Multi-Level Marketing (MLM) & startups in Asia

A startup founder approached me a few days ago with a multi-level marketing (MLM) idea.  I’ve tended to stay away from MLM–when I was a little boy my mother became involved in distributing vitamins in a well-known American MLM company.  They had a good product but I remember well how frustrated she became when friends refused to ‘see the light’ and buy into the pyramid.

But the world is a different place today–social networking makes it possible to reach out to a much wider group to find those interested in your product.  But, at the end of the day, the end-user price can only afford so much margin, and that margin can be divided among a finite number of participants in the MLM pyramid.  So I tend to remain a bit skeptical of MLM businesses.

Nevertheless, when this founder approached me I did my due diligence and found to my surprise that there has been a significant development in MLM jurisprudence, namely: The Federal Trade Commission v. Burnlounge Inc., in the U.S. Federal District Court for the Central District of California.  This is a very significant decision for those of us outside of the U.S. because the U.S. tends to be in the forefront of MLM jurisprudence & analysis and the court chose to articulate with some care the considerations that will allow a MLM business to pass regulatory muster.  I’m not saying that this decision is directly applicable to businesses in Asia and EMEA, but I’d suggest that it may be persuasive, or at least of interest, to regulators in those jurisdictions.

Burnlounge had a very interesting alternative to traditional e-sales of music: It would allow its members to set up storefronts of their own and sell to customers.  And those customers could set up storefronts of their own.  Commissions would then be shared up the chain as in any MLM structure.  Significantly, the sales of the storefront packagess, rather than the music, made up the lion’s share of the revenue running through the system.

The Court applied the following test to determine the existence of an illegal pyramid scheme:

“[Such schemes] are characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to sale of the product to ultimate users”

Here Burnlounge took in 28M USD during its two years of operation.  Of that, almost 94% was for sales of the various storefront packages–only a little over 6% was for music sales of any kind.  The court would have none of it: “Both as designed and in execution, the Burnlounge enterprise resulted in a large return for a small percentage of the [participants] which was funded by the substantial losses (i.e. the failure to recoup their initial investments) of the vast majority of the recruited participants.” And as you might guess, the Court found Burnlounge to be an illegal pyramid scheme.

The court provides quite a bit of economic and legal analysis in its opinion–this is a landmark case in U.S. MLM law.  Anyone thinking about MLM as part of their business plan would be amply rewarded for a careful read of this decision.

 

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Getting things done….

Between a week in Los Angeles, a month in Bahrain, and getting patentpayer.com up an running, I’ve been awfully busy.  I’ve also been thinking about how to get more done in less time.  Today I ran across an article by Tony Schwartz in the Harvard Business Revies that was both interesting and helpful:

“It turns out we each have one reservoir of will and discipline, and it gets progressively depleted by any act of conscious self-regulation. In other words, if you spend energy trying to resist a fragrant chocolate chip cookie, you’ll have less energy left over to solve a difficult problem. Will and discipline decline inexorably as the day wears on.”

Tony goes on to suggest that we can minimize the depletion of this reservoir of self-discipline by ritualizing our day to include the things we really want to get done….like going to the gym and keeping my friends up to date via this Alkimie blog.  I hope you all enjoy the article as much as I have.

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“Bridging IT and Business” in Myanmar

I’m in Myanmar for the Barcamp Yangon 2011 and the organizers of Barcamp suggested that I go over to the historic Strand Hotel to listen to a talk put on by the Myanmar Computer Federation on ‘Bridging IT and Business” during their Software and Solution Exhibition 2011.  The principal speaker was the distinguished Prof. Dr. Aung Tun Thet.  I listened from the doorway of the crowded room to a very inspirational talk exhorting the assembled business leaders to let go of prior conceptions of information technology and to lead adoption of computer technology for the good of Myanmar and their respective companies.  Prof. Aung unabashedly urged the business leaders to put their personal pride aside and consider the possibilities and learn from their younger staff as they travel this road.  (Someday I’d love to have a chance to talk with him about entrepreneurship in Myanmar, the topic of his PhD thesis!)

Later I had a few minutes with Ms. Cindy Chaw Khin Khin, CEO of Myanma Computer Company Ltd., who organized this session.  (I should admit that I rudely interrupted her speakers luncheon to buttonhole her, but she was very kind to chat for a bit.)  Ms. Chaw believes (rightly, I think, based on the exhibits at the Exhibition), that the Myanmar business community remains focused on standard computer applications such as accounting, HR, publishing, etc., and that Myanmar can do much more.  She’s also interested in the topic of indigenous mobile application development (e.g., applications for Myanmar by Burmese developers), which is near and dear to my heart.

(My thanks to Barcamp Yangon’s organizers for suggesting I attend this talk!)

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Alcatel-Lucent’s ‘LightRadio’ and what it means to rural data communications

I’m kind of a believer in the idea that when it is time for something to be invented, someone, somewhere, will invent it.  Alcatel-Lucent’s lightRadio(tm) is a really interesting invention with the potential to impact both developed and developing countries.  Here are Alcatel-Lucent’s own words:

“More than half of the world’s population does not have access to mobile broadband data. The industry does not have a feasible path to close this broadband digital divide…  Now what is the root cause of these problems? The base station. It is a fundamental element of the wireless architecture that is large and power hungry…

Our innovative breakthrough is called lightRadio.  lightRadio has at its core an innovation that is a small cube—a cube invented by Bell Labs which combines a wideband active array antenna with fully software defined radio capability. This, less than 300 g cube, enables an active antenna as small as 2 watts to an array of typical cellular capacity (30-60 watts). It can be deployed in big and small antenna configurations, all-around the city… Big or small cells, it is one continuum, for these cubes can be stacked to build a macro cell or used singularly in a beam formation for targeted coverage…  With this small element, connected to microwave, it is now feasible for people currently not served by mobile data, to have access.”

And as it happens, I’ve just met a very interesting young man from Pakistan.  He founded and runs a virtual concierge service based in Pakistan.  He has this crazy idea of crowdsourcing this kind of virtual service bureau using mobile-equipped rural people, perhaps in Pakistan, perhaps in other countries where such folk have little in the way of knowledge-economy opportunities.  He was in Singapore looking for people to develop mobile applications that could be used to provide those services.  Simultaneously I met another interesting young man, who is figuring out how to help rural people keep their cell phones charged.

If you combine this with the cost/power savings and especially the ability to appropriately size base stations, as offered by an Alcatel-Lucent lightRadio-type device, it seems to me that we can imagine farmer collectives purchasing base stations and earning the money back by providing information-economy services via those base stations.  (I suspect it would be their adolescent children that would take most easily to this.)  What I find most interesting here is the idea that the rural build-out could be financially self-sustaining, and begin to involve rural people in the information economy.

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Singapore as described by the New York Tribune in 1918

I was in a contemplative mood this evening, enjoying a cigar at the Singapore Cricket Club, and browsing old newspaper archives when I happened across a 1918 New York Tribune article on Singapore.  I was struck by how much has remained constant almost a century later:

“The commerce of the world has obtained the benefit of a liberal political arrangement … the visible effects of which are are simply the surety of public order and safety, stimulation of industry, and an equal opportunity for anybody of any nationality or race to live and thrive.”

Here is a pdf of the full article in case you’d like to read it:  New York Tribune on Singapore in 1918

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NYTimes piece on the U.S. and being a ‘talent magnet’

Every once in a while I read an OpEd piece that crystallizes better than I can something I have been thinking for a long time.  ‘The Talent Magnet‘ by David Brooks is one such essay:

‘Parents in middle-class nations around the world should want to send their kids to American colleges. Young strivers should dream of working in Hollywood or Silicon Valley. Entrepreneurs from Israel to Indonesia should be visiting venture-capital firms in San Francisco or capital markets in New York. Global engineers should want to learn the plastics techniques in Akron and retailers should learn branding and distribution in Bentonville and Park Slope.

In this century, economic competition between countries is less like the competition between armies or sports teams (with hermetically sealed units bashing or racing against each other). It’s more like the competition between elite universities, who vie for prestige in a networked search for knowledge. It’s less: “We will crush you with our efficiency and might.” It’s more: “We have the best talent and the best values, so if you want to make the most of your own capacities, you’ll come join us.”’

Get Fat!I think Mr. Brooks has put his finger on how the U.S. has got to change its thinking.  It’s got to be about persuasion in the face of multiple alternative choices for where creative people build businesses.  Singapore and Chile, for example, get that in spades (albeit they are at different stages of development of their respective entrepreneurship and educational environments. As an American, it is with some chagrin that I believe we have a secret weapon and competitive advantage we have yet to deploy: Madison Avenue.

Singapore’s Ministry of Trade & Industry spent roughly 2.6 billion USD, most of which goes to promoting and enhancing Singapore’s competitive standing in one way or another.

Singapore has only 1.6% of the U.S. population.   To match Singapore, the U.S. would have to spend 161 billion USD; and to my knowledge we have no comparable integrated governmental entity to Singapore’s MTI.  We ought to be seriously rethinking our branding and market positioning strategies.  Where is our Don Draper?

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Founders Institute talk on outsourcing “gotcha’s” and SE Asia

Founders Institute was kind enough to ask me to come up to Palo Alto and join two other mentors to talk about outsourcing for startups. I’ve had a fair amount of exposure to the process in the past and lately I’ve spent time visiting outsourcing providers in South East Asia, some of which is mentioned below in other posts. It was great fun to walk through a contract and then share some of what I’ve learned in Asia. Perhaps most gratifying was a note from a 2nd generation Vietnamese entrepreneur:

“I would like to thank you for your presentation last night on contractual considerations and offshoring to SE Asia. I never really considered SEA vendors, but when you highlighted two vendors from Vietnam, that made me do a double-take as I was surprised to see any recommendations come out of my parent’s native country.”

In other interesting news, Founders Institute is expanding to South America.  A relative has been bugging me about Chile for some time–he says it is a very happening place from a techno-entrepeneurship point of view.  And I used to knock around Brazil and Central America years ago.  May have to go take a look!

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PROVISIONAL patent applications and startups

Techcrunch’s Vivek Wadhwa has an interesting piece on the challenge presented by the huge volume of Chinese patent applications.  Google ‘Chinese patent applications’ for news, look at the numbers, and you will get a sense of what the fuss is about.

When I was trained as a patent attorney there was a sense that provisional patent applications were not a serious tool, and my feeling is that many patent attorneys continue to ignore them; provisionals are not a moneymaker for patent attorneys and they don’t, without further (expensive) action, mature into patents, which makes them difficult to justify for corporate legal departments.  But in the process of mentoring startups I’ve come to have a greatly increased appreciation for PROVISIONAL patent applications. It lets innovators ‘draw a line in the sand’ for very little money (typically about 500 USD all-in).

Provisionals establish that you’ve developed something at a particular point in time. You have a year to assess whether the innovation is commercially viable and raise the money to do a full patent application. And most importantly, it IS a recorded document that will be recognized worldwide as prior art and will be helpful in the instance of another filing a patent application on the same innovation.  So even if you never file a full patent application an inexpensive provisional patent application will protect your right to practice your innovation.

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great talk on website design for lawfirms and other professional service providers

I’m admitted to practice law in California, Washington D.C. and before the U.S. Patent & Trademark Office.  All of these institutions encourage continuing education.  The California Bar requires active members to periodically certify a rather modest number of classes.  For me, it is a chance to take a look at areas I have not thought about for a while.  This year, for example, I boned up a bit on Trusts & Estates.  But one class in particular really held my interest:  An absolutely fabulous hour-long conversation/lecture given by a team of an attorney and an experienced website developer.  It was so good that I contacted the gentlemen and asked if I could reproduce it here.  They were kind enough to agree. And so, without further ado, here are Mr. Jason Castillo and Mr. Jose Rosa:

Rosa / Castillo talk on Due Diligence in selecting lawfirm web design firm.

Part of the reason I am putting it up here is my belief that lawfirms and other professional service providers in Asia and the Middle East sometimes do a less than stellar job of providing usable websites.  Even large Asian and Middle Eastern practices fall afoul of some of the issues discussed in this talk.  And moreover, many of the thoughts here extend beyond the legal profession and apply generally to any professional service provider web presence.

You can reach Jose Rosa via WebJuris, and for those U.S. attorneys out there, you might consider Jason Castillo’s AttorneyCredits service.  I aver it was the most pleasant and painless MCLE service I’ve tried in 20 years at the bar.

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IF by Rudyard Kipling

I’m back in California.

My Dad’s family were great collectors of books, usually particularly nice editions.

I ran across this 1910 postcard-sized booklet of Kipling’s famous ‘IF‘ and thought I might share it here.

I posted this because I liked it, and I posted it here because several of the thoughts apply to entrepreneurs.

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