The American Way - What Amway and Shaklee Had to do with the Popularization of Entrepreneurship

Richard DeVos died today. In 1959 he co-founded Amway with his friend Jay Van Andel. Like Shaklee - founded just three years earlier - Amway had an interesting business model. Rather than manufacture products to be sold in stores by someone else, these new businesses recruited sales people to be part of the business. The bad thing about the model is that it is wildly inefficient compared to, say, a Walmart where sales costs are so much lower and less labor intensive. The good thing about the model is that the product is being sold by people who can explain why it deserves a price premium and - most interesting of all - make money for recruiting people better than them.

My mother was in Shaklee [note that I'm not as familiar with Amway but think it generally has the same model] and one of the really fascinating things about it is that if she recruited someone who was downstream from her, she got some credit for their success. I don't know the exact formula but I do know that she partly had incentive to sell product and partly had incentive to recruit people even better than her. With the right people "downstream" from her, her income was enhanced. She was an entrepreneur (or at the very least a salesperson) who could make more money by recruiting other entrepreneurs (or salespeople) - some of whom might even be better than her.

I think this should be emulated by more traditional Fortune 500 firms. 

Imagine that when hiring someone to join the Fortune 500 firm, each manager wasn't just trying to recruit someone able to do the job and report to that manager. Imagine instead managers trying to bring on board "employees" who had the entrepreneurial drive or perspective that could result in their transcending their designated role to build the business. And imagine that these managers who hired employees who turned out to be even better at the entrepreneurial effort of building the business saw an increase in their income because of the success of the people they'd hired.

For one thing, managers would be happy to hire someone who quickly advanced beyond that hiring manager. You would be happy to have people who quickly outgrew a role and forced you to - sigh - go through the hassle of hiring again. For another, managers would do a lot to develop these new hires because of this incentive. (We invest in things that offer a return.) And the focus on the business would be less about finding people to fill roles in an existing business than in finding people who could build the business. This is not a bad mechanism (albeit just one mechanism) for the popularization of entrepreneurship. 

I kind of like the idea of this being the American Way (or as those two cool Dutch guys abbreviated it, Am'way). 

That's a fairly cool business legacy.