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  1. #21
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    There is a difference between a MLM and any other business when you take away the product.

    With the MLM because of the minimum committment and the way people are members of the program, that is what make the pyramid scheme.

    Where as any other business you take away the product and you have a company losing plenty of money, and laying off staff.
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    Quote Originally Posted by orion_joel View Post
    There is a difference between a MLM and any other business when you take away the product.
    .. With the MLM because of the minimum committment and the way people are members of the program, that is what make the pyramid scheme.
    .. Where as any other business you take away the product and you have a company losing plenty of money, and laying off staff.
    Bad comparison, Joel. If you are going to play such hyperthetical games, you must keep the rules the same for both sides of the argument.

    You are allowing that the MLM continues its operation without the product. That would result in an illegal pyramid scheme, as you correctly point out.

    If you are going to assume that a MLM will continue without product, then you must assume other businesses will continue without product. In which case you have fraud - accepting money from sales and not deliverying any product or service for that money.

    Both are illegal, both are fraud, one no more than the other. The jail term is likely the same for both.

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    I realise there is a general concensus against multilevel and network marketing in this community. I think this arises with many folk because they have been pestered in the past by various people, friends and family, trying desperately to get them involved. It is not so much the business model that is disliked (who cares how someone else structures their business?!), it is the persistence with which their friends hound them only to find they give up after a while. It is easier to blame the company than their friend.

    I have no axe to grind over MLM/NM - I don't promote them, although I have participated in the past, and was quite successful. I just don't like to see inaccuracies and distortions being tossed about as truth in a business community, such as we have here.

    In fact, this community - a small business community of entrepreneurs, self-employed and micro-business owners - is the sort of community that should be encouraging people to start their own busineses. MLM/NM is the most available learning ground for anyone wishing to achieve what we have all achieved - independence of income. There are not many ways for someone with no more than $100 to spend to get into business for themselves. There are not many ways for someone to start their own business with all the materials, products, handouts, business plan/model/structure and processes in place on Day #1. There are not many ways for someone to hire helpers, associates or partners before they are even familair with the business itself. There is no other way I know of that can put a unknowledgeable person in business immediately and let them rely on on-the-job training or after-the-fact self-education.

    There are dangers in this approach, but there are dangers of a different sort in any other approach. We should, I suggest, be encouraging people to start their own businesses and be warning them of and educating them on how to overcome the potential dangers. Not trying to discourage them from becoming independent business people in their own right.

    We have the opportunity here, good people, to promote entrepreneurialism and I encourage you all to do that.

  4. #24
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    The idea behind a pyramid scheme is that you make money by enrolling people in the program without any product or service being offered. Think of a chain letter asking you to send $1 to the person or persons at the top of the list and then your name gets added to the bottom of the list so that people behind you start sending you money. The mathematical formula sounds great and sounds like it can't lose.

    The person at the very top and perhaps the next few levels down can make money. The further down the side of the pyramid you are the less likely you'll ever make any money.

    Pyramid schemes are illegal in many countries.

    MLM (multi-level marketing) has one major difference with a pyramid. There is a real product involved. That alone is enough to make them legal and in some cases a solid business. The idea is to compensate people for becoming part of your marketing or sales force. An affiliate program is an example of MLM.

    Where MLMs can get into trouble is when they incentivize recruitment more than product sales.

    The FTC advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically.
    When the incentive to recruit is more than the incentive to sell the product an MLM moves in the direction of a pyramid scheme. Most of the MLMs you see that are scams are making money on the recruitment more than on the product.

    If you're wondering whether or not to join an MLM look at the company and see whether or not they're pushing the idea of selling products or recruitment. If the focus is on the recruitment then you should be wary. If the focus is on selling the product then it's more likely there's a real business model behind the company.

    @Frederick - if we're going to point out the negatives of buying a franchise we have to point out the positives too. When you buy a franchise like McDonald's you are buying into the brand. You can't advertise, but you don't have to since the company is advertising for you. The brand and national advertising gets you a lot of customers early on, certainly more than you could get on your own going into business as a competitor of the franchise. The plan you have to follow is one that has been developed and tested over time and proven to work again and again.

    I'm not endorsing franchises. You do lose a lot of freedom in how you want to run your business. You give up that freedom in exchange for a proven business model and an instant brand. Given that most new businesses struggle with developing a working plan and most small businesses will never brand themselves at that national level it's not necessarily a bad deal.

    Ultimately you have to determine if what you gain in brand is worth what you give up in freedom. I prefer the freedom, but a franchise does offer a lot and can be a great fit for some people.
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    Quote Originally Posted by vangogh View Post
    ...An affiliate program is an example of MLM...
    An affiliate program is not an example of multi-level marketing because, usually, there is no "multi" level. Some affiliate programs (but not many) pay commissions on two, maybe three, levels, but that's all. Usually it's only on one level. MLM can go to any level and if restricted by the company (possible but rare) is restricted at possibly 8 or 10 levels deep.

    Quote Originally Posted by vangogh View Post
    ...Where MLMs can get into trouble is when they incentivize recruitment more than product sales...
    Interestingly, the first network marketing company - the inventor of the idea - is still in business today - Watkins Spices and Herbs - which began in the mid-1800s. Not only did they create network marketing, they also offered the first money-back guarantee. As I understand it, Watkins made every customer an associate. To be an associate and be able to sell their products you had to be a customer - a user of the product. That was the "network." They didn't have a salesforce as such, they had this network of customers. You got a rebate on your purchases bases on the volume of sales to other people you had brought into your network of customers.


    Quote Originally Posted by vangogh View Post
    ...@Frederick - if we're going to point out the negatives of buying a franchise we have to point out the positives too....
    I agree. My post about McDonalds was to demonstrate that we can paint a bad picture about any business model, if we have a mind to.

    So, if you want to insist that we point out the positives when discussing the negatives of franchising, are you going to insist we point out the positives when discussing the negatives of network and multi-level marketing? I would welcome that.

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    I got Frederick's point right away when he used the McDonald's illustration. There is a lot of negativity toward MLM as if it's not a respectable buisiness model. It probably stems from the people who chase others to recruit because there is nothing wrong with the MLM model itself.

    The phrase pyramid scheme gets used so much that many people assume MLM amd pyamid are synonomous. As stated above, every business is a pyamid once the product or service is removed.

    I actually respect anyone who can be successful in MLM because it's probably one of the hardest things to succeed at. On the plus side, it offers a low startup cost and a built in system. But the work is grueling and it takes a long time to bear fruit.

    One thing that is a distinguishing feature in a valid MLM is the opportunity is equal on all levels. IOW, you will have the ability to earn more than the person who signs you up. The reward is in direct proportion to the effort.

    The company this thread was opened up to ask about is like that. I am a customer only, so if you signed up under me and built a business with it, you would make the money. I'd only make a few dollars a month for the referral. You would be getting the rewards for your work, not me. If I did want to build a business, that opportunity is just as equally available to me, but I'm happy just being a customer.
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    I thought I was being unbiased in my post above. I wasn't trying to make any judgement about an MLM business model. Just trying to point out where the line might be between the honest ones and the not so honest ones.

    I think affiliate programs fall under MLM, though it's fair to say not all. Maybe I'm wrong, but I don't think there's a specific amount of levels needed to consider something MLM and many affiliate programs do go several levels deep. I guess we'd have to distinguish between the single level affiliate program and those that go beyond the single level.

    From the Wikipedia page I linked to above on MLM

    The structure is designed to create a marketing and sales force by compensating promoters of company products not only for sales they personally generate, but also for the sales of other promoters they introduce to the company, creating a downline of distributors and a hierarchy of multiple levels of compensation in the form of a pyramid.
    I'm not suggesting Wikipedia is the expert, but that definition seems fair and I don't know that there needs to be a specific amount of levels to the marketing.

    Interestingly, the first network marketing company - the inventor of the idea - is still in business today
    Nothing in your example suggests the recruitment is incentivized more than the product. Also nothing in what I said suggests it's automatically bad. Simply that's where companies begin to cross a line. Being wary doesn't mean that what you're wary of is by default a bad thing. Just that you should be more cautious and do more investigation.

    So, if you want to insist that we point out the positives when discussing the negatives of franchising, are you going to insist we point out the positives when discussing the negatives of network and multi-level marketing? I would welcome that.
    Isn't that what you're doing? Is anyone stopping you from doing it? I don't think everyone here needs to write equally balanced posts showing the positives and negatives. I think you're carrying the positive side in this thread. Most people commenting here seem to lean toward the MLM is spammy side of the equation. I'm not saying that means MLMs are automatically spammy, but clearly they have a less than stellar perception with a lot people.

    I think MLM is a marketing model and like anything can be done well and be done poorly. Unfortunately too often they seem to offer more promise than substance and I'd guestimate that most MLM offers you see aren't worth getting involved in. However there are certainly MLMs that are on the up and up and offer potential to people. I don't think this is an either/or question where MLMs are either the greatest thing since (fire, the wheel, sliced bread, substitute your favorite greatest thing) or pure evil. Like everything else they fall somewhere between.

    You have to investigate the specific MLM if you're thinking of getting involved and make a decision. I think one good place to look when making that decision is to see if the business model of the company revolves around a product or service or is the business model the MLM itself.

    MLM is a marketing model. It's not a business model. When signing up new members under you is the major incentive the MLM moves toward being a business model and when that happens I think it crosses a line. That doesn't mean you can't add incentive to signing up new associates, but that shouldn't be the primary incentive.
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    See I kind of differentiate between MLM and Direct Sales Co's. I think of Watkins as DS. I know the structure is MLM, but the differentiation (in my mind anyway) is that the DS companies are more product oriented and tend to be way less pushy on the recruitment aspect.

    I don't have a negative attitude towards them, but I do know they aren't for me. I tried with two different companies but never really found my groove with either. I picked them both up as side-hobbies and really just wanted the good deals on the kits

  9. #29
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    Quote Originally Posted by vangogh View Post
    ...MLM is a marketing model. It's not a business model...
    I think this is an important distinction.

    There are two things I notice present day MLM companies adopting that makes their business more legitimate--

    1. Calling the payment one gets for recruiting a new associate "training payment" or some such. It may just be a change of name to some people but I think it goes some way to impressing each associate that they are responsible for training their downline, and

    2. Requiring a certain level of actual sales of product for an associate to earn override commissions - if they don't sell a certain minimum amount of product directly to a customer, they lose that month's override commissions from their downline's sales (they still get their own earned commission.) This might sound like a way for the company to "steal" those overrides, but it forces associates to sell product as well as recruit.

    These are good developments, in my view.
    Last edited by Spider; 11-16-2009 at 07:22 PM. Reason: spelling

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    The thing I don't like about most MLM's is they push into your social life.

    I'm an entrepreneur, and I'm an entrepreneur 24/7. But I'm not "Clear-Writing" 24/7. There's a difference.

    You kinda need to be "Amway" 24/7.
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