Avoiding Pitfalls on Your Path

Not long ago, a friend whom I had not seen in some time, showed up at a store that I work at. I was pleased to see this friend, and catch up on what had happened since we last spoke. He said that he had quit school and now owned his own business. He was a little mysterious about what this business was, but suggested that we get together so he could tell me about it. I agreed, and thus began my encounter with network marketing.

When we got together, he entered into a sales pitch. He knew me fairly well, and so knew what points to hit, and how to pitch the scheme to me. He said that it wasn’t about money, that it was about giving people the opportunity to follow their dreams. He believed what he told me that day, he had, after all, thrown in with this company completely, quitting school and his job - nevertheless it was false.

Multi-Level Marketing companies (MLMs) do not advertise, they do not need to, they rely on word-of-mouth. Individuals once recruited into an MLM scheme, recruit others from their pool of family, friends, and acquaintances. They are generally enthusiastic and believe that they are sharing "the opportunity of a lifetime" with others, unfortunately that is not the case. It is important to realize that while they may sell you on the American Dream, or personal fulfillment, and that while they may be a trusted friend, mentor, family member, lover, etc., and may believe completely in the company - it is a variation on the old pyramid scheme scam.

What distinguishes MLMs from legitimate door-to-door companies, is the emphasis on recruitment. MLM schemes function by each member building a "downline" of other members which they themselves recruit into the scheme. The only significant income a member can hope to make from the scheme, is the percentage of the initial investments and sales from the many people they hope to bring in under them, hence the term pyramid scheme. Of course each MLM company actually sells products, because if they didn’t give something for the money they receive from their members/distributors/associates they would be closed down and arrested. They remain quasi-legal, because there is no law against people paying far too much for products or services. These products include: health products (most common), telecommunications, household goods, etc., any number of products which have "barely begun to scratch their potential in the U.S. market," are "environmentally friendly alternatives," or are "experiencing continuous growth at a rapid rate." Regardless of the product, the pitch will probably be more about the business opportunity of recruiting others under you who will provide you with continuous income. It will inevitably cost some "initial investment" to join (which are usually a primary income source for the company, along with sales kits and other "success" products). And the pressure will be on to "get in now" while the market is so primed for growth, or before "everyone joins" so that they will be in your "downline" and not you in theirs - after all, it is better to exploit than to be exploited.

So what happened with my friend? Well, embarrassingly enough, I seriously considered his offer. I was over-stressed at school, and my mental immune system was at a low ebb. However, in considering it, I realized a number of the problems with MLMs. One BIG problem is that if you join such a scheme you become a full-time all-the-time recruiter for it. All of your relationships will be colored by recruitment prospects, as though you have become a secret agent in your social world, building your "downline" with the bodies of people that you care about. Another problem is competitive exploitation, since they are based on individuals using each other (you feed off the profits of others) you simply can’t work together for everyone’s benefit. And, of course, the final problem is inevitable collapse. Since they feed off the investments of new recruits, eventually the point is reached where people at the bottom realize they can’t make money at this and bail, leaving those above them without incomes, so they bail, and so on, and so on. Essentially, any pyramid scheme of any kind will fail, but only after filtering a great deal of money from the bottom to the top, in the final analysis something like 99% of those involved loose. Which is of course, why there have been attempts to make all such schemes illegal, but for the moment product-based pyramid schemes are growing and thriving, with some having been around for decades by constantly rotating through new members in the lower levels.

In all probability you will hear MLM sales pitches many times over the years. They may come from people you care about, and they may tempt you as a way to follow your path, but even if it were possible to make money from these scams, in the end it is simply not worth the personal, social, and spiritual costs.

False Profits: Seeking Financial and Spiritual Deliverance in Multi-Level Marketing by Robert L. Fitzpatrick, Herald Press 1997

Article - What’s Wrong with Multi-Level Marketing? by Dean Van Druff

Metro News Article - Shaking the Money Tree by Ami Chen Mills, Metro 3-9 Oct 96

The Federal Trades Commission - esp. Tips to Avoid Pyramid Schemes

The Better Business Bureau
for The Utah office call (801) 487-4656