WHEN DAVID BECOMES GOLIATH, A NEW DAVID IS BORN
Updated: May 26, 2019
The only pathway to dominating Amazon is by disruption.
Other alternative income opportunities have had record-setting exponential growth during the same three-year period in which direct sales companies have struggled to evolve.
New compensation plans have to look different, feel different, be different.
In 1999, a record 457 companies went public and doubled in value on their very first day of trading. By October of 2002, those very same companies had lost on average 78 percent of their total net worth. The dot-com bubble had officially burst.
The following year, Walmart—the Goliath of retail marketing—held a board meeting to evaluate the fallout. One of the companies that received attention that day was a lone dot-com still attracting investment interest. This company had burned more cash before the crash than virtually any other company, but was still standing because it had focused on acquiring a rare commodity during the dot-com era: a paying customer.
In fact, Amazon had grown from $31 million to more than $1 billion a year in sales between 1997 and 2001 before plummeting to the brink of survival.
Amazon had proven to Walmart’s board it was far more successful at raising money than raising profits. Until the crash, Amazon continually reported a month-over-month quarterly increase in revenue offset by an accompanying report of incrementally higher costs and rapidly declining profit and loss margins.
Walmart concluded that any company forced to operate in a realm of higher online merchant account costs, trying to attract customers who did not trust using them, using an expensive distribution channel with time-insensitive deliveries, and dependent upon a virtually nonexistent online advertising infrastructure had no path forward, and was certainly not the path forward for Walmart.
This was not an unreasonable conclusion at a time when a “mobile” was still being defined as a cordless landline.
A New Goliath Is Born
Today Amazon is the Goliath that surpassed Walmart as the most valued retailer in the world, with 50 percent of all U.S. online sales and 5 percent of all U.S. retail sales. Amazon perceives Walmart as one of its greatest potential threats. Walmart is still a healthy Goliath in its own kingdom of brick and mortar with an aggressive acquisition and investment strategy to attack new online growth channels.
Walmart’s online growth in 2017 was an astounding 47 percent over 2016 after acquiring and successfully integrating online platform strategies from jet.com, who was acquired several years before for more than $3 billion. In fact, Walmart has acquired more than 50 online technology companies in the past several years.
Direct Sales Can Be the New David
When two “Goliaths” are fighting each other, David is in a better position to make his move. The giants cannot see him coming because they are fixated on each other.
The danger, however, for both David and Goliath is that no one can win a battle if they don’t know they are already losing; they can’t defeat the competition if they don’t know who they are; and finally, David cannot rely on a slingshot when Goliath is armed with weapons of online mass marketing.
The first question to ask is straightforward: Is direct sales losing the battle for product preference, and for being the go-to choice for alternative income opportunities? Second, is the channel slightly dented or is it broken? The answers will determine the best strategy.
The direct selling facts are that sales have been down three years in a row. Recruiting is also down year over year during the same period of time. Is the channel in danger of repeating the path of Blockbuster video and becoming irrelevant by ignoring its competitors? Is a new exciting product release going to save a company, or will it only serve to continue to mask the foundational problems of the channel?
Are there exceptions? Of course. There are companies that have found their new product moment and are experiencing an exceptional cycle propelling sales. But hope is not the basis for an evolving strategy, which is why the channel seems so uncertain.
Alternative Business Models
Other alternative income opportunities have had record-setting exponential growth during the same three-year period in which direct sales companies have struggled to evolve. And in each alternative business opportunity, no one saw their David coming.
Taxi companies did not think Uber could build a transportation empire with a community of independent people whose last desire was to become a cab driver.
Hotel conglomerates did not believe Airbnb could sell more hotel rooms in a single night than every other hotel combined with people who could easily be afraid of having a stranger sleep in their home, whether they would be present or not.
EBay and direct selling companies had no idea Amazon Marketplace would attract one of the largest communities of independent e-commerce sellers (even though Amazon’s policy is to potentially compete with them directly or drive their customers to a competitive vendor with a better price).
How Do We Reverse the Trend?
It’s critical to note that every successful alternative income opportunity to direct selling today in some form or another helps their people acquire their customers.
To compete successfully, the channel must shift from “network marketing” to “network partnering.” This shift would involve rethinking some foundational principles; however, the channel can compete with Amazon and other alternative income opportunities by doing so.
For example, rearranging commission structures to utilize similar online marketing strategies such as digital sampling would simply change the focus for the distributor. Instead of requiring them to continue the frustrating pursuit of customer acquisition, they are instead rewarded for closing sales, ongoing sales, up-sells, brand ambassadorship, loyalty and spreading the culture.
Most people hate cold-calling prospects, but everyone loves calling an excited customer.
Next, comp plans could be revolutionized to be no longer than an elevator pitch. Every Uber driver or Amazon affiliate can explain how they get paid in 30 seconds. Their compensation structures are designed for the 85-90 percent part-time opportunity seekers instead of the 10-15 percent full-timers. With a short-term strategy of instant customer gratification and long-term residual simplicity, direct selling can certainly compete and even surpass other income opportunities.
This shift requires a bit of different thinking, but once begun, the possibilities are endless. For example, distributors could receive instant cash back on their next purchase instead of a product discount. Instant cash back can move to simple residual income with payment on customer referral purchases. Income for distributors can go viral if their customers are being paid to work for them.
New compensation plans have to look different, feel different, be different. Bringing customers to distributors will increase recruitment, and then they also will bring in their own customers. The appealing story of customers being paid every time they make a purchase and being paid every time their friends make a purchase—and distributors being given customers from the company— will attract even more new distributors. It will bring a new direct selling mindset to the marketplace and could revolutionize the model.
Additionally, embrace third-party platforms and leave in-house technology teams to quarterback and integrate the landscape of new technologies. Without Walmart’s cash, companies cannot compete in the technology acquisition business, but the good news is there’s no compelling reason to do so.
Thinking differently about IT availability could be as simple as utilizing an open source marketing platform the way Salesforce and Apple do. Create or find an equivalent open source operating platform where outside developers are invited to build, integrate and compete for business. Hire a chief innovation officer or innovation consultant to work full-time on discovering and vetting new technologies. There is unprecedented access to affordable and API-accessible technology available.
The Selling Experience Is our Competitive Advantage
The Amazon shopping experience is now considered table stakes. Approach the buying experience solution separate from the selling experience. Implementing customer reviews and integrating social media sites on the home shopping page are no longer forward-thinking strategies. If you are still sending your customers and distributors to Facebook and Instagram instead of your webpage, it’s because your shopping experience doesn’t foster your brand and culture or create a sense of community. It’s not about competing with Amazon on who has the least number of clicks, but who has created the best sense of community.
While everyone is focused on the Amazon shopping experience to elevate their sales, we need to focus on the onboarding of new distributors, sharing culture and community, and refining the selling experience because that is direct selling’s competitive advantage. The ability to welcome, train and share in a truly personalized and authentic way with technology has never been more available and cost-effective.
CEOs can send personalized video to welcome every new distributor, chief sales officers can use personal database-driven technology to thank VIP customers directly, and distributors can attach a buy button to their selfies—these technologies and disruptions like them will keep the channel on a future-forward path.
The ability to think expansively is a competitive advantage. While everyone else was trying to build a carriage that a horse could pull faster, Henry Ford was planning to replace the horse. Steve Jobs reimagined things already well-loved.
It’s time to reinvent direct selling.