Sunday, January 9, 2011

Real Entrepreneurs Avoid Multi-Level Marketing

Many 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


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19 comments:

  1. So if an "icon" like Trump gets on it, then there must be something to it ... not saying there isn't any money to be made (by some) but outside of a distribution structure based brand I'd have hard time considering someone an Ent. just because they are in an MLM (where's the risk outside of alienating your friends/family!~) ... where is the brand decision power?

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  2. One aspect that is rarely mentioned is online competition. Would you rather compete with a hundred businesses locally or a hundred thousand globally?

    Consider GDI who sells WS namespace.

    I consider it the equivalent of selling ocean-front real estate in the middle of a desert.

    Aside from Associated Press, no one uses ".WS" domains.

    Yet, when I tell that to GDI "business owners", they do not believe me.

    Another example, my family is involved at a pretty high level with an MLM company. She had spoken at global conferences for this company to groups of thousands.

    Even at this level, which is attained by moving over 1 million dollars worth of product, the reality is that she is not making a lot of money.

    She loves the products and that company still has growth opportunities. Their e-commerce solution is fortunately anemic. That forces reps to talk with prospects face to face instead of relying on web traffic.

    Compare that with Amway. You have hundreds of thousands of competitors each selling identical products at identical pricing. Does that sound like a good idea?

    Lastly, I happily sell to MLM marketers as I do to all other business owners. My startup's product increases sales engagement at the initial point of contact.

    I have friends who are very successful with MLM companies. More interestingly, one of my friends made a lot of money recording video testimonials with high level MLM professionals.

    The truth is that if they ran a startup with the same vigor, they would be even more successful. Their secret to success is aggressive prospecting and outstanding sales management skills. That same skill applies to every successful startup founder.

    I recommend skipping the nonsense of building someone else's business. It takes a very long time and can cost friendships when people get desperate.

    I much prefer affiliate marketing. Through the magic of product substitution,you build your own business and not the seller's. A mailing list of 2000 people who like you and bought from you in the past based on your recommendation is essentially a license to print money.

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  3. Thanks for the article for entrepreneurs. All the views given by you are very helpful to build the company. The internet of course is helping in all ways. We are small business owners and would welcome tips like this to improve our services to the clients.

    Lakshmi

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  4. A company filled people but no product is a PYRAMID SCHEME, esp. if it PAYS on recruiting.

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  5. Tremendous concepts on this web site. It's rare these days to find websites with data you are seeking. I'm happy I chanced on this webpage. I will certainly bookmark it or even register for your rss feeds simply to be updated on your new posts. Maintain up the nice job and I'm sure some other folks researching valued information will actually stop by and benefit from your site for resources.
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  6. It's not such Pyramiding if it pays you back. A big difference with the networking.

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  7. A very poor attempt to give mlm a bad name. Shame on you. Your article says nothing worth reading. I would recommend doing background research prior to a post like this. You simply do not understand how mlm works. You forgot to mention that Amway won the case against them. Entrepreneur is not a word used just for "new" ideas. I guess you would call Trump a simple businessman as there's nothing new about real-estate. Most successful online mlm opportunity owners are far more innovative in marketing than most other sectors. There are many non mlm scams around so what point is there in saying there are mlm scams? As for needing lots of friends/family, you have no idea of how successful mlm marketers recruit. I have a member base of >4,000 people and knew none of them prior to their enrollment. I can honestly say that I enjoy my "non entrepreneurial" six figure income that my mlm gives me. A very poor post indeed.

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  8. @Anonymous, thanks for your input, and I assure you that I am not attempting to give MLMs a bad name. I have not personally had any bad experiences with an MLM, but in doing research to answer user questions, I found a surprisingly large amount of information about MLM scams and other negative comments.

    Like some other business areas, it seems that a few bad MLM examples have set a bad image for all. For that reason I spent the majority of my article trying to sort out the good indications from the bad.

    I'm happy to hear of your positive "six figure income" experience. More of these are the most effective way I know to turn the image around.

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