Episode 303

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Wondering why I’m devoting an episode to LuLaRich?  If you’re a regular listener, you know I love true crime and entrepreneurship – these two subjects meet in this docu-series on Amazon Prime.  My friend, Libby Rothschild, joined me to discuss the show and we are both sharing this episode on our respective podcasts.  LuLaRich is fascinating, and you won’t want to miss our conversation.

This episode, we discuss…

[5:38] Summary of LuLaRich

LuLaRoe was founded by Mark and DeAnne Stidham, and they had great marketing skills. DeAnne got started selling skirts and dresses, and built an MLM empire where she recruited a lot of women to become retailers as well.

It really is a fascinating origin story, because so many people see opportunities or have ideas but never chase them.  DeAnne had seven children, and then when she married Mark they had fourteen children between them. She saw someone on the street selling expensive dresses at a fraction of the price, so she partnered with them and held home parties to sell these dresses to their friends. They were both making money, and they became a mini MLM themselves.

DeAnne put herself out there and networked, and there is something adorable about that. It’s hard for any entrepreneur when they grow so big so fast.  Many people get involved, and it’s easy to be less vigilant about the mission, the core values, and the pure intention that you started with.

When people don’t know the company values, everybody is operating from a place of trying to catch up versus being a visionary. A lot of problems can come from that sense of urgency, and we definitely saw that in the documentary. There was a lot to take away from the story in terms of courage and opportunity in the face of adversity.

[9:56] Multi-level Marketing (MLMs)

While I have never been in an MLM, a lot of my friends and family have. With MLMs, you can earn money from recruiting others to sell the products.  You’re supposed to make quite a bit of revenue from the products themselves, and there are legal standards you have to abide by. Often, however, the real money comes from recruiting friends and family to sell the same product that you’re selling.  They call it a “pyramid scheme” because the more people you can get under you, the more money you will make. The person at the top is making the most, but there are levels within the pyramid.

I knew someone who sold CBD products in a system like this.  She would get on these Facebook lives, but she would never talk about the products themselves.  She talked about the freedom, the opportunity, and how to use networking skills to leverage their time so they aren’t working for others. Where’s the CBD? Who is buying it? When do you make money?

In the documentary, it was so interesting to me to think about the enthusiasm DeAnne was able to inspire in others. You could see that the retailers really believed in what they were doing.

[12:53] Creating a movement as a business owner

For those high up on the pyramid, it must be so exciting to see people so enthusiastic about a movement you created. Part of being an excellent leader is creating a clear mission and vision for the company and creating something that people are excited about.  They nailed this with LuLaRoe.  They were great with their sales and marketing, and they pinpointed their ideal client.  They knew exactly who they were selling to, and how to teach them to sell to someone else.

[14:42] Selling products versus recruiting people

In MLMs, the money is often made in the recruiting.  Because of that, people will sell the outcomes of having the business rather than using the products.  The disconnect, of course, is that you are supposed to be making money through the product itself. Legally, you have to be selling to customers who are buying product, rather than selling and leveraging people, but that’s how the bonus checks come in.

As a retailer, you have to buy inventory and you have to be able to sell it back to the company if you don’t sell it.  This is called a buyback policy. There is also a 70% rule, where the retailers can only buy more product from the brand when they have depleted 70% of their inventory.  In addition, they must be selling to at least ten customers who are buying products.  They cannot solely leverage recruitment.

[18:59] Nepotism in business

The Stidhams had a very large family, and many of them were hired at the highest levels of the company. As entrepreneurs, we can understand that because we want to hire people that we trust. Family members may have more skin in the game, and you assume they are truly on your team.

It can also be a really slippery slope to hire family. If you’re hiring for loyalty or shared values, you may not be hiring due to skill sets.  That’s really highlighted in the docu-series, as they hired people who had no idea how to run a company of this size. Hiring people without the proper qualifications was a potential undoing  of this company.

[23:19] Policies and procedures in business

It also seemed apparent that LuLaRoe did not have policies or procedures in place. In a healthy, well-functioning business, you would want to see a highly qualified marketing department, sales department, and human resources. You want to have budgets. You want to have set processes for interacting with customers that really showcase the values of the company.  Part of scaling is having these policies and procedures in place, and we didn’t see a lot of evidence of that.

We did see some form of an onboarding process, where retailers would have to stay on a wait list for weeks until they got the “life-changing call” from LuLaRoe. This process allowed them to catch up, and it also gave the retailer a chance to prepare.  She could buy racks, let her friends and family know that her inventory was coming, and make sure she was ready to hit the ground running. The company would send out prep emails so they knew what to have in place, and it was a great strategy to build the hype and get them in the right mindset to sell.

It was definitely fascinating to think about this process. When someone signs up for my academy, for example, I just let them in. I want them to come in and they already have enthusiasm, but could I make it more fun? Could I make it more of a party?  Could I make it more compelling? Is there something that I could do to get them ready?

Again, this onboarding process is a marketing strategy. It makes LuLaRoe seem like a premier and highly sought after option. Social media also played a big role, as they were seen all over as presenting  this amazing opportunity.

[27:03] Sales and marketing versus management and operations

The series focused more on marketing and sales than it did on managing operations, budget, and those types of things to run a business. These things are just as important, and could certainly have contributed to their demise as well. Companies that scale as fast as they did tend to have a lot of outside help, and we didn’t hear anything about advisors in the documentary. If they had gotten help or support regarding managing a family-owned business, and creating policies and procedures for operations and customer service, that could have helped them immensely.  That’s true for most businesses, not just those that are as big as LuLaRoe.

I felt such empathy for these entrepreneurs, and I actually felt like the documentary was skewed. I didn’t feel like they showed me enough employees, nor did they show a balance of retailers. There was only one retailer interviewed that was still with the company today. It seemed weighted to make us upset with them.

For me, the place where the business really soured and took a dark turn is when they started using fabrics that would rip versus the really high-qualify fabric they started with. Then the leggings would get moldy, because they were storing them outside in large containers. I think they could have solved all their problems if the love, caring, and concern for their retailers had remained intact. When they stopped caring about the product and the people who sold it, that is when the whole thing broke down.

[30:10] Staying true to core values within a business

It is common for a business to cut expenses in order to increase profitability, and we assume that they wanted to cut costs and increase their margins. If they had a strategy in place that would allow them to do some of that while still acting within their values, could that have saved the day?  We feel like they lost sight of their mission and went for the low quality product.

If we think about the retailers as individual entrepreneurs, selling crap would make them feel pretty bad about themselves. In MLMs, you tend to sell to your direct network. If I’m selling crap to the people I love the most, that doesn’t feel good either.

[33:41] Scaling without losing quality

The trick is to scale without losing quality. Products may change a little, but you don’t have to go from buttery soft to super mold. It seems like, as the company grew, they could have gotten a better deal on bulk orders of the high quality fabric. For a cake boss, you might lose personalization as you scale.  For something like this that is not personalized, however, we wondered why they couldn’t afford more buttery soft material for the same margin.You want to stay true to what differentiates you. Maintaining your brand as you scale is important.

[39:14] Prioritizing people over profit

Not valuing the retailer or the product was ultimately their demise, as we saw it. Nepotism was solvable, the lack of process was solvable, the money mismanagement was solvable. They were still making a ton of cash, but you can’t come back from not caring about the product or the people.

[40:23] Pressure for retailers to look a certain way

In the third part of the series, they took a turn that seemed a bit irrelevant – but it was also really interesting. DeAnne, allegedly, tried to convince her top retailers to get weight loss surgery in Mexico by offering a discount and a group package deal.

Unfortunately, it’s pretty common that businesses expect or require staff to have a certain appearance. It certainly seems unethical, but many companies seek a certain archetype. The founders may have even been preying on retailers. Inclusive hiring practices are important, and there are so many concepts to unpack about that and body positivity. They could have made several series about any one of those topics.

[45:03] Reducing competition and seeing other women succeed

There was one part of the business model that I thought was absolutely genius, and I wonder how it could apply to other industries or if it even does. Women love to connect and help other women, but often when you’re in an MLM you’re all selling the same stuff. With LuLaRoe, every lot of leggings had different patterns. You weren’t selling the same exact things, so you could help each other and connect people with someone who has the pattern you are looking for. I thought it was really beautiful that they were able to reduce that level of direct competition and make it more of a community through what they were selling.

[48:50] The haves and the have nots

Of course, it could also work against some people if the founders decided to drive more “unicorn” patterns to those that have more retailers under them. You could drive more success to the top couple tiers, and then get them to sell and recruit more.

[51:25] Top takeaways

While I may have been naive about some of my positive takeaways, I did think there was something really strong about creating a company where retailers don’t compete with each other despite selling essentially the same thing. I also think an important takeaway is, don’t underestimate the power of women who want something for themselves.

Libby shared the takeaway, don’t underestimate the power of social media as a recruiting and marketing tool. In addition, this series made her think about what it means to scale a business. There is a way to do it that holds true to your values. Finally, getting help is hugely important. We don’t know of any million dollar or billion dollar company that doesn’t have outside help.

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