Multi-level Marketing
 March 4, 2006
 

Q:  Steve: I was recently approached by a co-worker who started a part-time business by joining a company that does something called "network marketing."  She took me to an event and everyone there was so excited about all of the money they are making.  I was told that all I had to do was to join, sell some product, and recruit some people in my "downline" and I would be making this kind of money too.  It seems too good to be true.  Do you know anything about this type of business? -- Alan, Oregon

 

A:  Unfortunately, I do. One of the first businesses I ever got into, in 1985 or so, was a network marketing business (also called multi-level marketing.) Like your proposed endeavor, this one seemed to good to be true too. All we had to do was to recruit people to join below us and sell some of the company's "cutting-edge health products!"  Did I mention the products were Aloe Vera creams and lotions?

But the guys who recruited me made the plan seem so fool-proof, so simple, and so lucrative, that I would be a fool not to get in, so get in I did. I parted with $499, bought a lot of Aloe Vera products, and started bugging everyone I knew about why they should join this "incredible, ground floor opportunity!"

Pretty soon, not only did I become persona-non-grata among my pals, but also I ended up with a lot of unused Aloe Vera in my garage. I bet if I look carefully, I might still find some in an old box somewhere. I have since been approached several times to buy or sell everything from personal electronics to vitamins via network marketing.

So yes, I am familiar with multi-level marketing and admittedly am jaded about it.

Now, network marketing is certainly a legitimate business model, if done right. Everything from laundry detergent to protein bars are sold this way, and yes, some people make a lot of money.

A good multilevel marketing company offers many possible benefits:

The idea is that the company brings in independent sales representatives to start sales teams, and those people bring in people below them, hence the term "downline." Every time someone in a downline sells something, everyone above gets a small share of the commission.

The pitch is usually something like this: Just bring in two people, have each of them bring in two people, and so on and in only, say, four generations, you will have 30 people in your downline! (2 + 4 + 8 + 16 = 30.)

But the problem as I see it is two-fold. First, while everyone gets excited about the idea of recruiting people to join below them and the geometric growth that can occur as a result, the fact remains that eventually, at some time, somewhere, somebody will actually have to sell the company's product to someone.

Typically, people get sold on the idea that by simply recruiting people, riches can be had. The fact that someone has to actually peddle the products is somehow lost in the shuffle, or if it's not, it will be that poor schnook down the line who will have to do the heavy lifting. But if your line is ever going to make money, you will have to do more than recruit new people, the whole team will have to sell Aloe Vera.

The second problem is that all of us have a limited amount of people we know well enough to whom we can pitch a business opportunity, and make no mistake about it, pitching the business is the name of the game. So if you want to get into network marketing, be prepared to try and sell people you love a business they may not want. And after you barrel-through your friends, your acquaintances and co-workers will become your next target. After that, who?

All I can say is that I hope you have better luck than I did.

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Today's tip: The Federal Trade Commission has a page devoted to multilevel marketing smarts and being able to tell the good ones from the pyramid schemes. Check it out here.


 

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