9 Things They Don't Tell You About Multi-Level Marketing / Network Marketing

photo by stockimages via freedigitalphotos.net
photo by stockimages via freedigitalphotos.net

Introduction

This is NOT a sales guide, or a review, or a sales pitch. I don't want your email address. I don't want you to join me in anything.

I want to show you some actual items that people in network marketing or multi-level marketing (which I will call NMLM) prefer NOT to talk about, unless questioned directly, and then only reluctantly.

These are things they really don't want you to know, yet you must before considering any such network marketing or multi-level marketing programs.


You will make NO money the first year (and maybe not EVER)

While fans of network marketing / multi-level marketing (NMLM) touts the income possible, to the tune of hundreds of thousands of dollars, the honest truth is you will likely make NO money from it, the first year or any year.

According to a spokesman from the Direct Selling Association, as quoted by Forbes, the median income in 2011 by a Direct Sales Consultant is $2400 (for the entire year). That's out of almost 30 BILLION dollars in sales in 2011, by 16.5 million direct sales consultants (also according to DSA). That's only $1810 gross sales per consultant. Thus, the high median income means there is a SIGNIFICANT number of people who made virtually NOTHING.

If you're just joining or about to join, you will be one of those people who will be making virtually NOTHING.

One of the pioneers in network marketing, Richard Bliss Brooke, put it even more bluntly:

...This process (building up your MLM business by selling and recruiting downline sales "empire") requires 2-5 years of dedicated and successful efforts. It requires working capital for inventory, travel, entertainment, individual marketing, lead generation, and company events. A person might earn a net profit during their first year and they might not.... The failure rate is certainly the highest for those people looking to build a fortune … as it should be.

Mr. Brooke is assuming you go at it full time. If you do it part time, you'll make a lot less, and your chance to succeed is also much less.


You May Be No Good At Selling (for a while)

Let's face it, not all of us are born to be salespeople. Some of us are just better "people" people.

In a 2011 Harvard Business Review study, it's revealed that 70% of top salespeople have some sort of innate talent for sales, and 30% was "taught".

NMLM is all about selling a product or a service. After all, the last M stands for "marketing", i.e. selling. (If any opportunity promises "no selling", it is likely not a real business or they're hiding something)

Yes, you can probably learn how to sell, but should you, when your talent may lay elsewhere?

Or more importantly, can you afford the time and money to LEARN how to sell? Or learn that you're no good at it?


You May End Up Buying A Lot of Sales Aids and Such

A lot of newcomers joining NMLM, on the advice of their upline, believe that to succeed they need to buy a lot of sales aids, motivational lessons, and leads and/or lead generation systems. This is especially true if you have no innate talent for selling (see above)

If you search for that on the Internet you'll find a ton of them catering to anyone and everyone. Some networking companies even have their own preferred vendors. The problem is those are not cheap, and many of them are actually ran by people related to the company, and it's even more profitable than to actually sell the products, as leads go for up to $100 EACH.

Did you know that Shawn Dahl, Herbalife's President's Club member, the top 0.0001% of all affiliates, also runs "IncomeAtHome", a company that deceptively advertises income opportunities online and feeds people to Herbalife? (and later, Vemma?) He's also connected (though he denies the link) to Online Business Systems and Centurion Media Group, both of which also supports network marketing in various ways.

This is hardly new. Amway had a plethora of "Amway Support Organizations", or ASOs, that both provide group talk to members, as well as sell them training materials, sales aids, motivational lessons, and other items that cost more and more money. As these are not part of Amway, Amway can't / won't rein them in, leading to charges of "Amway Cult" many years ago, including an investigation by Dateline NBC (2004).

That will REALLY hurt your bottom line... when you're spending money instead of MAKING money.


You May Alienate Your Friends and Family (forever!)

Some "leaders" or "uplines" in NMLM, in a hurry to get rid of you needing sales advice, will tell you to go after friends and family as the low-hanging fruit within reach. This will often alienate and antagonize your friends and family.

Indeed, simply searching on Google for "MLM friends and family" yielded dozens of articles on this very subject (and even a few suggestions on how to avoid it).

Frankly, this is a very thorny issue, as you're bringing money concerns into what's normally a pure social concern. And that is frequently (certainly?) a disaster waiting to happen.

You wouldn't bring up the price of a date at the end of the date (less you want to insult your partner that $X dollars is enough/not enough to get into his/her pants). That would imply s/he has a price. So why would you want to sell NMLM products to your friends and family? Are they just prospects in your NMLM eyes?

Economist Dan Ariely covered this subject in his book Predictably Irrational, where he described the two "norms" that we have... a social norm, and a market norm. The two normally do not intersect and if they do, it's done as little as possible. However, when they do, it's often considered a major social blunder.

NMLM changes the market norm to push the social norm. When you sell to friends and family, you turn them into a dollar figure. If they do not like the product, they are forced to decide whether to insult you by refusing (violating your/their social norm) or indulge you by accepting (violating THEIR market norm). BOTH are bad for you.

If they refuse, your ego will be hurt, and you may get the idea that if you can't even sell to friends and family, you will NEVER be able to sell to strangers. And that is true, however much it hurts.

If they accept, they may have just given you a false impression of your own sales ability when you're actually spending "social capital" on them. When you have no social capital to spend on strangers, you won't be able to sell anything, but you're that much deeper into the scheme, and thus, fall prey to sunk cost fallacy.

So you'll likely be hated for putting them in an awkward social situation.


Your Product May Be Bogus

A lot of products that NMLM sell are often of rather... dubious nature, where they try to imply their special ingredient is somehow good for your body, without sufficient (any?) human trials on extended basis.

However, have you ever considered the possibility that the product itself is shortchanging the customers of that special ingredient that the company claims to be, well, special?

Yes, it did happen. Waiora recently settled a class action lawsuit against them about shortchanging their "special ingredient", zeolite, in their Natural Cell Defense product ($50 for a tiny little bottle you dole out in drops per day). A test in 2010 by two independent laboratories shows that this "NCD", which was supposed to contain 2500 mg of zeolite according to the label, actually contains less than 150 mg. A class action lawsuit was launched in 2012, and was recently settled out of court (April 2013).

Zeolite is usually used in detergent and cat litter. It's hardly a special ingredient, and the only proven effect on human body is may help stop diarrhea. It is being mined at the rate of 3 MILLION TONS A YEAR.

Here's more of what you need to know... Dietary supplements, such as vitamins and such cannot claim ANY actual effect on the body. From the FDA Q&A:

Q: Is it legal to market a dietary supplement product as a treatment or cure for a specific disease or condition?
A: No, a product sold as a dietary supplement and promoted on its label or in labeling* as a treatment, prevention or cure for a specific disease or condition would be considered an unapproved--and thus illegal--drug.

Yet you will find all sorts of claims out there, even anecdotal evidence, that product X made my diabetes better, or my cholesterol dropped Y points after taking Z for a month. So on and so forth. Even that NCD above claims to be detoxing your body of heavy metals. However, they are worded just right to avoid the wrath of FDA.

What you sell may not do what it claim to do, as it merely IMPLY what it *could* do.


Darryl See, during his happier days when he got some sort of a medal, date unknown
Darryl See, during his happier days when he got some sort of a medal, date unknown

The Product's "Proof" May Be Bogus

Almost all companies marketing dietary supplements have some sort of study that "proves" their supplement is great. However, have you considered the possibility that the study is bogus?

Yes, it did happen. In 1999, a doctor by the name of Darryl See rose to NMLM prominence when he got a paper published in the Journal of American Nutritional Association "proving" that a certain Mannatech product has good effect on human cells. Dr. See claimed to be employed at University of California at Irvine Medical School, using part of a grant from National Institute of Health (Federal agency) for the study. Mannatech's president at the time, Sam Caster, touted the results on an investor call later that same year, and it was repeated by the 400,000 Mannatech affiliates.

The problem is while the paper is real, the study behind the paper appear to have been faked, or at least, very problematical. The author actually resigned from UC Irvine several months before the paper's publication, and his wife had been working as Mannatech affiliate for 2 years. None of this was disclosed in the paper. Furthermore, the study has no logs and no results that can be authenticated, the school has never heard of the study (nobody knew about it), and Darryl See was not a part of the study using NIH grant (which has nothing to do with dietary supplements). There were so many problems with the study, UC Irvine launched its own investigation, and there's a file on Darryl See in National Coalition Against Health Fraud.

This does not have a pleasant aftermath. Mannatech tried defending Dr. See's results for a while, until they had enough and sued Dr. See for fraud in 1999. Dr. See jumped over to a different NMLM company who defended him for a while. In 2007 Darryl See was forced to give up his medical license due to multiple ethical lapses involving patient care.

Many other doctors selling stuff for companies do not have any of the expertise they are talking about. At least one dermatologist was promoting dietary supplements involving stem cells growth. In another case, another company was touting an acupuncture and herbal doctor as their primary health consultant.

When testimonials can be bought for $5.00 on Fiverr, can you really trust testimonials, even the ones given by "doctors" and so-called experts?


The Company Disclaimer May be Bogus

A company can put almost anything in its disclaimer, as it needs to cover its rear end should there be some misunderstanding. On the other hand, a fake company can put some stuff in the disclaimer that are simply NOT TRUE, or to give you a false impression of the company.

Some Ponzi schemes claim that they are not investments in their disclaimers. "Ad Surf Daily" disclaimer (pulled from court document PDF) is shown below:

All payments made to ASD are considered advertising purchases, not investments or deposits of any kind. All sales are final. ASD does not guarantee any earnings or profits. Any commissions paid to Members are for the service of viewing other Member web sites and for referring Members to AdSurfDaily. All advertising purchases are non-refundable.

ASD was shut down in 2008 as an illegal investment / Ponzi scheme. Its owner is currently serving a Federal jail sentence for wire fraud.

In May 2012, 3 months before Zeek Rewards ponzi was shut down, it also added a lot of disclaimers:

If you make a purchase from ZeekRewards you are purchasing a Premium eCommerce subscription or you are purchasing bids to give away as samples. You are NOT purchasing stock or any other form of “investment” or equity. You MUST actually use the bids that you purchase or give them away as samples to help grow your business. Affiliates who present our products to others in a misleading manner or in a way that leads the buyer to believe he or she is making an investment or purchasing equities will be terminated and all commissions and awards will be forfeited. Buyers MUST read the entire How It Works and Get Paid pages on the ZeekRewards website and the Legal Disclaimers.

Zeek Rewards was closed by SEC as a fraudulent unregistered investment and a Ponzi scheme. In fact, with possibly 1 million victims this is the widest spreading Ponzi in the US ever. The disclaimer is bogus. Again, they claim "not an investment".

You cannot trust the disclaimer.


The Stated Business Model May Be Bogus

A company can say they operate with a certain business model. However, they may be anything but that business model in actual operation.

Above, we have seen at least two companies that claim to be "not investment" (ASD claim to be internet ad company, while Zeek Rewards claims to be internet auction company). Both turned out to be Ponzi schemes. There are many other cases where the businesses claim to be one thing, but in reality operated as something else.

Burnlounge, founded in 2005, first opened its doors in 2006 online as a new type of music store, where members can join at one of the three levels: retailer, exclusive, and VIP. Retailer level is free, while exclusive and VIP cost several hundred dollars. Regular members (any level) can sell music and recruit more members (any level), but only earn credit toward more music. Mogul members, who pay additional $6.95 a month, can earn real cash. All the music was properly licensed, and the company managed to rack up millions in sales... until the Federal Trade Commission hit them with a lawsuit in 2007 stating that they are a pyramid scheme. Audit of their finances revealed that music comprised of less than 10% of their revenue. The rest are all from sales of memberships. It is essentially members selling memberships, the definition of pyramid scheme.

Burnlounge claimed they're selling music through e-commerce concentric marketing. What they actually do is members recruiting members and getting paid for doing so.

In a different case, YTB (Your Travel Biz), founded in 2001, was sued out of several states for operating a chain recruiting business. It mainly told people that they can be an online travel agent by paying the $499 (later $199) to start, then $50 a month for a website where they can reserve trips for other people. They will then be paid via commission per sale, as well as recruiting other people into joining YTB.

then California Attorney General Jerry Brown, unknown date, by Rich Pedroncelli / AP
then California Attorney General Jerry Brown, unknown date, by Rich Pedroncelli / AP

In 2008, then attorney general Jerry Brown sued YTB claiming that that it is a huge pyramid scheme where members are forced to recruit because selling travel pays virtually nothing and most members earned NOTHING. Few if any one earned enough to pay the $50 monthly fee, much less the startup cost. The company settled by paying 1 million in fines and not to do business in California, as well as restructure the business. Illinois also launched a similar suit and YTB settled for a lesser amount there. YTB declared bankruptcy in early 2013.

YTB claimed to be an online travel agency reseller. In reality it operated as a massive pyramid scheme where "agents" make money by recruiting more "agents".

Just because a company *say* they operate a certain way does not mean they actually work that way.


Have You Ever Heard of the Koscot Test and the Howey Test?

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Company May Be a Pyramid Scheme or a Ponzi Scheme (In Disguise)

The worst fear of any prospective NMLM member is they actually joined a scam... a pyramid scheme or a Ponzi scheme. The fear is so irrational, most people deny it exist at all. When questioned, they will often reply with nonsensical retorts like:

  • It can't be a pyramid scheme... it paid people!
  • Everything is a pyramid, esp. big companies!
  • Ponzi schemes are all around us, just look at Social Security!
  • You just don't understand us! (Call me for details/truth)
  • Of course not! It's been around for X years!
  • and so on and so forth

When questioned what actually makes a scheme a pyramid scheme or a Ponzi scheme, most NMLM members have absolutely no idea, other than their upline assured them it's not. Or they will point at the company's own business model and/or disclaimer and use that to justify their opinion. Some may even bother to search Wikipedia and quote the summary.

However, as shown before, such disclaimers and self-professed business models cannot be trusted without corroborating evidence. What they say or intend is one thing. How it actually operates can be something else entirely.

Instead, you must understand what are Koscot Test (for pyramid schemes) and Howey Test (for Ponzi schemes / investments).

Here are two more cases for you to ponder... Equinox International, and Fortune Hi-tech Marketing (FHTM) Equinox was once flying high, made Inc. Magazine's Fastest Growing 500 and front cover before it crashed and sank in 1999 by FTC and 6 state attorneys general. FHTM was shut down in early 2013 by FTC. Both are alleged pyramid schemes. Some FHTM affiliates refuse to accept that their program was a pyramid scheme.

Just because they deny it doesn't mean it wasn't true. You must look at the evidence.


Have/had Your Upline (ever) Discussed Any of the 9 items here?

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Conclusion

These nine item are rarely if ever addressed in NMLM recruitment speeches or even company websites, and only occasionally mentioned on pro-MLM websites.

Furthermore, many so-called NMLM "leaders" actively preach avoidance of what they called "negativity", such as these 9 items, and they will call any one who tries to explain these problems with NMLM as "dreamstealers", as in "stealing" your dream of financial abundance.

Frankly, that just makes you reckless, not motivated.

Rather than close your mind toward information that you may not want to hear, you should be open to all information (but discard crap information), and decide using ALL available information to make your best judgment, and change your mind if new information becomes available.

That is open-mindedness, and that, they won't tell you.

Be safe out there.

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Comments 2 comments

Wizzard7 3 years ago

Great article, as usual. If only people knew this stuff before joining these scams....


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HeyHuJiao 23 months ago from Singapore

Good read! Thanks for these info, I almost went into a MLM company!

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