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~Author Jennifer Leigh~

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This is an article I wrote for, December 2004:

In the mid-90’s, an Excel distributor said in her presentation to me, "Everyone needs to use a phone, right?" I remember nodding my head and in my mind dollar signs sprung large and abundant.

I saw the logic in becoming part of the Communications industry, a part that is necessary in today’s fast-paced world. Every single time someone picked up the phone, I’d get paid. It seemed remarkably logical. In fact, it almost sounded too good to be true.

Turns out it was. In late 2004, Excel Communications declared bankruptcy and figuratively and physically closed its doors. Considering this situation, the questions people in the Multi-Level Marketing industry need to ask are:

  • Why did the Golden Child of MLM’s go down so hard, leaving many employees surprised, disheartened and hurt?
  • How did this happen?

And finally:

  • What can I do to make sure this doesn’t happen to me?

To answer the first question, Why did Excel declare bankruptcy so abruptly, to the surprise of its distributors, we must study how Excel made the bulk of its money. To become a distributor, a person paid $299.00. In its infancy, the new recruit was also charged $400.00 for training. The person who recruited this newcomer would get fifty percent of that $400.00. Get enough trainees, and you make pretty good money, right?

Excel began to get pressure from several fronts to change their business model and not give commissions from the training fees anymore. This meant that the distributors only made money on the actual calling plan itself, which profits ended up being negligible. Some distributors made $5.00 or less per month, but had paid the almost $300.00 start up fee. At that rate, it would take 60 months to even get back their original investment! For some reason, this was never clearly explained to the incoming distributors. They were never told how little they would make.

At the same time, phone companies began vying for customers’ patronage by lowering long distance rates and offering cell phones that had unlimited minutes with long-distance capability. So Excel’s long distance service, once rather competitive, became more expensive that what was offered elsewhere. In essence, the product became worthless.

Another factor in Excel’s demise is it lost much of its luster and impact when its original owner, Kenny Trout, sold the company. He was Excel’s ‘visionary leader’, and many distributors had less trust in the subsequent owners. This may have been exacerbated by the fact that every succeeding owner sued the former one, saying they had been lied to. This, too, tarnished Excel’s image and caused an undercurrent of disreputability in the company. But seemingly to those on the outside. New distributors were being signed up every day until Excel declared bankruptcy, though many MLM insiders could see the dismal writing on the wall.

Of course, much can be learned from Excel’s demise, because the most important question to ask is, How can I avoid this happening to me? While there’s no way to guarantee that your company’s original owner won’t sell the company, looking at Excel’s business model and the actual dollar figures gives us a clear, easy-to-understand picture of what to avoid.

Basically, money cannot be made by the training required to take part in the business. Commissions must be made from the product itself. When creating your own MLM business, or in considering becoming a distributor in an existing MLM company, ask directly where your money, your profit, your paycheck will be coming from.

To illustrate, Excel’s figures were thus: At the time they declared bankruptcy, they had 130,000 distributors. Monthly the company paid to their distributors $740,000. Do the math. That equals around $5.00 per distributor. Not nearly enough profit to work as hard as most MLM entrepreneurs labor.

Therefore, though many people were hurt by Excel’s bankruptcy, there is much we can gain from their failure.

To quote George Washington:

We ought not to look back unless it is to derive useful lessons from past errors, and for the purpose of profiting by dear-bought experience.

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