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Discussion with Frank VanderSloot, CEO Melaleuca, Inc.

Published online: Jan 06, 2014 IFM Editor
Viewed 2963 time(s)

Article & Photography by Steve Smede

Iconic industrialist Henry Ford once proclaimed, "Wealth, like happiness, is never attained when sought after directly. It comes as a by-product of providing a useful service."

In glossy fashion, that quote could describe the philosophy of numerous American corporations. But consider the last word in Ford's statement: service. The man was in the car-building business. He was the provider of a contraption that could be marketed to the masses. It begs the question: If you're in the business of providing products, why even care about providing a useful service?

Every titan of commerce and industry has a tale to tell in grappling with that question. Some, it seems, tell it better than others.

Idaho Falls magazine had the rare opportunity to sit down with Melaleuca, Inc., CEO Frank VanderSloot at his ranch just outside of town. To many residents of East Idaho, this individual's name alone conjures up visions of vast wealth, corporate empires and political intrigue -- the kind of fodder one would expect for a suspense novel or television drama, let alone the national media circus.

But for all the hype attached to the man's public persona, the reality may prove to be an even more interesting tale to tell…

 

HUMBLE BEGINNINGS

Welcome to the Idaho panhandle hamlet of Cocolalla. It is the summer of 1960. The crops are going gangbusters over an 80-acre farm, and in the middle of it all is a 12-year old boy who has taken the mantle of running the whole operation. His older brother has just left the house to stake his own claims. The boy's father, fully consumed by his job as a railroad worker, sees precious little of his family.

What's a poor kid to do?

"My dad was gone Monday morning through Friday night," VanderSloot said. "He was never home, which means the farm was left up to us kids. We didn't have television. We didn't have a phone. We only got indoor plumbing when I was about 5."

Poverty has its ways of driving people into despair, but it also serves as a foundation for building resolve. From that very early age, VanderSloot had a front row seat to both paths.

"My mother had it tough growing up in the Depression, really tough," he said. "She frequented dumps. I had many times in my life seen my mother's feet sticking out of a dumpster."

In less critical circumstances, the young mother still wouldn't hesitate to seek out useful goods and groceries for her family at little or no cost.

"She was always going to the back of the dumpsters in grocery stores, getting bruised peaches, bruised bananas, five-day old bread--whatever they threw away, really," he said. "She'd go to dumps, and bring home the craziest things."

Even in the leanest of times, the VanderSloots instilled something in young Frank that would serve him well in the decades to come: gumption.

"My dad was a hard-working man," he said. "He valued hard work. And he taught me to recognize that quality in others. 'When you shake a man's hand,' he told me, 'you can tell if he's a hard worker because you can feel the callouses.'"

When we first sat down with VanderSloot at Melaleuca's annual convention in Salt Lake City last spring, the 65-year old entrepreneur shared a brief thought on what made the company so successful.

"It's the people out there," he told us, referring to the crowd gathering in the convention hall. "Even the ones just getting started. I am and always have been a fan of the little guy."

(For an under-reported case in point, check out the story behind the ups and downs of the Snake River Cheese Factory in Blackfoot, ID.)

 

SEEDS OF SUCCESS

While his father made do on a third-grade education, young VanderSloot found early success in school, and went on to earn degrees from Ricks College and Brigham Young University. He started off selling beef jerky for a local businessman, Roger Ball, then left to cut his teeth at Fortune 500 companies. (He eventually became a regional vice-president at ADP and a Vice President at Cox Communications.) Before returning to work with Ball 13 years later at a new startup called Oil of Melaleuca, VanderSloot had spent his time wisely, grooming himself in the fine art of marketing and business management.

"I had made it in corporate America," he said. "Where I worked, everything was measured. I performed well and as a result got lots of promotions. They were good to me."

The experience prepared him for later success.

"I tell young sprouting entrepreneurs all the time, go get a job for 10 years before you even think of doing something on your own. You will learn to do it right, then you won't have to go back and reinvent all those wheels."

In his own case, it didn't take long for him and his colleagues to retool their business model just seven months after VanderSloot had been recruited to run the new company.

One early partner by the name of Don Miller had enticed Ball and his family to invest in a 20,000-acre ranch in Australia called Main Camp. It supposedly had about 80 percent of all the world's melaleuca tea leaves grown on it.

"The genus of this particular tree only flourishes in a small area of South Wales, Australia, and [Miller] claimed that a huge percentage of the oil was produced there," VanderSloot said. "Well, it really wasn't true."

The Balls had made a considerable investment in the property, only to discover that most of the oil they were getting didn't even come off of the ranch.

"I went to my partners and we decided to close that whole deal down," VanderSloot said. "They got rid of this other partner in Australia. So now the Ball family had 70 percent, I had 30 percent. We started a brand new company and named it Melaleuca, Inc. We changed the product line, and moved to a new business model. It was a big change, but we didn't make it a big deal that we had changed it. Maybe we should have."

 

THE MELALEUCA MODEL

At the heart of that change was a decisive move away from the multi-level marketing model.

The model of an MLM is just what it says: multiple levels of distribution, with distributors passing the product from one level to the next. The model is to sell inventory to distributors who buy the inventory (at various discounts depending how much they buy).

"It's a game where you go looking for customers after you've bought the inventory," VanderSloot said. "It's backwards. And it didn't take me too long to understand that a multi-level marketing method of selling inventories didn't mean that the product had actually gone to any end consumer. And people could get hurt buying inventories they couldn't sell."

According to VanderSloot, that's why the whole concept of multi-level marketing has gotten such a bad name. People get left holding the bag. So in other words, they lose their investment.

"What MLM's do is train people to go find other people to buy their inventory," he said. "In that model, hardly any of it goes to end consumers. It's doomed to break down from the beginning."

According to a written statement by Jeff Sayer, Idaho Department of Commerce Director, much of Melaleuca's success can be attributed to the fact that it is a direct marketing company that uses a consumer-direct marketing model. "People often mistake its model with MLM because both offer a home business opportunity," he writes. "However, the nuances in Melaleuca's business model create a clear distinction from the traditional multi-level model."

That statement is echoed by Dale Dixon, President and CEO of the Better Business Bureau serving the Snake River Region.

"As part of our mission to build trust and confidence in the marketplace, [we have] studied the business practices of many companies in our region, including Melaleuca," he says. "Melaleuca earns an A+ rating from BBB and demonstrates a commitment to adhere to BBB's Standards for Trust; Melaleuca is working to build trust through honesty, transparency and responsiveness." 

He adds that furthermore, the company "does not have multiple levels of distribution, which means its independent agents do not distribute inventory from one agent to the next. People purchase what they want for personal use; conversely, people are not compensated for reselling to others." The company's “marketing executives” make a commission by referring customers directly to the company, rather than serving as a distributor of products. "For this important distinction, BBB serving the Snake River Region categorizes Melaleuca as a retailer," he stated.

 

LIVE WELL & PROSPER

Throughout its history, the success of Melaleuca has been intertwined with the personal success of its CEO. To anyone who can count, VanderSloot's financial gains have been substantial. He now owns the majority of a company that produces in excess of $1 billion in annual revenue.

With financial riches comes responsibility, of course. In VanderSloot's case, that includes support for a local workforce of about 2,000 employees.

"Out of that, we actually have a huge number of high paying jobs here in Idaho Falls," he said. "We don't hear it much anymore, but there was criticism some 10 years ago that Melaleuca has a high number of low-paying jobs. Well, to my knowledge there are more high-paying jobs at Melaleuca than any other company in Southeast Idaho except for the site and the hospital."

The company also puts out the largest publication in the state, Leadership in Action magazine, with a run of about 250,000 every month. And every three or four months it puts out a massive catalog, Melaleuca Country, which reaches about 600,000 people.

At the heart of all the company's outreach efforts is VanderSloot's own realization that everyone has goals, and in the end, people all want the same thing -- to be happy.

"Enhancing the lives of those we touch by helping people reach their goals: that's our mission," he said. "We're champions of the little guy, and we have a vehicle where people can be successful on their own merits. It's really fun."

 

***

 

Let Him Be Frank: 5 Notable quotables from Frank Vandersloot

 * On Pay Rates: "Of course we have lot of jobs that are entry level positions, but we also have a lot of vice-presidents and directors. I would say that we have more jobs paying $45,000 per year or more than any other private enterprise in Southeast Idaho, other than the hospital and the site. We have hundreds and hundreds of employees in that category."

 * On Social Media: "I'm impressed with the impact that new communication technology is having on us. There is so much uncharted water right now with social media. It's not like you just plug in and start using Facebook to sell your business. That simply doesn't work."

 * On Idaho Falls: "The work ethic of our people here is really strong. A lot of these kids grew up moving pipe and working on a farm. The cost of real estate is certainly low. Transportation is the downside, but that's overweighted by low taxes and a pro-business attitude in the local county. There's no reason Idaho Falls can't be a bustling community. No reason downtown can't be totally renovated. We just need a little more parking and a lower tax base, and you'll see that businesses will choose to come here."

On Outdoor Plumbing: "You got single seaters, double-seaters and quad-seaters. At my dad's place when he was growing up in Harding, Montana, they had a quad-seater. They'd go out there as a family. Everybody'd grab a seat, and they'd just sit there and talk. It was a family activity." 

On Positive Thinking: "I've been blessed way beyond what I deserve in many ways. I've always chosen to look on the bright side, and that bodes well. When something bad happens, you can pull out of it much quicker. Adversity can be a blessing."