Lyn Gatelely via Flickr
pyramidsMany self-proclaimed entrepreneurs send me invitations and accolades to join their favorite Multi-Level Marketing (MLM) or Network Marketing company, but these all sound like “get rich quick” schemes to me.
For me, the essence of an entrepreneur is creating something new and innovative, whereas an MLM is a traditional formula on an existing product with a high premium on pyramiding.
I know there are a few companies, like Mary Kay and Lia Sophia, who have a generally positive image, but there are many more, often built around some investment scheme, which continue to give this sector a bad image.
If you scan the Internet, you will find dozens of negative articles, like “What's Wrong With Multi-Level Marketing?”, but very few singing their praises.
Technically speaking, pyramiding is an illegal practice of a company that solicits their members to recruit more members, more than selling the product. In turn, the primary source of income for its members is the number of members they have recruited instead of the products they have sold over time. Clearly, not all MLMs are pyramid schemes, but it all seems like a matter of degree.
If you insist on trying one of these MLM offers, the least you can do is look for proper business registration with BBB, toll free number, and proper address (no Post Office box). Also, you will need lots of family and friends to make it work. As a final step, check the MLM materials for one or more of these “red flags” that are associated with the worst of the offerings:
  1. Fee to "get your business started." If their business model is really from selling products, then up-front fees should be unnecessary and are inappropriate. Usually these are billed for education and training that consists of a few marketing brochures.
  2. Promise big money with little work. There are of course things that you can do to make money without having to work all that hard. But, it's just not possible for everyone who joins a business to be able to make so much money without working. Making money takes work.
  3. Purchases encouraged as "investment." Often times MLM companies want you to think that making purchases for products within the company will advance your status, or grow your business, more than satisfy sales.
  4. High income projections. Many companies love emphasizing how much you will make, but rarely mention how you are going to make it. MLM opportunities have proven historically to be, at best, a little better than a side income for most people.
  5. Money from recruiting. If they would rather have you recruit another distributor than a new customer, then their products are not what is driving the company. A company that is filled up with people but no products is still just a group of people, not a thriving company.
The Internet has made it so easy now. In the old days you had to actually visit people, or at least call them, to pitch your fabulous new opportunity. Face-to-face marketing is still practiced, but it is not so common these days. Besides, no one really loves the idea of having someone over, so they go online where everyone can be as safe as they want. They create sites with videos, testimonials, and pictures.
I will admit that I don’t like the business model of paying people to solicit other people. In fact, I’m convinced that the phrase “Multi-Level Marketing” and “Network Marketing” were invented as sanitized terms after Amway and others were charged with “pyramiding” back in the early 1970s.
Yet there must be something to the business model, since I see some big business icons like Donald Trump are joining in the MLM parade. I’ve written about these before, and I’m still looking for one that feels entrepreneurial. Who has a convincing story that will make me feel good and pure as I recommend their MLM to my best startup clients? Do you love them or hate them?
Marty Zwilling