Reach out and make someone quite wealthy

Published Sept. 8, 1997|Updated Oct. 1, 2005

The hardwood floor of Paul Orberson's $600,000 condo is sprinkled with spare change. He's been rolling quarters. An odd hobby for someone who drives a bright red Mercedes convertible.

But his Baptist preacher father encouraged thrift. "My daddy used to tell me he was saving quarters so he could go to Hawaii," said 40-year-old Orberson in his native Kentucky drawl.

The younger Orberson now measures his success in millions rather than quarters. Sporting denim cutoffs and Nike flip-flops, he reclines in a soft leather chair to watch the CNBC stock ticker. His favorite holding is Excel Communications Inc., the company that turned this former history teacher and high school basketball coach into a multimillionaire.

Orberson is the company's top seller, thanks to his six years of driving through Appalachia and neighboring markets to hawk long-distance service.

The Dallas-based Excel uses multilevel _ or network _ marketing similar to Amway Corp. The unconventional method of selling phone service has rocketed Excel to the top ranks of long-distance providers in less than a decade.

It offers residential long-distance calling for a dime a minute, comparable to the other carriers. It is the nation's fifth largest long-distance provider with about 4-million customers, still peanuts compared with AT&T Corp.'s 100-million customers. Florida is Excel's third-largest market behind California and Texas.

Excel's rapid growth _ its customer base more than doubled between 1995 and 1996 _ has caught the attention of the industry. Some industry analysts credit the company's marketing plan for building customer loyalty at a time when 50-million consumers switch carriers every year.

But some question the company's tactics. The company was fined $80,000 in 1996 by federal regulators for slamming _ the practice of signing up customers without their permission. And it is being sued by a group of its independent representatives in Tulsa, Okla., who accuse the company of defamation and unfair competition. The case is in arbitration.

The company brushes aside the problems as unavoidable in any high-flying enterprise. But there are signs that its fast trip to the top might be in trouble. Revenue growth had stalled at 6 percent through June, down from a dramatic average annual growth rate of 350 percent between 1993 and 1996. Revenue leaped from $30.8-million in 1993 to $1.4-billion last year.

Part of the problem is that the company is not able to attract as many new salespeople.

This spring, concerns about growth and regulatory problems helped drive the company's stock to prices below its $15-a-share initial offering. The stock has since rebounded. It closed at $24, up $12{ cents, on Friday.

The renewed optimism on Wall Street comes with a recent acquisition that will give Excel more access to commercial long-distance markets. "I'm very bullish on the outlook of the company," said Farley Shiner, a telecommunications analyst with Scott & Stringfellow Inc. in Richmond, Va.

He estimates Excel will earn $1.76 a share in 1998. But earnings are expected to remain flat this year over 1996 when net income was $144-million, or $1.35 a share.

In May 1996, the company went public just eight years after it was started. The stock offering made founder Kenny A. Troutt a billionaire who ranks in the top 100 on the Forbes 400 Richest People in America list.

Not bad for someone raised in a public housing project in downstate Illinois by a single mom.

Troutt was a born salesman. As a teen, he started his own lawn-mowing business, employing his two brothers and cousins. While in college at the Southern Illinois University he was a part-time insurance salesman.

He went to Nebraska in 1970 to start a construction firm. Interest rates hit 20 percent, so he dissolved the company and moved to Texas. There he brokered oil until prices dropped to $8 a barrel in 1988.

That same year, one of his brothers introduced him to the next opportunity, telecommunications. The break-up of AT&T in 1984 created a cottage industry of resellers _ firms that buy excess long-distance time from other providers and sell it. Troutt merged this idea with a concept that had been around for decades, network marketing.

"Multilevel marketing in the communications business is a perfect marriage," Troutt said during a recent visit to St. Petersburg. "You don't have to ask anyone for money. You're just moving your long-distance business over to us."

"It's not about talent'

Troutt spreads this mantra at Excel sales meetings. Audiences greet him with standing ovations and boisterous whoops. At Excel's July meeting at the Mahaffey Theater of the Bayfront Center, Troutt, dressed in a black suit that hangs loosely over his thin frame, bursts onto the stage with lights flashing and music blaring. His slick, spiked hair glistens in the overhead lights. A pep-rally like spirit infects the crowd of 1,000.

They paid $10 each to hear Troutt and others preach about how Excel changed their lives. "It's not about talent and it's not about having the best personality," Stephen R. Smith, Excel's executive vice president of marketing tells the audience. "The potential in this opportunity is the same for you as it is for anybody else."

Orberson was invited to tell his story. As the company's top money maker, Orberson earns seven figures a year. He can't be more specific. Excel has to be careful about making claims about potential income, considering that most sales representatives' earnings are far less.

Indeed, 90 percent of people involved in direct sales _ multilevel marketing is the most common form of direct sales _ earn less than $5,000 a year, according to the Direct Selling Association, based in Washington, D.C.

The average Excel independent salesperson makes $300 a month, or $3,600 a year, Orberson said. The company has some 900,000 sales representatives, but only about 160,000 generate commissions monthly, Troutt acknowledges.

Orberson's tireless efforts when he started the business seven years ago are now paying off. He shows his 1996 tax return to a reporter to confirm that he's pulling in millions. "I get paid for what I started, not for what I do now," he said.

He was introduced to Excel in November 1990. At the time, he was teaching and coaching in the small town of Danville, Ky., where tobacco and basketball are kings. He supplemented his $35,000 salary by painting houses in the summer. He hated it.

A friend invited him to an Excel meeting. Orberson was skeptical. He worried that Excel was just another get-rich-quick sales pitch.

Besides, Orberson didn't have the $395 required to sign up with the company. "I had been teaching school for 13 years and didn't have the money," Orberson said. "That's a sad commentary on life."

But he trusted his friend and decided to dip into savings.

It took him two and a half weeks to find his first customer. Within six months, he was making $1,000 a month, and quit his teaching job. His mother cried when she heard the news. "I was scared to death," Orberson said. "But I said "Momma, I will make it.' "

He worked six days a week selling long-distance service and recruiting others. He had what he calls a milk route, hitting Huntington, W. Va., Nashville and Memphis, Tenn., Birmingham, Ala., and Paducah, Ill., on consecutive nights.

The travel schedule took its toll. Orberson was 60 pounds overweight and smoked three packs a day. He missed most of his son's high school basketball games and was never home to tuck his daughter into bed. He neglected his marriage; the couple later divorced. He started having anxiety attacks.

After two years, he was earning less than his teaching job. He was two months late on his house payment. "I left something I really liked to go into something that had no security," he said. "I thought I must be the stupidest person in the world."

But in late 1992, the weekly Excel checks started growing. The real money in multilevel marketing is made by recruiting other sales reps. This way, Orberson received bonuses and commissions off the sales of people in his distribution network. The commissions were as high as 5 percent of a customer's monthly long-distance bill.

He only convinced 39 other peple to join Excel as sales reps. But he helped them sign up others. He says his network is made up of more than 300,00 people.

Now Orberson travels one week each month as the unofficial celebrity endorser. He has no employees, except for his mom, who screens his business calls from her Danville home.

He spends another week in Kentucky, where his ex-wife, Carla, and 9-year-old daughter, Sarah, live. His son, Jeff, 22, attends Eastern Kentucky University and is also a sales representative for Excel. "He's majoring in finance, for what that's worth," Orberson scoffs.

He moved to Florida in 1995 to avoid paying state income taxes. He paid $900,000 in cash for a home in Avila, a hub for Tampa's elite. His ex-wife received the home in the divorce.

In Longboat Key, home is the 3,100 square-foot, second-story condo. He prefers not to rise before 9 a.m. Then he hops on the treadmill or plays tennis with his girlfriend, Sheryl McMorrow.

He's a Wall Street junkie. Orberson funnels most of his income into mutual funds and individual stocks. He doesn't trust financial advisers. Instead, he reads The Wall Street Journal and magazines for stock tips.

Orberson's status and his folksy appeal mean a cult-like following in Excel. "Everyone knows Paul," said David McKee, a St. Petersburg resident who joined Excel last November. Women often flock around him at meetings. "It's almost unbearable from my point of view," says McMorrow, 37.

Orberson's income has earned him the honorary company title of presidential director, one of only six in Excel. These directors get private quarterly meetings with company executives.

The recent news hasn't always been good. The Federal Communications Commission fined Excel in June 1996 for slamming two customers. The action led the Dallas Better Business Bureau to temporarily revoke the company's membership. A year before, the company settled a slamming charge in Florida for $10,000.

Slamming complaints against Excel have been on the rise, part of a widespread industry problem. The FCC says it has received 230 complaints against Excel so far this year, up from 134 in 1996. The FCC has received a total of 12,000 slamming complaints so far this year.

"You're going to have these things as you grow and mature," Troutt said.

Troutt is concerned with the company's ability to attract more sales representatives. In the fourth quarter last year, applications from new distributors fell 41 percent to 101,586 from 173,057 the year before. About 80 percent of representatives choose not to renew their contracts after a year. Excel no longer discloses how many salespeople it signs up but says that both morale and new recruit counts have improved.

The company's multilevel marketing practices have drawn scrutiny in other states. The Michigan attorney general's office launched a formal investigation of the company in 1994 for possible violations of the state's illegal pyramid laws. The agency withdrew its action after Excel agreed to change some of its marketing programs.

"These type of companies walk a very fine line," said Robert Ward, an assistant attorney general in Michigan.

The Florida attorney general's office has received reports of some overzealous Excel marketers hawking the company in their work places. "As long as it sells a service to consumers who are not themselves distributors, we don't usually have a problem with it," said Jim Lyons, a financial investigator in the economic crime division of the state attorney general's office.

More phone companies have found that multilevel marketing works well for selling their services. AT&T recently signed up with Shaklee Corp., a well-known multilevel marketer of nutritional supplements. MCI Communications Corp. is sold via Amway representatives.

Troutt hopes the marketing approach works well in the commercial sector, too. In June, Excel agreed to buy Telco Communications Group, based in Chantilly, Va., for $1.08-billion. The acquisition gives it a toehold in the commercial long-distance business.

Even more promising is the company's entry next year into the local phone market. Excel has received approval in 29 states, including Florida.

The company also has targeted services such as Internet access and digital broadcast satellites. Troutt has lofty plans to make Excel a big name like AT&T, MCI or Sprint Corp.

"We don't have the brand recognition yet," Troutt said at a regional sales meeting in St. Petersburg. "But we will."

Avoiding the pyramids

Here are several tips on avoiding illegal multilevel marketing plans, or pyramid schemes, from the Federal Trade Commission. The FTC cannot tell you whether a particular multilevel marketing plan is legal, nor can it give you advice about whether to join such a plan. For more information, see the FTC's Web site at /bcp/conline/pubs /invest/mlm.htm:

+ Avoid any plan that includes commissions for recruiting additional distributors. It may be an illegal pyramid.

+ Beware of plans that ask new distributors to purchase expensive inventory. These plans can collapse quickly _ and also may be thinly disguised pyramids.

+ Be cautious of plans that claim you will make money through continued growth of your downline _ the commissions on sales made by new distributors you recruit _ rather than through sales of products you make yourself.

+ Beware of plans that claim to sell miracle products or promise enormous earnings. Just because a promoter of a plan makes a claim doesn't mean it's true. Ask the promoter of the plan to substantiate claims with hard evidence.

+ Beware of shills _ "decoy" references paid by a plan's promoter to describe their fictional success in earning money through the plan.

+ Don't pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Insist on taking your time to think over a decision to join. Talk it over with your spouse, a knowledgeable friend, an accountant or lawyer.

+ Do your homework. Check with your local Better Business Bureau and state attorney general about any plan you're considering _ especially when the claims about the product or your potential earnings seem too good to be true.