What does 2011 hold for small Business ?

From the desk of John Brandow

This article compliments of Business Partners
Much of the same
Growth to continue in 2011


SME decision makers can look forward to a New Year where not much will change.

While this is not the best news ever, the silver lining lies in the fact that growth will continue.

Most economists predict a growth in GDP of about 3.5% for next year. This is nowhere near the levels experienced during the boom but it is higher than the growth experienced in 2010 which should level out at approximately 2.9%.

RMB Chief Economist, Ettienne Le Roux, says one should also see the increased growth against the backdrop of the 1.8% contraction experienced in 2009.

In addition, the average growth rate in GDP over the last 20 years was 2.5%.

As a result, Business Partners Executive Director Gerrie van Biljon, advises SMEs to approach the New Year with caution.

"A positive element of the expected economic conditions is that there are always niche markets available to those who seek and identify these business opportunities," he says.

"An example is where larger businesses decide to move out of non core activities or cut product lines that have become uneconomical. To the next person, this opens a market again. When businesses close, even if this may sound negative, doors open for others."
Global woes
Le Roux says the biggest driver behind the growth will be consumer spending.

"As this gains momentum, more businesses will invest and the 3.5% growth will be generated locally," he says, adding that this is good news for SMEs.

The South African economy was fairly insulated against the global crash but not immune. Similarly, Le Roux says that one of the biggest headaches next year will be the European debt crisis. If the debt crisis escalates, European growth will decrease and so will South Africa's.

"The international issues cannot be solved in the short term. So the global and South African economic outlook remain uncertain…

"Consumer spending has recovered well and there is momentum at the moment despite job losses. So the reason for the spending is locally based on high wage increases, low inflation and low interest rates."

The Efficient Group's Chief Economist Dawie Roodt echoes these sentiments, adding that another risk factor is capital markets. If investors make a beeline for the door, local interest rates could rise sharply.

Other global risks include a shake-up in the political landscape, a decline in the dollar's strength and a possible slowdown of the Chinese economy.
Local conundrums
On the local front, Roodt says that the leftward movement by the powers that be need clarification, especially when it comes to the budget and economic growth path.

However, he does not expect radical changes but a small move to the left.

Roodt believes that the rand will mostly stay strong next year, as will inflation. Interest rate increases in 2011 seem unlikely.

He also thinks that consumer spending will continue to grow, supporting the retail sector. Financial services can also expect a decent year.

Property expert, Rode and Associates' Erwin Rode, does not expect much to happen in the residential property market.

But, whereas these property prices probably won't increase, the office rental market has started to pick up: "I don't expect fireworks but a moderate increase in rentals is possible".

The industrial market in turn will continue to be under strain as the rand remains strong and manufacturing struggles.

"The construction industry is crossing deep waters and things are difficult. We have idle capacity and an oversupply of most types of property space. This oversupply must first be taken up (before growth returns).

"It is going to be one of the toughest years for the building industry," Rode says.

Econometrix's Tony Twine says that sectors exposed to credit markets, particularly credit extended to consumers, should not be too optimistic about demand levels in 2011.

"Consumers remain highly indebted and credit suppliers will continue to be cautious because of the provisions of the National Credit Act. The Consumer Protection Act will force all vendors of goods and services to consumers and throughout the supply chain to behave with greater caution and professionalism than ever before."

But, consumer debt to income ratios will continue to decrease, which will drive some new credit creation.

"However, 2011 will begin with interest rates at levels lower than at any time since the 1970's, reducing the debt financing burden and freeing up some discretionary spending power, although not impacting on disposable income. High wage settlements prevalent during 2010 are unlikely to be repeated during 2011."

Twine adds that SMEs supplying goods and services to local authorities "may have to sharpen up their act as voters and higher tiers of government put pressure on local authorities to increase both the pace and effectiveness of service delivery, which will be the major tipping point of the 2011 elections.

"In many instances, there could well be new political bosses in many local authorities after the elections, who will be looking around for greater efficiencies and effectiveness from suppliers than has perhaps been the case in the past."
Wise words
Roodt comments: "The time to start a business is not when everything is going well. If you have a good plan and good backers and if you are an entrepreneur, then now is the time.

"Be sure of your budget and do not overextend yourself. Budget conservatively. Those who take the risks now will benefit when the economy starts growing again."

Cash flow remains the mantra for 2011.

"In an economy where there is limited growth, cash flow is the name of the game. Larger customers of SMEs will take advantage of this position to stretch payment terms to the maximum and put smaller business under pressure as a result," Van Biljon says.

"To take on a client just to have the business, only to write the money off at the end, is a short term and unsuccessful strategy.

"Deciding when to dump a client or when to tolerate slow payments or cut margins, is one of the most difficult and painful decisions.

"2011 can largely be regarded as a year of consolidation. Costs should be evaluated and contained, the business model reviewed and alternative measures to weather the storm should be considered.

"To cut gearing and personal spending comes at the right time and the expansion dreams may only be a realistic option at a later stage," Van Biljon says.

Finance options

From the desk of John Brandow

Getting finance when you are an Entrepreneur is one of the biggest challenges business owners faces. The lack of this is also one of the main reasons for business failure.
Most of the times the Entrepreneur starts looking for finance when it is too late.
It is when he realizes that he cannot cope and cannot manage his cashflow. By now no-one wants to help. Credit records are already going bad and it becomes a daily battle to survive.

The management of your management statements (What is that !!!??) is the most crucial part of running a business. Drafting and managing a cash flow projection document is as vital as the management statements

Part of our offering to Entrepreneur is to help them GET FUNDED. We have a combined experience of over 50 years in the field of finance and banking and know exactly what to do and where to go. Watch this blog for details of how to go about applying for finance and what we can assist you with

SPAM OR NOT ?

From the desk of John Brandow
Most people with an own domain might find that SPAM are on the increase. There are a lot of so called reputable businesses out there making use of SPAM creators (my definition). What is a spam creator? It is someone making it their business to harvest by any means possible email addresses and then assuring their high profiled clients (like some insurance companies - names available) that everything they do is above board. Now let me tell you it is not. How is it possible that an email purported to have been authorised by me get into my inbox addressed to an email address that is only available on my website ? An email address I never use for any other purpose as to enable clients looking for me to get in touch with me ?

Now this said there are two other major Issues I have with internet marketing companies and their strategies.

My service provider (Mweb) sends me a mail to request permission for someone I have never heard of to send me mails. Remember now they have probably send this to their whole database which is huge and when asked who this person is they do not even know. What could have happened?

Because I trust them ( they are big and looking after my interests, anyway so I thought ) I might have just said yes creating the possibility that I might be bombarded with spam I would not have had an idea where it comes from.

The second one is far more serious for me: An attempt to highjack my database. How does that work ? Under the guise of "viral marketing" i am requested to send an email on to my database with a copy to the company running a competition where you could win a weekend away. There is even a prize for the one that sends the most emails. Now I have major problems with this kind of spam creation.
1. I have build a reputable database of persons and business I know and have met or otherwise have had interaction with.
2. These people whose data is on my computer trusted me with their data and would definitely not want spammers to get hold of their data.
3. The competition runners are going to bombard them with emails using me as the reference adding credibility to their mail without that having been the intention.
4. No one knows what is going to happen to the data so collected !

Be very carefull what you send on and if you do send anything on use the blind copy facility - at least no one can misuse your data base

Defeating Murphy’s law : Write a Partnership Agreement!

From the desk of John Brandow

Whenever you do business and there are partners involved it is absolutely crucial that a written partnership agreement are drawn up and signed by all parties concerned. This needs to be done before any vital business decisions are made and while the partners are still friends with each other. While it is not required by law, a partnership agreement can give you a framework for defining each partner's obligations, and settling the conflicts, disagreements and other difficult-to-resolve issues that naturally occur in nearly every business relationship. Ultimately, it will help ensure the long-term well-being of your business.
Starting off from the assumption that Murphy will always be present in any business venture. That is at least his laws that anything that can go wrong with the partnership will go wrong. The best intentions of a partnership will be broken when friction between the partners over the silly things in life comes into the relationship. These are things like Money, Power, (who may do what? Etc) and ego that might come into play.
It pays to be extra cautious when drafting such an agreement and it must make provision for most of the what-if situations that may arise and it must set methods for resolving these.
It is always advisable to make use of a knowledgeable attorney but it can save you money to draft the basics yourself. It is also necessary to make sure that the contract complies with local law. It is also advisable that the partners make use of independent lawyers to cover everyone’s interest and not use the company lawyer who cannot represent the interest of individual partners.
The following cover the basics that should be contained in such an agreement. There might be a few others that your lawyer might point out but it basically covers it.:
Basics
• Decide on a the name for the partnership?
• What is the purpose of the partnership?
• Is there a duration to the partnership- define it
Responsibilities, remuneration and performance
• Clarify each partner’s roles
• What are each partner's responsibilities within the company, and what level of performance is expected?
• What is each partner’s commitment in terms of time to the partnership. Is it full time, part time and to what extent will each partner do his own thing?
• How will the partners be remunerated and how will profits and losses be handled and distributed?
Contributions
• What will each partner be contributing to the partnership in terms of cash, assets, loans, investments, and/or labour?
• How will partners loan accounts be handled , what are the terms and conditions, interest rate (if applicable) and exit strategy concerning these loans?
• Should it be required might the partners be expected to make additional contributions to the partnership and how will it be handled ?
Exit strategy of partners/admission of new partners
• What guidelines should be followed if one partner wants to leave the partnership?
• (make provision for a buy and sell arrangement and cover with life insurance)
• How will possible sales of partner’s share be handled ( first refusal to other partners?) and will they be allowed to sell to outside new partners. How will such new potential partners be screened and approved by the remaining partner/s?
• Describe the route to be taken should incidences occur where a partner is guilty of misconduct, non-performance of duties etc.
• Will new partners be admitted to the partnership and the methodology in such and instance

Buy-out procedures
• What are teh guidelines should a partner want to retire or leave the partnership?
• What happens if a partner is incapacitated or dies? (buy and sell agreement)
• Will the partnership take out Buy and sell life insurance to ensure the surviving partner is able to buy the deceased partner's shares from his/her heirs?
• Will partners who leave have to sign a restriction of trade agreement?. This can be included in the first instance into the agreement.
Dispute resolution
• What methods will be used to settle disputes that can't be otherwise resolved?
• What procedures should be used in the event of a tie vote between partners on crucial partnership decisions? This is important and could be solved initially by a 49/51% shareholding split although this might complicate matters
• Will you use mediation or binding arbitration?
• If disputes can't be resolved, is there a mechanism in place for dissolving the partnership?

Financial arrangements
• What banking arrangements will be made for the partnership?
• Which partners will have cheque signing privileges?
• Who will be authorized to draw on the partnership's accounts?
• How will the books be kept?
Method for dissolving the partnership
• When can the partnership be dissolved?
• What happens to the partnership if the partners decide they can't work together?
Valuation
• What methods will be used to determine the value of the business in the event of a sale, dissolution, death, disability or withdrawal of a partner?

The L and T factor

From the desk of John Brandow

Do you have the L and T factor ? Whatever product you are selling or whatever service you deliver or whatever fancy marketing and sales strategies you employ at the end of the day you must put these two questions to yourself : Do I have the L factor ? Do I have the T factor and does my business and my staff have it ?

Not too difficult to figure out is it ? The L factor stands for Likability factor and the T factor stands for the Trust factor. Do my clients like me and do they trust me ?

This also links up to the ethical part of your business. Do you run it in an ethical way and do your staff subscribe to the ethics of the business. Referring to the "Unashamedly ethical" campaign of the Power Construction group how many businesses will actually be willing to subscribe to the decree of the campaign? I am not here advocating or marketing the campaign. The message being that if you have the L and T factors you do not have to subscribe to anything.

If you are liked by your clients and they Trust you they will do business with you.
They like you because you are an approachable person and they Trust you because you have earned their trust and proven to them that they can trust you. Referring off course to "you" it applies to your whole business.

A recent incident with a very well known gym group (it is not Virgin - it is the other one) just emphasized my point. They cannot be Trusted and their staff are everything but likable. Why is that ? For one : They are greedy. They will try to enforce their contract to the letter, no matter what the circumstances of the client is. (even to the extend that they do not care of you call them names - Just remember that if you are happy with a business you might tell one other person but if you are not you will tell 10 others and they will tell 10 others and.........)
(I have told about a 100 how untrustworthy and unlikable I perceive them to be)

Ever thought of not signing a contract for a monthly service ? Like the Gymnasiums and Security companies.? I am prepared to bet you that you will have a path beaten to your door. Show your clients you Trust them and they can Trust you. Become a likable business.

From the desk of John Brandow

Buying, selling a business
Proper planning needed to set the right price
Chris Koen, Regional General Manager, Business Partners Ltd



Entrepreneurs are attached to their businesses – and that is understandable. So much effort, blood, sweat and tears are poured into starting and growing the business. That makes it very difficult to consider selling the business without attachment and emotion.

However, it is important to look at the deal (buying or selling) objectively.

A number of issues should be considered and thoroughly researched before the business is put up for sale:

* Are the financial statements up to date and of a high standard?
* Potential buyers – who would consider buying the business, what background, experience and available capital should the buyer have?
* Finding a reputable agent who can be trusted to sell the business
* What would be the role of the business's accountant in the process?
* Appointing an attorney to ensure all legal processes are complied with
* Determining the selling price – what is the value of the business, and choosing a reputable valuator

Determining a fair market value is often the most difficult issue to resolve and a professional opinion should be obtained. There are a number of methods generally used to value different types of businesses. Some of these are:

An earnings multiple - based on the premise that the value of an asset is only worth the income/cashflow streams it can produce

P/E (Price/Earnings Ratio) - quite simply, this implies the level of earnings the buyer can earn from the investment (Price to acquire the business), for example, should the NPAT (nett profit after tax) of the business be R1,0 million and a fair P/E ratio is 5, then the value of the business as a going concern would amount to R5,0 million (= R1,0 mil x 5)

EBITDA - Earnings before interest, tax, depreciation and amortization

This method is mostly used where fixed property forms a substantial part of the operating business such as a guesthouse.

For example, should the EBITDA amount to R1,0 million and a fair multiple is 7, then the value of the business as a going concern would amount to R7,0 million.

Cap rate - a capitalization rate is normally used to determine the selling price of a fixed property earning a rental income, assuming the value of the assets is determined by the cashflows it generates. For example, should the earnings before interest and tax amount to R1,0 million and a Cap rate of 11% is deemed fair, then the market value of the property would be R9 090 909 (R1.0Mil/11%)

NAV or net asset value - this method is sometimes used when a buyer would take over all the current liabilities in the business as well. (Total value of assets minus total value of liabilities)

DCF or discounted cashflow - this values the future income stream of the business. It should normally only be used when there is a fair degree of certainty of future cash being generated (for example, contracts for future delivery to reputable companies/institutions)

In summary, the buyer wants to determine if he or she will be able to generate a fair return on investment should they buy the business at a given price.

A fair return is sometimes difficult to determine, but it usually relates to the return one should be able to get on a risk free investment (like at a bank), plus a risk premium. If the purchase price of the business is for example R5,0 million, one should be able to generate a risk free return of say 10%. Can this business generate a NPBT (nett profit before tax) of R500k plus a risk premium? The risk premium is the difficult factor to determine and would depend on the type of business or industry. As a rule of thumb a risk premium in these times could probably be as high as 35%. Therefore 10% x 35% = 13.5%; and the business should then reasonably be expected to generate a NPBT of at least R675k.

Any serious buyer will do a thorough due diligence and it normally relates mostly to the financial position of the business. The seller should make sure that he or she has a good set of financial statements for at least the last three years available. These should be signed of by the accountant of the business, as well as the directors or members of the business, and should preferably not be older than three months. Any anomalies in the financial statements must be summarised and available to the buyer.

Starting a business with little or no money

From the desk of John Brandow

Is this at all possible ? Starting a business with no money ?

Yes! it is possible - watch out for our next Business opportunities seminar coming up shortly. Send me an email to Opportunities@brandow.co.za to be kept informed.

A lot of people think they have started a business when they get involved in MLM schemes. I have news for you. You have not started a business
You have started a pyramid scheme. You have no control over your downline
You do not have a quality product - some MLM's say outright that the product is unimportant. It is all about getting new prospects in and most probably you are going to run out of new prospects soon and whola - down line is decreasing again - a lot has been written about the subject but the book : Merchants of Deception says it all. It is about the deception of MLM company Amway and the heartaches and broken homes they have created.

The purpose of this post is not to break down MLM - It is telling you that there are a lot of REAL business opportunities if you have the right mentality for it. You have to be entrepreneurial material - In short we will show you at the seminar whether you are. And give you all sorts of new opportunities.

Should you buy a Franchise ? I don't easily recommend it - You need a lot of money - especially if you want to buy one with real potential.

Should you get a partner ? Should you look for an investor ? Will a bank finance your idea?

Send me an email for information on the next promotional session - It is FREE to attend ! Opportunities@brandow.co.za

Medupe Power station loan to Eskom

There is world wide re-action after the announcement that the world bank has approved the loan to Eskom for the development of the coal fired Medupe power station in Lephale in the Northern province. Everyone who is anybody has an opinion and so do I

If you leave politics and personal emotion out of the equation this was a good business decision by the World bank. America (USA) abstained from voting which was probably the best for them at this stage. There are some hotheaded Senators that has a mouthfull to say about things they do not understand.

The Americans cannot even sort their own healthcare problems out let alone try to understand a complex country like South Africa.

The one thing South Africa does not need now is the world hypocrytes and Green fanatics to critise us. The fact that we (myself included) have no faith in the capabilities of our Government does not mean that we should not be positive in the prospects of possible growth due to the granting of the loan and the prospects that we will not have to pay exorbitant fees for electricity.












From the desk of John Brandow

The “Joys” of Budgeting

From the desk of John Brandow
The “Joys” of Budgeting
In the next few weeks the postings on this blog is going to focus on personal budgeting
We have developed a full one day course covering these aspects and showing students
(grown up ones and potentially rich ones at that) how to do a personal budget and stick to it. If you follow our guidance you can be out of debt (totally and forever) within 5 years. No Bull and this includes your house !
1. Budgets are a necessary evil.
But it is the practical way to know what you’re spending - and to make sure your money is being used the way you intended it to be used. This is a discipline thing ! – we are going to talk about that a lot
2. The following are the basic steps in creating a budget
a. First determine what you are spending your money on – use a template available from us.
b. Determine your long term financial goals and evaluate your current spending against that
c. On a monthly basis track your spending to make sure it stays within your determined guidelines.( again using the template supplied by us)
3. . Don't be too finicky
When you use a computer program to do your budget you can get bogged down into too much detail. Detail is good – too much is not. Once you have gone through your prioritized detail and decide what to expand and what to cut out and the sums have made sense focus on these and worry less about other aspects of your spending.
4. The dangers of drawing too much cash and too regularly
If you find that you have drawn R1000 today and tomorrow you need to draw money again you might have a thief around – You ! Readily available cash in your wallet is a drawcard for unnecessary spending. Keep n little black book and keep record of what you are spending your cash on
5. Spending beyond your limits is dangerous.
But if you do, you are amongst good company(or bad ones depending on how you look at it )
You will need to make some serious efforts to cut back – the discipline thing !

6. Beware some luxuries disguise themselves as necessities.
A Budget should balance with the “surplus” being a surplus (+) and not a deficit (-) at the end of the exercise. It is when luxuries disguise themselves and you spend on them thinking it is a necessity that the balance is thrown out
7. The 10% rule
Your budget should ideally show spending of a maximum of 90% of your income – that way you will be saving 10% every month ! This should ideally go into a notice deposit account – you must not be able to draw it without giving notice.
8. The extras.
Don’t count “possibilities” into your budget. Bonuses , tax rebates etc should be windfalls and should ideally be going into the notice account !
.
9. Beware of inflation
As your income increases over time and you start earning more money discipline can easily go out the window. Use this extra money as part of your long term goals. Notice deposit !
10. Last but not least = Discipline
If you lack this and do not keep to these rules debt councillors are in your

The Farce of Affirmative action

From the desk of John Brandow

I attended the first day of the Skills and training summit at the CSIR in Pretoria yesterday.
Statements and statistics given by some of the speakers have indicated clearly that Affirmative action is a farce.  10 years ago there was a shortage of 300 000 managers in South Africa.  Over this period only 30 000 was trained and the shortage figure is now higher than 10 years ago.  Still the government sticks to its affirmative action policy.  My opinion ?  I contend that this shortage can be eliminated by appointed white males that are skilled and out there !  Exactly the same scenario exists in the artisan field.  No figures were given but it is a fact that if a bucket has a hole it will eventually run empty if it is not filled with at least the same stream of water that is running out.  There are only 5000 to 7000 thousand artisans trained anually while there is a need for at least 20 000  in South Africa. No need for a calculator here.
Again most of the artisans that is needed is most probably available in the White pool.

Massive new projects are planned and under way - Ellisras for instance (see www.ellisras.blogspot.com)  Where is the artisans going to come from ?   Where is the managers going to come from ?

Biggest question however is WHEN IS THE GOVERNMENT GOING TO WAKE UP AND START THINKING FOR THEMSELVES ?

Personal budgeting for dummies

From the desk of John Brandow

So are you earning a good salary ?  And are you living well ?  Do you spend your money in the right places ?


 Answer these few questions :

1.  Do you feel a tight squeese somewhere in your finances ?
2.  Are you feeling you are somewhere not in control of your finances ?
3.  Is the month too long between paydays?
4.  Would it be nice to be debt free in 5 years ?  Do you think it is possible ?
7.  Would you like to have the tools to do this ?

If you answered yes to even one of these you should make an effort and attend one of our basic free seminars
Send me an email : John@brandow.co.za for an invite

Are debt councilors a solution ?

In the Beeld this morning there is an article on the debt situation of normal South Africans. An eleven percent increase from last year (debt summonses)  What is to be done. Where will South Africans get help ?

What do you do when you cannot pay your debt anymore ?

I will discuss a few options and give my opinion on that solution by giving the solution a 1 to 10 point (one being totally useless and 10 being the absolute answer ):

1. See a debt councilor.  4/10  Why four out of 10 ?  Well the problem here is that most of them are not properly trained, does not have the right background and (in my opinion) is only in it for the money. Yes - They make money out of your misery !
2. See your financial advisor . 4/10  He will in all probability not be interested in helping you do a budget
 as he is not going to make money out of you.  If you have a financial advisor of stature and he is willing to help (and capable) you can always offer him a fee for this service.
3.  Do a budget and speak to your creditors yourself   6/10  By now they might not want to speak to you but if you are truthfull and show them exactly your budget and proof of everything they will in all probability speak to you. They know that if they do not you will see a debt councilor (in all probability) and that is the last thing most creditors want. 
4.  Make a loan from the bank 1/10.   Banks are not there to help people in trouble.
5. Get advise from a bank  1/10   Sorry but this is not an option - Client service staff are just not capable to
    give advice of this sort.
6.  Opt for insolvency : 7/10   (if you have assets) This is a permanent solution to debt if it can be done.
    You lose everything including all debt and you have to start from scratch.

    This is only my personal opinion and general information and not intended as financial advice - I will give
    anyone personal advice if you see me eye to eye. 

When is enough enough ?

From the desk of John Brandow

If you intend reading this do it and respond asap.   I am Gatvol , Mad and a few other unexpress-able words.
Normally when problems arise people tend to say :They must do something about it , Crime , roads , etc etc
The "They" are never defined.  The government ?   Nobody I know trust them to actually do anything ?
The municipality ?  The Police ? 
I think it is time that we start looking after ourselves.  We are looking into the electronic security system
environment to come up with state of the art , kickass early warning systems .  If you know of anyone or yourself
have technical knowledge of some state of the art systems please contact me with some info

We. are setting up meetings with policing forums , The TVL landbou unie, victims of crime and a few other interested parties
Watch the press - Talk to me - Come South Africa - wake up - let us become the "they" that does something

Power packed short courses

The challenges of MLM

10 Big Myths of Multi-Level Marketing
by Robert L. FitzPatrick
The multi-level marketing (MLM) field grows and its member companies multiply.
Solicitations to join the movement seem to be everywhere. The impression accordingly
grows that it is indeed the "wave of the future", a business model that is gaining
momentum, growing in acceptance and legitimacy and, as its promoters claim, will
eventually replace most other forms of marketing and sales. Many are led to believe the
assertions that success can be found by anyone who faithfully believes in the system and
steadfastly adheres to its methods and that, eventually, all of us will become MLM
distributors.
My analysis of the MLM business is based upon fourteen years experience in corporate
consulting specifically in the distribution field and more than 12 years of research and
writing about the MLM model. This has included serving as expert witness in state and
federal court cases, speaking before national associations of state and federal
investigators, corresponding directly with more than 1,000 participants a year, writing a
book, being interviewed for local and national radio, television, newspapers and
magazines, and carefully studying numerous MLM marketing and pay plans.
This research has shown that the MLM business model, as it is practiced by most
companies, is a marketplace hoax. In those cases, the business is primarily a scheme to
continuously enroll distributors and little product is ever retailed to consumers who are not
also enrolled as distributors. The most fundamental of all of MLM's deceptions is its basic
identity. Multi-level marketing is not "direct selling." Rather, it is an investment scheme
posing as a sales business.
As a pyramid investment scheme, MLM industry claims of distributor income potential, its
descriptions of the 'network' business model and its prophecies of a reigning destiny in
product distribution have as much validity in business as UFO sightings do in the realm of
science. Financially, the odds for an individual to achieve financial success under those
circumstances rival - literally - the odds of winning at the tables in Las Vegas.
The very legality of the MLM system rests tenuously upon a single 1979 ruling on one
company. The guidelines for legality that are set forth in that ruling are routinely ignored by
the industry. Lack of governing legislation or oversight by any designated authority also
enables the industry to endure despite occasional prosecutions by state Attorneys
General or the FTC.
MLM is not defined and regulated in the way, for instance, franchising is. MLMs can be
established without federal or state approval. There is no federal law specifically against
pyramid schemes. Many state anti-pyramid statutes are vague or weak. State or federal
regulation of MLM, when it does occur, usually involves, first, proving that the company is
a pyramid scheme. This process can take years and, by then, the damage to consumers
is done. Indeed, even when MLM pyramids are shut down, often the promoters
immediately set up new companies under new names and resume scamming the public.
10 Big Myths of Multi-level Marketing
© 2009 Pyramid Scheme Alert
2
Internationally, most countries have followed the lead of the United States and allow the
same unregulated and unmonitored business practices that are prevalent among MLMs in
the US. China, the world’s largest market has banned the MLM model. This may serve as
a future model for other countries as the truth about MLM becomes better understood.
MLM's structure in which positions on an endless sales chain are purchased by selling or
buying goods is mathematically unsustainable. Its system of allowing unlimited numbers of
distributors in any market area is inherently unstable as a distribution system and
financially untenable for the distributors.
MLM's espoused core business - personal retailing - is contrary to trends in
communication technology, cost-effective distribution, and consumer buying preferences.
The retailing activity is, in reality, only a pretext for the actual core business - enrolling
investors in pyramid organizations that promise exponential income growth.
As in all pyramid schemes, the incomes of those distributors at the top and the profits to
the sponsoring corporations come from a continuous influx of new investors at the bottom
who will lose. Viewed superficially in terms of company profits and the wealth of an elite
group at the pinnacle of the MLM industry, the model can appear viable to the uninformed.
Deceptive marketing that ably plays upon treasured cultural beliefs, social and personal
needs, and some economic trends account for MLM's growth, rather than its ability to
meet any consumer needs. The deceptive marketing is nurtured by a general lack of
professional evaluation or investigation by reputable business media. Consequently, a
popular delusion is supported that MLM is a viable business investment or career choice
for nearly everyone and the odds of financial success in the venture are comparable or
better than other trades, professions, employment or business ventures.
MLM's actual economic scorecard is characterized by massive failure rates and financial
losses for millions of consumers, but these brutal financial realities are not known to most
consumers. Since MLM companies do no media advertising, few consumers are even
aware of how MLM schemes operate. The harsh lessons are learned only after being
solicited to become a "distributor."
MLM's true constituency is not the consuming public but rather hopeful investors who sign
on as the distributors or marketing agents. The market for these investors grows
significantly in times of economic transition, globalization and employee displacement.
Promises of quick and easy financial deliverance and the beguiling association of wealth
with ultimate happiness also play well in this market setting.
The marketing thrust of MLM is accordingly directed to prospective distributors, rather
than product promotions to purchasers. Its true products are not long distance phone
services, vitamin pills, fruit juices, health potions or skin lotions, but rather the investment
propositions for distributorships, which are deceptively portrayed with images of high
income, minimal time requirements, small capital investments and early success.
10 Big Myths of Multi-level Marketing
© 2009 Pyramid Scheme Alert
3
The word, myth, is provociative and it is used here for provocative purposes. In this
context, it means a cultural deception, a lie. At some level, everyone who participates in
MLM in which little retailing is occurring is unconsciously lying to himself or herself. Many
at the top of these organizations are consciously lying to everyone else. Deception is
inherent in this type of MLM scheme and is pervasive in its marketing. Here are 10 of the
biggest myths I have found to be present in almost every MLM I have encountered.
Myth #1: MLM is a business offering better opportunities for making large sums of
money than all other conventional business and professional models.
Truth: For almost everyone who invests MLM turns out to be a losing financial
proposition. This is not an opinion, but a historical fact. Consider some notable examples
from among the largest MLMs.
In the largest of all MLMs, Amway, only 1/2 of one percent of all distributors make it to the
basic level of "direct" distributor, and the average income of all Amway distributors is
about $40 a month. That is gross income before taxes and expenses. When costs are
factored, it is obvious that nearly all suffer a loss. Making it to "direct", however, is not a
ticket to profitability, but to greater losses. When the Wisconsin Attorney General filed
charges against Amway, tax returns from all distributors in the state revealed an average
net loss of $918 for that state's "direct" distributors.
Extraordinary sales and marketing obstacles account for much of this failure, but even if
the business were more feasible, sheer mathematics would severely limit the opportunity.
The MLM type of business structure can support only a small number of financial winners.
If a 1,000-person downline is needed to earn a sustainable income, those 1,000 will need
one million more to duplicate the success. How many people can realistically be enrolled?
Much of what appears as growth is in fact only the continuous churning of new enrollees.
The money for the rare winners comes from the constant enrollment of armies of losers.
The vast majority of the losers in MLM drop out within a year. In a 1999 court case
brought against Melaleuca, one of the country's larger MLMs, the company claimed it has
the highest "retention" rate among distributors in the entire MLM industry. Melaleuca
boasted a dropout rate of "only" 5.5% per month. What was unknown to many recruits was
that this figure was "month-to-month", not annual. A monthly 5.5% dropout rate equates to
about 60% per year, if the dropouts are replaced each month.
In 2001, the MLM company, Nikken, offered a statistical overview of the incomes of its
"active" distributors. This report omitted the fates of those that had dropped out and were
classified as "inactive." Yet, upon closer inspection even this slanted portrayal revealed a
devastating impact on investors. 60% of total company payout went to just 3/4th of onepercent
of the distributors. In real numbers this meant that out of each 10,000 distributors,
just 75 people - those at the very top – gained that money. The average tenure of the
"active" distributors in the lower levels – who make up 81% of the total sales force – was
less than less than $100 a year.
10 Big Myths of Multi-level Marketing
© 2009 Pyramid Scheme Alert
4
In its annual report to the SEC, Pre-Paid Legal, another large MLM, revealed that 1/2 of all
its customers and distributors quit each year and are replaced by another group of hopeful
investors. Over a five-year period, the mean average income of Pre-Paid Legal's
distributors was less than $300 per sales rep, per year, or $5.70 per week before taxes,
training and other expenses are deducted.
The pattern of 50-70% of all distributors quitting within one year holds true also for
NuSkin, the industry's second largest MLM. NuSkin also exemplifies the accompanying
pattern in which a tiny percent of the distributors gain the majority of all company rebates.
In 1998, NuSkin paid out 2/3rds of its entire rebate to just 200 upliners out of more than
63,000 "active" distributors. The money they received came directly from the investments
of the 99.7% of the others.
Myth #2: Network marketing is the most popular and effective new way to bring
products to market. Consumers like to buy products on a one-to-one basis in the
MLM model.
Truth: If you strip MLM of its hallmark activity of continuously reselling distributorships and
examine its foundation, the one-to-one retailing of products to customers, you encounter
an unproductive and impractical system of sales upon which the entire structure is
supposed to rest. Personal retailing is a thing of the past, not the wave of the future.
Retailing directly to friends on a one-to-one basis requires people to drastically change
their buying habits. They must restrict their choices, often pay more for goods, buy
inconveniently, and awkwardly engage in business transactions with close friends and
relatives. The unfeasibility of door-to-door retailing is why MLM is, in reality, a business
that just keeps reselling the opportunity to sign up more distributors.
Myth #3: Eventually all products will be sold by MLM, a new form of marketing.
Retail stores, shopping malls, catalogues and most forms of advertising will soon
be rendered obsolete by MLM.
Truth: MLM is not new. It has been around since the late 1960's. Yet, today it still
represents less than one percent of US retail sales. In year 2000, total US retail sales
were $3.232 trillion, according to the Dept. of Commerce. In that time, MLM's total sales
were about $10 billion. That is about 1/3rd of one percent to annual retail sales, and most
of this sales volume is accounted for by the purchases of hopeful new distributors who are
actually paying the price of admission to a business they will soon abandon. Not only are
MLM sales insignificant in the marketplace, but MLM fails as a sales model also on the
other key factor – maintaining customers. Most MLM customers quit buying the goods as
soon as they quit seeking the "business opportunity." There is no brand loyalty.
These basic facts show that, as a marketing model, MLM is not replacing existing forms of
marketing. It does not legitimately compete with other marketing approaches at all.
Rather, MLM represents a new investment scheme that uses the language of marketing
and sales of products. Its real products are distributorships which are sold with
misrepresentation and exaggerated promises of income. People are buying products in
10 Big Myths of Multi-level Marketing
© 2009 Pyramid Scheme Alert
5
order to secure positions on the sales pyramid. The possibility is always held out that you
may become rich if not from your own efforts then from some unknown person who might
join your 'downline,' the 'big fish' as they are called.
MLM's growth is a manifestation not of its value to the economy, customers or distributors
but of the recently high levels of economic fear and insecurity and rising expectations of
quick and easy wealth. It is growing in the same way day trading on the stock market,
legalized gambling and lotteries are.
Myth #4: MLM is a new way of life that offers happiness and fulfillment. It is a means
to attain all the good things in life.
Truth: The most prominent motivating appeal of the MLM industry as shown in industry
literature and presented at recruitment meetings is the crassest form of materialism.
Fortune 100 companies would blush at the excess of promises of wealth and luxury put
forth by MLM solicitors. These promises are presented as the ticket to personal fulfillment.
MLM's overreaching appeal to wealth and luxury conflicts with most people's true desire
for meaningful and fulfilling work in something in which they have special talent or interest.
In short, the culture of this business side tracks many people from their personal values
and desires to express their unique talents and aspirations.
Myth #5: MLM is a spiritual movement.
Truth: The use of spiritual concepts like prosperity consciousness and creative
visualization to promote MLM enrollment, the use of words like 'communion' to describe a
sales organization, and claims that MLM is a fulfillment of Christian principles or Scriptural
prophecies are great distortions of these spiritual practices. Those who focus their hopes
and dreams upon wealth as the answer to their prayers lose sight of genuine spirituality as
taught by all the great religions and faiths of humankind. The misuse of these spiritual
principles should be a signal that the investment opportunity is deceptive. When a product
is wrapped in the flag or in religion, buyer beware! The 'community' and 'support' offered
by MLM organizations to new recruits are based entirely upon their purchases. If the
purchases and enrollment decline, so does the 'communion.'
Myth #6: Success in MLM is easy. Friends and relatives are the natural prospects.
Those who love and support you will become your lifetime customers.
Truth: The commercialization of family and friendship relations or the use of 'warm leads',
which is required in the MLM marketing program, is a destructive element in the
community and very unhealthy for individuals involved. Capitalizing upon family ties and
loyalties of friendships in order to build a business can destroy ones social foundation. It
places stress on relationships that may never return to their original bases of love, loyalty
and support. Beyond its destructive social aspects, experience shows that few people
enjoy or appreciate being solicited by friends and relatives to buy products.
10 Big Myths of Multi-level Marketing
© 2009 Pyramid Scheme Alert
6
Myth #7: You can do MLM in your spare time. As a business, it offers the greatest
flexibility and personal freedom of time. A few hours a week can earn a significant
supplemental income and may grow to a very large income making other work
unnecessary.
Truth: Decades of experience involving millions of people have proven that making
money in MLM requires extraordinary time commitment as well as considerable personal
wiliness, persistence and deception. Beyond the sheer hard work and special aptitude
required, the business model inherently consumes more areas of one’s life and greater
segments of time. In MLM, everyone is a prospect. Every waking moment is a potential
time for marketing. There are no off-limit places, people or times for selling. Consequently,
there is no free space or free time once a person enrolls in MLM system.
Under the guise of creating money independently and in your free time, the system gains
control and dominance over people's entire lives and requires rigid conformity to the
program. This accounts for why so many people who become deeply involved end up
needing and relying upon MLM desperately. They alienate or abandon other sustaining
relationships.
Myth #8. MLM is a positive, supportive new business that affirms the human spirit
and personal freedom.
Truth: MLM marketing materials reveal that much of the message is fear-driven and
based upon outright deception about income potential. Solicitations frequently include dire
predictions about the impending collapse of other forms of distribution, the disintegration
or insensitivity of corporate America, and the lack of opportunity in other professions or
services. Conventional professions, trades and business are routinely demeaned and
ridiculed for not offering 'unlimited income.' Employment is cast as wage enslavement for
'losers.' MLM is presented as the last best hope for many people. This approach, in
addition to being deceptive, frequently has a discouraging effect on people who otherwise
would pursue their own unique visions of success and happiness. A sound business
opportunity does not have to base its worth on negative predictions and warnings.
Myth #9. MLM is the best option for owning your own business and attaining real
economic independence.
Truth: MLM is not self-employment. 'Owning' an MLM distributorship is an illusion. Some
MLM companies forbid distributors from carrying additional lines. Most MLM contracts
make termination of the distributorship easy and immediate for the company. Short of
termination, downlines can be taken away with a variety of means. Participation requires
rigid adherence to the 'duplication' model, not independence and individuality. MLM
distributors are not entrepreneurs but joiners in a complex hierarchical system over which
they have little control.
Myth #10: MLM is not a pyramid scheme because products are sold.
10 Big Myths of Multi-level Marketing
© 2009 Pyramid Scheme Alert
7
Truth: The sale of products is in no way a protection from anti-pyramid scheme statutes or
unfair trade practices set forth in federal and state law. MLMs that sell useful, quality
products have been successfully prosecuted under anti-pyramid scheme laws by state
and federal officials. MLM is a legal form of business only under certain rigid conditions
set forth by the FTC and state Attorneys General. Many MLMs are currently in gross
violation of these guidelines and operate only because they have not been prosecuted.
Federal regulators have used a 70% rule to determine an MLM's legality. At least 70% of
all goods sold by the MLM company must be purchased by non-distributors. This standard
would place most MLM companies outside the law. The largest of all MLMs acknowledges
that only 18% of its sales are made to non-distributors.
Robert Fitzpatrick is president of Pyramid Scheme Alert and co-author of the book, False
Profits: Seeking Financial and Spiritual Deliverance in Multi-level Marketing and Pyramid
Schemes. He is an author of numerous articles and monographs on distributor marketing
in mature industries and he has provided direct consulting services to major
manufacturers and distributors including DuPont, Fuji Film USA, Epson, and many others.
He is a featured speaker at corporate and trade association conferences in the US and
abroad. He occasionally serves as expert witness in cases brought by state Attorneys
General or by distributors against multi-level marketing companies charged with operating
as pyramid schemes. Robert Fitzpatrick can be reached at (704) 334-2047, email:
RFitzPatrick@pyramidschemealert.org, websites: http://www.pyramidschemealert.org and
http://www.falseprofits.com

Why cold calling does not work

Why Cold Calling Doesn’t Work Anymore

”When the rate of change outside exceeds

the rate of change inside, the end is in sight.”

- Jack Welch

Before you can be ready to understand and use the system outlined in this book, you

need to understand exactly why cold calling doesn’t work. Chances are you already

know that it doesn’t work, but may be skeptical or still clinging to cold calling because

it’s all you’ve ever been taught or because it’s “safe and secure.” With that in mind, let’s

take a look at the specific reasons why cold calling doesn’t work:

Cold calling destroys your status as a business equal

One of the things I’ve learned along the way is that in order to be supremely successful

in the world of selling and to maintain a very high closing ratio, you need to project a

very strong image that you do not need that particular customer’s business and are

ready and willing to walk away at any time. However, does making a cold call present

the perception that you don’t need their business? Of course not! When a prospect

receives a cold call from you, it’s VERY CLEAR that you need their business. To make

matters worse, the perception out there is that important people with busy schedules

don’t cold call and don’t have the time to cold call because they have more important

things to do.

Have you ever noticed how high-producing salespeople, most notably top realtors, have

their offices, letterhead, business cards, etc., highly decorated with their achievements

and awards? It’s impossible to step into the office or cubicle of a top producer without

noticing all the plaques, certificates, and trophies displayed on the wall. You cannot

correspond with one of them without noticing “President’s Club,” “Golden Circle,”

“Million Dollar Roundtable,” or some other such tagline in bold print on their business

cards and letterhead. Why do they do this? Is it due to arrogance? No! They do it

because prospects see it, recognize this person as someone who is not desperate and

does not need their business, and they automatically WANT TO BUY FROM THEM!

This is the same reason why so many prospects will call into an office and immediately

ask to speak with a sales manager or with the top salesperson in the office.

Cold calling creates the perception that you have nothing better to do at that particular

moment than to try and scrape up business. It comes off as needy and desperate.





Cold Calling Is A Waste Of Time: Sales Success In The Information Age by Frank J. Rumbauskas Jr.

www.NeverColdCall.com

Launching Centurion Entrepreneurs

Watch this space as we tick off the days to the launch of the Centurion Entrepreneurs Club. On Tuesday the 26th we will have a pre-launch at a breakfast in Centurion.
We can accommodate 50 people and the invitations are going out this week.
There are exciting things in store for anyone joining us.
The whole purpose of the club is to create a business networking platform for serious business people.
We will not entertain MLM's that do not at least qualify in terms of new world guidelines as to composition. The guidelines are simple : at least 70% of your clients that use your products must not be distributors and the product must be the main aim of the group and the products must be competitive in price and quality.

If you have the aim to make 2010 your year this is where you should be.
We have interviewed experts , read some books , scanned the internet and we are going to bring you some great ideas to make this year your year !

The Disadvantages of being an entrepreneur

The disadvantages of being an entrepreneur

No-one will deny that running your own business is demanding and risky, so you need to be completely committed to doing it. These are the main drawbacks you will face:
You could lose the money you put into the business. For most people, starting a business will be a lifelong dream, and they will put just about all their money into it. The high number of small business failures tells us that there many people will lose their hard-earned money this way.
Your income will be uncertain. There is no guarantee that you will earn enough to survive. Part of your planning must include ways of ensuring that starting a business won't leave you without a roof over your head, but there are always calamities that you can't foresee.
Your working hours will be long and hard. There is no knocking off when your eight hours of work is done. Your business will survive only if you give it the time it demands, and there is sometimes no limit to the things you must accomplish each day.
You will have to face stressful times, especially starting up. Entrepreneurs have to deal with the anxiety of what could happen if the business fails, while at the same time staying focused on the job at hand. You need to be able to live with high levels of stress without letting it affect your business or family life.
You have to be responsible for everything that goes on, as well as your employees. As a business owner, you cannot deny responsibility for things that fall outside your job description - as you could as an employee. In the business, everything falls into your job description. This is quite a burden to bear.

2. The advantages of being a entrepreneur

Advantages of being an entrepreneur

Most small business owners agree that there are many reasons why they prefer to run their own businesses than to work for someone else. Among the most important reasons for this are:
The opportunity to control your own future. While there are always risks involved, having your own business allows you to chart your own direction and goals. This means not having to rely on a boss's assessment of your performance, for instance, before getting promoted.
The opportunity to reach your full potential. By working out your own ideas and plans, your business becomes an expression of your ability and creativity. Many jobs are not like this, and can leave people feeling bored and unstimulated.
The opportunity to make a difference. Many entrepreneurs are driven by the results that their business's products or services deliver. This can make your work very fulfilling, especially when the impact of your business is great enough to see a difference in the people and environment around you.
The opportunity to do what you enjoy. Entrepreneurs will frequently turn their hobbies or passions into an enterprise, allowing them to do what they most love - every day.
The opportunity to earn more. There is usually relatively low ceiling for most salaried employees, while having your own business really allows unlimited earning power. It all depends on the success of your business, of course, and it would be a mistake to think that all business owners are wealthy.

What is an Entrepreneur?

What is an Entrepreneur?
Assembles resources
An entrepreneur is someone who takes an idea or opportunity, and turns it into a profitable enterprise by assembling the necessary skills and resources to manage the risks involved.
The real thrill of entrepreneurship is creating something from nothing. This requires vision, creative thinking, a knack for getting things organized, and a lot of hard work.
Takes risk
They know how to take calculated risks, but don’t gamble in business.
Leads
Entrepreneurs are individuals who take initiative and responsibility.
Real entrepreneurs are creative and innovative leaders who can motivate their team to reach the goals of the enterprise with passion and enthusiasm.
Empowers
Great entrepreneurs empower others and make a difference in their community through their enterprise. They are hard workers and also know how to delegate. They create opportunity and employment for others.
Great entrepreneurs are business owners who can leave the business in the capable hands of competent staff and still see satisfactory results.
Innovates
There is a common misconception that self-employed people are automatically entrepreneurs. The differentiating characteristic is that entrepreneurs implement innovation through “out the box” thinking.
Creative thinking requires no action. Innovation requires action and implementation.
Create wealth
They work hard and aspire to achieve wealth. Entrepreneurship creates wealth in the lives of everyone involved in the organisation and in the community.
True entrepreneurs know that wealth is not limited to money or assets. They know that wealth lies in a balanced life which is connected to the ones they love