The Fall of Fortune Hi-Tech Marketing Has Lessons for the MLM Industry
by Adonis E. Hoffman, *Adonis Hoffman, Esq., is an attorney and marketing professor in Washington, DC, who follows the MLM industry.
The world of network marketing, direct sales and MLM was shaken when the Federal Trade Commission (FTC) and the Attorneys General of Kentucky, North Carolina and Illinois acted jointly to shut down the operations and seize the assets of Fortune Hi-Tech Marketing (FHTM) on January 28, 2013. Such a harsh display of federal and state enforcement rarely has been seen in the industry, and the aftershocks will be felt for a long time to come.
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2. Spread the Wealth From Top to Bottom
One of the government's claims against FHTM is that over 95 percent of the reps made little or no money whatsoever, while one or two percent of its leadership earned incomes averaging over $300,000 and upwards of $1 million. If such an allegation is true, this is a legacy no self-respecting company in any industry should be proud to report. These kinds of statistics point to failure of the company, not to success, and no amount of spin or doctrine or motivational rallying can change the fact.
A responsible company will take the necessary steps to adjust its practices so the ratio of top earners to low-earners is not wildly out of balance. A responsible company will institute reforms to spread the company's wealth, even if it means re-jiggering the compensation plan to reward effort. A responsible company will bring in compensation experts to fix what is broken. The key lesson for any company in the industry is that federal legislators will not tolerate an egregiously outbalanced compensation structure, where there is no apparent regard for some kind of equity. When allowed to persist for years, as it is alleged against FHTM, the government easily can conclude that a pyramid is operating.
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Conclusion
It is no secret that the MLM industry is in the crosshairs of state attorneys general and the Federal Trade Commission. The scrutiny is not personal–its business. FHTM is not the first, and will not be the last, company to undergo investigation, litigation and perhaps liquidation. There will be more to come. These regulators are sworn to uphold the public interest. When consumers are harmed by business practices bordering on unfairness and exploitation, these agencies will move in swiftly. Smart MLM companies will do everything they can to insulate themselves from the factual conditions that gave rise to the actions against FHTM.
A few of the basic rules apply. Compensation has to be based on the sale of goods, products or services, not on recruitment. While team building is essential to success in MLM, the primary focus of every company must be on moving products. When that message permeates a company's presentation and information, and is evident on its website and corporate materials, the company should be able to pass any regulatory or legal muster.
At the end of the day, the fate of FHTM appears to be sealed. It will never exist in the same form or fashion as it did before January 28. The executives appear to be destined to dole out large sums of money in a consent decree settlement, perhaps with a stipulation that it cease and desist from operating.
Other companies should learn from FHTM's mis-steps and take the time to assess their practices, make adjustments where necessary, and get to know the regulators and policymakers who might be able to make a difference.
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