You are a network marketing professional.
Your upline just called to you to tell you that your about to be wealthy. MLM IPO.
That stands for MLM company filing for an “Initial public offering” or IPO. This means that your company is going public. Your network marketing company is now going to sell their stock to the general public. They’re going to be listed on one of the stock exchanges like the New York Stock Exchange. This is great news, right?
Your MLM IPO may be great news. It may be a good thing or maybe not.
Here are some of the pros and cons of your MLM company filing for initial public offering.
- Publicity – Mainstream media is going to be covering your company. You’ll have a chance to appear on the various television news shows related to the stock market.
- Credibility – Not only the fact that mainstream media is covering you but the fact that your company is listed on a stock exchange besides other companies everyone has heard of gives you a ton of credibility.
- Wealth – Yes it’s true. If your company allows you to buy shares of the IPO you could get wealthy.
- Expansion – One of the main reasons company’s file for initial public offering is to raise money. They sell a percentage of their stock to the public to raise money for expansion. This isn’t necessarily true in the MLM industry but the extra income could help your company launch new products or expand globally.
That’s a lot of really positive stuff.
But what about the negatives? When I mentioned a well known MLM start up filing for IPO on a network marketing group that has a lot of leaders and experts with 10-20 years (or more) of experience… a lot of them had negative things to say about it. Here are some of the negatives they listed.
- Publicity – It’s a two edged sword. You’re company is now public. Unfortunately that means all your financial records are public. If you had a bad quarter you have to disclose it. Private companies don’t have to do that. If you have problems with manufacturing you have to disclose it. If you lose a chunk of distributors suddenly (maybe they go to a competitor) you’re going to have to disclose it.
- Regulations – Privately held companies deal with different federal regulations. When you go public you are asking the FTC (Federal Trade Commission) to come in and look over your company with a fine toothed comb. This means they’re going to look at all your bookkeeping and accounting but also all your marketing practices, testimonials, your web sites, your videos, your compensation plan, your percentage of customers to distributors, etc.
- Wealth – Again a two edged sword. If you’re company stock price continues to go up all the people that bought in early will continue to make money. Typically a lot of people get excited when a stock first goes public. But it doesn’t always last. For every Google there are stocks that go public and instantly go down, down, down. If that happens then most people lose money.
- TWO Masters – This is the biggest problem with a company going public. When a company is private they basically reserve most of their profits to pay back to the distributors. That’s one reason why we love network marketing. We love the fact that our companies don’t pay out big profits to investors. When a MLM company goes public they now have to pay out profits to their stockholders as well as their distributors.
Let’s talk about that last issue a little bit further.
When your MLM company is private you have the original investors and owners. Their goal is to make distributors profitable. They want to pay out as much money as possible to the distributors. The original investors usually make money through what’s called “breakage”. That is distributors that don’t meet the payout qualifications for some reason. Maybe their volume dipped below the number they needed so they got paid a little less. They can also make money selling tools, back office web sites, etc.
Keep in mind that most profits are paid back to distributors. They want distributors to succeed.
When your MLM company goes public you now have to show profits for a new master. You now have to show profits for people who invested in you. You have to show profits for Wall Street and your investors. If you don’t show profits then all that positive publicity turns negative. All that positive credibility you got now works against you. It’s easy to point to your stock price or your earnings statements to show how bad your company is doing. Your private competitors don’t have to show that stuff and they love to tear you down.
If your company doesn’t show profitability then they won’t attract new investors. It’s that simple.
So how does your company show profitability? Essentially they take money that could be paid out to distributors to show profitability to investors. Would you rather have a company that shows a $25 million profit for investors, or a company that has $5 million in profits but paid out that extra $20 million back to distributors like you?
On the facebook group of MLM leaders, I heard several scary examples. Examples of companies that terminated some of their top distributors after going public. Companies that changed the compensation plan after going public. SURE these are just examples. There are just as many examples of successful MLM and direct sales companies. There are plenty of leaders in our industry that have successfully gone public.
Successful direct sales and networking companies that are publicly traded include: Avon, Natura, Herbalife, Tupperware, Oriflame, Nu Skin, Primerica, USANA, Avon, Telecom Plus, Blyth, and many more.
Back to the original point. Is a MLM IPO a good thing for your company? In most cases, yes!
In some cases however you want to be cautious. I myself was involved in a company years ago that had gone public to pay for expansion. Since then it had taken a nose dive and had become a penny stock. Another company came in and took over and changed our comp plan from a 7 level unilevel to a 2 level affiliate program.
I think there were a lot of problems with that company. The fact that the company was publicly traded wasn’t the only issue.
If my company was going public today you can bet I’d be buying a bunch of shares. However I’d also set some limit (sell) orders so that I don’t hold the stock too long. I would treat it like a business investment. I wouldn’t hold on to it just because I was involved in the company.
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