Direct sellers should still be prepared for high, competitive threshold and tough regulatory landscape
By: Stephanie Ramirez
In this new era of social selling in the United States, there is a strong focus on customers, so you need a good product. The brand and products are as important as the opportunity.
—Ray Urdaneta, CEO and Co-Founder, MONAT Global
You have to decide beforehand what you’re open to changing and what you’re not open to changing, but that’s going to drive the whole modeling process and the whole testing process.
—Jacques Mizrahi, CEO, SwissJust USA
The United States is a reliable and consistent economy with a long-standing history of growth. According to the economics research firm, Focus Economics, it will most likely retain the title as the world’s largest economy, with a forecasted GDP of $25.3 trillion (USD) in 2024. In addition to the favorable economic climate, in comparison to many other countries, the U.S. is a wealthy nation with over 320 million people, many of whom like to shop.
However, even with America’s continued steady growth, many foreign companies wishing to take advantage of the strong trajectory often fail to realize a few key factors when launching their brands in the country. Success abroad does not guarantee success in the United States.
While not all direct selling companies are members of the Direct Selling Association (DSA), the association estimates that the sales made by its members account for more than 80 percent of all direct sales in the United States and that there are approximately 1,100 direct selling companies operating in the U.S. in any given year.
“The U.S. market is really tough because it’s very sophisticated,” says Jacques Mizrahi, CEO of SwissJust USA. SwissJust was established by Mizrahi’s father 25 years ago in Buenos Aires, Argentina, and now operates in nine countries throughout Latin America and the U.S. He says, by far, the U.S. is the toughest, most advanced market in the world.
“There are lots of companies in the channel that really have it together here in the United States,’’ adds Mizrahi. “They are sophisticated in terms of tools, digital technology and marketing. They are very big. They’re established, and it’s like swimming with sharks trying to navigate, compete, and stand on your own.”
Another reality not always realized by companies entering the U.S., and one that is quite unique to the United States according to Mizrahi, is the number of direct selling startups that launch there every year—more so than in any other market in the world.
“Most of these companies are facilitated by venture capital,” notes Mizrahi. “The problem is, they spend it like there is no tomorrow on extravagant incentive trips and sophisticated websites, and, while some make it, many don’t and they screw up the market for all other entries that are, in many cases well-funded.”
Mizrahi says these practices are detrimental to the channel as in their wake they leave a lot of people who begin to mistrust the industry. The situation is exacerbated by those people flooding social media to share negative experiences.
Considering Costs of Local Management
The first instinct for many foreign companies is to send an administrative entourage from the home base. Invariably, this team lacks both the knowledge of the U.S. market and direct experience entering a new market. Hiring local talent is vital to building a successful company. The good news is you will find hundreds of skilled workers just waiting for the opportunity you can offer them. The downside: They cost more.
“The cost of people is very high in the United States,” says Mihrazi. “You can’t acquire a CEO for less than $350,000, and he will need three or four people under him who will demand $200,000 each. So, you need substantial funds to start the company before you even begin to think about products and compensation plans.”
He says the ramp-up to make it or even break even has to be very fast, which puts a lot of pressure on the company going into the market.
You definitely need the right people at the right time, according to Stuart MacMillan, president of MONAT Global, based in Miami, Florida. MONAT’s founding and parent company, Alcora, based in Venezuela, was started by Luis Urdaneta. When MONAT launched in the U.S. in 2014, he and son Ray, who is the current CEO, did not take a salary for a while, and MacMillan says he too took a much-reduced salary in the beginning. That said, he also adds, “you’re not going to get the talent you need to get where you need to go without investing in the payroll. So it’s a bit of a catch 22.”
SwissJust launched in the U.S. in 2006. Up until then, the company had only opened new markets in other Latin American countries. Mizrahi says he and his colleagues spent a long time conducting due diligence.
“We said ‘we are going to make SwissJust USA a truly American company,’ ” Mizrahi adds. “And then, we went out to set benchmarks and to learn about commercial systems and compensation plans, products, supply chain, and HR. We decided what we wanted to learn before we set out to learn about these things.”
Mizrahi shares that executives got to know every company they could, read every American book on direct sales and then joined the DSA.
“The industry is really nice when you want to come into it from another country,” Mizrahi adds. “I picked up the phone and called CEOs from the big companies, and they all invited me to come talk to them.”
When Luis Urdaneta and his son Ray launched MONAT Global, they had already achieved much success with the Venezuelan company they had launched years before. They learned from the mistakes made with that brand before launching MONAT in the U.S. in 2014.
“When we launched our first direct sales company in Venezuela, we quickly grew and launched in Mexico, Colombia, Ecuador, and other countries,” says Ray Urdaneta, CEO and co-founder of MONAT Global. “We imported our leaders from Venezuela to those other countries in the beginning, but we soon realized that even within Latin America there were many cultural differences. This was a huge mistake.”
Urdaneta wanted to start with a clean slate in the U.S., he says. The founders wanted to find an executive team who knew the U.S. market and who had experience in the U.S. He also shared that they looked at consumer trends and discovered a niche with MONAT.
“We wanted to use the business models and product types that were already successful here in the U.S.,” Urdaneta says. “The reason why so many other very successful companies have failed in the U.S. is because they tried to transfer the same brand and strategies that were successful in other parts of the world to the U.S., and it just won’t work.”
“In Latin America, the products are secondary to the opportunity,’’ admits Urdaneta. “I felt our brand in Latin America was not strong enough for the U.S. market, so we wanted to create something more sophisticated. In this new era of social selling in the United States, there is a strong focus on customers, so you need a good product. The brand and products are as important as the opportunity.”
Navigating Logistics, Compliance & Regulations
Mizrahi opines that there is no better place to set up business than the U.S. from a business enablement standpoint. He says from a technological and operational perspective it’s really easy.
“The U.S. has great lawyers, great payment systems, and the logistic systems are wonderful.”
“You arrive on day one, you call FedEx or UPS, and the next morning they are picking up for you,” says Mizrahi. “Nowadays you don’t even have to have your own warehouse and packing people. Now, you go to somebody in Texas usually, and they will warehouse, pick, and pack for you.”
There are a number of things in other parts of the world, and specifically, Latin America, that are not as regulated as in the U.S., so from a compliance and regulatory standpoint there are aspects of business that companies will need to consider.
“All of the sudden there were a whole bunch of things that they needed to think about, that they didn’t have to think about in South America,” explains MacMillan. “They didn’t have a compliance department, as social media is a bit different and not as highly regulated, so developing policies and procedures was new. From a compensation standpoint, people here in the U.S. are used to being paid in a certain way so payment systems were something new to consider as well.”
The products of MONAT Global’s parent company have always been manufactured in the U.S. so that lowered the barrier to entry for MONAT. The same company now manufactures MONAT’s products.
There’s no question the Federal Trade Commission (FTC) has its eyes on the industry due to a few bad players, but many companies are doing what it takes to avoid government scrutiny, including those mentioned in this article. When asked how his company navigates through the murkiness, MacMillan responds emphatically that they are committed to the channel and doing what it takes to remain viable.
“The way we look at it is, if we didn’t have the channel, would we still be a viable company,” he adds. “So, do we have customers? Yes. Sixty-eight percent to 70 percent of our revenue comes from customers. That’s super important. Do we have standalone products? Yes, we are consistently winning awards. This is just another way of saying no this isn’t or yes this is a real business.”
MacMillan says MONAT pays a bonus to its distributors for bringing in customers. And, the company is in the process of hiring a new chief customer experience officer.
Mission, Culture & Language
What many companies fail to consider, or think about when coming to the U.S., is how they will run their business. The way business is managed overseas is not at all the same as it is run in the U.S.
Urdaneta’s advice to newcomers is to immerse yourself in the culture. Really understand your target market and get a local team.
Mizrahi says he and his executive team went through a lengthy process of discussing what makes them who they really are.
“That is the only thing that was going to guide us through understanding what we should be open to change and what is non-negotiable,” shares Mizrahi.
“And that’s how we got to the point where we are today. “You have to decide beforehand what you’re open to changing and what you’re not open to changing, but that’s going to drive the whole modeling process and the whole testing process.”
MacMillan says that even though a few of the executives at MONAT are from South America, the founder, Luis, insisted from the beginning that all meetings be conducted in English, even though he, himself, was not an English speaker.
The executive team at MONAT Global represents around 20 countries, adds MacMillan, and not all have English as their first language, but they value the nuances and experiences each brings as they open up new markets.
“What we do is say, ‘here’s our 10 non-negotiables about who this company is,’ and then we kind of figure out our way from there,” shares MacMillan.
When Teoma, a Peruvian-based network marketing company splashed onto the U.S. direct selling scene in 2019, it was at the onset of the global pandemic. Wildly successful in eight other Latin American markets, the company brought in Christopher Paraldi, a veteran in the direct selling space in the U.S., to lead the helm at their headquarters in Utah as General Manager.
Paraldi says that in a new country, especially in the U.S., a company definitely should partner with people on the ground that know how to navigate the market and who understand the nuances of business and people.
“I think a lot of companies fail because there are a million things that you need to do, but many leaders who have been successful in other places come to the U.S. with all that experience, but they get overconfident,” says Paraldi. “They think that what worked at home will work here too.”
One of the first things Teoma did, says Paraldi, was to hire a team to look over everything and ensure it was worded correctly in the right language. They also hired a legal team to look at the compensation plan and compliance policies.
The best advice Paraldi has for newcomers is this: Do your due diligence. Take your time. Don’t rush things, understand the process.
“The U.S. is a different world,” he says. “As in any market, it’s a different language, different legalities and different compensation plan terminology. There are certain things you can do in other countries that you can’t do here. And vice versa. Understand that if you decide to come to the United States, it does take time to do it right. And as long as you understand that and bring the right team together, you can be very successful.”
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