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Is MLM Really Entrepreneurship?

March 4, 2011 by


Is Network Marketing Really Entrepreneurship?

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?

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  • Rick Nappier

    Marty, you should start your own MLM. I appreciate your comment and agree with some of them. Even though I’m no longer in the Amway business (1992-2000), their optional training classes on communication, relationship management, contacting, cold-calling and prospecting, and dealing with sales rejection were never taught in the MBA program. Many Amway leaders in Sacramento, Placer counties were very successful in their careers before Amway.

    I’ve moved on to be very confident in my own consulting practice where I initiate sales calls to successful business owners and high net worth individuals in all 50 states and several foreign countries.

    I’m kind of like you. After 8-9 years with Amway, my MLM detector sounds an alarm when I’m approached. I would say that Amway is still the best network marketing business for anyone who needs real marketing training that you cannot receive in college. I’ll pass on the others because they typically want at least $500 and the people are often not real.

    I also agree that an entrepreneur creates something out of nothing. Or, takes an existing marketing plan from a box and maximizes cash flow, profit using his or her mind or personal talents.

    I will be forever indebted to the information I learned from the International Networking Association team in Amway based out of Northern California. This group performed at a level Bill Gates would appreciate!

    Take care Marty! Love your articles.
    Rick in Sacramento.

  • John R. Sedivy

    The whole MLM concept makes me a bit uncomfortable, probably due to the negative connotations referenced in this article. Robert Kiyosaki made some interesting points about “network marketing” in his book “The Business Of The 21st Century” particularly concerning a “B Quadrant” business being scalable through networks. Examples such as the light bulb and Model T were cited, the idea being both products would have been much less effective without the infrastructure achieved through scalable networks.

    The second part (and beyond) of Kiyosaki’s book described network marketing products as a means of individuals to try out entrepreneurship with a fraction of risk. Personally I believe that entrepreneurship and risk go hand-in-hand and you cannot necessarily have one without the other. But perhaps this could be a good way for someone to dip their toe in the pool without necessarily taking the plunge.

    Perhaps quality products are the true distinction – Network marketing may work with the right product and supporting infrastructure. Perhaps building a large, scalable business is accomplished through networks, but it’s just not as apparent as a pure MLM.

    If you have read “The Business Of The 21st Century” I would be interested on your take of the ideas within, specifically the relationship between network marketing and a scalable business.

  • Chris Curtis

    Look, I understand why many people have a negative view of the network marketing industry, but let’s look at why this business model exists and why it is actually a good business model for companies. If you had a product that you wanted to take nation or world wide, it would cost millions in advertising dollars up front. Does this sound like a good business decision, especially when you consider the fact that there is no guarantee the product will fly in the marketplace?

    Yes, most companies do require that a distributor be a customer, but why would a company want someone who has not experienced the product out there selling the product? Most legitimate network marketing companies require that you purchase a product monthly. They do not however require a license fee. This would be illegal according to the rules of the FTC.

    A company that utilizes the network marketing model has little up front advertising cost. All of the advertising and promotional costs are taken out of a percentage of the total revenue generated after the product sells. I don’t know about you, but it sounds like pretty good business to me.

    Here is another fact about network marketing.

    This business model has generated more wealth for the average person without any prior education, special experience or skill than any other type of business on the planet. In other words, you do not have to go to college and get a degree, go to trade school or have any other type of special education or training to be successful in the network marketing industry.

    The real pyramid scheme is the corporate world.

    I am 34 years old and basically retired thanks to residual income that I earn in my network marketing business. I am an average joe – actually below average considering my wife and I both dropped out of HS because we had a child at 17.

    If I would have gotten a job in corporate America I would still be slaving away and for what?

    As a network marketer, I do what I want when I want and still earn a six figure executive income while I spend time with the people who mean the most to me.

    Great post, but I respectfully disagree.

    God bless…

    Chris Curtis – Network Marketer

  • Ebarnett32

    I’m frankly a bit surprised by this post. I ran an Amway based business for a few years, and like Rick I learned so much through the experience. It was like a crash MBA course. I ran into plenty of people with strong negative feelings towards NM businesses but it was normally based on their own personal limitations or lack of information. The former comes from the fact that most people simply are not prepared to make any changes to allow themselves to become successful. If you present an opportunity to them they are forced to admit that to themselves. The latter is from misinformation and the bad apples that are out there.

    Every industry has examples of businesses that do not do the right thing – NM is no exception. That has nothing to do with the validity of the business model. The music industry uses the street team approach to promote their products. The financial and real estate industry uses a broker model. The examples go on and on. Using people to promote a product and giving them an incentive to get other people to do so makes complete and total sense. Sure – the way that is implemented can be unfair but that just means you have to make sure you align yourself with the correct business and again has nothing to do with NM specifically.

    As far as people running NM business not being real entrepreneurs – they are no less entrepreneurs than the Subway franchise owner is. They are trying to mitigate risk but want to take control of their path they are on, more so than they can achieve through the corporate world. When I ran the Amway business I created my own health and wellness company (Zaboes) and sold the Amway products through that. Do I feel that’s the same as I’m doing now (I have create my own software company called StoreTraxx with an original software concept started from scratch), not exactly but some of the basic principles apply. There was no one giving me a paycheck, doing things for me, etc. I had to create my own success through Zaboes in the same way I have to create my own success through StoreTraxx.

    Again – I think people have to separate out the business model, the companies using the business model and the people involved in running the individual businesses. The basic idea of NM is sound and quite ingenious but the way it is used, implemented, etc can give the entire concept a bad name. We have no problem suggesting a restaurant or a product to our friends when it is for someone else’s business but suddenly it becomes uncomfortable when it is for our own business – and by the way, that has nothing to do with NM either. There are 2 types of business – products and services, both of which you have to sell something to someone. If every single one of the people you know doesn’t know you are running a business and have a product or service to offer then you don’t believe in your own business and won’t become successful – that applies to NM or traditional business exactly the same.

  • Marty

    @Ebarnett32, @Chris Curtis, @John R. Sedivy, @Rick Nappier Thank you all for your comments. I’ve discussed this topic with many people over the last couple of years, and I haven’t found anyone neutral on it yet. Everyone seems to be either strongly negative or strongly positive.

    The main point I was trying to make here is that when you buy into an MLM, you don’t get to create a new business model or a new product. In that sense, it’s like a franchise, and obviously running a franchise, or an MLM, can teach you a lot about running a business. For lots of business people, that’s the right level of challenge, and the right level of risk.

    To me, the term ‘entrepreneur’ implies more. It implies a new and innovating business model, and/or a new and innovative product or service. The people who enjoy this category usually hate the other, and vice versa. I’m still trying to find someone who has done both, and can characterize the difference.

    Marty Zwilling

    • Ebarnett32

      I guess I would consider myself that hybrid you are searching for. I am anti-big-giant-corporate machine and even more so, anti-warm-a-seat-and-get-paid-for-it attitude. I appreciate and agree that one can draw a distinction between being in business for oneself and being an innovator/entrepreneur. I have done both and definitely see myself as the latter. I love the idea of creating an original idea/concept, creating a business around it and working towards its success. That is my passion and one that anyone that calls themselves an entrepreneur I think shares.

      I believe there are opportunities to innovate within MLM/NM – for example when I ran an Amway business I created my own brand centered around health and fitness, created my own company called Zaboes and sold the Amway health products through it. The business group I worked created a sales and marketing strategy around selling into the restaurant industry with a drink mix product. These are 2 examples of people doing different things within the MLM structure they are provided.

      I think you are right in that if you are strongly inclined to be an innovator then the MLM/NM structure wouldn’t be a long term fit for you. I think that someone that gets sick and tired of the corporate world can break away with a franchise and/or MLM which can lead them to see opportunities to create something original themselves leading them to be what you would consider a true entrepreneur. In fact, I’ve seen that happen several times – people use the provided structure to learn business strategy and then realize they have more potential than the business structure provides. It just takes one Ah-Ha moment to realize the idea that leads to the next big venture!

      Thanks for the post Marty!

    • John R. Sedivy

      Hi Marty – Thanks for your response and thoughtful insights. I agree with your thoughts on entrepreneurship and believe in this distinction myself. I often think of entrepreneurship as starting with a blank canvas and beginning the process of building value which will continue over time. The other forms seem to be taking an existing product/business and building value. This is an important distinction as I believe as the starting with nothing and taking the first step is one of the most difficult (if not the most difficult) parts of entrepreneurship. Of course this does not even scratch the surface of the challenges associated with developing the product and brining it to market!

    • Scott Allen

      I think you have an extraordinarily narrow view of entrepreneurship here, Marty — and one of your own construction, not the generally accepted definition. The vast majority of entrepreneurs do NOT create a new, innovative business model, product or service. The vast majority of entrepreneurs take an existing business model, product or service and bring it to a new, underserved market, either geographically or demographically, or perhaps in a different industry. Quite often, a successful entrepreneur does nothing particularly innovative other than some new and distinctive marketing.

      Look at some of the Inc. 500. C2C Outdoor just combined the services that a bunch of smaller businesses had created and were providing. Big Night Entertainment? High-end restaurants and nightclubs. Nothing really original, just hadn’t been executed well in that market. Gold & Silver Buyers? That business concept has been around for how long…decades?

      From Wikipedia:
       Jean-Baptiste Say, a French economist, is believed to have coined the word “entrepreneur” in the 19th century – he defined an entrepreneur as “one who undertakes an enterprise, especially a contractor, acting as intermediatory between capital and labour”. A broader definition by Say: “The entrepreneur shifts economic resources out of lower and into higher productivity and greater yield.”

      And if you Google “entrepreneur definition”, you get:
      “A person who organizes and operates a business or businesses, taking on financial risk to do so.”

      I don’t see anything anywhere in all of that about being new and innovative. Innovation is, I think, highly over-rated. It is simply one of many means by which to gain competitive advantage. But it’s not what makes an entrepreneur.

    • Someone who almost got tricked

      MLM is not like a franchise at all, it’s much worse. all these distributors or ‘sales people’ do not sell, they just recruit so people buy stock to get started but the MLM makes it impossible to sell because of mlm prices and the saturation of the many other distributors. These distributors basically become customers buying stuff they dont need.

  • Anonymous

    there are a lot of companies out there that are basically operating pyramiding schemes disguised as legitimate network marketing. there will always be bad apples. that’s a reality not only in this industry but in any industry.

    what’s more troubling to me is that there are many legitimate network marketing opportunities out there that end up being bastardized by the very people involved in that business. i’m talking about the distributors. many of them make all sorts of claims that in truth do not really reflect what their companies are actually promoting. often times these distributors violate the very guidelines of their companies.

    network marketers can help fix the industry’s bad image by simply going back to the basics. how about putting back more emphasis on actually selling products instead of hyping the recruitment/sponsoring aspect of the business. don’t kid yourselves and your downlines by telling them that network marketing is not about sales.

    it’s just too bad that network marketing is suffering from so much bad publicity.

  • Bruiseviolet

    I would agree that in some way shape or form MLM is entrepreneurship- in the new “stretched” definition. Having done BOTH MLM and started and currently running a successful business – I can honestly say the two don’t even come close! Working for an MLM is very limited. While you worry about income- from yuor downline- you don’t have the risks of deciding and the risk in hiring new full-time employees to work for you. Ultimately the MLM company takes care of the “nasty work”- you aren’t left learning the hard way of how to deal and prevent charge-backs, you aren’t trying to find income to go see a lawyer to make sure the legal and technical jargon of your business/website will prevent lawsuits etc… You aren’t out trying to rent / lease an office space and figuring if your income over the summer will sustain your employees and bills (because summer is ALWAYS SLOW). It’s solely on you to come up with EVERYTHING. There is no magic store to buy pre-made websites, and marketing material on your product/business- you have to create all of this yourself. When you start your own company- there is no business in the background sending your new ‘employees’ welcome packets and get started guides.

    I like to agree with the other poster who said, MLM is like dipping your feet in the pool. Actually starting your own company is like diving in- head first.

    • http://www.caycon.com/ Akira Hirai

      Great insights. Thanks for contributing to the discussion!