CHAPTER 5: The Four Waves
The Old West offered fabulous opportunity for pioneers, in the form of huge tracts of land that could be obtained for little or no money. A different, but no less precious, resource is available on the cyber-frontier—unlimited access to residual income. This was the resource that lay waiting for Lisa Wilber in such untold abundance.
Lisa had been fortunate on two counts. First, she had enrolled in a turnkey opportunity—Avon Products—that was destined to take a commanding lead in the Wave 4 Revolution. Second, she had lost her job at the precise moment that this revolution was getting underway. Fate had been kind to Lisa. Network marketing had been building momentum for more than fifty years by the time Lisa discovered it. But only now was the industry reaching its climax. The four waves of MLM’s evolution can be broken down as follows:
WAVE 1 (1945-1979)—The Underground Phase
WAVE 2 (1980-1989)—The Proliferation Phase
WAVE 3 (1990-1999)—The Mass Market Phase
WAVE 4 (2000 and beyond)—The Universal Phase
CON MEN AND VISIONARIES
Wave 1 began in 1945, when Nutrilite introduced its first network marketing plan. This was the industry’s Wild West phase, when neither law nor order prevailed. Con men thrived alongside genuine visionaries. Companies grew with reckless abandon, some honestly, others not. At the same time, government regulators targeted MLM companies with equal recklessness, often making up the rules as they went along. The chaos of Wave 1 came to an end in 1979. After a long and acrimonious investigation, the Federal Trade Commission ruled that Amway Corporation—and, by implication, network marketing in general—was a legitimate business, not a pyramid scheme.
Encouraged by the friendlier legal climate, the industry entered what I have called Wave 2. Breakthroughs in computer technology allowed entrepreneurs to start and run network marketing companies from their desktops. The 1980s saw unprecedented growth in the sheer number of start-ups.
GROWING PAINS
But even as network marketing proliferated in the 1980s, it still suffered from growing pains. MLM recruiters lured new prospects with the promise of unlimited opportunity. But few people could afford the time, money, or effort to make the business work. The average Joe, working the business part-time, often dropped out in frustration, after spending his money buying inventory that he didn’t know how to sell. Those who made fortunes in MLM tended to be the supersalesmen, the gifted entrepreneurs, and the highly motivated, driven personalities.
Former IBM salesman Don Held experienced firsthand the rigors of networking during the Wave 1 and Wave 2 eras. Starting his Amway business in 1969, Don built his downline the hard way. Not only did he have to recruit and train new distributors, but he had to hand-write their commission checks each month. The 900-square-foot house he shared with his wife and six children was transformed into a warehouse. Every bulk order from his downline had to be processed, packaged, and shipped by hand. During the summers, when Don’s children were out of school, the whole family would pile into a 32- foot motor home and travel the country like gypsies, building the business as they went. “Network marketing, in those days, was as primitive as a Model-T,” Don recalls. “Most people today would not do what we did back then.”
For Don, it worked. He was blessed with the inner drive and persistence it took to succeed despite every obstacle. After two years of working the business part-time, Don was earning $60,000 per year from Amway—double his old IBM paycheck. He was free to quit his job. Don became a millionaire within five years.
Nowadays, Don takes life at a slower pace. He spends a lot less time working, and a lot more playing. When he’s not catching marlin and sailfish from his 3 2-foot sportfishing boat down in Florida, Don is hunting moose in the Canadian woods, or visiting with his children and grandchildren. He divides his time equally between four different houses—soon to be five, when his log cabin in the Smoky Mountains is finished. Don paid his dues for thirty years. Now he reaps the rewards. Every year, his Amway downline yields hundreds of thousands of dollars in residual income. But Don often wonders how much more quickly he might have achieved his dreams had he started out today.
“It’s a whole lot easier for those fellows now,” Don muses.
THE AUTOMATED DOWNLINE
Like other multilevel companies, Amway revolutionized its methods in the 1990s. Customers now order products from an 800 number and receive shipments directly from the company. All a distributor has to do is collect his commission check, issued each month from a company computer. Prospecting videos, audiotapes, teleconferences, and satellite TV broadcasts have largely automated the recruiting process. Dedicated voice mail systems have streamlined communications within downlines. Fax-on-demand services have freed upline leaders from having to answer repetitive questions. Three- way phone calls let raw recruits listen in, while their more experienced sponsors close new prospects. Compensation plans, too, have been made easier, with larger commissions flowing to distributors for less work.
“The same amount of work is worth more money today, because of the bonuses they have,” says Don. He points to a couple in his downline, Joe and Doris Shaw, who became Diamonds—one of the highest achievement levels in Amway—after only twelve months in the business. “Tve got people in my organization who are making, in their second year, what I made in my tenth year,” Held says.
The Wave 3 era had begun.
MASS-MARKET MLM
Wave 3 innovations made MLM fully accessible to the masses for the first time. They lowered the cost of working a multilevel business, both in time
and money. As a result, millions of people flocked to the industry—people who would never have considered it before. Of course, the Wave 3 Revolution did not guarantee millions in residual income to every distributor. No business can do that. But for that vast majority of MLMers who worked the business part-time, these innovations made it easier to earn the few hundred extra dollars of spending money that they needed each month. For most people, that is enough to make the business worth doing.
A DECADE OF GROWTH
In future years, the ’90s will be remembered as the decade when network marketing became a serious industry. According to a June 23,1995, article in The Wall Street Journal, the total number of network marketers in the United States increased 34 percent between 1990 and 1994. The same article states that the number of full-time distributors doubled between 1993 and 1994 alone.
It was during the 1990s that network marketing spilled over the U.S. borders for the first time, spreading, en masse, into foreign countries. Many large MLM firms grew more quickly in China, Korea, and Japan than they did in the United States. Overseas growth reached such feverish proportions by mid-decade that the MLM sector temporarily outpaced all the rest of the U.S. economy put together. A weighted measure of publicly traded MLM stocks called the Upline Index actually outperformed the Dow Jones Industrial Average and the S&P 500 by nearly 80 percent in 1995.
THE NEXT WAVE
| In future years, the ’90s will be remembered as the decade when network marketing became a serious industry. |
These developments did not go unnoticed by the Fortune 500. All through the 1990s, corporate America kept a watchful eye on the revolution taking shape in its midst. But with the caution endemic to large bureaucracies, most blue- chip corporations hesitated to involve themselves directly. Network marketing, for all its tens of billions of dollars in sales, remained a pariah in the corporate world.
All of that changed, however, as the year 2000 approached. The closing years of the 1990s saw a quantum shift in the perception of network marketing. Suddenly, major corporations were jostling one another for access to MLM networks. Wall Street analysts praised multilevel marketing in their reports. Blue-chip companies rolled out MLM subsidiaries and formed strategic alliances with existing MLM firms. The race was on to cash in on the network marketing phenomenon.
What brought about this sudden change? As with all profound innovations, corporate America did not embrace network marketing voluntarily. In fact, Fortune 500 CEOs resisted as long as they could. But time was working against them. Conventional advertising and marketing strategies no longer worked. Market share was evaporating before an onslaught of interactive media, proactive customers, and global competition. Like so many millions of MLM distributors, corporate CEOs experimented with network marketing out of desperation, not choice. But once they had tasted of its fruits, they found they could not resist coming back for more. Thus began the fourth and most powerful phase of network marketing’s evolution—the conquest of corporate America.