Multilevel Mischief
CEO Brodsky recounts the experiences of a friend who went to work for a multilevel marketing company. He explains why very few people get rich from MLM ventures.
Published June 1998
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Some people get rich through multilevel marketing, but the overwhelming majority fall by the wayside--and that's no accident. It's how the system works
My friend Eliot is a guy who's always out chasing the dream. He works in the back office of a major financial-services firm, making five times more than he could earn anywhere else, but he hates his job and wants to be in business for himself. A few years ago he bought some vending machines for disposable cameras and put them in zoos and airports. He lost his entire investment. Then he thought he'd open up a chain of gadget stores. It never got off the ground.
One day he came to see me, and I noticed he was looking better than usual. He'd taken off some weight. He was wearing nicer clothes. He had a new air of self-confidence. He said, "I've got another deal, a selling deal. I want to give you a presentation."
I said, "It's multilevel marketing, isn't it?"
"No, no, no," he said. "Just come over to my place. I'll show you."
He was insistent, and I was curious. So I showed up at the appointed time. Eliot went through his sales pitch, which was very good. You could tell it was canned, but he'd rehearsed it, and he did a good job. He laid out the whole plan.
It was multilevel marketing.
I generally try not to make value judgments about businesses, but I admit I have a real problem with multilevel marketing (MLM), or network marketing, as it's sometimes called. You know the concept. It's what made Amway a household name. For that matter, it was MLM that propelled both Herbalife International and, more recently, Equinox International to the top spot on the Inc. 500 list.
Whatever products they offer, MLM companies use essentially the same formula. They sign up sales representatives by offering them the opportunity to go into business for themselves with little or no start-up capital--and to make millions if they're successful. How? Mainly by recruiting other salespeople. Unlike most businesses, an MLM company pays you a commission not only on your sales but also on the sales of all the people you've brought into the network, either directly or indirectly. So if someone you recruit goes out and recruits a bunch of terrific salespeople--and they recruit more terrific salespeople--you stand to make a fortune. In fact, some people do.
The successful ones are the exceptions, however. The overwhelming majority of people who come into the network fall by the wayside. What's more, the company knows in advance that they're going to fail. It's a matter of statistics. It's part of the plan.
Why? Because when you strip away the hype, MLM is nothing more than a technique for finding good salespeople by promoting a fundamental falsehood, namely, the idea that anyone can be a good salesperson. All you need are the right tools.
That's not true, and the MLM companies know it's not true. Most people will never be good enough at selling to earn a living from it, let alone take home a six-figure income. To be a good salesperson, you need qualities you simply can't get from a motivational tape or a seminar--a knack for connecting with people, an ability to handle rejection. Above all, you have to enjoy selling. Most people don't.
On the other hand, just about everybody wants to be financially independent, and a well-designed MLM program looks and sounds like an easy, low-risk way to get there. Different companies use different approaches. Some programs require participants to buy a starter kit for, say, $100. In Eliot's case, there was no starter kit, but participants had to purchase at least $50 worth of products--mainly household goods like paper towels or lightbulbs--from the company catalog every month.
Whatever the terms of the deal, the emphasis is always on building the network--and on the stream of earnings that seems to come almost automatically as a result. If you don't have sales experience, no problem. The program usually includes a hefty dose of training in the form of motivational tapes, videos, and seminars, all of which can be purchased from the company. Those motivational items are the company's second product line--and a very high-margin one at that.
And a lot of people want to believe the sales pitch. They want to believe that, to get rich, all they need is training and determination. They want to believe that making money can be easy. That's an illusion, of course. Making money is very difficult. It takes blood, sweat, tears, and talent to succeed in any field, particularly sales, but many of us would prefer to believe otherwise, and the MLM companies make it easy to do so.
