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If it Looks like a Pyramid and Acts like a Pyramid

Who gets the Pyramid Quack award?

On our conference call the other day, people wondered how to talk and act so that people would stop asking «Is this a pyramid/one of those things?»

One way is to stop, forever, saying and doing the things that evoke this image in the minds of others — i.e. people «who abuse their friends and try to sell them stuff, and get them to sell and take a percent.»

For years, it’s been all about getting people to sell and recruit. That’s the reason countless people discouraged (and ridiculed) my customer-oriented students, «There’s no money in customers. All the money’s in the recruiting.»

I’ve taught hundreds of classes to those who prefer to amass customers. It’s lucrative in some companies, and many stayed in the business because they learned how to do that, instead of quitting.

But some companies pay you to act like you’re a pyramid type. We will bestow upon them the «Pyramid Quack» award. Yes, here. To encourage them to change their pyramid quacking ways which make their people look bad.

If it quacks like a pyramid…

«a pyramid scheme is…[where] the need to subscribe newcomers outweighs whatever benefits the products or system has to offer. Many MLMs sell distributorships more than cosmetics [name your product or service — KK].» -Coercion: Why We Listen to What «they» Say

Some people don’t know it from the way the business is promoted, but we do two things to make money in the network marketing business:

1) get customers (earn a percent on their orders)
2) Get sales reps who want to get customers and more sales reps (earn a percent on their orders)

So based on what they pay people to do, which companies get the Pyramid Quack award?

One gal, Phyllis, a Tahitian Noni rep for years, told the group this:

Typical order: $120 for the Noni juice per month.
Pay for getting a customer (who doesn’t sell it) to buy it: 6%. That’s like $5 for getting a $120 order.(!!)

With such puny pay, who’d want to go after customers? They don’t, and haven’t, for years, she said. This pay plan tells it all: We pay you to get recruits — people who sell it. We don’t care about customers who just buy it (and who don’t sell it).

So, we were about to bestow upon the Tahitian Noni International pay plan, the Pyramid Quack award.

Then with great pride, she announced to the group: «But Kim, this past year they’ve worked to change it — because I think they heard you. As of May 1, 2006, they are paying 20% for customer orders. So now we get $24 for each of those orders!»

That’s what, 3 days ago? After almost 10 years of being in business.

(This conference call will be up on the Talking about Your Great Thing podcast site later this week, so you can hear the juicy details for yourself.)

Tomorrow’s blog: The story on the pay plans of two more companies: Young Living and Life Wave. Do they get the Pyramid Quack award or not?

Send in your company plan plan info and see if it gets the Pyramid Quack award. (Use Comments below.) Here’s what info to submit:

1. What’s the typical customer order amount? And what do you get (range) if you find them, front line them, and they do NOT sign on to sell anything?

2. Name of company. And YOUR NAME.

Then we’ll check it out, and award the Pyramid Quack award to your company, or not.

After all, if it quacks like a pyramid…

Investment Gobbledygook

There are no orphan shares …
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A lot of what passes as serious investment commentary is simply «gobbledygook» i.e. nonsense or drivel. It defies share market realities and is at odds with the philosophy that markets work.

Yet, unfortunately, some of the people and organisations generally regarded as finance experts are the main proponents of this gobbledygook. Let’s consider a couple of examples.

In a recent article in the «Sydney Morning Herald», a private client adviser of a major stock broker explained why the share market had fallen for the past three days, after a period of strong gains, as follows:

«I think it comes down to a bit of profit-taking. I guess the market is acknowledging we’ve had it pretty good for the last couple of months and it’s time to take a breather.»

In a similar vein, the finance reporters on the evening television news will often attribute a rise in the share market, after a period of weakness, to «bargain hunters» taking advantage of lower prices. Sometimes, more glibly, since they believe they are stating the «bleeding obvious», they will explain a rise in the market as due to «more buyers than sellers».

But all these types of comments overlook one indisputable share market fact. That is, for every buyer, there must be a seller – there are no orphan shares. So if a seller is «profit taking», what is the buyer doing? Or, if the buyers are «bargain hunters», what does that make the sellers?

Share markets do not move because of the weight of buyers or sellers. Rather, they respond to changes in expectations of the factors that drive share prices i.e. expected profits and the discount rate used to convert those profits to today’s dollars.

Lower current share prices compared with two years ago almost certainly reflect lower expected company profits. And, perhaps, a higher discount rate (or expected return) to entice investors to take the necessary risk. It is not because investors have «fled» share markets as is often suggested in the financial media. Because, in aggregate, they simply can’t.

«The Arithmetic of Active Management»

Another prevalent example of investment gobbledygook is the claim that depressed share market conditions are best suited to active, stock picking investors as opposed to passive investors who simply hold share portfolios designed to replicate the market’s overall performance.

Since the share market peak of November 2007, hardly a day goes by without a financial journalist opining or quoting some stock broking source that «it’s a stock pickers’ market». No proof is provided. It is simply asserted.

We recently received an invitation from a major financial institution to a seminar to hear three prominent active fund managers present on why they believed they would outperform the overall share market in these difficult times. The invitation explained:

«At the peak of the bull market most fund managers were able to produce strong absolute returns with ease. Moving forward active management and fund manager skill will play a far greater role.»

The implied claims appear to be:

1. now is a good time for active funds management; and
2. you can pick the most skilled active managers.

A response to Claim 2. will need to be the topic of another article. However, in summary, the best available research suggests it is very difficult (some say, impossible) to distinguish luck from skill.

But rebutting Claim 1. doesn’t require research – simple arithmetic will do. The essential message of Nobel prize winning financial economist, Professor William Sharpe’s classic 1991 paper, «The Arithmetic of Active Funds Management», is that:

* since active and passive investors make up the entire share investor universe; and
* passive investors earn the return of the total share market less their relatively small costs

it follows that active investors, in aggregate, must also earn the same total share market return less their relatively high costs.

This will always be the case. There are not good times and bad times for active investors, compared with passive investors. In our view, given the higher costs of active investment, there are only bad times!

The moral of the story …

Often, in investment markets, propositions that sound plausible, and are being put forward by people or organisations with apparent expertise, prove to be total bunk when subjected to appropriate scrutiny.

As a smart decision maker, serious questions you should ask yourself are:

* do I have the knowledge and wisdom required to distinguish between often self serving investment gobbledygook and the opinions and research of the world’s leading financial economists and behavioural scientists;
* if not, is it the best use of my time to acquire that knowledge and wisdom;
* what are the costs, risks and foregone opportunities of not accessing that knowledge and wisdom; and
* am I prepared to accept those costs, risks and foregone opportunities?

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How to Open a Coffee Shop — Marketing For Success

When opening your own coffee shop, think deeply about the specific neighborhood you are in and methods that might work for you to reach customers. Some of these may be methods other coffee shops, bars, and restaurants have used, and others may occur to you by thinking from the perspective of your customers. Here are two examples of common marketing methods to consider.

Street Visibility

Since purchasing a cup of coffee, other beverage, or a snack at a coffee shop is often an impulse purchase, your street presence must be attractive and compelling to passersby. Your shop signage must display your business name clearly and leave no question about what you sell, whether through words or images (for example, image of a coffee mug). Sandwich boards posted on the sidewalk can add additional space to promote specific items or deals, but make sure to check the legality of where you can and cannot put items on the sidewalk. Likewise, make sure to check on the laws regulating banners or signs that jut out over the sidewalk. Permits from the city may be required for these.

No matter what you choose, take care to make sure your exterior design is consistent and attractive. Using a professional designer to handle this or to consult on dos and don’ts can be a great help. The exterior design should have the same feel as the interior design, so that the «promises» made by the look of the street graphics is fulfilled by the environment and services inside your coffee shop.

Free Samples

Offering free samples on the street or at a separate station within the store can be a simple way to generate excitement and interest in your shop soon after it opens. If you have an exciting signature coffee or drink you can find a way to offer sample size cups, although offering small food items may be simpler.

Make sure to have an employee assigned to the free samples, both to ensure that they are properly looked after and replenished and to be able to discuss the story behind the new shop with customers. This kind of staff-customer interaction is just as important to a successful free sample campaign as the ability for customers to try your products without commitment.

How to Increase ROI on People Development Investments

Organization X brought in an outside seminar company to «give the supervisors and managers a little boost.» The seminar company suggested the executive group attend a preview as a way to support the development, to become aware of what was going to be presented, and to customize the message to meet the unique needs of the organization. They were all too busy. OK — how about a 4 hour overview ? Still too busy. The CEO ended up telling the seminar company to «Just give the people your message — so and so at (biggest company in town) said it was a great program.»

And so they did. They delivered an intensive 5 day, 4 hour per day leadership skills seminar to all the supervisors and managers in the business. They focused on trust, communication, self development, goals and objectives and using teams as a key means to deal with the businesses challenges. They discussed ways to overcome the adversarial relationship that existed between the people who did the work and their bosses. Homework and on the job assignments were developed; action plans formalized; personal skill requirements identified. At the end of the seminar, the attendees were fired up. They interpreted the messages coming from the seminar leaders as coming from their management — there was no reason for them to feel different. Bad assumption.

When the seminar participants returned to work the following Monday, they did so with an enthusiasm that had been missing for some time. When the CEO asked them about the seminar, they were positive and enthusiastic and thankful they had the opportunity to attend. The CEO and his staff felt good — everybody seemed motivated — money well spent.

And then the managers and supervisors started to use their newly acquired behaviors, beliefs and skills. And the trouble started. The leadership wasn’t sure exactly what was going on, but they knew it wasn’t what they expected. They reacted with their «business as usual» approach, and the managers and supervisors became frustrated and angry.

Things were back to where they had been before the seminar within two to three weeks, except all the seminar attendees had developed a layer of cynicism that they had not had before. Whatever trust there had been in the organization disappeared, and the leaders were puzzled that what had started off with such high expectations had turned to negative before their very eyes.

If this story sounds familiar, it’s because it happens every day, in all kinds of different organizations. It happens because the purchase of a service — a potentially very valuable service — is done when leadership sees the need for change, but the activity is not leveraged by internal design and development dedicated to ensuring the message and outcomes are what the leadership wants. The result is unintended consequences and frustration for all involved, including the development organization. They became event managers — not contributors to identifying and developing change and growth strategies and actions.

How to ensure your own critical people development investments are effective and carry a high ROI?

Ask yourself these seven questions. The answers will help define the best way to go about developing the skills, expertise and abilities of your people while increasing your ROI on development investments.

1 — How much time will be spent on customizing this seminar to meet out unique requirements? Are we trusting to a third party to represent our interests to our own employees? Focused time spent on development and customization of programs to fit your organization ensures that the objectives of the effort will be consistent with leaderships needs and expectations. Never trust to a third party to represent your interests to your employees without your extensive input — they can’t.

2 — How many people should be sent to public seminars? When a public seminar appears to meet your objectives, send a team of at least three people. Why at least three? To paraphrase what Peter Senge says in his 2008 book — «The Necessary Revolution» — one person, even the CEO, can’t make change happen by themselves, two people can have a conversation, but three or more can make change happen.

3 — Are we expecting this activity to improve individual poor performance? Don’t use seminars to attempt to improve poor individual performance. It’s not gonna happen. That’s a subject requiring one on one work, with the manager of the poor performer leading the way.

4 — Have we reviewed the content and objectives of the development? Do we support the objectives and message? For seminars to be successful, the leaders whom the participants will look to for support must be fully acquainted with the objectives, and sign up to support the participants. When the leadership says it’s too busy to spend the time necessary to get conversant with the content, spending money and effort on the content is a waste.

5 — Are our actions consistent with the message we are sending? Realize that action from the leaders within the organization speak louder than any words from even the most accomplished speaker or celebrity. Action speaks so loudly that what is said cannot be heard.

6 — Can we accomplish the same objectives using our own people? Who do we have that can teach others? Who do we have that can learn by teaching others? The best way to learn something is to teach it to someone else. Use that principle to develop the people in your organization. Make your own people your best meeting and seminar and meeting leaders — and your champions of change. Use outside services to train your own leaders.

7 — Are we using this activity to meet our needs, or are we trying to squeeze our needs into the goals of the seminar? Use third party seminars and development activities to advance the goals and behaviors identified by the organization. Don’t let the tail wag the dog.

It’s tempting to look for answers and silver bullets in the literature provided by professional development organizations. And their expertise is valuable. But its value is so much greater when blended with the unique needs of your organization. Plus, there are no silver bullets.