Don’t be afraid of MLM, Part 3: Why MLM gets a bad rap – and why it’s false

Amway was the first modern network marketing company, and many others were to follow in a relatively short amount of time. As the concept progressed, it became clear that in order to adhere to an ethical philosophy, MLM had to develop its own set of policies and procedures. This effort was to make exploitation inevitable.

By the early 60s, some not so ethical players in MLM decided to take a shortcut on the low road to faster profits, at the expense of unwitting participants. Their focus turned to recruitment, promising each person who joined them unrealistic returns simply for recruiting others into the “business”.

Their scheme worked like this: one person – the initial recruiter – recruited a second person, who was required to “invest” $100 which was paid to the initial recruiter. In order to make his or her money back, the new recruit would have to recruit more people under him or her, each of whom would also have to invest $100. If the recruit got 10 more people to invest, that person made $900 with just a $100 investment.

The 10 new recruits would in turn enlist an additional 10 people, resulting in a total of 100 more people. The process would continue, tenfold for each level of recruits until the market was so saturated that the whole “business” collapsed.

Since this underhanded practice started with a single person building a wide network below them, it didn’t take long to acquire a catchy name – Pyramid.

Since the pyramid scheme could trace its beginnings back to MLM, a stigma developed whereas general perception, being what it is, could not discern one from the other. Stated as a metaphor, the apple doesn’t fall far from the tree. But in this case, that wasn’t quite true.

As a matter of fact, not long after the pyramid scheme reared its ugly head, legislation was introduced by the MLM industry to outlaw pyramids. This legislation did indeed become law, which is why pyramids are now illegal.

The fundamental difference between MLM and a pyramid, sticking with the family metaphors, is that MLM is legitimate while the pyramid scheme is a bastard. One shares the wealth, while the other steals it.

The question now becomes, why is MLM such a growing, thriving industry if it embraces the same principals of pyramid schemes? This is where most people lose sight of the dividing line, in the fog of general perception.

Simply put, in MLM the company, product and philosophy are real. While recruiting is a valid part of MLM, it is not the sole means to generate income and build a business. A very good income can be generated from the sales of the product(s) alone, while never recruiting a single person.

MLM is not a pyramid. MLM can be, and is for many, the road to a better life. The blessing – or with a pyramid, the curse – is the action of recruiting others to build a long-term residual income stream for you and your family. And in MLM, that can’t be a bad thing.

Coming up in part 4: Discerning the good from the bad.

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Posted on July 2, 2010, in Business. Bookmark the permalink. 1 Comment.

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