The economy is no longer experiencing a recession, but a reinvention.
As political leaders on both sides of the aisle continue to promote ways to return America to its former strength, there is a growing population of people who are looking to the future rather than the past—direct selling entrepreneurs.
The soul of the American economy is the small-business owner. While corporate America continues to shed jobs nearly every quarter, the majority of new hires are within small and mid-sized entrepreneurial ventures across the country. In fact, the Association for Enterprise Opportunity recently reported that “if 1 in 3 American small businesses hired one person, the nation would be at full employment.”
The soul of the American economy is the small-business owner.
And yet, new venture formation is at its slowest pace in decades. According to the New America Foundation, “the number of new entrepreneurs and business owners has been dropping—as a percent of the working-age population—for more than a generation, declining by 53 percent between 1977 and 2010. The share of self-employed Americans, meanwhile, has declined by more than 20 percent since 1991.”
What does this mean for direct selling? Could the nation’s persistent unemployment and decreasing levels of traditional entrepreneurship present an opportunity for the direct selling industry?
Entrepreneurship in America
Historically, there are two paths for new entrepreneurs—launching a startup or purchasing a franchise business.
“I have seen it from both sides,” says Angela Loehr Chrysler, CEO of Team National. Chrysler’s father, Dick Loehr, founded the direct selling company after struggling with his own franchise in the automotive industry. “Dad fell in love with the idea of helping other people become small-business owners after seeing how he struggled with all of the dealership and franchise fees.”
Under her leadership, Team National has also started its own subsidiaries to support its business. “I can tell you that a traditional startup is so much more expensive than a direct selling business, which does not come with such fees, overhead or inventory costs.”
In light of these challenges, many reports indicate that traditional entrepreneurship has been in decline for some time. While the rate of new business formation has been increasing in less developed countries in recent years, the Global Entrepreneurship Monitor reported that “total U.S. early stage entrepreneurial activity continued the marked decline … which has been consistent since 2005.” Additionally, the report cites that an increasing percentage of these new entrepreneurs started their business out of necessity rather than opportunity—up from 25 percent in 2009 to 29 percent in 2010.
Furthermore, the Ewing Marion Kauffman Foundation for Entrepreneurship recently released a study that showed how the typical new business now only has 4.7 employees (compared to 7.7 employees in 1999). As reported in The New York Times, serial entrepreneur Mike Farmer of Leap2 says: “I think we’re all headed toward an agent economy, where everyone becomes an agent or a service provider instead of an employee at some big corporation. That’s just how the world is evolving. It’s like telecommuting, but it’s taken to the level of telecompanies.”
The Kauffman Foundation’s report also highlights the changing face of the typical U.S. entrepreneur: Immigrants were more than twice as likely as the native-born to start businesses each month in 2011. Additionally, the greatest increase in entrepreneurship is occurring among those with the least education: In 1996, only 0.39 percent of Americans without a high school diploma were entrepreneurs; that number had grown to 0.57 percent by 2011.
More and more unemployed Americans are now realizing that their old jobs may not be coming back—particularly among seasoned executives and older professionals. While some of these business leaders are now turning to entrepreneurship as a way to capitalize on their decades of experience, many lack the financing to launch a startup or secure a franchise due to the impact of their prolonged unemployment.
“It doesn’t matter how motivated or talented you are, the biggest barrier to small business ownership is financing,” says Jeff Olson, the Founder and CEO of Nerium International and an experienced entrepreneur.
While many lament this transition in the structure of the American economy, Olson believes that this crisis also presents a unique opportunity for the direct selling industry. The vast number of unemployed business professionals presents a major opportunity to expand the ranks of direct sellers who are looking to replace a significant salary. Considering that only one out of every 10 current direct sellers approaches their business as a full-time job, this should be a welcomed opportunity across the industry.
Direct Sellers as Entrepreneurs
Doug DeVos, President of Amway, says: “People who want to build a traditional business put a lot on the line—their time, their money and their future. Direct selling is a comparatively low-cost, low-risk way to earn income. It even provides access to business training that can be used in all aspects of your life, both personally and professionally. Direct selling has the added benefit of helping people create a business that can financially support their families as well as improve their quality of life—both now and for future generations.”
Olson adds: “The skills that you need to succeed in business are the same skills that you need to succeed in direct selling. I am seeing a dramatic shift from people looking at this industry for part-time work or a side income to professionals who now want to build their whole careers in the industry.”
“The skills that you need to succeed in business are the same skills that you need to succeed in direct selling.”
—Jeff Olson, Founder and CEO, Nerium International
Daniel W. Pullin, University Vice President for Strategic Planning and Economic Development for the University of Oklahoma, says: “Direct selling is one of the purest forms of entrepreneurship. Direct selling provides the opportunity to run a business where financial success is tied directly to the effort expended and the impact created. While the costs of entry are low, the upside is limitless. Success in direct selling is a function of the combination of effort, ability, creativity and adaptability. These components describe history’s great entrepreneurs, most of which began selling a product or service directly to a customer. Direct selling provides a robust opportunity for the budding entrepreneur.”
Direct Selling’s Overlooked Impact on the Economy
Particularly during this political season, tremendous attention is paid to the jobs report. But these reports frequently overlook the number of people who turn to self-employment, particularly direct selling.
“We are a significant piece of the economic pie that is not talked about often,” says Olson. “Just look at Nerium—we are only a few years old, and we now have 100-plus employees with jobs that didn’t exist a few years ago. We have over 20,000 distributors collectively earning millions of dollars in income that they did not previously have.”
With the Direct Selling Association (DSA) reporting that there are around 16 million such direct sellers across the country, this is an enormous number of people who are creating their own form of employment that is likely not included in most job reports.
Team National’s Chrysler, who recently joined the DSA on a trip to Washington, D.C., to speak to legislators about the importance of decreasing the burdens on small-biz owners, continues: “Honestly, I believe the role of small-business owners is essential to the U.S. economy and will drive the economic turnaround. They may only have one to two employees, but entrepreneurs have to keep themselves engaged in the community and giving back. They are also the ones keeping other business-to-business services operating.”
Amway’s DeVos adds: “It’s our job as an industry—and as individual direct selling companies—to make people aware of direct selling as a viable opportunity. It’s a thriving industry, and it continues to grow as more and more people discover the rewards of being an entrepreneur. Some of the best ambassadors for direct selling are our distributors. We encourage distributors to share their stories and support that in any way we can. Our blogs and global social media channels are full of these conversations. You read something new every day.”
The Economy’s Impact on Direct Selling
When asked how the slow economy affects the viability of direct selling, Chrysler responds that there is no bad time to be involved in direct sales. “We give people of all races, faiths and backgrounds the chance to make money for themselves. What we do is much bigger than just looking at the economy.”
Connie Tang, President and CEO of Princess House, agrees. She says: “When the economy is up, customers have more money to buy products, so sales are a bit easier. Easier sales help booking and recruiting, too. When the economy is down, more people need the income opportunity that direct sales provides and are open to trying new, nontraditional avenues.”
In fact, Chrysler claims that one of her primary roles as CEO is to be the “Chief Encouragement Officer,” since the primary effect of the economy is a psychological one. “Our business is about confidence. People are doing better than last year and not realizing it, not giving themselves credit for it. People focus on bad news in the media and not the good news they are creating for themselves.”
DeVos adds: “When people ask me about the best time to start a business, I say it’s now. Don’t worry about what’s happening with the economy. It doesn’t matter. Start it now—because I believe that business is the solution to strengthening our economy. Business has the capacity to create prosperity. With prosperity we generate economic freedom, which leads to personal freedom. Unleashing that spirit of entrepreneurship will help infuse the confidence and optimism needed to improve our economic outlook as well as our personal quality of life.”
How Direct Selling Stacks Up
Compared to other forms of entrepreneurship, direct selling presents fewer barriers to entry, a faster return rate and a more stable long-term strategy.
Trends Driving People Toward Direct Selling
Beyond the economy, three major trends are driving aspiring entrepreneurs toward the direct selling industry.
First, as DSN explored in its January 2012 cover story, “The Big Shift: The Next Great Generation Has Arrived,” direct selling is becoming very appealing to Generation Y—those born between 1980 and 1994. As Olson explains: “The industry is really hot with young people who are more mobile and independent. I call it the ‘anti-cocooning effect’—they do not want to be tied down and they want to travel more. This model is more adaptable to that and what they want in life; in my entire career I have never seen so many people in their 20s involved.”
Many people believe that college is no longer the vehicle for a guaranteed career that it used to be. According to Chrysler: “One of our top earners is a couple newly out of college. They could not find traditional jobs and turned to Team National for full-time careers.”
Professor Pullin describes how this trend is beginning to affect not just students, but the universities they attend: “Many universities, including OU [University of Oklahoma], strive to make entrepreneurship courses and programs available to a diverse group of students across all academic backgrounds. Take Harvard, for example. Their recent establishment of the Harvard iLab business accelerator is designed to foster university-wide entrepreneurial activity. The university has clearly stated that iLab is a place for all Harvard learners, not just those in the Business School.”
In addition to changing the classroom, Pullin claims that higher education has rapidly advanced the number of real-world learning experiences for its students, including programs designed for students to launch their own businesses as part of their coursework: “At OU, we have at least two such programs, the Integrated Business Core (IBC) in the Price College of Business, and the Center for the Creation of Economic Wealth (CCEW), an interdisciplinary program. IBC allows students to start a product-based business, the revenue model for which revolves around direct selling experiences to consumers, while CCEW focuses on the commercialization of technological advancements. In both instances, OU students have the opportunity to conceive and launch their own business enterprises. Collectively, our students have helped attract or generate over $8 million in funding in just the past few years through their authentic entrepreneurial efforts.”
Second, in addition to an influx of younger direct sellers, the industry is also seeing a change in the typical demographics of its new entrants. Princess House’s Tang, whose company has realized a double-digit increase in the number of new consultants joining this year, believes that this is because direct selling is becoming recognized as “the easiest pathway to entrepreneurship.”
“The major trend that I see is in the diversity of people joining us—mirroring the growing diversity in the United States. What this tells me is that direct selling, as an industry, remains true to its hallmark principle—that of equal opportunity for all! It remains one of the only business models that truly levels the playing field and closes the gap between the haves and have-nots.”
“[Direct selling] remains one of the only business models that truly levels the playing field and closes the gap between the haves and have-nots.”
—Connie Tang, President and CEO, Princess House
At Team National, Chrysler is also seeing a trend within the company’s traditional base of 30-45-year-olds. While stay-at-home moms have been the traditional demographic of this base, she is now “seeing more people who have graduated and are looking for greater income potential or for a change.”
Third, even before the economic downturn, social and cultural trends began creating an environment that was better suited for direct selling than traditional entrepreneurship or a corporate career. Through the advent of social media and mobile technology, people are more connected than ever before. They are building networks that they can tap efficiently and effectively, in addition to being exposed to many business opportunities outside of a traditional career.
Beyond seeking a way to survive in a changing world, many of the newest direct sellers were attracted to the industry by the personal-development aspect. As Chrysler says, “Direct selling makes people into better people. I have received emails from moms who said they were becoming a better mother because of their involvement in our personal-development and training programs.
“Another big difference in direct selling is that you own the business—the business doesn’t own you. You set your hours, but you also set your income. We also reward teams of people, not just individuals.”
For Olson, direct selling needs to be about personal development at every single point. “We are truly investing in a group of entrepreneurs, not employees. You build the person, and they will build the business.”
Direct Selling Entrepreneurs Recognized by Inc.
Nine direct selling companies recently made Inc. magazine’s 31st annual Inc. 500|5000, an exclusive ranking of the nation’s fastest-growing private companies.
- No. 57 – Stella & Dot
- No. 221 – J. Hilburn
- No. 516 – Scentsy
- No. 662 – It Works! Global
- No. 1220 – YOR Health
- No. 1305 – Ambit Energy
- No. 1555 – Initials
- No. 2900 – 5LINX Enterprises
- No. 4951 – Isagenix International
These companies achieved a minimum of 770 percent in sales growth. The Inc. 500’s aggregate revenue is $15.7 billion, with a median three-year growth of 1,431 percent.
A Need for Unity
Despite all of these trends, the industry still struggles with some common misunderstandings about the nature and integrity of the direct selling model.
As Olson argues, the industry needs to “weed its own garden. The biggest thing we can do as an industry is operate with integrity. And we need to point out all the good we are doing.”
As the head of the second-largest direct selling company in the world, Amway’s DeVos agrees: “Community involvement is another way we can spread the word about direct selling. Getting involved with different charitable organizations or even other business organizations, such as local chambers of commerce and Rotary, are great ways to increase awareness of direct selling and help educate others about the benefits of being part of this industry.”
As a very active leader in the DSA, Team National’s Chrysler believes that the industry needs to get more involved in the work and mission of both the Direct Selling Association and the Direct Selling Education Foundation (DSEF).
She says, “We need every direct selling company to join the DSA so that they can be aware of legislation that will affect us. We will also have more power to address things like losing the independent contractor status of our IBOs, which would crush our industry.
“There are a variety of ways to get involved in the DSA and DSE Foundation, from serving on committees to advocacy,” Chrysler continues. “And the foundation has made great progress on working with the NACCE [National Association for Community College Entrepreneurship] to develop a Direct Selling Entrepreneurship instructor manual for community colleges, which will be launched in 2013. We are also looking at a ‘career day’ model to highlight the various DSA members at community colleges to show students the models out there and what they do. Partnership with schools is a natural fit for our industry, and this will also address the negative connotations of the industry while getting more Gen Y involved.”
Princess House’s Tang also believes that the industry can promote educational efforts to help IBOs at any direct selling company to learn how to grow their business into a full-time job.
“I think the Direct Selling Association has made great strides in continuing to build a positive brand around this business model,” she says. “As a group we need to instruct and educate by ensuring that we’re living by the DSA Code of Ethics; by sharing our success stories as often as possible; by telling the truth that success doesn’t happen overnight … it happens through a combination of efforts and dedication. The DSEF also plays a vital role in helping educate the public, which is so critical to the better future we all strive for.”