Len Clements is a well respected guru in the network marketing industry and I’m glad to know him as a friend. He has an extraordinary amount of experience in the industry and has served multiple roles including distributor, pay plan consultant, and expert witness. He’s written books, hosted seminars, does his own podcast, etc.

I was recently on his show and we engaged in a long discussion about the state of the network marketing industry. We discussed the differences between legitimate MLMs and pyramid schemes, Amway’s recent efforts to get their sales force under control, and a host of other topics affecting the industry today. I hope you find it informative.

Click here for the Len Clements / Kevin Thompson interview.

*As a small tip, you can right link for the interview above and select “Save As” and download the mp3 to your desktop. I prefer to play audio files in iTunes so I can play, fast forward, etc.

We’ve all been there. Whether it was a spouse or parent that was pitching an exciting business opportunity, we’ve all been sold an opportunity of a lifetime. And deep down in our gut, we felt…maybe a little uncertain. Is it legitimate? Is it legal? Unfortunately, distinguishing a good network marketing company from a bad one involves more art than science. It’s hard to tell a difference and there’s never a sure answer. I prepared this article to help consumers make wise choices during these tough economic times. The article is also written to be informative for network marketing executives to help them run their businesses.

Legitimate MLM or Pyramid Scheme: How can you tell?

The FTC. v. Burnlounge decision is expected to be published any day now. The court’s decision, depending on which way they decide, could dramatically impact the network marketing industry. It’s not very often that a network marketing case goes the distance to the point of a final decision from a court. Usually, these things get buried in confidential arbitration proceedings.

I’ve made 2 predictions about how this decision will go down:

1) Companies cannot pay commissions on sales aids.

In Burnlounge, the company charged $450 at registration. With that fee, distributors had the rights to use a personal website to sell music. Customers could hit the site, download music, and the distributors got paid. However, the majority of money in BL’s compensation plan allegedly came from the registration fees from distributors, not from customer sales.

Issue being decided: Can a company pay a commission on items that are only relevant for its distributors i.e. sales aids?

Prediction: No. Companies can only pay commissions on items that have a legitimate market value outside the distributor network. Most companies understand this already. If you purchase a sales kit from Avon, Mary Kay, Amway, etc, there is no point value assigned to it…they’re “non-commissionable” because they’re only relevant for the sales force, which means you would only be able to make money from selling it by recruiting more distributors, which should not be the proper emphasis.

2) Compensation plans need to be driven primarily by customer sales.

Issue being decided: What is the definition of “customer?” 

Prediction: Customer will be defined as someone outside the distributor network. There’s currently a huge split in authority over this issue, so any clarification from the court in Burnlounge will go a long way.  I agree with Gerald Nehra, fellow MLM lawyer, about his definition of “Customer.”  He defined customer as “an end user consumer of the products or services of the company, and in this strict definition, does not have any opportunity to make money with the company through any later action or conduct.”  I think that sort of definition will be held as the standard.

Seth Godin, as usual, published a very insightful blog post on July 4th. It’s about how we want people to behave on our birthdays. On July 4th, we blow off fireworks to celebrate America’s independence. On Martin Luther King day, we serve. On our own birthdays, we get birthday cards and presents. But what if we asked our friends and family to do something kind for a stranger, or commit an ounce of energy to a noble cause? Instead of buying us something we really don’t need, what if they did something special for someone else? What will that do for your legacy?

When it’s all said and done, our legacy is the story of us that others will share. Everyday, we make decisions that affect our legacy. Want to be remembered as an honorable person? Live honorably. Want to be remembered as brave? Be courageous. People have memories. And with the aid of the internet, those memories are now permanent.

It’s a new generation. We all need to come to the realization that we live in a fishbowl. Not only is our family watching, which is reason enough to live right, but the world is watching. So how do you want to be remembered? How do you want people to celebrate your birthday when you’re gone?

On my birthday, I want you to thank someone that’s encouraged you to move forward in the face of adversity. Someone that encouraged you to move beyond your comfort zone, despite the risk of failure or embarrassment. Someone special. It can be your coach, your teacher, your parent, whoever. That’s all.