I would like to thank you for taking the time out of your busy schedule to meet with various board members on the Monday of the board week. I have always admired the DeVos and VanAndel families. Your families have exemplified the Godly foundation that is sorely lacking in our country and business culture today. To be given the privilege of sharing open and honest communication on how we can improve the Quixtar opportunity was an honor that I do not take lightly. Randy Bancino did an excellent job of presenting the main roadblocks holding Quixtar back from truly thriving in today’s business environment. I feel, after the transparent communication offered by the family leaders, it is important that the Board members share transparently any ideas we have to help transform our business.
One of my favorite theologians and statesmen of history is a man named Abraham Kyper. Mr. Kyper was a strong Dutch minister that taught that God was working out His sovereign plan through culture. He taught that Christians were called to redeem culture through their Godly example and business ethics. Mr. Kyper did a series of talks at Princeton in 1898 known as the Stone Lectures which I strongly recommend to anyone concerned about the current state of our culture. Abraham Kyper said, “When principles that run against your deepest convictions begin to win the day, then battle is your calling, and peace has become sin; you must at the price of dearest peace, lay your convictions bare before friend and enemy with all the fire of your faith.” As Randy was presenting the slides, my mind kept drifting to how this vehicle is my main opportunity to influence culture and make a difference. I was led to Christ, as a direct result of my involvement in the business, through the ministry of Billy Zeoli and Bob Dickie. My world view was formed through reading the Christian classics and asking what was truly important in life. Edward Gibbon, in his magnum opus Decline and Fall of the Roman Empire, stated the five attributes that marked Rome at its end:
1. Mounting love of show and luxury (affluence)
2. Widening gap between rich and poor
3. Obsession with sex
4. Freakishness in art masquerading as originality
5. Increased desire to live off the state.
The parallel between the decline of the Roman culture and the cultural decline of today is self-evident. Many of the IBO leaders feel their communities are a platform which can be used to stem the tide and reverse this decline. I am proud of the system created to educate our IBO’s and feel that our system is vital in the ongoing culture war. The goals that I have for my personal life have more to do with influencing culture than just simply making more money. I know that those who make money, if they use it for the glory of God can have great influence in the culture in which they live, But the driving passion of my life is to influence our nation and to help turn our culture back to the God of the Bible. Making money is just one way of many for me to have influence and leverage in the culture in which I live. Our stated objective of the Team training system is to “Lead people to the truth.”
The Importance of the “First Circle”
My ability to influence culture and lead people to truth depends directly upon our ability to help the “first circle” (network IBO) work. The first circle must be able to buy good quality products at below market price and then turnaround and retail these products to develop a profitable business. If the first circle does not find a good value in the products then we should expect a high attrition rate, which reduces our ability to influence and change culture.
Michael Gerber in his book The E-Myth Revisited teaches how Ray Kroc of McDonalds realized his real business was to help the franchisee win in business. Mr. Gerber states: “Ray Kroc began to look at his business as the product, and at the franchisee as his first, last, and most important customer. For the franchisee wasn’t interested in hamburgers, or French-fries or milkshakes; he was interested in the business. Driven by a desire to buy a business, the franchisee only wanted to know one thing: ‘Does it work?’ Ray Kroc’s main concern then became how to make certain his business would work better than any other.”
When people no longer feel the business proposition works due to overpriced products and little ability to sell those products at retail price, they become discouraged and eventually quit. My goal to influence people is severely hampered if the first circle will not stay in the business long enough to gain respect for the leadership team and fall in love with learning and growing. In my ten-plus years in the business, I can count on one hand the number f people who have continued to buy products after leaving the business. Many of these people are still close friends of our family, but they refuse to buy products because they say they are overpriced. Therefore, we have a situation where we lose our ability to influence culture, Quixtar loses out on massive sales potential, and the new IBO loses out on the opportunity to grow a new business.
The Current Value Proposition Prevents Sales
Since 1994, I have consistently been in the living rooms of this country representing this business plan to people, an average of 25 times per month. The number one objective I deal with night in and night out is the price of the products. I have repeatedly had people conduct price comparisons on identical products, and we lose every time. I have arrived at the point where I am hesitant to display the catalogs until after they have signed up into the business. (Why should the IBO’s have to hide the product catalogs in order to register people?) After the new IBO is registered, the next toughest task is to get them to order products. We have had to resort to holding special meetings (150 PV parties monthly) just for people who generate volume. Without the PV parties, our leaders feel volume would drop an estimated 50%. Randy stated that 8% of the IBO’s do over 40% of the volume. This means that 8%, the ones that are receiving bonus checks, are doing a large part of the volume. If you take away signup volume, making this statistic even more extreme, we will find that a majority of the IBO’s are doing almost no volume. Why won’t they even buy products from their own business? The answer is that they cannot reconcile in their own mind the buying of overpriced products. Furthermore, if it doesn’t make sense to buy the products at the wholesale price, what chance do we have to sell products at retail? This difficult situation would disappear if we had an authentic value propositions where the first circle sold products at retail and prospered financially.
Author John Love, in his book McDonald’s, Behind the Arches, teaches how Ray Kroc’s thinking was different than other franchise operators: “By comparison, everything in Kroc’s franchising plan was designed to encourage the success of his franchisees first, and on that McDonald’s itself would prosper. Kroc instinctively knew that making an easy killing at the expense of his franchisees would not produce anything that would last. McDonald’s was in business to satisfy the retail consumer, but as a veteran salesman, Kroc knew he was also in business to serve his franchisees and build loyalty with them. They were his customers too, and if they failed, he failed.”
The Current Value Proposition Prohibits Growth
Randy Bancino’s main point of his presentation was that most IBO’s (90%) are not making money, and that a better retail business would generate more profit for the first circle. I agree wholeheartedly, but we need products that are reasonable value propositions at retail in order to sell them. 70% of business owners in other networks make money because they have products capable of retailing at retail price. Without a proper pricing strategy, we will constantly register people and cycle them through the business as they realize the poor value proposition. Randy stated that we were growing at 1/3 the rate of the networking industry as a whole. Combining this with the fact that we are registering people at five times the market share means we are losing people at 15 times the attrition rate in order to grow 5/15 or 1/3 the rate of other networks. Can we really continue to cycle through 15 times the number of people that other networks cycle through, and all that to end up growing more slowly? To provide an example, think of a typical bottle of spring water. If the target cost is $1.00, then we have to have the retail price set at $1.00 or less for a comparable product if we expect retail sales. We can no longer expect the market to bear a wholesale cost of $1.25 for the water and just encourage people to sign up others to generate a discount in order to drive the cost of water back to $1.00, (after you factor in your monthly bonus), let alone the retail price being $1.50, in which no sane person would buy a product from you for $1.50 that they can buy elsewhere for $1.00.
Quoting again from John Love’s book about McDonald’s; “The essence of Kroc’s unique but amazingly simple franchising philosophy was that a franchising company should not live off the sweat of its franchisees, but should succeed by helping its franchisees succeed.” I feel we have all agreed there needs to be more retailing in this business, but without an even somewhat realistic target cost, it will not happen. It is morally wrong for me to sell products to people, who believe in me, in a value proposition that is not to their benefit. When would it ever be right to offer a product through our network that is not sellable by IBO’s to customers at the retail price?
The Current Value Proposition Protects an Uncompetitive Margin
The last major point is the operating margins discussed in the meeting. On one of the slides was a chart that stated the average operating margins for Alticor products was 17%. This shocked me, since I was in the process of reading Don Soderquist’s new book, The Wal-Mart Way, where he states that Wal-Mart’s operating margin was 3%. I can understand why we are not competitive at the retail price if we continue to expect margins of almost 6 times the world’s benchmark company! I am all for the Alticor companies making a great return, as long as the value proposition to the first circle is in line. If not, then this is morally wrong and must be fixed, or I am misrepresenting the truth when I show the plan.
The Current Value Proposition Makes Constant Achievement Almost Impossible
The most shocking piece of data is the number of people who have achieved a Founders Emerald level or above since the founding of Quixtar. The number of Non-Multi-Cultural’s (NMC’s) who have achieved Founders Emerald or above, who started in the business after Quixtar began in 1999 is estimated to be between 7 & 10 people, with only one achieving Founders Diamond level. Approximately 700,000 NMC’s have had more than 5 years to achieve Founders Emerald and approximately 1 out of 100,000 have achieved it. Alticor states its goal is to be the “best business opportunity in the world”, but the data for the NMC’s does not back up this claim. To state these statistics differently; if you were an NMC and started the business in 1999 or 2000, you had a .001% chance of achieving a Founders Emerald level or higher after 5+ years. Further, according to Quixtar, the average Founders Emerald only makes $80,000.00 per year (less than twice the median income in America, and below what those with professional degrees will earn after less than 5 years in their profession). Who would or should be excited about an opportunity like this.
Referring again to Gerber; “It is literally impossible to produce a consistent result in a business that depends on extraordinary people. No business can do it for long. And no extraordinary business tries to! Every extraordinary business knows that when you intentionally build your business around the skills of ordinary people, you will be forced to ask the difficult questions about how to produce a result without the extraordinary ones. You’ll be forced to find a system that leverages your ordinary people to the point where they can produce extraordinary results over and over again.”
Those of us involved with Quixtar must build a business where any hard working American can have a business opportunity that works! As I studied the information and trends, I realized it was not the negative lies on the Internet that were killing us, but the negative truths on the Internet that was killing us.
The Value Proposition Can Be Changed From an Obstacle to an Opportunity
I am not a negative person. And I am not easily discouraged. But I am concerned by the disappointing data that was presented at the IBOA board meeting. I believe it is imperative that we all come together to make some corrections to improve this business beyond the problems that we currently face. Leaders solve problems and I believe we have successfully identified the problems and now just need the courage of our convictions to implement successful solutions. I believe everything should be on the table. If you told me my bonuses will have to be reduced in order to meet target costs, then I am prepared to discuss this option. For me, this is beyond a business discussion and has become a moral discussion. This is because I have leveraged my relationships and credibility with those on my team in order to generate product volume. I have tens of thousands of people who are counting on me to do right, and I must maintain their trust and personal integrity. We are all ultimately accountable to God for our actions and pleasing him should be our first objective.
The Destiny of Our Business
We live in challenging times and it will require great leadership and courage to get the job done. I believe you and your father were called for a time such as this, just as Esther was of old. I am willing to help in any way you deem fit and appreciate the opportunity to express my feelings and thoughts in a transparent way. I promise if you do your part to fix the product pricing and the opportunity for the “first circle,” then I will do my part and, God willing, will put over 1 million people into our community proudly driving traffic to your website for product purchases. We can be the best business opportunity out there and we can win the culture war in the process of achieving our business goals.
I believe in this business with all my heart. I am grateful to you and your family for providing this opportunity that allows me and so many thousands of others to achieve financial freedom and to use our talents, wealth, and gifts to influence the culture in which we live. Doug, it will take courage to make the right choices to correct the things that need fixing in this business. I am confident that if those choices are made this business will become the greatest success story in our lifetime. I know that the suggestions that I am making will work. If we do not make the decision to fix the problems that are hindering us from going from good to great, then it is my feeling that some other corporation will eventually see what needs to be done and will do it. This is our opportunity to make this business the greatest business opportunity in the country. I want to forge ahead with you to a fantastic future. I want to give genuine help to those who are struggling financially. And finally, I want to see this business be used of God to help bring back to our country the Godly principles that it was founded upon. This is a goal worth striving for and a life worth living. Sir Edmund Burke one said, “The only way for evil to prosper is for good men to do nothing.”
Thank you for your time in reading this letter. I would love to take you to lunch sometime and give you copies of the books from which I have quoted. If I can serve the Quixtar team in any way, please feel free to call or email me.
The Department for Business Enterprise and Regulatory Reform in England charges that Amway is “inherently objectionable” and must be “wound down” (closed down in USA-English). The government claims that Amway violates England’s Fair Trading Act 1973 among other laws.
Sources revealed they had to drastically lower their pricing and take other steps to be allowed to continue doing business in England, but still they continued their policies in America ignorant of one of their top IBO’s warning cries. Here we have an independent business owner trying to relay his frustration with a flawed opportunity, reaching out to the company’s family patriarch, and how is he treated in return? They tried to ruin his reputation, bankrupt his business, and destroy him personally. And in spite of an agreement that keeps the terms of their settlement under wraps, forces inside the Amway regime continue to try to disparage this man. Now who in their right mind would want to subject themselves to that in order to earn a few extra dollars for their family?
Aristotle had a philosophy that states,”it is impossible that contrary attribute should belong at the same time to the same subject.”
Logically that exonerates Mr. Woodward and implicates Amway. It’s public record that Mr. Woodward openly stated that he tried to fix a failed model, for the good of the industry. At the same time the Amway corporation has gone to great lengths, worldwide, to damage our industry, and continues to do so as noted by today’s legal release of yet more shenanigans. Who is the villain here?
This, dear readers, is the ugly side of our business. It can no longer be condoned, it should no longer be tolerated! The facts speak for themselves. There are numerous incidents of Amway trying to crush IBO’s so their dynasty was never in jeopardy. This is just the most grievous, and a damn shame. This is why the public turns up it’s nose at Network Marketing despite the valiant efforts of the heroes of our industry mentioned in previous posts.
Living well is the best revenge, and from all reports Mr. Woodward is living well and prospering. Apparently character and integrity wins out in the long run. One has to wonder is Amway will ever get that message? One can only wonder if Amway will ever humble themselves to at least apologize to Mr. Woodward after his ordeal. It’s very apparent his only motive was to save the business model. Frankly it’s the least Amway could do.
“They” say you can’t cure ugly, let’s hope “they” are misinformed!
IBOs will get cash, free product.
Quixtar Reaches Settlement With Former Distributors November 03, 2010 06:37 AM Quixtar Inc., a former subsidiary of Amway Corp., and the law firms of Boies, Schiller & Flexner and Gary Williams, Finney, Lewis, Watson & Sperando, P.L. today announced they have settled, subject to court approval, all claims related to a class action lawsuit brought on behalf of three former Independent Business Owners (IBOs). The parties released the following statement: We are pleased that we have been able to settle this case at this juncture, which follows four years of litigation and extensive mediation sessions before a former judge, with the active participation of former IBOs who are named plaintiffs, Quixtar and counsel. This settlement also recognizes Quixtars ongoing commitment to transform the manner in which it conducts its U.S. business, that together with the injunctive and monetary relief provided for in the settlement, will provide substantial benefits to the Plaintiff Class of current and former Quixtar IBOs. from court filing in California The Settlement Agreement The Settlement Agreement provides economic relief for the Settlement Class through cash and free products, and it provides injunctive relief directed at ensuring the continuation and extension of changes in Quixtars business model that already had commenced and that, indeed, were prompted in significant part by this litigation. The economic value of those aspects of the Settlement that can be quantified is an estimated to be $155 million, consisting of $34 million in a cash fund, $21 million in free products, and injunctive relief that Quixtar has estimated to be valued at $100 million. Taken together, virtually every aspect of the problems identified in the Complaint is addressed by the Settlement Agreement. 1. Economic Relief There are three ways in which Settlement Class Members are eligible to receive economic relief, two of which are directed at former Quixtar IBOs. First, up to $5 million will be available to refund the registration fees paid by any IBO who left the Quixtar program by the end of their first year. This part of the economic relief is intended to compensate individuals who entered the program and, upon determining that it was not what they expected, quickly exited. These former IBOs will be able to receive a cash refund of their registration fee, which usually was in the amount of approximately $50. Up to 10,000 refunds may be provided to Settlement Class Members before any pro-ration of the refund amount. Second, former IBOs who verify that they spent at least $100 on books, tapes and promotional meetings will be entitled, without additional documentation, to receive $100 in free Quixtar products. This part of the economic relief is intended to compensate IBOs who spent money on motivational tools from which they are not receiving any benefit since they no longer are part of the Quixtar program. Claimants will be able to choose from a variety of product bundles, ranging from skin care products to vitamins and nutritional supplements. The total value of the free products will be $21 million, which would be sufficient to provide over 20,000 qualified claimants with free product benefits. If more qualified claimants apply, the product value per package will be adjusted; if fewer qualified claimants apply for free products, a procedure is established in the Settlement Agreement so that the balance is distributed to benefit the class, or distributed cy pres Third, Settlement Class Members (both former and current IBOs) who can establish that they suffered special hardship in the form of financial loss resulting from their participation in the Quixtar IBO program will be eligible for a cash payment of not more than $15,000. This provision is intended to compensate Settlement Class Members who participated in the program for a substantial period and who suffered financial losses from that participation. Those losses include purchasing a large amount of Quixtar products that were not sold or returned, spending a substantial amount of money on BSM, or suffering other demonstrable financial loss of at least $2,500. The Settlement Agreement provides for a streamlined claims process to be handled by a Special Master, to be appointed by the Court, who will review and determine (with finality) whether and how much should be paid to a Claimant from the fund. If the total of accepted Claims exceeds the available cash funds for these payments, a pro-ration of awards will be made. 2. Injunctive Relief The Settlement Agreement provides for substantial injunctive relief to benefit both current and future IBOs. These elements of injunctive relief are intended to extend and perpetuate changes that Quixtar instituted, in large part as a result of this litigation, to transform the focus of its U.S. business from recruitment of additional distributors to merchandising products. Quixtar has estimated that the refund, training, and price reduction provisions will result in $100 million in future benefits to the Class. These provisions will be in the form of a Consent Judgment which will remain in place for 4 years (except where otherwise noted). The Consent Judgment will contain several features: Case3:07-cv-00201-SC Document143 Filed11/03/10 Page9 of 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 CASE NO. C 07-0201 SC PLAINTIFFS MEMORANDUM IN SUPPORT OF JOINT MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT AGREEMENT AND FINDING OF GOOD FAITH SETTLEMENT B O I E S , S C H I L L E R & F L E X N E R L L P O A K L A N D , C A L I F O R N I A (a) Disclosure and Refund Requirements. The Settlement Agreement provides that Quixtar must disclose to new IBOs that income figures reflect gross income, not net income after expenses; provide access to a price lists so that prospects can see the prices at which products are being offered; and inform IBOs of the availability of training in merchandising offered by Quixtar and the availability of refunds. Quixtar also is required to provide a period of at least 90 days (an increase from the current 60 days) during which new IBOs may seek an unconditional refund of their registration fee, currently set at $50. These provisions will ensure that new IBOs can correctly understand the program they are entering and have the ability, if they choose, to obtain a refund of their registration fee. (b) Legal Compliance. Under the Settlement Agreement, Quixtar is required to comply with state and federal law by the following: (1) not compensating any IBO primarily for the act of recruiting or registering other IBOs; and (2) not requiring any IBO to purchase or maintain any specified amount of inventory. In addition, Quixtar agrees that it will emphasize consumer sales by conditioning bonus payments and other incentives, as appropriate, on IBOs achieving reported levels of sales to end-user consumers. The Settlement Agreement also requires Quixtar to maintain and enforce quality control over Business Support Materials, such as books, tapes and meetings that are: (1) sold or distributed by Quixtar IBOs and Quixtar IBO affiliated BSM Companies; and (2) sold or distributed in a manner suggesting sponsorship, affiliation, or approval by Quixtar. This Quality control shall provide that the content of such BSM complies with state and federal law. These provisions of the Consent Order create accountability by Quixtar and by Identified BSM companies (those that are obtaining a release) that the financial incentives and authorized messages they provide are consistent with both state and federal laws, which include laws that regulate multi-level marketing systems as well as various state deceptive and unfair trade practice laws. (c) Price Reductions. Plaintiffs Complaints identified the uncompetitive pricing of Quixtar products as a reason that IBOs focused on recruitment rather than sales. Quixtar began reducing its pricing levels following the initiation of this lawsuit. The Settlement Agreement Case3:07-cv-00201-SC Document143 Filed11/03/10 Page10 of 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 CASE NO. C 07-0201 SC PLAINTIFFS MEMORANDUM IN SUPPORT OF JOINT MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT AGREEMENT AND FINDING OF GOOD FAITH SETTLEMENT B O I E S , S C H I L L E R & F L E X N E R L L P O A K L A N D , C A L I F O R N I A requires that Quixtar will maintain for twenty-four months from the Effective Date of the Settlement or from June 30, 2011, whichever occurs first, a price reduction that averages at least 5% from January 2007 pricing levels to distributors across Quixtar-branded products. (d) Training. In the Settlement Agreement, Quixtar agrees to increase its annual IBO training budget for product, product merchandising, and business skills by an average of $7 million or more over 2007 levels for twenty-four months from the Effective Date or from June 30, 2011, whichever occurs first, with such training to be provided free to IBOs. This training will further the ability of IBOs to focus on merchandising rather than recruitment of additional distributors. 3. Enforcement and Releases The Settlement Agreement provides that the above elements of injunctive relief shall be subject to monitoring through annual meetings between Quixtar and Plaintiffs Counsel throughout the term of the Consent Judgment. The injunctive relief aspects of the settlement are binding on the parties, including BSM Companies receiving releases or who are served with the Consent Judgment, pursuant to Rule 65. Further, it should be noted that while the Consent Judgment provides for dismissal of the complaint with prejudice, it expressly does not affect the prior ruling of this Court, affirmed by the Ninth Circuit, with respect to Quixtars alternative dispute resolution procedures, which were substantially revised by Quixtar in response to that ruling. In return for the economic and injunctive relief provided in the Settlement Agreement, the settlement class will agree to fully release Quixtar and related parties, and those BSM Companies who sign the Settlement Agreement from all claims that were or could have been raised in the complaints in this action. 4. Fees and Costs The Settlement Agreement provides that, in connection with final approval of the settlement, class counsel may seek an award of attorneys fees and costs from the Cash Fund based on the value of the economic and injunctive relief obtained for the Class and Defendant agrees not to object to a request that does not exceed $20 million. The Settlement Agreement Case3:07-cv-00201-SC Document143 Filed11/03/10 Page11 of 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 CASE NO. C 07-0201 SC PLAINTIFFS MEMORANDUM IN SUPPORT OF JOINT MOTION FOR PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT AGREEMENT AND FINDING OF GOOD FAITH SETTLEMENT B O I E S , S C H I L L E R & F L E X N E R L L P O A K L A N D , C A L I F O R N I A also provides that the costs of the Claims Administrator in providing notice and handling claims, as well as the costs of the special Master in connection with the special hardship payments, and the costs of shipping and handling the free products shall be paid from the Cash Fund. This is the "bad" of our industry. Sadly there is yet more, and the "ugly" is to follow. This action is sparking memories of past problems with this company's culture and as soon as I have my facts we'll dive deeper into this issue! Stay tuned!
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