If You Want to Make Extra Money You Have to Be Involved in Network Marketing (Direct Selling)

Robert Kiyosaki said that “the network marketing and direct sales industry is recognized by many to be the fastest-growing business model in the world today. It is also the most controversial. Many people still have a negative reaction, claiming that many network marketing organizations are pyramid schemes. Yet in reality, the biggest pyramid scheme in the world is the traditional business corporation, with one person at the top and all the workers below.Robert Kiyosaki said that “the network marketing and direct sales industry is recognized by many to be the fastest-growing business model in the world today. It is also the most controversial. Many people still have a negative reaction, claiming that many network marketing organizations are pyramid schemes. Yet in reality, the biggest pyramid scheme in the world is the traditional business corporation, with one person at the top and all the workers below”Think about that for a moment. In a traditional Company, a sales manager and the person under him are hired by the company. The company is limited to the number of people that the sales manager can hire based on the financial resources the company has to pay salaries and on the traffic that any sales manager can handle. As soon as the sales manager is overwhelmed the company can hire another manager or convert any of those under him as new sales manager. This is the way that expands the organization horizontally as compared to Multi Level Marketing which expands the organization vertically.Robert Kiyosaki said that: “We are not members of any one network marketing or direct marketing business, but we do speak favorably of the industry. People who want to be entrepreneurs should consider joining one of these businesses before they quit their jobs. Why? Many of these companies provide essential sales, business-building, and leadership skills not found anywhere else. One of the most valuable benefits from associating with a reputable organization is that it teaches the mind-set as well as the courage required to become an entrepreneur. You will also become more familiar with the systems required to build a successful business. The entry fee is typically quite reasonable and the education can be priceless”I heard him say that if he were starting his entrepreneurial career all over again, he would start with a network marketing or direct sales business, not for the money but for the real world business training he could receive.So now the question is: What is Direct Selling or Network Marketing?It’s SimpleIt’s the business of word-of mouth. And, whether you realize it or not, you are already in it- you just aren’t getting paid for it. Let’s face it, when you tell a friend that they have to go see a new movie, and they do, does the director or studio send you a commission check for your referral? When you recommend a great restaurant to a friend, and they go there on your recommendation, do you get your next meal free?Owning your own direct selling business allows you to capitalize on something you already do and take advantage of one of the best kept secrets of the wealthy and happy: “passive” or “residual” wealth. To understand this concept, look at the example of a writer. The writer sits down, works for weeks, months, even years on a manuscript. The final product is produced and sold. And although writers may get paid an advance or a small fee, the real money comes from the royalties. They work incredibly hard for a short time, then sit back and collect the royalties. It’s usually a small percentage of the sales price or a fixed price per book or ticket sold.Think about that for a moment. In a traditional Company, a sales manager and the person under him are hired by the company. The company is limited to the number of people that the sales manager can hire based on the financial resources the company has to pay salaries and on the traffic that any sales manager can handle. As soon as the sales manager is overwhelmed the company can hire another manager or convert any of those under him as new sales manager. This is the way that expands the organization horizontally as compared to Multi Level Marketing which expands the organization vertically.Robert Kiyosaki said that: “We are not members of any one network marketing or direct marketing business, but we do speak favorably of the industry. People who want to be entrepreneurs should consider joining one of these businesses before they quit their jobs. Why? Many of these companies provide essential sales, business-building, and leadership skills not found anywhere else. One of the most valuable benefits from associating with a reputable organization is that it teaches the mind-set as well as the courage required to become an entrepreneur. You will also become more familiar with the systems required to build a successful business. The entry fee is typically quite reasonable and the education can be priceless”I heard him say that if he were starting his entrepreneurial career all over again, he would start with a network marketing or direct sales business, not for the money but for the real world business training he could receive.So now the question is: What is Direct Selling or Network Marketing?It’s SimpleIt’s the business of word-of mouth. And, whether you realize it or not, you are already in it- you just aren’t getting paid for it. Let’s face it, when you tell a friend that they have to go see a new movie, and they do, does the director or studio send you a commission check for your referral? When you recommend a great restaurant to a friend, and they go there on your recommendation, do you get your next meal free?Owning your own direct selling business allows you to capitalize on something you already do and take advantage of one of the best kept secrets of the wealthy and happy: “passive” or “residual” wealth. To understand this concept, look at the example of a writer. The writer sits down, works for weeks, months, even years on a manuscript. The final product is produced and sold. And although writers may get paid an advance or a small fee, the real money comes from the royalties. They work incredibly hard for a short time, then sit back and collect the royalties. It’s usually a small percentage of the sales price or a fixed price per book or ticket sold.

Financing Alternatives in Today’s Capital Market Environment

Raising capital in today’s uncertain economic environment requires public companies to look beyond the methods used in the past. Private investment in public equity (PIPE) transactions or fully underwritten offerings can be expensive and time consuming in the best of times.

Because shares placed in a PIPE transaction are not registered, a resale registration statement must be filed with the SEC and declared effective for the shares to be freely tradable in open market transactions. Investors in PIPE transactions typically request a heavy discount to the issuer’s current share price and possibly warrant coverage to compensate for the risks related to this illiquidity. Additionally, the terms of the PIPE transaction may include penalties or liquidated damages provisions in the event the issuer fails to obtain an effective registration statement within a prescribed timeframe.

An underwritten or secondary offering of shares can be time consuming and expensive, given the need to file a registration statement and accompanying prospectus with the SEC and the associated legal and underwriting fees. The shares cannot be priced or placed until the SEC declares the registration statement effective which, depending on the SEC review process and any related follow on comments that need to be addressed, can take time, a commodity that many smaller public companies cannot afford.

A registered direct offering provides an alternative to public companies seeking capital and provides a number of benefits to the above alternatives; however, an RDO is not without its downsides.

What is a Registered Direct Offering?

A registered direct offering (RDO) is similar to a PIPE transaction, in that both are marketed and sold to a limited number of accredited and institutional investors; however, unlike a PIPE, shares sold in an RDO are registered and therefore, liquid, and can be sold to anyone. To complete an RDO, an issuer must be eligible to use Form S-3 and should have an effective shelf registration statement on file with the SEC. If an issuer is Form S-3 eligible, but doesn’t have an effective shelf registration statement on file, the issuer must file either a single purpose registration statement (i.e. “bullet”) covering the shares to be issued in the RDO, or a shelf registration statement.

RDO transactions are governed by a placement agency agreement, rather than an underwriting agreement. With a placement agency agreement, the offering is sold on a ‘best efforts’ basis, so there is no firm commitment for the placement of a specific number of shares, and the placement agent never takes possession of any securities. The placement agency agreement will typically include issuer representations and warranties concerning itself and its business, certain covenants applicable to the issuer, a promise to indemnify the placement agent for any Securities Act liabilities arising from the transaction, as well as closing conditions, such as legal opinions, comfort letter requirements, delivery of certificates, etc.

To complete the RDO pursuant to an effective registration statement, the issuer will ultimately prepare and file a preliminary or final prospectus supplement that describes the offering, depending upon how the shares are marketed and sold.

What are the advantages of an RDO?

An RDO has multiple advantages over a PIPE or traditional secondary offering.

1. Pricing – The shares sold in an RDO are freely tradable and therefore, there is no liquidity discount that would normally apply in a PIPE transaction. Additionally, the warrant coverage, if any, is typically lower in an RDO than would otherwise be the case in a PIPE.

2. Timeliness – With an effective shelf registration statement on file, an issuer can offer registered shares when market conditions permit, rather than be subject to the regulatory timeline that is typical in secondary offerings and that can cause an issuer to miss a market window. Investors in a PIPE transaction negotiate and execute individual purchase agreements, which can delay the closing of the transaction, whereas investors in an RDO are not required to sign or complete any such documentation.

3. Confidentiality – Because an RDO is marketed similarly to a PIPE, an issuer and the placement agent can market the transaction confidentially, enabling the parties to assess the market for the issuer’s securities without creating downward selling pressure on the stock that would typically accompany a public announcement of a proposed share offering. An RDO transaction is typically publicized just prior to or at pricing.

4. Lower legal and administrative expenses – Investors in an RDO are not required to negotiate and sign individual purchase agreements as they would otherwise be required to do in a PIPE transaction. Additionally, the shares in an RDO are typically offered under a shelf registration statement and therefore, are marketed based upon the issuer’s existing public disclosures, which eliminates the complexities of crafting a preliminary prospectus supplement as a selling document. RDO transactions also avoid the ‘give and take’ with the SEC typically associated with registration statements filed in connection with secondary offerings.

5. Exchange Rules – Certain securities exchanges require that any offering of securities that is determined not to be a ‘public offering,’ such as a PIPE, and which is greater than 20% of an issuer’s outstanding capital stock, must be presented to shareholders for approval. The determination of whether an RDO qualifies as a public offering is typically on a case by case basis; however, an RDO can be structured to allow the issuer to sidestep the 20% rule and avoid the need for shareholder approval of the proposed transaction.

What are the disadvantages of an RDO?

RDO’s are not a financing cure-all and there are some disadvantages to RDO’s over other methods of financing.

1. Distribution – Because an RDO is marketed to a select number of investors, shares are not as widely distributed as would typically be the case in a secondary offering. As a consequence, the issuer’s shareholder base is not necessarily broadened as a result of an RDO transaction.

2. Exchange Rules – If an RDO cannot be structured to meet an exchange’s definition of a public offering, and the proposed transaction is greater than 20% of the issuer’s outstanding capital stock, shareholder approval may be required, which would erode the advantages of timeliness and cost effectiveness of an RDO transaction.

3. Form S-3 – An issuer must be Form S-3 eligible to complete an RDO. While Form S-3 eligibility requirements have been relaxed, not all issuers will qualify.

4. Best efforts basis – A ‘best efforts’ basis means no firm commitment to the issuer regarding the number of shares to be sold. If the market fails to materialize for the issuer’s securities, the placement agent has no obligation to purchase any shares.

How do I start the process?

If an issuer does not already have an effective shelf registration statement on file, the first step in the process is to determine, together with legal counsel, the issuer’s Form S-3 eligibility. The next step is to assess any exchange rules that might apply regarding the determination of whether a proposed RDO is a ‘public offering.’ If the issuer is eligible for an RDO transaction, identification of the appropriate placement agent is the next critical hurdle. For a successful RDO, the placement agent should have longstanding relationships with a number of institutional investors who prefer to invest in the issuer’s industry or niche.

The Bottom Line

RDO’s are quicker to close than either a PIPE transaction or a secondary offering, which allows the issuer to quickly take advantage of favorable capital market conditions. The securities offered in an RDO are priced similar to a secondary offering, but without the related hurdles, and an RDO transaction can be marketed confidentially, which will reduce selling pressure on the issuer’s stock prior to completion of the transaction. Additionally, RDO transactions are typically cheaper to complete, in terms of discount, fees and related warrant coverage.

Marketing: The Cats & Dogs Of It

For some time I’ve struggled to come up with a way of distinguishing direct from indirect marketing, if only to help participants in my seminars.

Typically, we think of indirect marketing as all of those activities that create customer awareness, fuzzy feelings, and a positive predisposition to buy, which culminates in a customer deciding to contact us.

Direct marketing is when we send them a mailer or call them on the phone or run an ad on radio or TV, beckoning them to come into our stores or to call our “800″ numbers.

With indirect, they come to us, and with direct, we go to them.

I had just finished admonishing my dog to stay back while I parked in the driveway, and he obeyed, dutifully. Then I went indoors, cooked some salmon, and one of the cats I feed meowed that she wanted to come in for a bite and back-scratching.

Then, it hit me.

Direct marketing is like dog training. You have to issue commands, repeatedly, to get them to learn what you want, and to then respond. But once you have the drill down, they tend to keep complying as long as the stimulus and the reward remain the same.

Indirect marketing is like befriending a cat. You can’t be too direct, or you scare them off. You make it comfortable for them to get to know you, and then, if you’re lucky, you might earn the chance to feed them for the rest of their lives, getting in return, a most gratifying morsel of affection.

Dog training is reliable. You can do it in a park, in a pack arrangement with other clueless owners. It’s called Obedience School.

Cats? Well, obedience just isn’t in their vocabularies.

There are satisfactions in both arrangements. My Bearded Collie, a rescue dog, is a slobbering fuzz ball who loves to dig and jump on me. Cleopa, a former member of a feral cat colony, and occasional recidivist, is unusually affectionate and has a huge vocabulary, considering. But she might not say hello for a day or two.

Take your pick, or if you’re like me, enjoy both.

But don’t expect indirect marketing to carry your newspaper. It just isn’t that compliant.