March 10, 2017

Why you should think twice before joining an MLM

Wouldn’t it be nice if you could work hard for two or three years and then sit back, relax, and see your bank account filling up with a steady stream of Kwacha?

Of course it would. It’s what you secretly dream about as an entrepreneur isn’t it? And that is the promise or at least possibility that is pandered by agents for the many Multi Level Marketing (aka Network marketing, or for the more cynical, Pyramid Scheme) businesses that have started to show up with more and more frequency in Zambia in the last years.

It is this promise that for many make it such a compelling preposition. Why not try it out, there is nothing much to lose, right? If it works, great, if it doesn’t, too bad.

But there is more to it than that. Much more than I’m going to discuss in this article, unfortunately. I happen to think the psychology that manifests in the many facets of the human interaction going on in such a scheme to be fascinating and well worth delving into. Here I will simply focus on two aspects that hopefully should make you think twice before investing money and energy on any MLM scheme.

The people on the bottom of the chain always lose

There is no way around that simple fact, and everybody knows it or at least should know it. All MLM sells some products through their agents. However, these or often overpriced and/or have little mass appeal. No agent can expect to sell a lot. And in fact selling products is not the point, from the MLM’s perspective. That is not how the MLM upstream people make money; they make money by selling sales seminars and sales training packets to the people down the chain. So when you strip away the fancy language, it’s simply a making-money-by-selling-a-book-on-how-to-make-money-that-will-tell-you-to-write-a-book-about-making-money-by-writing…. trick. There is no value creation, there is just selling downstream and generating revenue upstream.
Therefore, if you are at the bottom of the chain, you will lose money. Maybe not much, and the MLM organization will make you think its your own fault for not working hard enough, not having a good enough network, not being a good enough salesperson. This is so you will not blame them and you will not talk about it. Instead, the only people you will hear about are the few people up the chain that did good.

In fact, the people up the chain do not even care much if you drop quickly, it’s all part of the business. They expect a high level of churn. Because when people are recruited, they usually have to buy a product starter pack and a few other things as an entry fee. If they quit they will never see that money back, it is absorbed up the chain. So as long as the upstream can recruit many people under them, having them quit is ok, it still gets the money rolling in.

So why not just recruit people under you so that you are not on the bottom?

Unfortunately, there has to be a bottom because of the simple fact that the potential supply of new agents is not infinite.  Very far from it, it is actually very limited in your area, that is simple statistics, and no amount of salesmanship (aka selling your soul) can change that. YOU might not be on the bottom, but that just means you have told one or more people below you that they can sell and make money just like you. Since you do not know when the potential agent supply has reached its limits, you are basically lying: the people underneath you cannot make it as well as you. This is part of what makes MLM schemes unethical.

In an MLM organization there is by design no control over market saturation

Here’s how a more traditional franchise business works: The mother organization licenses its business out to select entities ‘down the chain’. These entities are selected so that no two of them are so close together that the potential customer base for them overlap too much. Doing so wouldn’t make sense to the mother organization since it wouldn’t maximize sales in the combined geographical area:

In contrast, there are no such checks in an MLM scheme. In fact, since each person are encouraged to recruit in his or her own personal network, any chain will naturally spread in a limited area, guaranteeing quick overlap and therefore market saturation both for the recruitment of new agents and for the products the MLM sell.

These are basic, indisputable facts and the people high up in the organization KNOWS this. But since they get their income from recruitment down the chain and the subsequent selling of salesmanship packages to the same, they do not care. As long as they can keep the people at the bottom hooked long enough for them to buy a few products for resell and/or seminars/training/etc, they get their income.

Probably the only viable way to make good money in an MLM is to be amongst the very first agents in your geographical region. However, you will then have to recruit hard in your area, telling the people you recruit to also recruit hard and that they can make lots of money and to tell the people they recruit that can make lots of money…. Since your income rests on the upstream revenue from the bottom, this is equally unethical.

If you want to read more from an expert that has studied the MLM phenomena for many years, see http://www.falseprofits.com/MLM%20Lies.html

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