So Why Not MLM?

One thing that keeps coming around to my attention is one or another Multi Level Marketing scheme. I think that just about everybody I know has been involved in one or another over the years.  I’ve always been reluctant to participate.  Too many friends and family have been caught up in them over the years and after the cultish enthusiasm wore off what usually happened was that the distributorships devolved into lost friendships and leftover stock they had overpaid for.  I’ve seen friends work their tails off and have nothing to show for it, others still keep trying and not getting ahead for themselves and somewhere I’ve got tons of Pampered chef tools and a pizza stone that I can’t use. the Amway soap has long been used up.

Recently this thread showed up on linked in.

https://www.linkedin.com/nhome/updates?activity=6169831150601662464

What’s interesting is the number of MLM true believers that feel compelled  to chime in.  The  problem, for them is that they are limited to the arguments provided by the MLM people who spoonfed them in first place.  That’s because a MLM is a combination of a cult and a Ponzi scheme with some superficial product attached.  The goal of a MLM organizer is to keep the distributers bought in as long and as hard as possible.  The deeper they can get the distributers to buy in the longer they will stay in and keep buying the crap  long after the network collapse. That’s the long term goal of any MLM. The goal is to get and increase the number of buy ins to  the cult, not to push product.  Which leads to pronouncements like this one:

Fact: Robert Kiyosaki calls MLM “the perfect business model”. Fact: Sir Richard Branson said just last month: “I’m a huge fan of network marketing.” Fact: Warren Buffet has a financial investment in over a dozen MLM companies and calls them “cash on cash the best investment I’ve ever made.” Fact: Bill Gates has on record stated if he lost everything overnight he would get into MLM. Fact: Bill Clinton has publicly thanked the MLM community for their contribution to the U.S economy. Fact: Over 200 million dollars is paid out to mlm distributors every DAY Fact: The vast majority of mlm companies have at minimum a 90% buy back guarantee. Fact: Americans invests an average of $65,000 in their traditional business startup and 90% go broke in their first 5 years. You can tell someone their 200billion a year business model, endorsed by multiple successful billionaire businessmen is flawed if you want – but if I had to take business advice from someone who’s never done something, or the most successful investor in the history of the world, the most successful entrepreneur in the world, author of the best selling finance book in the world (just to name a few) – I know who I would pick

Here is somebody who has fully bought in to the cult.  He can spout right off the logical fallacies and false arguments that have been pushed in those meetings

 

Here’s a post of  stuff that they won’t tell you in those meetings:

Lie #1: MLM is a business offering better opportunities for making large sums of money than all other conventional business and professional models.

Truth: For almost everyone who invests MLM turns out to be a losing financial proposition. This is not an opinion, but a historical fact. Consider some notable examples from among the largest MLMs.

In the largest of all MLMs, Amway, only 1/2 of one percent of all distributors make it to the basic level of “direct” distributor, and the average income of all Amway distributors is about $40 a month. That is gross income before taxes and expenses. When costs are factored, it is obvious that nearly all suffer a loss. Making it to “direct”, however, is not a ticket to profitability, but to greater losses. When the Wisconsin Attorney General filed charges against Amway, tax returns from all distributors in the state revealed an average net loss of $918 for that state’s “direct” distributors.

Extraordinary sales and marketing obstacles account for much of this failure, but even if the business were more feasible, sheer mathematics would severely limit the opportunity. The MLM type of business structure can support only a small number of financial winners. If a 1,000-person downline is needed to earn a sustainable income, those 1,000 will need one million more to duplicate the success. How many people can realistically be enrolled? Much of what appears as growth is in fact only the continuous churning of new enrollees. The money for the rare winners comes from the constant enrollment of armies of losers.

I’ve seen this in action.  The margins for the typical distributer are lousy and you are

not allowed to improve on them by using more conventional methods.

Lie #2: Network marketing is the most popular and effective new way to bring products to market. Consumers like to buy products on a one-to-one basis in the MLM model.

Truth: If you strip MLM of its hallmark activity of continuously reselling distributorships and examine its foundation, the one-to-one retailing of products to customers, you encounter an unproductive and impractical system of sales upon which the entire structure is supposed to rest. Personal retailing is a thing of the past, not the wave of the future. Retailing directly to friends on a one-to-one basis requires people to drastically change their buying habits. They must restrict their choices, often pay more for goods, buy inconveniently, and awkwardly engage in business transactions with close friends and relatives. The unfeasibility of door-to-door retailing is why MLM is, in reality, a business that just keeps reselling the opportunity to sign up more distributors.

In my experience, getting people to buy in strains relationships and if everything has to go through a distributer and wait for delivery, it doesn’t work out very well for consumables.

Lie #3: Eventually all products will be sold by MLM, a new form of marketing. Retail stores, shopping malls, catalogues and most forms of advertising will soon be rendered obsolete by MLM.

Truth: MLM is not new. It has been around since the late 1960’s. Yet, today it still represents less than one percent of US retail sales. In year 2000, total US retail sales were $3.232 trillion, according to the Dept. of Commerce. MLM’s total sales are about $10 billion. That is about 1/3rd of one percent and most of this sales volume is accounted for by the purchases of hopeful new distributors who are actually paying the price of admission to a business they will soon abandon. Not only are MLM sales insignificant in the marketplace, but MLM fails as a sales model also on the other key factor ­ maintaining customers. Most MLM customers quit buying the goods as soon as they quit seeking the “business opportunity.” There is no brand loyalty.

I’ve heard this for forty years.  Hasn’t happened.  Look, there’s a lot more to retail than just pushing product.  Also people want to be able to make choices, something a MLM typically does not provide.

Lie #4: MLM is a new way of life that offers happiness and fulfillment. It is a means to attain all the good things in life.

Truth: The most prominent motivating appeal of the MLM industry as shown in industry literature and presented at recruitment meetings is the crassest form of materialism. Fortune 100 companies would blush at the excess of promises of wealth and luxury put forth by MLM solicitors. These promises are presented as the ticket to personal fulfillment. MLM’s overreaching appeal to wealth and luxury conflicts with most people’s true desire for meaningful and fulfilling work in something in which they have special talent or interest. In short, the culture of this business side tracks many people from their personal values and desires to express their unique talents and aspirations.

The only people who do well in a MLM are the first few people involved in the scheme.  All the money flows to them, not to the typical distributer.

Lie #5: MLM is a spiritual movement.

Truth: The use of spiritual concepts like prosperity consciousness and creative visualization to promote MLM enrollment, the use of words like ‘communion’ to describe a sales organization, and claims that MLM is a fulfillment of Christian principles or Scriptural prophecies are great distortions of these spiritual practices. Those who focus their hopes and dreams upon wealth as the answer to their prayers lose sight of genuine spirituality as taught by all the great religions and faiths of humankind. The misuse of these spiritual principles should be a signal that the investment opportunity is deceptive. When a product is wrapped in the flag or in religion, buyer beware! The ‘community’ and ‘support’ offered by MLM organizations to new recruits are based entirely upon their purchases. If the purchases and enrollment decline, so does the ‘communion.’

Well they do try to maintain a cultish atmosphere. but everything surrounds what you “contribute.”

Lie #6: Success in MLM is easy. Friends and relatives are the natural prospects. Those who love and support you will become your lifetime customers.

Truth: The commercialization of family and friendship relations or the use of ‘warm leads’ which is required in the MLM marketing program is a destructive element in the community and very unhealthy for individuals involved. Capitalizing upon family ties and loyalties of friendships in order to build a business can destroy ones social foundation. It places stress on relationships that may never return to their original bases of love, loyalty and support. Beyond its destructive social aspects, experience shows that few people enjoy or appreciate being solicited by friends and relatives to buy products.

I’ve seen this happen first hand.  The pressures to bring people into the cult are tremendous.  It gets the point of personal destruction and disappointment.

Lie #7: You can do MLM in your spare time. As a business, it offers the greatest flexibility and personal freedom of time. A few hours a week can earn a significant supplemental income and may grow to a very large income making other work unnecessary

Truth: decades of experience involving millions of people have proven that making money in MLM requires extraordinary time commitment as well as considerable personal wiliness, persistence and deception. Beyond the sheer hard work and special aptitude required, the business model inherently consumes more areas of ones life and greater segments of time. In MLM, everyone is a prospect. Every waking moment is a potential time for marketing. There are no off-limit places, people or times for selling. Consequently, there is no free space or free time once a person enrolls in MLM system.

Again, I’ve seen the struggle.   I’ve also seen the best sales and marketing guy I know not be able to make it work.

Lie #8. MLM is a positive, supportive new business that affirms the human spirit and personal freedom.

Truth: MLM marketing materials reveal that much of the message is fear-driven and based upon deception about income potential. Solicitations frequently include dire predictions about the impending collapse of other forms of distribution, the disintegration or insensitivity of corporate America, and the lack of opportunity in other professions or services. Conventional professions, trades and business are routinely demeaned and ridiculed for not offering ‘unlimited income.’ Employment is cast as wage enslavement for ‘losers.’ MLM is presented as the last best hope for many people. This approach, in addition to being deceptive, frequently has a discouraging effect on people who otherwise would pursue their own unique visions of success and happiness. A sound business opportunity does not have to base its worth on negative predictions and warnings.

It’s almost borglike, the constant play on anxieties. You will fail outside the cult is a constant drumbeat.

Lie #9. MLM is the best option for owning your own business and attaining real economic independence.

Truth: MLM is not true self-employment. ‘Owning’ an MLM distributorship is an illusion. Some MLM companies forbid distributors from carrying additional lines. Most MLM contracts make termination of the distributorship easy and immediate for the company. Short of termination, downlines can be taken away with a variety of means. Participation requires rigid adherence to the ‘duplication’ model, not independence and individuality. MLM distributors are not entrepreneurs but joiners in a complex hierarchical system over which they have little control.

Again I’ve seen this first hand.  You are at the mercy of corporate and your upline and can be cut off for any reason.  lack of performance is a big one.  The fact is that you have to work twice  as hard in a MLM as even the worst case in your own business and are more likely to reap the awards.

Lie #10: MLM is not a pyramid scheme because products are sold.

Truth: The sale of products is in no way a protection from anti-pyramid scheme statutes or unfair trade practices set forth in federal and state law. MLMs that sell useful, quality products have been successfully prosecuted under anti-pyramid scheme laws by state and federal officials. MLM is a legal form of business only under certain rigid conditions set forth by the FTC and state Attorneys General. Many MLMs are currently in gross violation of these guidelines and operate only because they have not been prosecuted. Recent court rulings are using a 70% rule to determine an MLM’s legality. At least 70% of all goods sold by the MLM company must be purchased by non-distributors. This standard would place most MLM companies outside the law. The largest of all MLMs acknowledges that only 18% of its sales are made to non-distributors.

Can you typically buy the MLM’s stuff outside the network?  In my experience, no.

http://www.falseprofits.com/MLM%20Lies.html

Here’s another web page discussing the fundamental instabilities of MLM’s.  Here’s a summary of the conclusions.

Summary of What’s Wrong With Multi-Level Marketing

  1. MLMs are “doomed by design” to recruit too many salespeople, who in turn will then attempt to recruit even more salespeople, ad infinitum.
  2. For many, the real attraction of involvement in multi-level marketing is the thinly veiled pyramid con-scheme made quasi-legal by the presence of a product or service.
  3. The ethical concessions necessary to be “successful” in many MLM companies are stark and difficult to deal with for most people.
  4. Friends and family should be treated as such, and not as “marks” for exploitation.

 

http://www.vandruff.com/mlm.html

In my experience with friends and family MLM’s exist to exploit the vulnerable. They play to the people who don’t quite feel that they are doing as well as they should.  They spin a tale of make believe that if you just push hard enough, you too can have  the road to easy street.  While there may be people who made out in the system, once the first few people buy in, everything get’s more difficult.  To stay in you have to deceive yourself.  To grow you have to be able to play the game and to succeed you have to be able to run the con.  Which, in the end, a MLM is.

Too many friends and family have bought into one form or another of these schemes. With all the stuff that the two posts I have linked to here and more.  A MLM is not that great opportunity that the people leaving those card on windshields would to believe. It’s a method you into a materialistic pseudocult and draining of your money and time, while making you exploit your relationships for their benefit, not yours.

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2 comments

  1. jccarlton · January 3

    Reblogged this on The Arts Mechanical and commented:

    I’m reblogging this because I was reminded just how deep the multilevel claws can get into people.

    Like

  2. Leigh Kimmel · January 4

    Reblogged over at The Starship Cat blog, with some thoughts on how I once considered MLM, but decided that it was too full of pitfalls.

    Like

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