As we leave college and venture into the real world, we encounter a whole slew of new opportunities, problems, people, and situations that we must figure out how to deal with. We’re no longer sheltered and protected by our parents, who have much more life experience and have our best interests in mind. We meet people who only have their best interests in mind, and we need to use our minimal life experience to figure out how to respond to these people.
In the past 6 months or so, I’ve been invited by two supposed friends to join their “business opportunities.” They are talking of course about Multi-Level Marketing businesses, or MLMs. In my opinion, MLMs are thinly veiled pyramid schemes. The difference between a pyramid scheme and a legal MLM business is that the MLM is actually selling a product or service, whereas the pyramid scheme is just selling membership with no actual product or service. But in an age when the internet makes everything readily accessible and sales meetings can span continents, you have to ask why a company would want to structure themselves as an MLM. If the company feels their product is strong, they would just hire a sales team. The fact that they are relying on the MLM structure is a huge indicator that they don’t think their product is good enough to make it with a normal sales approach. So what are some other major issues I see with MLMs? Read on!
Red Flag #1: I should not have to pay you to sell your product. When I was hired by my company 4 years ago, I did not have to shell out 500 bucks for the privilege of working for them. No upfront cost, no membership fee, and I didn’t have to pay for training courses or materials. They paid for my training, gave me a computer and phone, and provided me with shirts to wear at trade shows. A legitimate company will take on some risk hiring you, a company that shifts 100% of the risk to you is not a company you should join. If you had to pay to join the company, I guarantee they don’t care about your individual success. On the contrary, they’re assuming you’ll fail.
Red Flag #2: Recruiting others for the purpose of increasing my revenue, but telling them it’s a great opportunity for them is ridiculously disingenuous. There are two basic ways to make money with MLMs: selling the product and recruiting others to be representatives. You will then make money when representatives in your network sell the product or recruit other representatives. I believe it is illegal to flat out pay you for recruiting new representatives, but that is easily skirted by paying you only once your new recruit has sold a product, so it’s like you’re getting a bonus for helping your new recruit be successful. So can you make money just selling the product and not engaging in the schemey recruitment aspect? Yes, but you’ll probably be making roughly 5% commission and you won’t get a base salary, so you should just become a sales rep for a legitimate company instead if you’re interested in sales.
Red Flag #3: Will anybody actually buy this product? Most MLM businesses sell every day products at discounted prices that are almost always not the best deal out there. Because they are usually common products, there is a huge amount of competition, so the consumer has many choices. What’s so great about a $100/person/night hotel deal when I could get the same price from a company I trust, like Orbitz? If a representative can’t make enough sales himself to maintain active membership or to offset his start up costs, his only option is to recruit others to join his network so he can benefit from his recruits’ sales. Or to accept that his start up costs are a sunk cost and give up, just like the other 98% of representatives who came before him.
Red Flag #4: If I don’t understand my compensation plan, that’s not good. I looked at the compensation plans for each of the businesses I was invited to join. The first one is 29 pages long. I would wager that most of the representatives don’t understand the compensation plan because it’s so confusing. The second one is a mere 4 pages long, but they offer plenty of opportunity for confusion in those 4 pages, such as establishing the membership levels you can achieve on the first page, and then on the fourth page where they specify the compensation at different levels, neglecting to mention 3 of the 7 levels they established on the first page.
In doing my research on the latest “business opportunity,” I discovered that Donald Trump endorses the company, and if Donald Trump endorses it, surely it must not be a scam! (Or at least that’s what countless sites defending the company argued.) I found quotes where he says that if he had to start all over again, he’d start with an MLM. This is not exactly a ringing endorsement for MLMs, it’s a blaring warning sign that Donald Trump is a greedy bastard who is comfortable building his wealth by exploiting others.
One of the other arguments I hear for MLMs is they’re great for people who want to start their own business, but don’t have the capital to make it happen. But this is not anything like starting your own business. You’re just acting as a sales/marketing/headhunter for a big corporation, but with no salary. Interested in sales? Do that. Interested in marketing? Do that. Interested in recruiting? Do that. Interested in starting your own business? Get a loan and/or save aggressively for a few years. Bottom line: Don’t join an MLM.