A Path to Riches or an Alluring Trap?

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I vividly remember a house in the neighborhood where I grew up as a kid. My friend Tony lived there. It was a massive structure, likely over 5,000 square feet, dwarfing all others in the area. This residence boasted a huge swimming pool (rare in Columbus, Ohio), a fish tank that took up an entire wall, and a foyer staircase that rivaled that of the von Trapp family mansion in the movie ‘Sound of Music’.

Because the property’s stature and opulence seemed an oddity for a lower middle class African-American community, I asked another neighborhood friend what Tony’s parents did for a living. “Oh“, came the response, “they’re involved in something called Multi-Level Marketing. I hear you can become quite rich in that business.”

So What the Heck is Multi-Level Marketing?

Just the other day, I mentioned to a friend of mine, who happens to be a millennial, that I was writing an article on Multi-Level Marketing. “What’s that? Never heard of it,” she retorted.

As a boomer, my awareness of MLMs is quite extensive. Back when I was young and impressionable, it seemed like profiteers in this industry were seeking me out on a regular basis. I was told that they were attracted to my gregarious personality and vast network of professional connections. Yet to this day, my understanding as to how it really works is shrouded in mystery.

Here is my own simple definition of MLM. Having signed up for the MLM of a certain product yourself, you then contact everyone you know – starting with family and friends – to persuade them also to sign up for the same MLM product (with you as the referring representative, of course), in the hope that they will sell enough product for you to be able to sit on your couch and watch tv while you reap the rewards of all their referral commissions.

I know, I know… .my definition is a bit warped. But consider it an honest portrayal of my experience with this over time.

My first direct exposure to MLM, a.k.a network marketing, was back in 1995 while I was living in Chicago. I got invited to one of those infamous events that was clouded in secrecy where what you’ve gotten yourself into isn’t revealed until you are seated with coffee and donut in hand. It was a cheesy print publication, a subscription report that featured randomly aggregated research information on society and the world. Surprisingly, tons of unsuspecting folks bought into it with the hope of accelerating their knowledge to become better informed citizens. Me? I attended a couple of meetings and had an uneasy feeling about what was about to go down. On my third visit, I was greeted by a sea of dour faces; they had all been taken financially by the founder.

My brief dalliance with this particular MLM company is not intended as a broad indictment of the entire industry. In fact, I’ve been involved with a wide spectrum of other MLM companies – primarily in the wellness products realm – that had a modicum of integrity and transparency. Some folks I know who were involved with these companies even saw success. But in my estimation, this success scenario was quite rare.

Good Intentions or Taking Advantage of Others?

An acquaintance of mine works with a very profitable MLM company called Vemma Nutrition. She’s a person with integrity who has worked hard to achieve success within the company. Sadly, the Federal Trade Commission just put a temporary strangle-hold on the company’s operations for operating what they deemed to be an illegal pyramid scheme. Company assets were temporary seized by an Arizona federal court. The primary charge against them hinged on their promising college students untold financial returns while selling nutritional drinks. According to the FTC, Vemma earned $200 million in 2013 and 2014. And the students? Well, they were not so lucky, as most were unable to even recover their initial investment in the company.

My Take on MLM Investment Opportunities

In short, if you are considering joining a MLM, I encourage you to tread slowly and keep your wits about you. Have some people seen a ROI in building a profitable business clientele? Certainly, there are some examples. But is it a path to riches? Personally, I believe that’s likely to happen less than 1% of the time. “

Here are a few No Holds Barred lessons, ensuing from my experiences with MLMs. Either take them very seriously or at east with a grain of salt:

1. It’s All About the Money: Don’t be fooled by excited claims about all the good the company is doing in the world because, at the end of the day, it’s all about the money. If you choose to sign on like I did at one point in my life, you’ll likely hear it all; opportunities for massive bonuses, luxury travel and nauseating motivational pitches about accessing your higher self. Your mantra should be to ask questions and trust your gut, particularly if it begins to sound too good to be true.

2. It’s Hard Work: If you hear from an MLM proselyte that joining them will result in an easy path to prosperity, run away as fast as your legs will carry you. In my estimation, becoming successful in one of these businesses is hard work times twenty. The most challenging part is always recruiting others who – often out of financial desperation – are willing to take a look. And even if you are successful in getting others to jump onboard, you’ll find the vast majority of prospects are too wary and lazy to pursue it with any purposeful intention.

3. It Comes with a Stigma: The first reaction of others – when they discover your network marketing affiliation and potential interest in signing them on – is “Am I going to get taken?” And for good reason, given the unfortunate situations that have affected so many who’ve gotten sucked in.

4. It’s Clouded in Mystery: You may be asked to recruit others to attend what could be best described as a Secret Society Meeting, where the true intentions aren’t revealed until everyone arrives and is placed in their seat. In terms of how one actually makes money, honestly I have yet to figure out the mysterious nature of how uplines and downlines really work, relative to one’s compensation. Maybe I’m slow, but it seems like a lot of smoke and mirrors.

5. It May Result In a Loss of Friends: Let me rephrase that. It will result in a loss of friends. Those who are privy to what you’re up to will often flee as if you off-gassed in a crowded elevator. Believe me, it can be a real trust breaker and a relationship destroyer of infinite proportion if you are too brazen in your approach.

6. It Must Be a Brilliant Business Model: Frankly, I will probably be forever in the fog about how people succeed in this business. But the truth is, many of these MLMs are extremely profitable, both for the companies and for those who are at the the top tier of their food chain.

7. It’s Harder to Get Out Than In: If you are seeking to join an MLM, then the process is simple: Sign up, pay your money and then rinse and repeat by paying into the system each month for your own inventory of products to sell. This can be a very expensive proposition if you are not careful, for you’ll likely see little in the way of commensurate return. Once you find yourself facing a negative payback on your investment, you’ll wake up one morning and want to get out. Escaping this trap is where the real work begins.

Michael Scott is a Denver-based freelance journalist focusing on the intersection between free markets and economic freedom. He can be reached on Twitter @biz_michael

 

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