If you’re an adult and you’re breathing, there’s a pretty good chance that sooner or later, a friend or acquaintance will approach you with a chance to “start your own business,” ‘’be your own boss,” ‘’become an independent distributor.”
What you’ll get is a pitch for a type of business referred to as multilevel marketing (MLM) — although it may be called by other names, including network, direct, affiliate, or matrix marketing. (Because these schemes get such a bad reputation, the companies change names to make them more attractive.)
They’ll offer you a chance to start your own business for less than $199.
It’s going to sound really good. You’re going to be tempted. Should you give in to temptation?
In a word: No.
First, let me explain how MLM or network marketing works and how it differs from regular sales or a regular business.
• Single-level sales. You go out and sell a product or service and you either get paid for your time, or, more typically, get a commission on the amount of product or services you sell directly to customers.
• Multilevel programs. You go out and recruit other participants. You make money not only on the sales you make but on the sales of those you recruit.
Sounds great, right? In reality, MLM programs rank high on the list of fraud schemes, and the Federal Trade Commission (FTC) and most states’ attorney general have warnings and multiple lawsuits against many MLM programs.
That’s one of the reasons that it’s so cheap to get in: Many states regulate “business opportunities” requiring more than $200 to $500 initial investment. To stay under the radar, most MLM programs keep under that threshold.
Here’s what the FTC advises: “If a plan offers to pay commissions for recruiting new distributors, watch out! Most states outlaw this practice, which is known as ‘pyramiding.’ State laws against pyramiding say that a multilevel marketing plan should only pay commissions for retail sales of goods or services, not for recruiting new distributors.”
Even if a program isn’t fraudulent, from a business point-of-view, MLM programs share the same fundamental flaws, including:
• Recruiting competitors. No one in legitimate business wants competitors. In MLM programs, your goal is to get lots of others selling the same product or service. In real businesses, you’d pay for exclusive territories. In MLM, you recruit competitors from among those nearest to you, in your church, neighborhood, friends — your best sales targets.
• Pay to be a customer. You’ll buy products or services you sell as well as training materials. Overwhelmingly MLM revenue comes from those recruited to be ‘business owners’ within a program.
• You’ll face pressure. Expect to be required — or pressured — to buy samples, marketing materials, training courses and tapes, attend seminars, and more. You’re very likely to spend far more than you’ll ever bring in from sales.
• You turn your friends and family into “prospects:” MLM programs typically suggest you sell to — and recruit — people you know well. Do you really want to be constantly beseeching those closest to you?
As with any business opportunity, before investing your time and money, really do your homework. Speak to participants who do not recruit ANY others and who sell only to non-program customers. Ask how much money the average person makes after they purchase products and services related to the program (including training). If they told you the truth, you’ll find it’s just about break-even at best.
Get on the Internet and look for information about your particular program, including lawsuits or Web sites set up by people who’ve left. Check out info from the FTC and www.pyramidschemealert.org. Be careful!
Rhonda Abrams is the author of “Six-Week Start-Up” and “What Business Should I Start?”
Reader response:
”This is the second time I have read this article. The first time I just brushed it off, but after re-reading I felt the need to respond.
I have been a member of the MLM or Direct selling industry for over 3 years. I have made more money than I have spent. I am not required to buy training tapes, etc. I do not badger my friends and family.
I run my business like a brick and mortar business owner and I can offer my business to others like a franchise owner, but with lower start up costs. (Hundreds versus thousands and thousands). All my company training is no cost except for optional conventions.
I strongly recommend you talk to some successful individuals in our industry and read some literature by industy experts. Have you read anything by Dr. Tom Barrett or Dr. Charles King? Did you know Donald Trump has put his branding and money behind his own direct selling company – the Trump Network? Or that Warren Buffett’s company owns Pampered Chef? Or that Estee Lauder is an investor in Rodan and Fields MLM company?
If you would like to discuss the advantages of this business model, I would very much appreciate speaking with you.” — Traci Kuhn, Votre Vu, tbkuhn@wideopenwest.com
“Although I appreciate your efforts to help your readers avoid fraudulent scams, your commentary on multilevel marketing is logically, mathematically, legally, and verifiably incorrect. Rather than rebut your claims within this limited media, I believe an open, live debate of these issues would be of far greater value to our respective audiences. I host a popular podcast show called “Inside Network Marketing” and invite you to a live discussion and debate of the points you have raised in your article. The interview would be cordial and professional.
You can find additional information about me and my company here: http://www.marketwaveinc.com.
Thank you for considering my offer.” — Len Clements, Founder & CEO, MarketWave Inc.
“Rhonda,
You truly have no idea what you are talking about. Based on what you wrote you have never worked a Network Marketing (MLM) company.
And if you did you quit before you became successful, hardly someone who should be giving anyone advise.
Most of the nonsense you wrote is simply not true or partially true in the broadest since of the word.
50% of marriages fail and the percentage is even higher for second and third marriages, however does that mean the concept of marriage is a bad idea or is a scheme.
You failed to do any meaningful research on your subject before you wrote your article.
Shame on you.
I actually could teach you to be extremely successful in MLM and your family and friends would be begging you to let them join you in your business. When you finally understood the power of exponential growth you would be come a rabid fan of MLM. In one year you could turn your yearly income into your monthly income. The first thing is your would need to get your mind right and I recommend you read The Great Within by Christian D. Larsen. 1910.” — Duane Spears
http://duanespears.com
“Thank you Rhonda. Your article is very informative. The Pyramid Scheme Alert site is a valuable resource. The people who’ve written in to chastise you are likely the minuscule percentage sitting at the top of their respective pyramids. If MLM were the answer, we would all be working for ourselves and we would be a country full of millionaires. Of course they could teach you to be successful. The only problem is that they’re devoting 100% of their time while people just signing up are lucky to have a couple of hours a week. Once you fail, they will have a long list of reasons that are, of course, all your fault. By the way, do you think the people selling MLM “opportunities” have any failure statistics/percentages available in their sales pitch? Doubt it. They’re very skilled at discrediting all of the “scam alert” notices and warnings as well (overcome the prospect’s objections). In my opinion, only a small percentage of people are really cut out to be successful sales people, let alone successful business owners. The best ones I know would chuckle at the thought of building an MLM business. Donald Trump? Yes, he’s going to launch the Trump Network in the fall, but he’s acquiring a successful MLM company called Ideal Health and changing its name. He will have about as much involvement in the Trump Network as George Foreman has in making kitchen grilles. No doubt the Donald has a few other irons in the fire upon which he can depend for steady income. Friends and family members begging you to let them in on the profits? Does the name Bernie Madoff ring any warning bells? Unfortunately, I’ve observed that young couples with young children and one income, who are desperately trying to make ends meet, are most often susceptible to the “sell vitamins and make lots of money” sales pitches. The bottom line? The title of your article says it all: buyer beware. Thanks, again, for putting up the warning flags. PS: I found Len Clements’ Market Wave website to be very balanced and informative. There are clearly some good MLM ventures out there along with many, many scams. If someone doesn’t have the time to listen to some of Clements’ podcasts, guess what? They don’t have time for MLM.” — Michael W. Helechu
“Hi Rhonda,
Having been involved in two network marketing businesses in the past, I have a couple comments about this article.
I think the article is true in some sense but very general in another.
Yes, when first becoming involved you’re told to talk with friends and family. Yes, often times people aren’t experienced in sales. Yes, often times one can come off as desperate. Yes, many don’t make it big. Yes, many do make it big. Some are illegal and some are not.
Let’s examine this closer. In my experience, the people I know who aren’t/haven’t made it, are typically the one’s who aren’t doing the work to become successful. Now, I didn’t make it and it wasn’t for lack of effort. Did I give it 100% all the time? No. Those who do, typically make the big money. There is skill involved as well. That is learned along the way by experience and training programs.
The 2 businesses I’ve been involved in had training systems. We aren’t required to participate in these programs. However, if serious about making money, then it’s a highly recommended. On the other hand, I’ve had this statement said to me about others who didn’t participate, ‘they don’t get my time or help’. It’s peer pressure to participate even when you don’t want to or can’t afford it. The answer simply is to build your business so money isn’t an issue. And, yes, there is money made on these training systems too. In my opinion, that’s not a bad thing. It’s bad when they don’t tell you this fact. I think that’s the part that most people will say they feel taken advantage of. The “hiding” of all the facts. I will say this that the system and the people in my support team have changed my life for the better. I wouldn’t have learned as much about finances, life, myself or business without these programs.
You are right that some of these businesses are just schemes and one should do research to see if this is the right one for them. However, that’s with anything in life. I’m doing that right now before deciding on my next path. Nothing wrong with research.
My feelings are that if you like these types of businesses, then stick with it. If you don’t, them don’t get involved. It’s as simple as that. There are many other opportunities out there to make money while doing something you love and fits best with your life and goals.” — Michelle
“Rhonda, Only people with a strong work ethic and a williness to learn make decent or superior incomes in MLM. The othe 90% are just lazy or are looking for a quick buck which MLM is not. When I am interviewing a potential rep, they are told up front it will take 10+ hours a week, every week, for the next 1 to three years. And they will have to turn off the stupid box (TV) and work. If they can’t do without TV other other mind numbing dumbing down. They are simply not serious.about building a business. Check with Market Wave, I believe the gross sales internationally are in the 100 million dollar range. To many of us in the industry, which has been around since 1932 with Wacthers Organic Sea products, this is more than pocket change. Perhaps to you its just chump change.
A mind is a terrible thing to waste, however if it open, one learns many new wonderful things. Try something new instead of regurgitating yesterdays bad information. Oops, it will take a little research (work).”
Many Blessings,
Tom Bennett
amsoil@webband.com
AMSOIL DIRECT JOBBER
PS. I believe you can pick up a degree in multi-level marketing at the University of Chicago.
“Rhonda, after reading your article I am about convinced that you are probably a Charter or Founding Member of “The Flat-Landers!” It’s hard to imagine that there are still people living who believe the earth is not only flat but most certainly the center of the universe! I learned long ago from a beloved mentor that –“The hardest thing to open is the closed mind!” And, that the easiest way to identify the closed mind is to find someone who “knows the truth.” Truth, of course, is based on beliefs, and a belief is simply a thought that is repeated over and over again until it is assumed to be truth! No matter how many times the belief of a Flat-Lander is repeated, the earth is neither flat nor the center of the universe! Ironically, those in pursuit of truth are often the ones criticized if not crucified by the courts of opinion. (Ask Galileo) What you have stated in your article is an “opinion” and again “The problem with opinions is their tendency to be accepted as truth.” I’ve learned that the easiest way to find the truth is to admit that you don’t know the truth. That admission opens the mind to other possibilities and often the truth presents itself – unless of course you don’t want to see it!
Thanks for your opinion – but know that there are others with more credibility that do not agree with you. You may have heard of some of them: Robert Kiyosaki, T. Harv Eker, Bob Proctor, Denis Waitley, Michael Gerber, Steven M. R. Covey, Sen. Orrin Hatch, Vic Conant, Nido Qubein, Gregg Braden, Barbara Marx Hubbard, Cameron Johnson, John Assaraf, and others. Your readers (and maybe you) might be interested in their opinions, you can see them here: http://www.networkingtimes.com/reprint/networkmarketingis .
As for me, I’ll just go with the experience I’ve had over the past 13 years (after I admitted I didn’t know everything and opened my mind to network marketing). Every week, on Friday, for the past 13 years, weekly automatic deposits have been appearing in my checking account. It’s called residual income and the current recession hasn’t slowed it down! Your readers may want to consider recession proofing their income. Once they open their minds to the benefits (time freedom) of residual income they may even decide to share it with others – maybe even family and friends. If you have a solution to a common problem why wouldn’t you want to share it?
I’ll be looking forward to listening to your interview with Len Clements – If you’re open-minded enough to accept his invitation. He’ll treat you kindly. We’d just like to know how you came up with all your assumptions. (Remember what you do when you ass-u-me anything? Get the facts!)
Have fun, share joy, spread love! ” — R. Dean Yancey
“Hi Rhonda, while I do not agree with your assessment of network marketing, I would like to apologize for the less than professional members of mlm who DO give it a bad name and who have responded here in a childish manner. Kudos to Tracy and Len for representing us properly.
Please consider taking Len up on the debate offer. He is very polite and never strays beyond the facts. He is as quick to expose the scum in the mlm world as he is to defend those who run their businesses with honor. Warm regards.” — Jim Bartlett, Bartlett Enterprises
