Forever Living Products International Inc. History

Address:

P.O. Box 29041
Phoenix, Arizona 85038
U.S.A.

Telephone: (602) 968-3999

Website: www.foreverlivingproducts.com/

Private Company
Incorporated: 1978
Employees: 1,536
Sales: $1.1 billion (1995)
SICs: 2844 Toilet Preparations; 5999 Miscellaneous Retail Stores, Not Elsewhere Classified

Company History:

With more than $1 billion in annual sales, Forever Living Products International Inc. is Arizona's largest privately held company and one of the world's largest direct marketers. The nearly 20-year-old firm has millions of representatives in North and South America, Europe, Africa, Asia, and Australia. Forever Living's product line includes aloe vera-based drinks, lotions, supplements, cosmetics, and detergents. The company owns 5,000 acres of aloe plantations and facilities capable of processing 6,000 gallons of raw aloe each day. Forever Living also owns and operates more than a dozen resorts and attractions, including Dallas's Southfork Ranch.

Late 1970s Origins

The company was founded in 1978 by Rex Maughan. Raised on a farm in Idaho, Maughan worked his way through Arizona State University, earning a degree in business administration with a concentration in accounting in 1962. Upon graduation, Maughan served as a Mormon missionary in Western Samoa. Back home, he started as an accountant in a Phoenix firm and then entered the real estate industry in 1964. Three years later, he took a top management position with real estate developer Del E. Webb Corporation. After ten years there, however, Maughan realized that he was not likely to rise to that company's presidency, so he started to look into creating his own enterprise.

Before deciding on a product or service, he focused on devising a marketing plan. Maughan quickly homed in on multilevel marketing, researching well-known direct sales firms like Avon, Amway, Tupperware, and Shaklee. Also known as MLM or network marketing, multilevel marketing is a method of direct selling whereby each distributor/salesman brought into the company brings in several new distributor/salesmen who become part of his "downline." The original distributor makes profits not only on his own sales, but also earns commissions on downline sales. A key advantage of this strategy is that it relies on word-of-mouth networking for growth, thereby eliminating the need for an advertising budget.

Although the direct sales industry in general and MLM in particular have been blighted by illegal pyramid schemes, several standards guide the operation of lawful organizations. A company must offer a legitimate product or service that is fairly priced to distributors; offer commissions on sales, as opposed to downline sponsorships; provide sales and recruitment training; and not exaggerate earnings potential. The Federal Trade Commission legalized multilevel marketers who adhered to these guidelines in 1979.

Maughan first got involved with multilevel marketing as a distributor selling gasoline additives in his free time, but soon observed that "most [network marketing companies] seemed to be top-heavy--designed to benefit the guys who founded them. So I started developing my own plan for a company." He and an associate who had some experience in the field drew up a business plan and started recruiting their own downlines in 1978.

Only after they settled on a marketing scheme did the two partners seek a product. Maughan was convinced that they needed to offer something expendable to encourage repeat sales. In a 1995 interview with Success magazine's Duncan Maxwell Anderson, the Forever Living founder reflected, "Water purifiers and burglar alarms were very popular, then, but I didn't want anything that wasn't consumable. I was interested in health products and thought other people might be, too. But I didn't want a me-too item like diet products, soaps, or vitamins." Maughan found what he thought was an ideal candidate--aloe vera.

Commonly known as the "first aid plant" or the "burn plant," aloe vera is a succulent whose juicy middle has been used cosmetically and medically for centuries. The Bible notes that aloe was used to anoint Jesus' body before it was entombed, and other sources claim that the substance was used by Cleopatra and Alexander the Great. Maughan stumbled upon a group of doctors in Dallas who had developed a method of stabilizing and storing the highly perishable aloe gel, which they used in a sunburn lotion. The Dallas group, Aloe Vera of America, had been trying to sell its product in health food stores with little success. Maughan and his partner believed that the products would benefit from the direct selling method, which relies heavily on demonstrations, testimonials, and word-of-mouth sales.

Maughan, who continued to hold his day job with Del Webb, rented an office in Phoenix and warehoused product in his garage. From an initial investment of $10,000 in 1978, he and his partner recruited about 40 people who sold $700,000 worth of aloe-based products under the Forever Living name that first year. Within just two years, annual sales had increased to more than $30 million. Feeling confident that he had achieved "financial freedom," a 43-year-old Maughan quit Del Webb to concentrate on Forever Living Products (FLP) full time in 1980.

Growth Accelerates in the 1980s

In 1981, Forever Living Products purchased Aloe Vera of America's patents, its cosmetic production plant, and its field processing operations. From 1980 to 1981, the company's sales more than doubled to more than $71 million, ranking FLP among America's fastest growing firms. This rapid expansion drew the attention of "dozens" of brokers seeking to take the company public or merge it with another firm. But Maughan was not ready to cash out. In the mid-1980s, he reflected, "I was not interested then, nor now. I'm still in it to help other people." Of course, every person Maughan "helps" brings him increased profits, too. As Forbes's Christopher Palmeri noted in his August 1995 article on Forever Living Products and its founder, "More money works its way to the top than stays at the bottom. The big money is not in selling the stuff, but in recruiting people to sell the stuff." In 1983, Maughan solidified his position at the top by buying out his partner's half interest.

Forever Living Products exceeded $100 million in revenues and 500 employees by 1985, when the company had more than 1,000 acres of aloe growing in Texas's Lower Rio Grande Valley. By this time, the company also owned processing plants and research labs in Dallas, a fleet of trucks, and an official headquarters in Tempe.

Capitalizing on his experience as head of recreational properties at Del Webb, Maughan formed a resort division in 1981. By the mid-1990s, Forever Living owned 18 resorts in Nevada, Missouri, Kentucky, Texas, California, Wyoming, Arkansas, Colorado, Indiana, Arizona, and Georgia. Properties included Southfork Ranch, made famous in the "Dallas" television series. Maughan bought the ranch from its cash-strapped owner at auction in 1992 and refurbished it to feature a convention center, "Dallas" museum, and rodeo. Cut-rate trips to the resorts are used as rewards for productive Forever Living representatives and are also open to the public.

Maughan refined Forever Living's MLM plan over the years. By the mid-1990s, sales people were ranked from beginner-level "Distributor" to high-flying "Double Diamond Manager." The company supported these representatives with training materials ranging from booklets and videotapes to "ForeverVision," a bimonthly satellite broadcast featuring product information and motivational programs. In addition to downline bonuses, distributors had the potential to earn vacations to Forever Resorts, autos, electronics, and other incentives.

Product and Geographic Diversification Drives Continued Growth in the 1990s

Although aloe is most commonly used topically, Forever Living's key product has been its aloe vera beverage. The substance has long been used as a purgative agent, to which Maughan may have been referring when he asserted, "Aloe vera helps our bodies perform like they are supposed to." By the mid-1990s, the company had developed three flavors of aloe "juice": cranberry, apple, and natural. Although Forever Living promotes the natural flavor as "exotic," Christopher Palmeri characterized the taste as more near that of "turpentine" in his 1995 piece. The nutritional benefits of aloe consumption remain debatable. Some doctors note that aloe products are at worst ineffective, while others, like Mount Sinai School of Medicine's Dr. Victor Herbert, have asserted, "There is no reason for humans to drink it." Aloe drinks generated about 50 percent of Forever Living's annual sales into the mid-1990s.

The company also made dozens of skin care products from aloe, including lotions, creams, soaps, hair care products, deodorant, aftershave, lip balm, and a burn treatment. Other aloe-based goods included toothpaste, colognes and perfumes, and laundry detergent.

FLP launched its line of Forever Bee Products in 1983. At the core of this group of nutritional supplements is "Royal Jelly," a food created by honeybees especially for the queen bee. Some scientists attribute the queen bee's growth, reproductive ability, and comparative longevity to her consumption of royal jelly. The company offered royal jelly in 250 mg tablets, bee pollen (the worker bees' food source) in 500 mg tablets, bee propolis (from the walls of the hive) in 500 mg tablets, and pure honey. Forever Living made absolutely no claims that humans who consumed these products would obtain the same health benefits apparently enjoyed by the bees, making assurances only about the source, potency, quality, and purity.

Although the founder has asserted that, initially, he was not interested in selling vitamins and diet products, nutritional supplements would become an important segment of the Forever Living line. The company combined aloe with vitamins, ginseng, minerals, fish oils, garlic, and other substances to make an array of nutritional supplements. Forever Living's promotions were peppered with pseudo-scientific terms like "flavonoid extract" and "bioflavonoids," but the most the company would guarantee was that its products would "make people feel better and more beautiful."

Forever Living took even greater pains to avoid making specific health claims in the wake of a 1992 lawsuit. That year, the Texas state attorney general brought suit against the company, charging that a Spanish language infomercial made unfounded claims that consumption of aloe could control diabetes.

Having fleshed out its product lines, Forever Living began to diversify geographically in 1983. The company focused first on the Far East, where natural remedies enjoy a strong heritage and high esteem. By 1995, FLP had distributors in 40 countries.

Although Rex Maughan calls his company "the best-kept secret in Arizona," Forever Living's fame grew in line with its sales in the late 1980s and early 1990s. Revenues mounted from $100 million in 1985 to more than $200 million in 1990 and surpassed $1 billion in 1995. Although some observers warned that multilevel marketing could reach a saturation point, where virtually everyone was a distributor, there seemed no limit to Forever Living's growth.

Forever Living Products International Inc. History

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