The rise of the Internet has made it possible to start a business online and interact with people all over the world to sell your products or services.
My own business is pretty simple and straightforward: I provide writing services. For more than a decade, I have provided content to a variety of clients. There have been only a handful of occasions when I have actually worked with clients in-person. I recently coached someone on finances, and even did that remotely, using web video.
Today, working from home is a reality for thousands of people. But you do need to be careful. Not every “business opportunity” is completely legit. And there are plenty of “home business” ideas out there that are actually multi-level marketing (MLM) schemes that won’t actually help you get ahead. In fact, few of these MLM companies offer the tools you need to succeed as a business, and many of them just serve to enrich the higher-ups, rather than provide you with anything substantial in the way of a business.
How MLMs are Setup
One of the first things to understand with MLMs is that you aren’t actually running your own home business. Even though the language of MLMs is that of a business, and they talk about it as though you are running a business, the truth is that it’s not your business. You’re an independent distributor, or an affiliate, or any other number of names, but it’s not your business. Brian MacFarland researches different MLMs, and points out that most individuals on the ground level of MLMs don’t meet the following requirements of actually being a business:
- Control the product and pricing
- Participating in fundamental business activities such as cost analysis, research, marketing, and product design
- Managing entry and competition
When it comes to MLMs, you are selling someone else’s product, and usually under their terms. Not only that, but it’s different from a business like owning a franchise because most franchises have entry requirements and restrict based on demand. McDonald’s won’t let another franchisee open a location near another McDonald’s unless there is demonstrable demand. With MLMs, you control nothing, and there is a very low barrier to entry. In fact, with some MLMs, when you sign up “team members” you might be competing against them, and there might not be enough demand to around.
This brings up an important part of understanding MLMs: knowing how they are structured and how they work.
Independent Distributors
In these cases, you encourage others to buy the product. This is similar to Avon and Scentsy. You have a product, and you focus on getting others to buy it. You either buy the inventory and then re-sell it, or you encourage others to buy through your webpage and you get credit for the sale. In many cases, I know independent distributors who mainly want the discount on products and to perhaps make a little extra money on the side.
Parties
Another common tactic is to have parties to try and sell products. I once attended a party held by someone selling Usborne books. You see these Tupperware, Jamberry, and many other products. The idea is to get together, get some orders, and have a good time. If the party is thrown by someone other than the independent distributor, the party planner often gets a big discount on what s/he buys.
Network Marketing
Thanks to social media, many MLM companies are finding new life. It’s possible to reach people quickly and easily on Facebook, Instagram, and other places. You either call the distributor, or you go to the website and order in a way that the individual gets credit. The two most common product lines I see through network marketing right now are Beach Body and It Works. (Full disclosure: I actually bought the 21-Day Fix from Beach Body. I still use the workouts, but I refuse to pay for the Shakeology.)
Most products are priced expensively and require continued purchases in order to stay on top of the situation.
Recruitment
While there are MLMs that focus more on the product, there are others that are all about the recruitment and trying to get others to work under you. While you need to be careful of any home business “opportunity” that is structured as an MLM, it’s especially important to be wary of the companies that focus heavily on getting you to bring others in. When it’s more about the downline than the product, that’s when you get into real trouble. Lauren Greutman knows first hand the reality of “direct sales” and can
Lauren Greutman knows first hand the reality of “direct sales” and can tell you what it’s really like to drive a Mary Kay pink Cadillac. One thing that blew my mind was the fact that the Caddy is a lease under your name. If you and your team don’t hit certain sales goals, you are responsible for the lease (can be as much as $900 per month).
Lots of Hard Work with Your MLM
Anyone will tell you that it’s hard work to be an entrepreneur. MLMs are also a lot of hard work, but you have to be careful. While there are direct sales success stories, they usually come after a great deal effort and almost-spammy efforts on social media and with friends and family. And, in the end, you don’t own a business. You might be working from home, and you might be earning some money. But you aren’t in control of pricing, product design, or anything else.
And the biggest thing you have to worry about is getting into debt. Plenty of MLMs encourage you to max out your credit cards to stock up on inventory. Others have systems that encourage you to make the next level by fronting to the people below you so that you can reach a certain level. You buy their inventory as well as your own in the hopes of recognition or being able to say that you are a “manager” or “director.” As Lauren told us, there are people that are tens of thousands of dollars in debt because of their MLM efforts.
If you go this route, don’t fool yourself. You don’t own a business, and you won’t have success if you are focused on recruitment — or if you go overboard buying inventory. Carefully consider your options, and think about what it means to be a true entrepreneur and control your own product or service.
This is a great summary of a very complex topic.
It’s not made easier by MLM changing what it calls itself to Network Marketing and then to Direct Sales. “Direct sales” used to be selling door-to-door, but since that went belly-up, MLM jumped on that term. Network marketing sounds like buying a commercial on CBS, ABC, or NBC.
You’ll notice that only MLM includes the concept of “levels”, which is the defining characteristic of how these companies operate.
The people who “join to get a discount” create an additional problem. No one can objectively discern if such a person is a customer or a failing salesperson. They sign a distributor contract (in most cases) and thus count as salespeople. However, many companies claim that they are legitimate customers only interested in buying the product (yet they allow these people to misrepresent themselves).
This is important because the FTC typically looks to see if people are legitimate customers or simply buying products to qualify for commissions in the “business opportunity.” It’s my belief that if a person attempts to game the system by misrepresenting themselves as a salesman for a discount, the company should close that loophole or agree that they are not customers.