I was once told that most recessions are self-fulfilling prophecies. People have a reflex reaction to the notion that the economy is turning downward, which tells them to hoard their money, and keeps them from investing. As a result of that lack of investment, the economy does, in fact, turn downward.
What we have today may not be the result of such a self-fulfilling prophecy. Its more likely to do with our, relatively new, idea of debt as a foundation for wealth — a house of increasingly fragile cards.
Nonetheless, the economy isn’t in great shape. I know 3 people in my orbit of life who have lost jobs due to layoffs or cut-backs. And others who’s jobs are becoming less and less worthwhile. The temptation, of course, is to find some alternate method of making money quickly. After all, we’re used to swiping a card and getting what we want, so why shouldn’t work come just as easily?
Now I’m treading carefully here, because I’m well aware that no one’s job these days is particularly safe, and if left jobless, I’m not sure to what lengths I would go to provide for my family. But there’s a trap in here, that I have to say at least a few words on:
A Multi-Level Marketing company is not a good way to make money. Just like the, now illegal, pyramid schemes of yesterday, an MLM business is one designed to abuse everyone except those at the highest levels of the “up line.”
Granted, some are better than others. There are a few with an actual decent product to sell, but most of the ones I’ve been “invited” to join market products with questionable value — and do so by design, since actual sale of a product is not the primary focus of the business.
Don’t know how to spot an MLM? Its really simple: if you went to a job interview at, say, McDonald’s, and the hiring manager not only offered you the job without question, but told you how you could make even more money if you brought two of your friends in to work under you, would you be suspicious? I would.
The only difference between a pyramid scheme and an MLM business is the product. For some, the product is unique and you might be willing to put up with the organization just to be able to obtain and share that product. That’s fine. However, to do so under the illusion that you’ll also have a sustainable business is very, very risky. The only way to move up in an MLM organization is to subjugate your friends — your “network.”
And not only is it necessary, in order to make money, to recruit your friends to start a “business” under yours, but its necessary for you to insist that your recruited friends recruit their own friends to do the same. The bigger the pyramid underneath you, the more money you’ll make. Similarily, the more people in your up-chain, the more money they are making off of you.
Once in college, my roommate and I simultaneously got a job interview. We put on our suits, and showed up… to a room full of other, similarly conned students. Not too surprisingly, we “got the job” with very little effort. And I was quite furious with my parents when they weren’t excited for me.
The company sold kitchen knives. Good knives — probably the best I’d ever seen. They cut circles around the knives I had in my kitchen, and I’m sure they were a very good product. After they demonstrated the product, they told us how the business works. There were perks, you see. It was commission only, so the more knives we sold, the more money we’d make. But there was also an “opportunity” to grow our own knife business. All we had to do was get our friends to sell knives for us! And for every seven friends we signed up, we’d get a free trip to Florida!
We found the “job” on a billboard at school, promising students “$30,000 a year in your spare time!” When both of our parents berated us for falling for it, we looked into it a bit further. The only people who made that kind of money were the people running these “group” interviews. Extending their “network” and their “down line” by suckering students who didn’t know any better.
Since then, there’ve been other “job offers.” One guy, in particular, preyed on students working at Future Shop (the Canadian Best Buy, where I worked while in school) telling them what great potential they had as businessmen. My roommate and I each fell for that dude once — even inviting each other to come to the meeting/interview.
What makes me mad isn’t the people who like a product for its merits, sell it to a few of their friends, and make a little money on the side from it. I’m pretty sure even my mom went to a Tupperware party or two. Its the people who understand how the business works, and prey on others, promising them a quick and easy solution to their money/career problems, when they know full-well that all their really doing is building a pyramid underneath themselves. The ethical problems with building a “business” this way are staggering — not to mention the social immorality of turning your friends and family into a “network.”
We all know that the economy isn’t great right now. A little bit of individual responsibility: avoiding debt and investing wisely could probably go a long way to fix that. But if you find yourself in a grim situation, that appears to have a too-good-to-be-true solution, ask yourself these questions:
- Does the chain-of-command above me look anything like a pyramid?
- Does this job reward me for recruiting my friends?
- If this product is so great, why isn’t it sold through the normal (and successful) retail chain?
And if you think its worth it anyway, cause the product is helpful to you, or you could use a little extra cash, at least read this article on MLMs (or this shorter one about how to spot an illegal MLM) and resolve not to subjugate anyone you know with your new business.
[youtube http://www.youtube.com/watch?v=AAUvNmecsH8&hl=en&fs=1]
i did cutco ( selling knives) and it sucked. jason did cutco and had his own store and lead the meeting like you talked about…. jasons brother did the same as well and made a ridiculous amount of money for a college kid in NYC……
none of us do that anymore….
then we got in on MONAVIE…. same pyramid plan you are talking about…. its really hard to sell your friends 40$ bottles of juice that are only for a one week supply. got out of that really quick.
all too good to be true… mostly. and you only normally hear the HUGE success stories and not the average joe who tries to sell the stuff…..
i will stick to my BCC teaching and yoga….. thanks!
Hey,
I’m going to play the devil’s advocate on this one. I will agree that most MLM’s are designed to make the people at the top the most money. I will also agree that most people who do these ventures end up making next to nothing in the process. Statistically speaking, the “successful” people in a MLM system is probably very similar to the amount of “successful” people that we would know in life. Most people in our society do not make over $100,000 per year. This seems to be a standard that people look at for success. Well, most people in MLM’s also do not make over $100,000 per year.
However, I do happen to know some people who are quite successful in MLM systems as well. I know people who consistently make $50k-$100k every year working in these systems. I also know a couple who make over $1 million a year in these systems. The latter have obviously been in the business a longer time the former.
I do think that there is money in some of these systems, but the hype that is created by someone who has no idea what they are talking about, because they are excited, is what creates the issue. Typically in a MLM system, you have people who have no clue what is going on, trying to recruit someone else who has no clue what is going on. The challenge that this creates is that there is usually misguided information being passed along, thus creating false expectations.
As for the comment on going after your network, I would agree that to prey on your network is unethical. However, I would say that if it is something that would be beneficial to your network, I don’t have a problem with it. I have a guy that has been calling me for months trying to get me to sit down and buy knives from him. Nothing against him, or the knives, but I don’t need or want a new set of knives. The ones I have work fine enough for me. However, if you approach me about saving money on something else in life, or have something that makes sense to me, then I don’t have a problem with a friend telling me about it. That said, if I say “no”, then leave it be.
Once again, MLM systems typically present a product that is not necessarily required, will use moderately high pressure sales with an inexperienced representative, who may be unknowingly feeding false information.
So out of that, I am saying that I would not agree that all MLM systems are bad. I think that there are some good ones out there, but you have to be very careful with them.
I get approached about these opportunities frequently being a sales representative. My approach is similar to the following.
1) Be skeptical
2) Take your time with a decision – whether it is looking at making a purchase of the product or doing the business
3) Ask the tough questions – often times people get overexcited that they forget to ask the important questions until it is too late
4) Talk to someone who has been in the business for a long time and pick their brain
5) Talk to some of your personal friends who you respect. I’m not talking about using your network to sell them something. I’m talking about let them peruse the information with you to see whether they think you should do something like this. I also frequently get approached by people in this manner. I know what to look for, so I can ask them questions that can help them in their decision making process.
6) Do NOT expect to make much money. Don’t budget tons of money because some guy in Zimbabwe joined the company and made $100,000 in his first year. Find out what the average rep makes. Usually, it will be somewhere between $500-$2000 per year. Then expect to make that much.
7) Do NOT ruin friendships to make an extra buck. Your “upline” will be pushing you to contact everyone you know. If you are skeptical about doing that, then you probably don’t want to do the business or you need to research the business more.
8) In my opinion, the only way someone should consider this type of business is if you feel the product is something that would be beneficial in a practical way to most people out there. Ie. If you can save me money on my ridiculous cell phone bills, then maybe I would be willing to sit down. If you want me to buy land in Arizona, then not so interested.
9) Don’t get so excited that you cannot think through the opportunity clearly.
Well, that’s the end of my book response. All that is to say that I don’t think you can knock every single MLM system out there, but the expectations have to be low and the research into has to be high. Let’s see what responses I get on this. 🙂
Lots of good points in there, Bill. I’m just going to snipe and pick on one, though.
“Statistically speaking, the “successful” people in a MLM system is probably very similar to the amount of “successful” people that we would know in life.”
That’s probably true. The difference is in how those other successful people make their money. There are definitely parallels between a classic big business, especially a sales one, and an MLM. After all, even in regular businesses, a District Sales Manager’s bonuses are dependent on the performance of the people under him, and the VP of Sales’ bonuses are probably dependent on the people under him.
The difference, in my mind though, is that in a typical business, a sales job requires skills, a job interview, performance reviews, accountability, and most importantly, a clearly defined employer-employee relationship. You may take a job where a friend is your manager, but in a typical business, if you weren’t qualified for that job, you’ll lose it pretty quick, and your friend/manager may be at risk of losing his. There’s no benefit to you or your friend to recruiting people just to build a “down-line.” As a result, as an employee, there’s no pressure to subjugate your friends, so that you can make money off them.
In fact, the pressure would be inverse. You’re pressured NOT to enter into a business relationship with a friend unless there’s a clear probability of success.
MLMs force a pyramid structure, where, to your point, Bill, no one cares if you know what you’re talking about, as long as you keep recruiting, building more and more lower levels, causing “salesmen saturation” (what do you do once all your friends are also distributors so that now no one you know wants to buy from you?) without building breadth, knowledge, skills, mentorship across a tier. Its not set-up to grow a person, or offer them any benefits you might find in a typical career-type job. Its set-up to create a pyramid, where the wealth flows upward to the most exploitative people in the company.
And I’d maintain that if the product sold were really that good (and that competitive (see Brooke’s Monavie experience, where the product was good but not competitive)) it would be available in the normal retail chain. Whether or not a given retail chain is an ethical business itself (*cough* Walmart *cough*) is a different topic, of course.
PS to Bill: Let me tell you about a great new investment club where you can save money on your cell phone bill AND get rich while doing it! All it takes is a small initial investment on your part, and your own matrix-driven business will be up in running in no time, bringing you passive residual income every day!
😉
Man – and here I learned about hard work = rewards – and not always ones that are cash… go figure – no such thing as an “easy buck” – and never will be…
I too was part of one of these – didn’t like selling them, so quit after the first day – then was VERY wary from then on in… that’s when the AMway/pyramid’s were still around – but same rationaization.
Good posting!
Your Cutco companies must be a little different from the ones down in the states. Ours wasn’t a pyramid scheme when I was in Cutco and nobody ever tried to get their friends or family to sell knives, just to buy them. Actually we told our reps to “practice” on their family and then go sell to their friends parents and their friends. LOL When I was a manager I was pretty picky about who I interviewed and hired. Mostly because I had to train and manage them and didn’t want to waste my time on someone who was gonna sell a few knives and quit, but I definitely wasn’t the norm. Geeze, I sound like I’m still working for them. However as college students my brother and I both made good money doing this and got some great sales and businessmen experience. It just wasn’t what we wanted to do forever. It’s definitely not for everyone, but neither is any job.
Jon
I would agree on the business structure requiring skills. If you were to look at most of the people who do well in the MLM system, they are typically people who have a fairly good set of skills. They have the ability to use their skills to make things happen and most of them are not working with personal friends they attempted to recruit when they started.
Their downlines were created by people who were not family or close friends. Much to the idea you mentioned about not hiring your personal friends list.
Most of the people I know who are making a respectable income came from backgrounds like teachers, sales representatives, lawyers, nutritionists, etc… I am certainly not knocking anyone who does not have training or experience in a field like those, but the successful ones are always the ones who understand that it is not a quick money gig and that they will have to put the same effort in as they would have in their career, if not more.
By the way, what is this cell phone deal? Can I sign up? LOL
Excellent points by all. I had an experience with MLM as well. Seems that over time, all ambitious people get involved in at least one MLM type business!
Like Bill, I too know a number of people who are successful in MLM (I will choose to keep the specific organization to myself!). Many were successful in their own traditional businesses before becoming successful with their MLM business. We were mildly successful and I don’t hold any ill feelings towards the complete strange who got us involved. It was a great learning experience. To me, if you believe in the product(s)/business model and truely in your heart think you can help others, I don’t see the moral negatives mentioned above. After all, it’s in my best interest to invest my time and money into helping my “downline” succeed. I wish this was the case in the corporate world. I have virtually no chance of replacing my CEO (nor would I want to!), but in the MLM business model, the “upline” would do virtually anything so long as it’s ethical to help me achieve their level of success.
That said, it’s not a business model suited for everyone. It’s definitely NOT a get rich quick scheme. It takes time and effort, just like any other business does. The problem with MLM is there is virtually no risk since the startup costs are so minimal, thus people treat it like a hobby and make a hobby income from it.
Great topic Jon!
As Forrest Gump would say, “That’s all I have to say about that!”