Thriving in an Economic Winter by Gordon Hester

Surviving and Thriving in a Economic Winter

We are reminded everyday that we live in an economic climate filled with adversity and chaos. It is a time where many people are suffering, have great fears about the future, and are looking hard for answers. Unlike many economic winters, this was has the potential to have major challenges. Governments around the world are pumping money into the financial systems to prevent collapse and begin a turnaround of the World Economy. No one knows what the future will hold but we are clearly living in unprecedented financial uncertainty. You cannot even pick up a newspaper or magazine today without reading about the economic winter, the damage it is inflicting on our economy and people, and the potential consequences that lie ahead for all of us. It is truly a scary time.
In my 20+ years in business, I have never spent so much time reading on the economy, monetary policy, deflation in Japan, the Great Depression, and anything else that helps me understand and navigate these tough times. However, unlike many, my focus is not just to survive. Actually it is quite the opposite. The more I read and more I understand about economic winters, the better I understand that these times create the greatest opportunities in society. The key is to find those opportunities and take action. History has taught us that adversity and chaos are often the catalyst for opportunity. While many suffer from economic winters, there are people who make great fortunes during these times. It is this unique group that steps away from the crowd and finds opportunity in even the toughest of time. This is that rare group that can find opportunity in any cycle or any season.
My message today is a simple one. First, you need to understand why there has never been a more important time in your life to take self responsibility for your financial future. However, taking responsibility is not enough. You have to know how to win the game. That is the second part of my message. Not everything or everybody suffers during an economic winter. I think when you get done listening to this tape, you will understand where to look for answers and how you can position yourself to actually survive and thrive in this economic winter.
The more I learn about the current economic crisis, the more I am reminded of the fact that most people have no idea on how the challenges we face as a Country could affect their lives.
Last week the guy who cleans my pool said the government was crazy to be bailing out our banks. He went on to say, they should just let them fail for their greedy actions as he nodded his head in disgust. I thought to myself, he has no clue. If the government didn’t bail out our failing banking industry, people would be cleaning their own pools, because they would experience financial devastation that we have not seen since the Great Depression.
Let’s take an honest look at what is really going on in our economy and its potential side effects. Let’s look at 7 specific issues that will impact all of us.
First, our financial industry is suffering from the greatest decline since the Great Depression. While the stock market has dropped more than 50% from November 2007 to November 2008, the financial stocks have dropped at a much greater pace. Lehman Brothers, a 125 year old Wall Street giant, has gone bankrupt. The list of problem banks is at historical levels. The Fed is pumping money into all the major banks. In the last 52 weeks, Citigroup has dropped from a high of $35 to a low of $3. That is an 85% drop in value. Bank of America over the last 52 weeks has seen a high of $47 to a low of $10. That is a drop of almost 80%. Even our largest banking institutions are only surviving because of a government bailout so big it has required our Federal reserve to DOUBLE their balance sheet assets in less than 60 days. However, the problems don’t stop in the US. Major banks all over the world are in trouble and only surviving because the governments and central banks are helping them through these historically difficult times. Iceland had their currency basically become worthless in October 2008 simple because their banking system failed. What does all this mean to each of us? Who knows? However, the last time we had major bank failures in this Country was during the Great Depression. The financial system is a core part of the economic engine. When it struggles or even fails, the consequences are often beyond comprehension. I think it is safe to assume that governments around the world will do what is necessary to preserve our financial system. However, if history proves correct, the taxpayers will end up paying for all these bailouts. No one knows how much burden will fall on the shoulders of taxpayers, but I have read estimates that top tax brackets could go back to historical highs which have been over 90% in the US.
Second, stock markets have ravaged trillions of dollars from people’s net worth in just a few short months. As I mentioned before, the stock market has dropped over 50% in the last year. In 2008, the stock market has given back all the gains it got from 2003-2007. This is not the worst drop in history but certainty much higher than a typical recession. History demonstrates that the greater the drop, the longer it takes to recover. Let’s look at some of those periods. After a 48% drop, it took 9 years from 1907 to 1916 for the market to recover. After a 37% drop, it took 18 years from 1965 to 1983 for the market to recover. Going into 2000, the market had dropped 39% and took 7 years until 2007 to recover. However, in the worst economic winters, the situation can be much worse. Let me give you three examples. In the Great Depression, the market dropped 89%. It took 25 years to recover that loss. If you look at Japan, their stock market, the Nikki, dropped 90% in the 90’s and 19+ years later it is still not come back. Actually, their stock market today is at levels that it was at in the early 80’s. Even our own NASDAQ lost 71% during the Dot Com bubble and has not recovered for 8 years. Rest assured, the stock market problems are not only in the US. As of December 2008, 41 of the 42 global markets are down by at least 40% from their bull market highs. In 2008, the value of stock markets around the world has fallen by almost half and is now $30 trillion below its peak. While these might just seem like numbers, they are real problems for people that were financially devastated or unprepared for these economic winters. When you couple a bad job market, with a society that is riddle in debt and living paycheck to paycheck, you begin to understand this economic winter is going to present challenges and promises that many of us have never seen during our lifetime. One of the worst realizations about the devastating impacts this has on our economy is with the Baby Boomers. Remember, 2008 is the first year the Baby Boomers qualify for social security. Every 90 seconds another Baby Boomer reaches retirement age. Sadly over 90% of them have saved less than $100,000. You are talking about a facet of our demographics that represents almost 30% of the population. Sadly, even those who prepared for retirement have been impacted by this quick and massive drop in net worth due to the markets and real estate. No wonder studies and surveys indicate that 4 out of 5 baby boomers will continue to work in the future. We will probably begin to see a paradigm shift in our society as the concept of “retiring at 65” becomes a benefit for a selected few vs. a concept that applies to the masses. Baby boomers will continue to work because they have no choice. Equally, this will even put more pressure on the employment markets as more people compete for less jobs, and likely for much less pay.
Third, while stocks don’t impact everyone, for many they will start to feel the impact of the economic winter in the job market. Unemployment is going up and has the potential to get a lot worse. From December of 2007 to December 2008, the US Economy has lost over 1.9 million jobs. In that time period the number of unemployed has increased by 2.7 million leaving over 10.3 million people without work in just a one year period. This would include an alarming decrease of a half million jobs that vanished in November 2008. That makes this winter the worst mass layoff in over a third of a century. Citigroup laid off 25% of its entire workforce. Other corporate giants like JP Morgan, Dupont, Hewlett Packard, the big 3 US automakers and AT&T ,just to name a few, are slashing job to the bone as they try to cope with sagging appetites with consumers and businesses around the world. How bad can it get? In a typical recession, unemployment generally stays in the single digits but has exceeded 10% in the past. For example, in the 1981-1982 recession that lasted 16 months, unemployed reached 10.8%. However, if you want to get a perspective of how bad it can get, just turn back the clock and look what happened during the Great Depression. At the start of the Great Depression in 1929, unemployment was 3%. By 1933, unemployment has reached 25%. That means 1 out of 4 people could not find work in just a 4 year period. Unemployment grew over 800% and historical amounts of Americans were left looking for a job to support themselves and their families. Many could not find work. For those that did find work, it was at reduced rates or part-time. How long was it this bad? Remember, unemployment remained in double digits for the rest of the decade only fully recovering with the advent of World War II. It was truly the darkest of days for those how depended on a job to survive and take care of their families. Some analysts predict this current economic downturn could create an additional 3 million lost jobs between December 2008 and the spring of 2010. As Richard Yamarone from the Argus Research Foundation noted “The economy is in a free fall. It is as if someone flicked off the switch on hiring. Considering the magnitude of economic and academic experts who think we could be headed to one of our worst economic winters ever, you have to assume unemployment has the potential to get a lot worse.
Fourth, the real estate market is being devalued at a rate and speed that has never been seen before in our Country. Foreclosure rates are at record highs. According to the Mortgage Bankers Association, as of December 2008, a record one of out of 10 American homeowners with a mortgage was either at least a month behind on payments or in foreclosure at the end of September. Inventories of properties for sale are at record highs. Banks are on the sidelines and people are afraid to borrow money. Even the top economic expert in the world, Robert Schiller for Yale, said we have not seen the bottom of the real estate market. However, this is just not a US problem. According to the Economist, 23 of 45 countries say sharp decreases in the value of residential real estate in 2008. Sadly, many economists are now predicting the commercial real estate devaluation is just around the corner. You have to remember that real estate is the largest proponent of net worth for the average person. People are watching equity disappear by the day. For many, they have mortgages that are significantly greater than the value of their properties. For many of them, the rates on their mortgages are adjustable which could make the situation even worse in the near future. Since I own a lot of real estate, I went back to find sometime in our recent economic history to get a profile on how quickly real estate would come back after a major devaluation. For many of us, we assume real estate will rebound quickly and it will be life as we knew it in the past. However, if you look at what happened in Japan as a profile for how long it takes a struggling economy to recover, you will see a much different picture. Their real estate dropped by 80% in the early 80’s and it is still at those levels. I actually went to a lecturer a couple weeks ago with one of the leading socioecononomic experts in the world, Robert Precthter. He spent his life studying cycles and feels real estate will not hit a bottom in the US until it reach 1974 prices. For all of us, this means real estate is no longer a means to borrow money to support our lifestyles or the one asset that will allow you to retire over time. Trust me when I tell you the darkest days of real estate are ahead of us, not behind us. It will take massive government intervention to stop the devaluation of real estate and speed up the pace of recovery. We can only hope our government will be successful in stopping this process so our real estate begins to strengthen the net worth’s of our citizens vs. continue to devalue it.
Fifth, we are seeing record low consumer confidence numbers. In October 2008, the Consumer Confidence Index hit its lowest point in history. People are losing faith in the economy and fear has become the norm. Why is this important? Because consumer spending makes up about 70% of our economy. Their confidence levels are a major factor in the direction of the economy. Consumer have low confidence all the 5 areas that make up the consumer confidence index - Current business conditions, Business conditions for the next six months, Current employment conditions, Employment conditions for the next six months, and total family income for the next six months. When consumer confidence is low, consumers slow down spending that this impacts every aspect of our economy. They slow down borrowing money which even worsens our current banking condition. Change begins with consumers and right now they are scared to death. Worn out consumers battered by job losses, shrinking nest eggs and tanking home values have retrenched, throwing the economy in a tailspin. Unless the confidence and economy take a turn in the positive direction, consumers will continue to tighten their spending and drag the economy down ever more. It is a vicious cycle that Washington policymakers are trying to break because they know the consequences of a continued decay in consumer confidence.
Sixth, our government debt is at record levels in amount and as a percentage of our GDP. Historically it is at alarming levels. During the Great Depression, we had about $3 of debt of each dollar of GDP. Now, we have $5 in debt for every dollar of GDP. Just like our debt, if you owe money you have to pay interest. Debt on the government debt is at the highest level ever. What is even scarier is that there’s an exploding budget deficit and the ballooning bailout commitments of the US Treasury. If you look at all the commitments made in the recent bailouts strategies of the Fed, it has committed $7.8 trillion which would include some major items like $620 billion for industrialized nations, trillions in additional FDIC guarantee by raising the FDIC limits from $100K to $250K, $500 trillion to rescue credit markets, $200 billion in loans to banks under the Fed’s Reserve Term Auction facility, $200 billion to save Fannie Mae and Freddie Mac, over $600 million directly to large banks including AIG and over $300 billion to the Federal Housing Administration in a rescue bill to refinance bad mortgage. And that is only part of the list as of December 2008. The amount of money and the speed they are pumping it into the system has caused the Fed to increase their balance sheet from $900 billion to $2.2 TRILLION from August 2008 through December 2008. That means the Fed is now a larger lender than any commercial bank. You don’t have to be a rocket scientist to understand that more and more of our tax dollars are necessary for interest on debt and bailout, the higher the probability that taxpayer will pay for these actions. You can make your own conclusions about whether governments can control their spending. Since 1968, we have only had 5 years with a surplus budget. All the other years the government spent more than they brought it. During that same time when we are the government is spending all this money; our taxes were dropping from a top tax bracket in 1968 of 75.5% to our current rate of 35%. When you look at these facts it isn’t hard to see how we owe so much money as a Country. But here is the problem. You cannot borrow forever and you certainly cannot borrow yourself out of debt. The governments expenses keep growing every year and we have not even addressed major issues like Social Security Reform, Pensions reform, a national healthcare crisis and terrorism just to name a few. In the end, taxes MUST be higher because that will be required to solve these problems. I would encourage anyone who doesn’t understand how bad the tax burden can get for all of us, go back and look at the history of tax rates since 1913. You will find that our current tax rates are historically low. The high end of the tax bracket has historically been over 70% and in 1944 actually reached 94%. Once again given the probability of higher taxes, I am talking about payroll and income taxes, and the inability of the government to step in to help the economy and all of us, there is no better time to begin looking for answers so that we can take control of our futures.
Finally, for many, they are being to hear about a new possibility that we face in the future. That possibility is called Deflation. For the consumers, this often looks pretty good. You don’t have to look beyond the gas pumps to how deflation can produce positive results. However, deflation is one of the most difficult economic cycles to fix. Once this process starts it often takes no prisoners. Price drop, wages deflate, assets get cheaper, credit shrinks and society changes. In the Great Depression, real output dropped 28% between 1930-1932. It took 43 months before the economy stopped its free fall in the Great Depression and almost 2 decades to begin to establish positive economic long-term growth again. Fortunately, inflation ended that cycle but it took unprecedented government intervention and World War II to turn the economic cycle in a positive direction again. In Japan, deflation became the foundation for a 20+ year down economic climate that still exists today. Their stock markets dropped 90% and are at those levels even today. As I mentioned earlier, their real estate dropped 80% and never came back. Interest rates dropped to zero. Some of their largest banks failed because there was too much debt and people couldn’t pay it. Even today their banking system is shaky. You have to remember that long term deflation has a negative impact on everyone. Businesses pull back. Saving takes priority over spending and the economy remains dormant for years. We are already seeing signs of deflation. However, given the large amounts of money the central banks of pumped into the system, inflation should replace deflation in the future. If not, we could be looking at one of the worst economic winters in the history of our country and possibly around the world.

Let me share with you just a few thoughts quotes from some leading businesses leaders in the US. Fred Smith, the founder and owner of Federal Express said this recession “is by far the worst I’ve seen in my 35 years in business. It’s just one right off the cliff”. Robert Nardelli, who runs Chrysler, said “I think we’re going to face historical challenges of epic proportion. I hope we’re able to hold it at a recession”. Even business leaders in stable aspects of our economy like healthcare are seeing the impact of this economic winter. Ralph de la Torre of Caritas Christi Health Care said “I think there’s going to be a pretty substantial consolidation in health care. As many as 20% of hospitals could close. There’s going to be no capital spending for at least the next year or two. Even companies that should be stable due to the necessity of their product or services to the masses are seeing the impact of this economy. Lewis Hay of Florida Power and Light recently noted that “Our customers are cutting back and they’re not paying their bills. Probably 25% of our customers are past due. Trust me that even the best business leaders in the world are suffering from this economic winter and have concerns about how bad it will get in the future.
The reality of this economic winter is that it could have catastrophic consequences for all of us. However, I told you at the beginning of this message that part of what I wanted to do was to some you a place to win the game in an economic winter. As the old adage goes, adversity and chaos are often a catalyst for opportunity. As the government takes steps to change the direction of the economy and soften the blow to all of us, you really have two choices. First you can sit back and wait to see what happens. Second, you can start today to take more responsibility for your own financial future and begin to look for answers that not only help you survive this economic winter, but turn it into one of the greatest opportunities of your lifetime.
With all that I have studied and all that I have learned in the last 20+ years in business, I believe one of the greatest areas of opportunity is small business.
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I don’t think people realize the impact of small business on our economy so let me share with you a couple facts that might provide you some insight.
If small business were a separate economy, it would be the world’s largest, trailing on the U.S. as a whole and Japan. While it might be called small in one respect, "small" is not a good word to describe the impact it has on our economy and society.
Small business produces over 50% of the private GDP. In other words, small business is on the leading drives of our economy.
In the last decade, small business has produced 60-80% of the net new jobs annually. When we you factor firing and jobs created, small business employment has a bigger impact on our economy than large business or government.
Many people don’t realize that the biggest part of small business is home based businesses. It actually accounts for over 52% of all small businesses. People working from home have become one of the fastest growing components of the Small Business Revolution and should continue to grow in the future.
But small business is nothing new. As of 2007, there are 27.2 million businesses in the US. That same year the US Population was just over 300 million people. If you do the math that is a small business for one out of 10 people. Look at that in perspective to the impact of small business on the economy and you can see that something that only 10% of our population does creates more positive growth on our economy and employment that any other aspect of our society. Obviously the real impact and numbers is much greater because part of our population is kids and adults that cannot work. That means that small business is only a major part of our society, but it is also one of the most productive parts of our society. Most impressive, the concept of small business and capitalism has spread like a wild fire around the world. Today, small business is a large part of any capitalist society and we are only at the beginning of that trend.
Interesting enough, small business is DOMINATED by single-person businesses. That segment of the Small Business Community represents about 78% of ALL US businesses.
Even more impressive, only 25% of small businesses fail. It is a proven choice that rewards 75% of the people who make it.
When you look at all the facts, you start to understand how important Small Business is to our economy. But we have to re-visit the big question – why do people turn to Small Business in Economic Winters? The answer lies in the reality is that Small Business allows people to (1) take control of their future, and (2) pursue a future that provides an opportunity for greater financial reward.
Small Business elevates in bad times because people get an ugly reminder of how working for others can impact their financial stability. They realize the consequences of dependency and the value of self responsibility. They realize that a loss of work and an economy that provides no solutions force them to find their own answers. In the end, they realize that small business is not only a means to win in an Economic Winter, but one that can provide rewards beyond their wildest dreams during and after bad economic cycles.
While necessity might drive the movement toward Small Business, it is the rewards of making more money, taking control of one’s life and having the time flexibility that anchor the decision to own a business. People start to understand the value of being paid for their efforts vs. having others make a fortune off their efforts. People start to understand how taking control of their financial future gives them strength as a person, allows them to influence more people, allows them to contribute at a higher level, allow them to elevate their lifestyle, and creates a vehicle to provide more opportunities for their kids and the community. Their experience with Small Business that was born in an Economic Winter now becomes a life time harvest for them, their families and their communities.
However, there is one important caveat to this story. Even though small business is a good place to find opportunity in an Economic Winter, not all small business opportunities are the same. There are factors that separate a good small business opportunity from a bad business opportunity. Let’s just look at the profile of the good small business in an economic winter.
First, the right opportunity is one that has Low Investment Costs. In Bad times, people are strapped for money. Often these people have little saving or investments so they really don’t have large sums of money to invest in anything. Banks traditionally tighten credit so borrowing money to start a business is pretty tough. This is especially true in our current economic downturn. Even with all the money pumped into the system by the central banks around the world, banks won’t lend and people are afraid to borrow because they have too many financial problems and too much financial uncertainty. Often the financials damages people suffer during an impact carry over even after the Economic Winter. Even when times get better, often the choices are limited for many because of what occurred to them during the Economic Winter.
Second, there is an old adage that I find very true when it comes to opportunity – to dine with the classes you have to cater to the masses. Small businesses that do well in bad times tend to market a product or service that caters to the majority of the marketplace. It kind of makes sense if you think about it. There is always safety in numbers. However, when financing inventory becomes part of the business model, then the opportunity is watered down because the business requires financing or large capital investments to survive.
Third, since the majority of people have limited money to put into a business, small business with limited or no fixed expenses put the probabilities of success much higher. History and studies show that businesses take time to succeed. One of the critical factors to shorten this time is to limit costs at the beginning. The perfect small business in an Economic Winter does NOT require the owners to commit to huge fixed expenses in order to make their business profitable. Instead, the perfect small business keeps fixed expenses low and creates profit in a much shorter period of time and without the on-going.
Fourth, the right small business caters to part-time people. It allows those who require full time income to use this income to survive while giving them the time flexibility to work their small business to create additional revenue. This is a critical factor when considering a business. What can be better than working full time on paying your bills and part-time on chasing your dreams? What can be better than being able to continue paying your bills but taking time outside of work to build an additional source of income and a potential vehicle to replace your job down the road? This type of thinking makes sense in any economic climate. However, in an Economic Winter, reality requires people to pursue small business opportunities that fit these criteria.
I am sure anyone who is listening to my message understands the concept of not having all your eggs in one basket. One of the greatest benefits of small business is that it allows diversification. The first type of diversification it allows you in income diversification. In other words, it lets you make income in a different manner than your job or other opportunities in your life. This is a means of risk protection where a downturn in a job or market doesn’t take you down with it. While you might have a manufacturing job, you might have a small time supplement business that thrives as the manufacturing industry slows down. Second, it adds geographical diversification. The right small business in an economic winter allows you to market products and services outside where you live. It gives you an opportunity to have an international business.
Sixth, the right business in an Economic Winter has a very short learning curve. In other words, the average person can succeed vs. having to spend years developing skills to be able to succeed in any business. Remember, time plays a critical role in an Economic Winter. The right Business model allows you to succeed quickly vs. spending years figuring how to get the skills you need to succeed or the experience to make a business make a profit.
Finally, the right small business in an economic winter has no ceilings on what you can earn. It is a business that has the ability to pay you for your value but equally the ability to build passive income from the value of others. It is not a business that trades dollars for hours but instead creates endless income opportunity because you are paid from the efforts of others. Maybe those efforts are from affiliate relationship on the internet, maybe they are from employees, or maybe they are from other like-minded entrepreneurs. Regardless of which model fits best for you, when you can get paid without sacrificing time, then you have the right small business.
As you can see, this checklist limits much of the small business world. So what type of industry in the world of small business allows me a low investment, a large audience of customers, low fixed expenses, flexibility to work on one’s own time constraints, the ability to work part-time and maybe have a full time opportunity down the road, the ability to diversify my income, the ability to build internationally, the ability to turn a profit quickly and no ceiling on what a Small Business owner can earn from my their business?
While I am not a participant or business owners in this industry, one area of small business that clearly fits this checklist is Direct Sales.

Direct Selling is the sale of a consumer product or service, person-to-person, and away from a retail location. These products and services are marketed to customers by independent salespeople. Unlike other marketing and business models, these independent salespeople get compensated for being the DIRECT bridge between the end consumer and the provider of a product or service. In other words, it is a marketing system that eliminates layers of middlemen and allows the (1) company to bring a product or service to the end consumer in a competitive and affordable manner, and (2) allows salespeople to earn commissions vs. having marketing costs be paid to these layers of middlemen.
The concept of direct sales is nothing new. It has been around since early civilizations like Egypt, Syria and Babylonia. Direct Sales has been long-term part of the history because it originates around man’s basic need for the DIRECT exchange good and services. While today’s direct sellers use doorbells, catalogues, internet, and other modern communication tools, the concept of selling a product or service directly to an end consumer is as old as the beginnings of time. Many that misunderstand direct sales often think it is a pyramid system. This could not be any farther from the truth. There is massive legal precedent and regulation that makes the direct sales business model an opportunity throughout the world.
I think to better understand the Direct Sales Industry; you just need to look at some of the statistics that define it.
55% of American adults report having, at some time, purchased goods or services from a direct sales representative
In a 2000 survey, one in 5 American adults reported they are now or have been a direct selling representative. That means 20% of all American adults are either current or previously involved in owning a direct sales business.
Direct Selling, as an industry, is practiced in over 100 countries around the world today including every major western country.
In 2007 it is estimated that worldwide retail sales by its members accounted for more than US$114 Billion through the activities of more than 62 million independent sales representatives.
Regardless of the economic, political or social climate, Direct Sales has been growing domestically and international almost every year since 1991. Keep in mind that this growth is in both retail sales and number of salespeople involved in the industry.


In the end, Direct Sales industry is a proven industry that has stood the test of time. It has a major impact on economies around the world and will continue to grow in the future. The facts might indicate the size and importance of Direct Sales as a business model. However, let’s go back to our checklist of the right small business model for an economic winter to get the full picture of why Direct Sales can be a key place to thrive in an economic winter.
Direct Sales has one of the low investment requirements of any business model in the world. Often the investment is less than $500. Even better, most Direct Sales companies offer money back guarantees to the investment is really only your time. It does not require bank lending, fancy business plan to attract investors, or huge risk with one’s savings. For most people the initial investment can be taken from their checking or even put on a credit card.
Second, if you look at the typical products and services offered by Direct Sales companies you will see they are actually products and services that everyone needs and wants. Products that are often marketed in Direct Sales include nutritional supplements, household goods, clothing, cosmetics, jewelry, skin care, toys, and a host of other common products. Services that are common to direct sales include insurance, travel services, financial services, and legal services. While often many of these products and services are offered in other marketing models, the direct presentation of the product or service to the end consumer allows the products to be demonstrated and often sold much cheaper because of the limitation of so many middlemen in the selling process.
Owners of Direct Sales Business often have extremely low or no fixed expenses. There are two reasons for this phenomenon in Direct Sales. First, a large majority of Direct Sales businesses are actually home based businesses. Not only does this eliminate fixed expenses, but it provides huge time flexibility. Second, Owners of Direct Sales companies are typically distributors for parent companies that provide a product or service to the distributor. These companies provide massive amounts of support. Their focus is 100% on the success of their distributors. They provide accounting for distributors. They provide the research beyond their product or services. They provide customer support. They provide training for Direct Sales business owners. They provide all the sales and marketing tools. They provide an internet presence and visibility of the product or service for the business owner. It is not uncommon to find Direct Sales companies spending tens of millions of dollars a year and providing hundred of support staff simply to insure their Direct Sales distributors are a success. I have studied just about every business model in the world and I do not believe there is a business model in the world that provides so much value for such a little investment.
The Direct Sales Business Model provides huge time flexibility. Remember, the most treasured asset that people have and struggle to manage is TIME. While they want to pursue other choices in their life, time and money often determine the boundaries of your choices. I have probably taught in excess of 10,000 entrepreneurs over the last 10 years, I have yet to meet just one that didn’t struggle with managing their time. I think that is why I am so often requested to teach and coach entrepreneurs on time management. According to the Direct Selling Association, a typical direct sales business owner works 1-4 hours per week. It probably then is easy to understand why almost 90% Direct Sales owners work part-time. Even with the heavy emphasis on part-time entrepreneurs, there are a world of success stories with Direct Sales Business owners that work full time at their business. Direct Sales allows people to work when they want and as many hours as they want to commit to their business. For many mom’s, it allow them to work at home, raise their families, and continue to contribute financially to their families. For many people that work full time, it allows them an opportunity work additional time outside their full time job building a better future for themselves and their families. Also, I think people fail to realize one of the best benefits of Direct sales is how it provides flexibility AFTER you build a successful business vs. just when you start one. Because you are paid on relationship with customers and other business owners, often a successful direct sales business become the holy grail of passive income. I have seen countless business owners in direct sales who have full time incomes and sometimes fortunes that get paid whether they are working or doing something else in their life. There are very few businesses that allow true passive income. Direct Sales is one of those business models.
How does the Direct Sales create Diversification? First, often those who have a Direct Sales business that market a product or service are attracted to a Direct Sales company as a customer. They find so much value in the product or service that they want to market it. Most of the time, this product or service is outside of their current line of work. In other words, their Direct Sales Business creates a new source of income and one that is different than their job. Often, because a love for the product or service is what drove them to the opportunity, their Direct Sales business becomes a labor of love vs. a job. While necessity might drive their reasons for keeping a job, passion is often the fuel for their Direct Sales business. Often these businesses create more than just a diversification of income. They become the source for new relationship and life-long friends. It is this aspect of Direct Sales that is often ignored. Remember, in bad economic times, people depend on each other. Since Direct sales is a relationship business, relationships often become as important as the financial success of their business. However, diversification doesn’t stop with income and relationship. Another huge source of diversification is global expansion. We live in a global economy so the ability to expand beyond your own borders profits both stability and opportunity. As I mentioned earlier in this message, Direct Sales exists in over 100 countries. Worldwide sales annually exceed $110 billion and there are over 62 million Direct Sales businesses around the world. What is exciting about Direct Sales is often the global expansion is a result of the work and investment of others. Your income is a byproduct of their work and effort. For many, international expansion is a means to have a tax deductible vehicle to see the world. In the end, the possibilities of where your small Direct Sales business can go are endless.
One item on the checklist is a short learning curve. In other words, the business owner needs to be able to turn a profit quickly, especially in an Economic Winter. Direct Sales Business typically has a very short learning curve and a very small time window to turn a profit. While traditional businesses can take years to produce a profit, it is not uncommon for direct sales business owners to turn profits in weeks. In reality, time is the biggest enemy to a company in an economic winter and a short learning curve speeds up the process from turning your investment into a profit. But why is that the case? First, the Direct Sales parent companies offer so much support that the Direct Sales distributor can focus their time on marketing of the product or service. In other words, they are not bogged down with all the other typical interruptions found when you own a business. Second, most Direct Sales companies have proven sales models and systems. Because of these systems, Direct Sales distributors can be quickly trained to successfully market a product or service. It does not take years of education to follow a simple sales system. Anyone can do it. Education doesn’t determine success. Instead, Success is determined by effort. You will find successful Direct Sales businesses where owners never got through high school and others who have PHD’s. Equally, you will find success regardless of race, gender or age. Because the business model is so easy, it caters to anyone. The real key to limiting the learning curve for a Direct Sales company is to follow the proven sales models and some basic training. After that, it is all about the discipline of following the proven plan and system given to Direct Sales Distributors from their parent companies.
Finally, we come to the last point. Direct Sales is a business model that has no income ceiling. Let me explain why. What controls your ability to produce unlimited income? The answer is time. So how do you take time off the table? By learning to profit from relationships. Maybe those relationships are customers who are on auto reorder programs where the Direct Sales parent company does all the work and you get a check every month. Maybe those relationships are other Direct Sales business owners who you have introduced to the same business. As they succeed in their business, you continue to get paid on their efforts. Either way, there are no limitations to the number of relationship you can have in a Direct Sales business. In my 20+ years of business, I have known numerous people who earn $100K per month from relationships. Not only is this passive income for them, but it continues to grow over time regardless of whether they are involved in the management or expansion of their business. Their direct sales business became the source of their wealth and the vehicle to have time freedom in their life. Of course the average person does not make this kind of money. Their rewards from relationships and their efforts are much smaller. However, the potential is there for unlimited income.

I think there is one more important point I can make at this time and it might be the most important aspect of this particular economic winter. The recruiting pool for people looking for opportunity has never been greater and never had more talent. There are more and more people searching for income opportunities. However, unlike no time in history, the experience, skills and desire for this group is unparalleled. The talent pool is massive and looking for an outlet to turn their skills and experience into opportunity. To me this means the process of building success will be faster and produce much greater results than in the past. When you have this much talent looking for a home, results are bound to follow. For those in the Direct Sales business and those thinking about starting a direct sales business, you are in the right place at the right time. You will see a rapid growth that will be greater than any time in history. It is this industry that will allow you to Thrive during this Economic Winter.

Let me take a minute and recap what I have covered in my message today. First, I discussed why there has never been a greater time to take Self Responsibility that right now. You and your family’s financial future are at risk if you don’t take some action to take ownership of your financial future, you might suffer some extremely bad consequences. Second, no one knows the extent or time of this Economic Winter but it has the potential to be one of our worst in history. Third, I went on to explain how Small business can be a good place to find opportunity. Fourth, I discussed the important characteristics to look at with a small business that would thrive in an economic winter because not all small business performs well in a bad economy. Finally, I introduced you to one facet of small business, Direct Sales and explained why this model was such a perfect fit for an Economic Winter.
I would like to thank each of you for taking the time to listen to my message. I can only assume that if you are listening to this message for a reason. Maybe that reason is that you have been displaced from their job and need an answer. Maybe that reason is that you have a different blueprint for their life, a different vision and are ready to pursue a new plan to make change. Maybe you are looking for a business and are trying to find the right one. I can only hope my message provided some insight and guidance in whatever you decide for your future. While no one can predict the future, history shows that taking control of your destiny not only puts the odd of success in your favor, but the rewards can be so much bigger than you could ever imagine possible.
I want to leave you with one of my favorite quotes from Albert Einstein. He wrote
The significant problems we have cannot be solved at the same level of thinking with which we created them.

Maybe now is the time to open your mind to new possibilities if you truly want different results in your life. Please visit my website, www. gordonhester.com if you would like a written script of my message today. I wish you the best on your journey to financial success.