CBJ: The False Lure of Multi-Level Marketing
Marotta Wealth Management INC.,
One Village Green Circle, Suite 100,
Charlottesville, VA 22903-4619
Published: August 3, 2009
Multi-level marketing (MLM), or network marketing, is a nonsustainable business model because it does not provide a valuable service but simply a product that has been marked up in price.
MLM is based on the faulty premise that as you network with people, all you have to do is find a few individuals who are excited about the idea and want to join the pyramid. You will get paid not only for your own sales but also for sales in your downline, those under you in the pyramid, all the way to the seventh level.
So theoretically, even if you only recruit two people and they only recruit two people, by the time you reach the seventh level, you will have 255 people in your downline supplying you with commissions. Sadly, nothing could be further from the truth.
First of all, only a limited number of people will be attracted to MLM. Think of fishing for recruits to join your downline like offending all of your friends, neighbors and relatives and seeing who can tolerate it. Most people can’t take the constant rejection. The few who can stand being rebuffed can only handle it from someone who is not a close friend or family. Building a relational business model with acquaintances and strangers is not possible.
The few who do respond will be more motivated by the money-making opportunity than the product. And when the hose doesn’t flow with cash, the average recruit opts out of the scheme after three months.
With half of your people dropping every quarter, you can’t build a business. No matter how hard you work, you’ll spend all your energy looking for new people and training them. Burnout is pervasive. Although some MLM participants try to automate the process through audio and video pitches, this strategy simply removes the personal touch required to persuade newcomers. Millions who have tried are shamefully quiet about their lack of success. It is like trying to fill a bucket with no bottom.
Even if you could draft sufficient numbers of people, you still would not be actually running a business. True businesses add value to people’s lives. If you leave the pyramid, it is irrelevant. Everyone still gets the product. Your presence in the pyramid doesn’t add any value, either to the company or to those buying from it.
You don’t actually take orders, which typically are transacted online. And you don’t actually sell a product or services. People are lured into MLM schemes because supposedly they won’t be required to sell. They’re told they can simply cash the check, which sounds like a very attractive option. Unfortunately, many people inexperienced in business believe that’s what business owners do.
Nothing could be further from the truth, however. Real businesses sustain themselves by making a genuine contribution to society. The more real value they can offer, the more people are willing to pay for it. Every successful business owner knows that to stay competitive, you have to be thinking all the time about how to add more value.
Most MLM participants gross very little. In many cases, the money they earn doesn’t even cover their own use of the product. It certainly is not enough to compensate them for their time and expenses even at the minimum wage. Many lose substantial amounts by purchasing additional tools that promise to boost sales and numbers of recruits.
Because it requires more of your time and effort, MLM is even less sustainable than buying lottery tickets. The few successes are simply those positioned at the top of the pyramid who collect from the endless recruiting hopefuls churning at the bottom.
True entrepreneurship, in contrast, is decidedly worthwhile. Many people with a high net worth made their money by starting and running a business. Along with the satisfaction of hard work well done, successful business owners enjoy a plethora of financial and tax-planning opportunities as well as the satisfaction of seeing their vision made real.
Hundreds of legitimate business opportunities are available for entrepreneurs who want to build companies that provide real value. But entrepreneurship is for those who feel empowered by hard work, not those trying to escape it. There are ways to find the right business adventure to sustain a lifetime of hard work, but MLM will always be a distraction from a genuine vocational calling.
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Reader Reactions
I have not seen such a blatantly misinformed opinion and under researched piece of copy in years.
Mr. Marotta clearly has absolutely no knowledge based facts regarding the Network Marketing industry. It is obvious that no distinction is made between illegal pyramid schemes and legal MLMs therefore one can conclude that Mr. Marotta has either not researched the subject or still fails to understand the differences between the two.
I would suggest that Mr. Marotta look to such people as Tony Robbins, Warren Buffet & Donald Trump all of whom either own or part own Network Marketing Companies.
Somehow I don’t think that reasonable people would draw the conclusion that any of the above named gentlemen would be involved in illegal pyramid schemes.
Or perhaps the author should have a conversation with Robert Kiosaki who is actively praising the Network Marketing as ‘A Perfect Business’.
It is disturbing to say the least that such misinformed views are still held about MLMs, let alone allowed to be printed by otherwise reputable news sources.
What makes it worse is that all the information necessary on the Legal MLM business model is available in the public forum if Mr. Marotta was just to research the subject properly.
Wow! I just wonder how Sprint came alive..OOPS that some one said Network Marketing?
All of you who find this article offensive, incorrect, misleading… PLEASE… bring this to the attention of:
The Daily Progress itself. A responsible newspaper and its business journal should not be using an unreliable, untrustworthy source. Unless it is brought to their attention, they will not act—its free copy.
Write Mr. Marotta directly, and express yourself, clearly, firmly, as you have here—be specific. His addresses are in his byline.
Report Mr. Marotta to the Better Business Bureau if you feel that he has violated its standards. You be the judge of that.
Report Mr. Marotta to the regulatory agencies that are responsible for oversight of his business practices. As a RIA, his firm is responsible to the SEC. The firm is also responsible to FINRA. There are specific guidelines regarding advertising and false claims that you may feel have been violated.
As a citizen, Mr. Marotta is entitled to express his political and religious views. This article is an example—I’d argue one of many—where he has deliberately muddied the water and engaged in a series of misinformation campaigns that hurt the finance industry, his competitors, and by extension, himself.
I hate to take this personally, but just as he attacks the reputation of MLM firms here, he has lashed out at financial advisors who don’t fit his model—restricting clients to those with assets above $1,000,000, no non-tax-deductible debt, and willingness to ante up $10K for his services—as if it were impossible, and undesirable, to obtain reliable, affordable, superior advisory services from commission-based brokers/dealers/advisors.
I have a long client list that will give testimony that is not so, some of whom have found fee-based services unsatisfactory.
At the end of the day, the value added Mr. Marotta aludes to, is really about integrity. You cannot claim it; you must earn it.
MLM is not for everyone; bashing it out-of-hand, however, is childish at best. Do we assume that all of his advice is based on personal prejudices, not fact? If so, is this the man you should be listening to?
Wow. I can’t begin to tell you how disappointed I am that after 70+ years of existence as a business and product distribution model MLM still has to butt heads with this type of prejudicial mindset and misinformation.
Mr. Clements put it wonderfully and left little else to say though I do have one parting thought and a comment…
This article was written by a gentleman who, according to his byline, provides “fee-only financial planning and wealth management.“ I certainly hope he performs better research for his clients’ portfolio transactions than he does for his article writing.
Gery DiMarco
Independent Affiliate
Vitamark International
In my 19 years as a successful full time distributor, corporate consultant, consumer advocate, and court certified expert in the field of multilevel marketing, I am hard pressed to recall a more ignorant and poorly researched article on this business model. I am extremely offended by your references to this profession as an unsustainable pyramid scheme and your insinuation that I am somehow dishonorable or foolish for earning my living at it. Had you applied even a modicum of research on this topic you would have easily discovered that there are about 2,200 such companies in the U.S., which is one of 80+ countries where this business model is recognized as legal. MLM has existed for 73 years, and includes Shaklee, Avon, Mary Kay, Discovery Toys, Watkins, Tupperware, Pampered Chef (now owned by Warren Buffett) and many other good corporate citizens. This “unsustainable” business includes nine companies over 40 years old, and eleven that had sales in excess of ONE BILLION dollars last year. I can assure you your characterization of this form of business is undeserved.
Yes, pyramid schemes do often try to disguise themselves as legal, legitimate MLM operations because they want to be perceived as LEGAL and LEGITIMATE. And yes, we do suffer a guilt by association with illegal pyramid schemes, but this is due precisely to nescient and wholly inaccurate portrayals within the media by those who make no attempt to understand the distinctions.
Len Clements
Founder & CEO
MarketWave, Inc.
Geesh, where can I begin? Many Businesses fail, many succeed. Not because they are formalised MLM businesses and not because they are not. Actions, decisions, commitment and activities of the business owners make the difference. This article describes a naive one sided view of a failed MLM’er. The information relates to a pretty outdated structure and operation. All business in one shape or form is about people. Call it networking, call it marketing it doesn’t matter. The success ( and there are many successful MLM’ers) is down to you.
I don’t think I’ve seen an article so poorly written and with so much inaccurate information. Aliva Max offers an anti-aging product that you sell and it’s not grossly marked up. If you have customers you get your product free. Also if you never recruit anyone you can still make money just using the product. There are a ton of companies out there that have product that’s competitive. USA today just published an article about MLM/Direct Sales and it’s benefits. Did you even research the industry before you started writing? Here’s the link to USAtoday’s article. So I guess Avon, Mary K, Tupperware and Sprint are all schemes. Yes Sprint was built using direct sales/MLM
http://www.usatoday.com/money/industries/retail/2009-05-13-direct-sales-jobs-recession-unemployment_N.htm
Get your facts together!
It amazes me how so much misinformation is written about network marketing. All of life is network marketing. Your article contains so many errors that I can’t list them all. Look at Nu Skin Enterprises. They have a product, you sell it, you order it, and best of all you get paid for life. I am not on the top of the so called Pyramid and I get monthly checks that we work for and get paid for. Do your homework!
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