Minkow's USANA Attack: Why The Industry Should Take Note
In November of 2004, I was invited to leave USANA Health Sciences after serving as the VP of Marketing since April 1, 1999. Because of my intimate knowledge of the company, I have had several phone calls about the company and several asking for my opinion on the current dispute between USANA (www.usanahealthsciences.com) and Mr. Minkow from the Fraud Discovery Institute (www.frauddiscovery.net). In response to the inquires, I'll take the next few posts to outline my opinions and to invite others to provide me with their insight and perspective.
WHY DIRECT SELLERS FROM ALL COMPANIES SHOULD BE CONCERNED
During a recent call with a Wall Street Analyst, I was asked, "Why do you think Minkow is doing this? How is he profiting if he has shorted only a few hundred USANA shares?" My answer is "I have no idea," but if I were investigating this I would see how many other direct selling companies Minkow has shorted. In other words, if I am Minkow, I know that everyone will ask "how many USANA shares are you shorting?" BUT, would they ask me, "How many Mannatech shares, NuSkin Enterprises shares, Reliv shares or shares of Nature's Sunshine are you shorting?" -- probably not.
You see, investors who are putting money in this industry are often watching the reports and activities of the whole industry to get clues as to the direction their investment might be heading. Reports of delays in China from one company, usually causes analysts following that company's competitors to reassess their projections based on the likelihood that their company may also experience the same delays.
USANA is one of a handful of the publicly-traded network marking companies with significant good will among institutional investors on Wall Street (if you don't believe me look how many of the analysts have stuck with the company through these charges ) In fact, I have personally spoken with analysts about the company and know first hand how they view USANA. Therefore, an attack on USANA is likely to impact all of the network marketing public stocks.
Indeed, Minkow's attack on USANA should be a concern to all network marketing companies (public or private) for the following reasons:
1) If Minkow convinces the FTC to take a closer look at network marketing practices, the industry could lose significant ground gained from years of good behavior and consistent education led by the Direct Selling Association (www.dsa.org). No matter the industry, significant changes in government rules and regulations have an negative impact -- that impact is magnified in this industry with so many independent agents who lack the comfort of a corporate legal team.
2) USANA has one of the industry's best reputations for ethics and truthfulness -- if Minkow convinces Wall Street that USANA has systematically withheld the truth, I believe that Wall Street is likely to lose confidence in the broader industry which could lead to the loss of billions of dollars of institutional capital currently invested in network marketing companies. This capital has also been available to private companies and has funded the acquisitions of several companies (Herbalife, Body Wise, Arbonne International,etc.).
3) There is no reason to believe Minkow will stop at USANA -- it seems apparent that he has partnered with individuals who have an issue with the whole industry. Any network marketing company could be the next to receive virtually the same set of complaints and attacks as Minkow has leveled against USANA.
4) FDI's claims create uncertainty for potential distributors. While some will interpret this as a USANA specific issues, others will view the claims as an indictment on the whole industry and all direct sellers will be forced to begin anew to recreate the credibility earned over more than 10 years of notable ethics improvements.
WHAT SHOULD YOU DO IF YOU ARE A DIRECT SELLER?
Direct Selling is characterized by companies and individuals who have always been willing to share information, but have rarely actively defended a company called into question. While USANA must stand alone in answering questions about the company's representations -- all of us can actively engage in educating our distributors, regulators, and the general public about the misrepresentations Minkow is using to describe the network marketing distribution channel.
AND we can all do our part to continue to improve. We know there are misrepresentations (often innocently made under the stress of being in front of a public crowd) and we need to continue to make sure we insist on complete honesty.
We need to continue to push for more retail sales, and greater number of consumer sales. Our products should deliver true value to the end consumer and we should have customers in our portfolio who purchase the products because they want them -- not because they want to earn a commission. All of us should be actively engaged in monitoring the market, and in making sure our products are priced according to competitive benchmarks.
I will take time over the next few days to do my part to bring some clarity to the issues highlighted in this dispute and I invite you to give me your comments as well.
WHY DIRECT SELLERS FROM ALL COMPANIES SHOULD BE CONCERNED
During a recent call with a Wall Street Analyst, I was asked, "Why do you think Minkow is doing this? How is he profiting if he has shorted only a few hundred USANA shares?" My answer is "I have no idea," but if I were investigating this I would see how many other direct selling companies Minkow has shorted. In other words, if I am Minkow, I know that everyone will ask "how many USANA shares are you shorting?" BUT, would they ask me, "How many Mannatech shares, NuSkin Enterprises shares, Reliv shares or shares of Nature's Sunshine are you shorting?" -- probably not.
You see, investors who are putting money in this industry are often watching the reports and activities of the whole industry to get clues as to the direction their investment might be heading. Reports of delays in China from one company, usually causes analysts following that company's competitors to reassess their projections based on the likelihood that their company may also experience the same delays.
USANA is one of a handful of the publicly-traded network marking companies with significant good will among institutional investors on Wall Street (if you don't believe me look how many of the analysts have stuck with the company through these charges ) In fact, I have personally spoken with analysts about the company and know first hand how they view USANA. Therefore, an attack on USANA is likely to impact all of the network marketing public stocks.
Indeed, Minkow's attack on USANA should be a concern to all network marketing companies (public or private) for the following reasons:
1) If Minkow convinces the FTC to take a closer look at network marketing practices, the industry could lose significant ground gained from years of good behavior and consistent education led by the Direct Selling Association (www.dsa.org). No matter the industry, significant changes in government rules and regulations have an negative impact -- that impact is magnified in this industry with so many independent agents who lack the comfort of a corporate legal team.
2) USANA has one of the industry's best reputations for ethics and truthfulness -- if Minkow convinces Wall Street that USANA has systematically withheld the truth, I believe that Wall Street is likely to lose confidence in the broader industry which could lead to the loss of billions of dollars of institutional capital currently invested in network marketing companies. This capital has also been available to private companies and has funded the acquisitions of several companies (Herbalife, Body Wise, Arbonne International,etc.).
3) There is no reason to believe Minkow will stop at USANA -- it seems apparent that he has partnered with individuals who have an issue with the whole industry. Any network marketing company could be the next to receive virtually the same set of complaints and attacks as Minkow has leveled against USANA.
4) FDI's claims create uncertainty for potential distributors. While some will interpret this as a USANA specific issues, others will view the claims as an indictment on the whole industry and all direct sellers will be forced to begin anew to recreate the credibility earned over more than 10 years of notable ethics improvements.
WHAT SHOULD YOU DO IF YOU ARE A DIRECT SELLER?
Direct Selling is characterized by companies and individuals who have always been willing to share information, but have rarely actively defended a company called into question. While USANA must stand alone in answering questions about the company's representations -- all of us can actively engage in educating our distributors, regulators, and the general public about the misrepresentations Minkow is using to describe the network marketing distribution channel.
AND we can all do our part to continue to improve. We know there are misrepresentations (often innocently made under the stress of being in front of a public crowd) and we need to continue to make sure we insist on complete honesty.
We need to continue to push for more retail sales, and greater number of consumer sales. Our products should deliver true value to the end consumer and we should have customers in our portfolio who purchase the products because they want them -- not because they want to earn a commission. All of us should be actively engaged in monitoring the market, and in making sure our products are priced according to competitive benchmarks.
I will take time over the next few days to do my part to bring some clarity to the issues highlighted in this dispute and I invite you to give me your comments as well.
posted by Sydney and Emma at 8:33 AM
1 Comments:
Interesting writings. I have long sought words from USANA marketing and upline directors to USANA associates that encourage and teach retail and PC sales. If one applied a metric to the marketing messages internally (which includes messages to associates), an easy 80 percent focus on sales to new distributors and associates. As my concerns have never been met with any clapping, I was slightly bemused to read your words which reflect my thinking. How I wish they would see the perception created by what they emphasize.
While I know that USANA is indeed a company with high ethics and good values, their response to Minkow's attacks have saddened me. Their behavior lacks the high level thinking of well-educated and experienced professionals. I have wondered if the inexperience of the USANA President by virtue of his youth and their failure to employ a seasoned PR counselor (not publicist) are culpable. I think, often, of the many companies that have gone through fire successfully and it pains me to watch USANA handle this so poorly.
But, I digress. I'm glad I stumbled into your post. I welcomed some mature writing re this topic. Thanks.
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