors than we do today. Change is happening every day. Failing to adapt will lead to stagnation. Over time, it will likely lead to the downfall of the company.
How Do We Get Back on Track?
I find that while many companies understand what is driving a decline in sales and loss of profitability, they are struggling to steer the ship in a better direction. I believe there are six key steps that will allow a company to change course.
1/ Use the eight fundamental principles discussed earlier as a lens to analyze your business.
2/ Invest your time and resources on those who are committed to the future of the business.
3/ Make your major priority to increase revenue. This creates a performance-based business vs. a political culture defined by entitlement, drama and division.
4/ Avoid holding on to the past. Change requires any company to embrace new ideas and search for ways to stay competitive in the marketplace.
5/ If the ultimate decision maker for your company does not understand the direct selling business model, develop an experienced team that does understand how to thrive and grow in this model.
6/ Reduce debt because it will cripple a company that is in decline. Debt magnifies the consequences of a declining revenue and a loss of profitability.
My belief in direct selling has never been stronger. The channel is alive and well. The challenge isn’t that the model is in trouble. The challenge is in managing the business in a manner that allows the model to work effectively. The blueprint exists, and the path forward is clear. Let’s work together to lead from the front and restore momentum, opportunity and prosperity to our businesses and our field.
GORDON HESTER is a direct selling veteran, lecturer, consultant and author with over three decades of experience in direct selling with an emphasis on strategic development, analysis and sales. Gordon is currently the Chief Sales Officer of the Americas for PM-International.
