Another Opinion On MLM

I am always glad when I realize that it is not just me. I discovered this very recent analysis of MLM over the weekend. Rather than link to it, I am including the entire text. as I feel it important to read. This piece has touched on most of the points I have been talking about for months and it appears that the author and I are in agreement. But I am sure all of the anonymous posters from the MLM side will say, "oh, but that's not us."

Multilevel Marketing: The Fundamental Truth

Amauri DaRocha / February, 2007

What is the fundamental difference between multilevel marketing and traditional business models?

The truth is that traditional business models and multilevel marketing share a lot in common. However, there is one fundamental difference and it is the root cause of controversy surrounding multilevel marketing companies.

The most widely held assumption about the difference is that multilevel marketing companies encourage their sales representatives to recruit additional sales representatives (downline) and are paid commissions from their downline. Thus, as recruits get new members to join their downline, and their downline recruits get their own downline, the levels continues to grow and, a pyramid structure is formed.

However, recruiting is not, in and of itself, the fundamental difference. In fact, most sales organizations have managers that profit from the efforts of their sales team. And these managers are also responsible for recruiting sales agents that will help them increase their profits. And those managers have managers above them that are paid based on their performance too. In fact, most companies are based on a pyramid structure, that rewards individuals based on the performance of those people recruited, from the CEO on down. So how can getting paid for recruiting be the fundamental difference?

All companies that grow must recruit. However, most companies recruit upward, where as multilevel marketing recruits outward. Let us use a hypothetical example to help illustrate the point. In this example, we have Mark who just graduated from high school and started working at Best Buy as a customer service representative. If Best Buy used the multilevel marketing model, than Mark would be encouraged to start recruiting his downline (other customer service reps) before he ever finished his paperwork with HR. Even though Mark is not a proven salesmen, a proven recruiter, or a proven manager — three skills sets Mark must possess in order to be successful.

Now, in the real world, if Mark was hired at Best Buy, he would have to prove himself as a good customer service rep and leader, before he would ever be promoted into a management position. Only than would he be responsible for hiring new customer service reps. Why? Because traditional companies absorb a significant part of the cost to develop their employees into assets. This forces them to be efficient in their recruiting process, because they can not afford to hire millions of deadbeats in order to find one diamond in the rough.

Multilevel marketing companies, on the other hand, do not worry about having an efficient recruiting process, because they are not absorbing the cost for developing employees into assets. That burden is placed on the employee (sales representative), and often times to the benefit of the company. Millions of deadbeats are recruited who they know do not have the necessary skill set to be successful. Why? Because they are structured to generate revenues from the recruiting process (recruiting for recruiting’s sake). Thus, they recruit outwards — trying to suck in as many warm bodies as possible, with the expectation that only a few will actually stick.

Here’s why this model naturally creates controversy.

Profiting From the Misfortune of Others

“And that's the trouble with multilevel marketing. You make money on your ability to use people. Once you sign on, you hardly have a choice. Not that you want anyone to fail, but you can't hit the jackpot unless you build the network, and that means signing up as many recruits as possible — most of whom have no chance of making the grade.

http://www.inc.com/magazine/19980601/941_pagen_2.html

Many multilevel marketing companies are perceived as being leaches, because they are structured to profit on the misfortune of others. Not that they want people to fail, but it’s inevitable. Let’s face it; the great majority of people in the world are not cutout to be good salesmen. Just like the millions of people who tryout for American Idol, who will never make it because they just can’t sing worth a lick. Being a good salesmen is hard — it’s not for the faint of heart. Which is why the great majority of people are destined to fail in multilevel marketing. And while the companies know this will happen, they continue to churn-and-burn through new recruits in order to maintain their growth.

Additional controversy surrounds those companies who also profit by selling their representatives motivational tapes, books, and seminars. They use the rationale that anyone can be successful if they just know how. And anyone can know how, if they just pay to learn. This is a false promise, because most people will never be good salesmen, no matter how much training they receive. It is nothing more than another way for the company to profit from the misfortunes of their recruits.

Bad Customer Service

Imagine going into Starbucks to get your morning cappuccino. But instead of getting the very knowledgeable and friendly barista who greets you every morning, you get an ex-convict with the customer service skills of a chimpanzee. After making a complete mess of your cappuccino you ask to speak with his supervisor. When the store manager comes out, you discover the manager has only been working at Starbucks for a couple of weeks and hasn’t a clue on how to run the register, offer you a comp card, or even how to fire the chimpanzee he just hired last night. Needless to say, if Starbucks hired and promoted as freely as multilevel marketing companies do, they would have a severe reputation problem when it comes to customer service.

Unfortunately for consumers, most products and services being sold through multilevel marketing are significantly more complicated than coffee. Now imagine a 70 year old salesmen who has never turned on a computer trying to sell you the latest Dell notebook. How effective will he been in satisfying your needs as a consumer? How many Pre-Paid Legal sales reps have more than a basic knowledge of the legal system? How many Herbalife sales reps have backgrounds in nutrition?

Misleading Customers

When someone lacks the necessary knowledge to sell a product or business opportunity, they will naturally fill in the holes when put on the spot with something that sounds good, but is often unrealistic or simply not true. It’s hard to sell something with “I don’t know.” But that is the unfortunate reality most sales representatives face in multilevel marketing.

And the problem is not only caused by ignorance related to the product or business opportunity. Most traditional companies — especially post Sarbanes-Oxley — ensure their employees are being trained on ethical behavior. While this does not eliminate unethical behavior, it does help prevent it. In multilevel marketing companies, ethical behavior goes unchecked. So even when people have knowledge about the product or business opportunity, they do not have the ethical integrity to stop themselves from misleading consumers.

Misleading Recruits

Would you accept a job offer from a company if you knew you didn’t have the skills necessary to be successful, and you would likely be fired within a few months? Most people wouldn’t. But that’s the reality of multilevel marketing. And when coupled with the need to churn-and-burn through mass numbers of new recruits, multilevel marketing companies are left with few options other than to mislead potential recruits into believing they will be successful. How do they do it?

Most people are not just money motivated, but are money ‘desperate’d — and as such, they can be easy targets for people selling the “dream”. Who wouldn’t want to make more money while working less? It’s a completely legitimate pursuit. However, multilevel marketing opportunities will rarely “make-good” on this promise. No matter how hard you try to change the laws of economics, it’s just not as easy as they want you to believe. And if you are having problems seeing this, ask them what percentage of representatives are successful. The numbers will not lie.

In fact, the only way multilevel marketing companies can make you believe you’ll be successful, is to keep you focused on the dream and not the facts. They’ll bring in a highly charismatic speaker, and just like your church minister, he’ll have you laughing, clapping your hands, and stomping your feet. But at the end of this highly entertaining and motivating presentation, little will have been said about specific details on how to make it work. They oversell the dream and undersell the business plan. Next, they’ll bring up a bunch of people to give testimonials on how successful they’ve been. Why? Because, testimonials are an easy substitute for real statistical facts. Testimonial is only the truth of one person, whereas statistics are the truth of everyone. If I bring in 10 people to tell you how much they love a product, you’ll start to believe that product is the best thing ever. But when I tell you those are the only 10 people out of 100 that love the product, you’ll know that product is worthless. Testimonials are the equivalent to fools gold in multilevel marketing.

Paying a High Social Price

An old proverb says to avoid mixing business with pleasure. Why? Because personal relationships (friends and family) are typically not built to endure the trials and tribulations of the business world. This is never more true than when you are an unqualified salesmen trying to sell your friends and family the dream. They will either resent you for trying to involve them in a scam, or they will blindly follow you into an opportunity that is destined to fail. And at the end of the day, you may have paid the price for your failures by burning bridges.

Conclusion

Multilevel marketing is a legitimate and legal business model. It has been proven successful by a number of companies in a variety of industries. And, like any business model, those people who are qualified, passionate, and determined will be successful. However, the great majority of people are not. The question you must ask yourself is, “are you one of those people?” Or are you just so infatuated with the dream, that you’ll allow yourself to believe anything?

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