schemes
that only make those people at the top of the pyramid rich. There have been some
disreputable MLM companies who set up their businesses as illegal scams, but the
majority of MLM opportunities are just that, real opportunities.Network Marketing: The Benefits and Disadvantages
Everyone has been exposed to what’s either called Multi-Level Marketing (MLM) or Network Marketing at one time or another. You likely have had friends or family ask you if you wanted to join an opportunity they were selling.
The opposing views on this form of marketing are fascinating. Some people love it. These are usually the successful marketers who have discovered the real brilliance behind the model. In fact, this group even includes top celebrity authors/millionaires who not only advocate MLM, but they are actually doing it. They include:
Robert Allen, author of Multiple Streams of Income
Mark Victor Hansen, author of Chicken Soup for the Soul
Robert Kiyosaki, author of Rich Dad, Poor Dad
Warren Buffet, billionaire investor (owner of Pampered Chef network marketing)
But there are even more people who view MLM negatively, either because they tried it and failed, or because they know someone who has and therefore they assume it’s bad.
One reason it gets a bad reputation is due to its pyramid
shape. We’ve all heard stories about illegal pyramid
schemes
that only make those people at the top of the pyramid rich. There have been some
disreputable MLM companies who set up their businesses as illegal scams, but the
majority of MLM opportunities are just that, real opportunities.
The fact that MLM is in a pyramid shape is not what we should take issue with. The pyramid itself is a very sound structure. In fact, every corporation is set up as a pyramid structure. You have the CEO (Chief Executive Officer) at the top followed by the President, Vice President, Middle Management, and so on. Of course the CEO makes the most money and everyone below him or her makes less.
The compensation plan for sales people in most corporations is set up in a similar way as the compensation plan in an MLM company. The sales people get a commission for everything they sell, and everyone above them; the sales managers, sales directors, VPs, President, and CEO get paid overrides or bonuses based on how much the sales people sell.
But there is an inherit weakness in the structure of typical corporation that you won’t find in the structure of a good MLM opportunity. In a corporation, the CEO makes money by leveraging the time of other people. As we discussed earlier, leveraging your time and money are the only ways to truly get wealthy since there are only so many hours you can work in a day.
The weakness in the corporate pyramid structure is that the sales people have no way of leveraging their time. They can’t hire people under them and get a portion of what these people sell as the CEO can. The only way the sales people can make more money is to work harder. Or the sales person can leave and start a competing business and hire his or her own sales people.
This is often what real estate agents do. They become brokers and start their own agencies. So the broker who initially trained the agent loses a top sales person and the revenue he or she brought in. But even worse, the broker also gained a competitor that he or she trained!
With MLM you want to train the people under you to “start their own agencies” so to speak. You want them to bring more people in to sell the products or service. Of course, you don’t get as much commission as your “trained agent” does from everything he or she sells, or as you would as if you brought people in directly, but you’re leveraging your time.
And the people you bring in under you actually can make more money than you if they develop a larger organization under them. That’s one of the motivating factors of the MLM compensation plan. Since I only get a small percentage of the profits from the people under me, anyone who signs up more people than I do can actually make more than me. But as a consequence, I don’t have to work as hard and money still comes in. My time becomes highly leveraged.
In
an MLM opportunity, the people you bring in under you are essentially your
employees. You leverage your time every time you bring in someone new. Even
better, in the best MLM opportunities you also get paid when the people you
bring in bring in people of their own. You essentially become the CEO of the
organization under you. And the people under you become the CEO of their
organization and so on.
That’s one of the great things about the MLM “employees” underneath you. They aren’t like regular employees. Regular employees have no “ownership” in the business they work for. So they’re less motivated to work as hard as they can.
Since everyone in an MLM opportunity can grow their own organization under them, people have ownership and are more motivated to work harder.
So why then do so many people fail in MLM? It’s not the MLM business model that’s the problem. Unfortunately, it is the people it attracts.
MLM is like owning a “micro-franchise” without having to pay a huge franchising fee. Its very low cost of entry with the potential for large income draws a lot of people who have high expectations of making money with little work. But it does require work.
So the things that make MLM attractive tend to draw people who are either not qualified or not prepared to become business owners. It attracts people who:
- who have no experience in operating their own business
- who have no money for marketing
- have no experience in selling
- have unrealistic expectations on how long it takes build a business
- are not willing to put effort into getting trained
Don’t become discouraged if you see yourself in the first three issues on the list. There’s a first time for everything and there are few business opportunities like MLM that allow someone with absolutely no experience and little money to get started. If you are willing to put forth the effort to get yourself trained and give your business time to grow, then MLM is a great first business.
MLM is simply the best hope for those without business experience to actually start a business. Not everyone is doing it to build a $30,000 a month income. For instance, for a divorced woman with two kids, earning an extra $500 a month can have a huge impact on the way they live.
MLM is a real business and if you want to have success at it, you’ll need to do all the same things as you would do in any business. That means learning how to advertise and sell, to manage money, to provide support, and everything else you have to do in any business.
Regardless of the business type, a large percentage fail because they simply don’t do what needs to be done. MLM is really no different than most other business opportunities in terms of failure rate of new participants.
Want evidence? Just talk to the broker at any real estate agency. He or she will tell you that most of the real estate sold is done by a fraction of the licensed agents in the city. The same would be true of life insurance agents, car sales people, mortgage loan officers, or just about any direct contact sales field.
If you’re interested in an MLM, then be realistic about your current capabilities and how much work you’ll have to apply to improve yourself. If you’re serious about building a business you must be reading and learning about business fundamentals. If you are serious about MLM then you need to learn strategies for networking and business development. You must act like a small business owner.
One thing is for sure, you will fail at 100% of the things you don’t try. You can learn to succeed at anything if you are willing to try and put in the continuous effort. Persistence is one of the keys to success in any business opportunity you choose.
By not taking the time to get the proper business training, many network marketers are either inaccurate or deceptive when talking about their business. They inappropriately discuss business in social situations and they come across as desperate. They also focus so hard on bringing in new recruits that they fail to properly support the people underneath them. Helping the people underneath is an important part of being successful in MLM. But before you can help, you must get trained.
But people who have no business experience are not the only ones who are diving into MLM now. Thanks to the economy and job instability, MLM is now drawing more downsized corporate workers who have more business skills. I am an example of one of those people. I realized that an MLM is an excellent way to add another stream of income to my life. As a result of the influx of business people, MLMs are being infused with new ideas and new methods of marketing that help everyone.
In the next section, I will talk about how to choose a good MLM opportunity.