Let me shed some light and hopefully clear some thoughts on what you've put up. In the interest of disclosure, I run a network marketing business. I am however NOT in Amway. I mention this because you will see me use them as an example here, because they are known by almost everyone. I have deliberately avoided using the example of my network marketing company as the intent of this article is purely educational, and NOT promotional. This will be quite long, since it is a response directed to answer most things in your blog.
Just a few facts to quickly consider. There are over 800 network marketing companies in Malaysia alone. In the USA, over 2000 are registered with the Direct Selling Association (DSA, their regulatory authority), and there are thousands more worldwide. Most people will come across at max, 5-6 companies in their lifetime (pushing it, 10) and make a judgement about the entire industry, which is a VERY large industry.
This is akin to dealing with a few unethical IT companies/people, and assuming that this is a reflection of the entire IT industry. It would be ludicrous to assume that what happened with Satyam is a norm in that industry. MLM companies are not given the same fair space, which is not entirely the fault of the public.
Here's my view of what you've typed up - It is still a reflection of one company. At most, a few more in the entire gamut. Second, I don't blame you. You've seen a presentation, that is a little flawed. the model will not be flawed, but the presentation has been.
First I will address your presentation. THEN i will move to your other questions. The crux is quite simple - what is saved on general marketing costs/admin costs gets paid out on commissions instead. This, in many cases, it CAN work out cheaper than the market value of a product, but not necessarily. On another note, If you and I are talking about the same company (which sounds a lot like Amway, from what you have described), i know several people personally who are NOT doing the amway business and are still fans of their products, because there are many unique elements in them, that maybe many people are not educated on.
You seem to have highlighted one opinion, I have seen otherwise as well - which in all honesty, exists with every product/device that you come across nowadays. Again, in the interest of disclosure - I am NOT with Amway. And Amway is in the range of 60 years of existence today. LONG gone from any danger of 'not working'.
Second, the presenter said an amount for a membership. In a legal, ethical MLM you NEVER pay for membership, at max a very nominal charge for admin costs, but you will always ONLY pay for products. This isn't your fault. This, again, is the presenter's fault. Third, it’s hard work. Absolutely. It takes a few years for it to be set in auto pilot. Just like anything else. It’s still lesser work than an average employee’s timings – but the rewards are much greater. It’s hard, consistent work with unbeatable rewards. If people DO have big dreams and willing to work hard for it, I believe this is one of the best places to do it. Big dreams with no action – fail everywhere.
Now, to getting towards answering a few of the questions that you had brought up :
How was it that the products were not the subject of the presentation, when they should have been the main focus of the discussion?
Agreed. It should have been brought up. Again, it is NOT a reflection of the INDUSTRY. The products and the business plan, both must be seen by you. However – Whether that should be the MAIN focus – questionable. Remember, the presentation is a BUSINESS presentation. It is a conversation to partner in the network marketing business. So the products are actually part of the conversation – The business model is to be given EQUAL importance. Think of this as investing in a company as a venture capitalist – the first step is looking at the value of the product. The second, is the soundness of the business model. BOTH are equally important. Again, I repeat, the presentation is NOT a product sale presentation, it is a business plan presentation.
How would I convince my friends and relatives if the products itself are not worth the money? Will they really bless me for having shared with them an offer which benefitted them or not? Or will they curse me for selling products not worth the price they have paid for?
You don’t. If you think the products are not worth it, don’t even DO the business. Not all MLM companies have products that are not worth it. Of course your friends and relatives will hate you forever! But to assume that NO MLM company has products of value to provide? I can easily challenge that. I’ve lost NO friends or relatives in my business – the only way to lose them is to push them, force them, and be desperate. In fact, that is the best way to lose them, MLM or not. Not everyone builds the business that way. I am reiterating the same point again – There are people who have built things unethically, but the industry by itself is brilliant when built with the right mindset.
“How did a concept that had done away with distributors, wholesalers, retailers, advertisements be costlier than similar products available in the market?”
Still a question that I’m pretty sure arises from one or two experiences. By the way, if you are speaking about Amway, ask them. They’ll tell you why it costs that much.
“Have all the members of the MLM who have already joined them replaced these distributors and retailers and become the parasites and middlemen in the new and innovative marketing chain?”
Sad to say, there are both. Parasites exist in this industry too, I won’t deny that. But there are excellent people as well. Parasites just get noticed a lot more.
“Isn’t the entire structure of the MLM more beneficial to the old members who had joined early and bears heavy on the later entrants?”
Sheer nonsense. First of all it is NOT members. All legal, ethical MLM’s will pay ONLY for volume. Even if you don’t get ‘members’ and sell products, you will STILL get paid. ONLY VOLUME IS PAID FOR. If you see a so called MLM company paying you only for members and NOT for products sold, THAT IS A STRAIGHT PYRAMID SCHEME (The famous survey comes to mind – its clearly a pyramid scheme. Where is the product?).
Second, the facts COMPLETELY disagree. The oldest network marketing company is still profitable, sixty years later. Growing strong. People today are STILL building powerfully. People who are willing to work hard, that is. That company does about 8 billion dollars in revenue JUST on a B2C model. There is simply NO factual basis to that assumption. EVERY network marketing company in existence as thoroughly disputed that assumption. As long as companies innovate with products/services and continue to provide new offerings (like ANY other organisation), there’s nothing to worry about. There are only 70 million network marketers in the world today. FAR from saturation.
In a PYRAMID SCHEME, those things matter. In anything else, doesn’t matter.
“What will happen when the chain stops growing like my friend who values relationships more than undue profits?”
When you’re dealing with products and a company that has values, relationships AND profits work together. There are plenty of friends who work together and succeed well. I’d rather work with known people than with strangers. I get to do that here. It’s not relationships OR profits. That’s pointless. It’s like assuming that colleagues can never be friends. Or vice-versa. Barely a reflection of reality.
When the network (I don’t use the word ‘chain’ because that also has an illegal thrust to it.) stops growing, income stops if volume isn’t sold. Here’s where the hard work comes in. To have MLM go on auto-pilot, it takes atleast four to five years of hard consistent work. And it’s worth it. But it does take HARD WORK. Which you and I do anyway. Think of it as exactly like an organisation. When an organisation stops growing, what happens. It collapses. You don’t build an organisation for 1 month and let it go. It takes years to establish a solid leadership structure and a solid system. EXACT same rules here. Without the risks of traditional business. And STILL lesser ‘hard work’ than traditional employment. I don’t say NO hard work. I do say lesser, though.
More importantly: “Are we being lured into the scheme by the promise of an easy money without much hard work?” “Have we been sold a dream instead of a product?” and “If it is too good to be true, perhaps it is?!”
If you’ve been told that this is easy work, and hardly anything at all, and does not require hard work at all – stay away from that person. I didn’t say stay away from the MLM industry, I said stay away from that person. Let me still however add one more thing here – the amount of hard work here will NEVER match up to the amount of hard work most employees put in (if done seriously).
This has to be treated like a BUSINESS to succeed. NOT a scheme.
“Many people lost money to vanishing MLMs – many early entrants (read: promoters) made money and then vanished without a trace. The Ponzi schemes, which pay money based on the new money coming in and not from profits earned, lasts only until new folks bite the bait”
Let’s paste in the Wiki definition of Ponzi, which fits perfectly :
“A pyramid scheme is a non-sustainable business model that involves promising participants payment, services or ideals, primarily for enrolling other people into the scheme or training them to take part, rather than supplying any real investment or sale of products or services to the public”
There are pyramid schemes out there that masquerade as MLM’s. These are money circulation schemes. MLM’s will always have products sold, and commissions paid out of profits. There are some that have a disguised product – one which you KNOW is complete nonsense (the online survey company? Legally, you’ve subscribed to an e-zine.. for a fortune! Clear disguised). REAL MLM’s will be able to justify product value. If you don’t see it, ASK for the value. And if you STILL don’t see the value, don’t bother.
Some believe MLM to be a legalised pyramid scheme. Laughable. When there’s a product of value sold, theres no pyramid scheme involved. Simple. Life insurance is a legal pyramid scheme by the way. So is the 401(k) in the US. People are paid out of money circulation. Real MLM’s can only pay out of product volume sold. FTC regulations in the US, the WFDSA (the worldwide regulatory body of direct selling companies) clearly state that and have actually green-lighted the ethical ones.
How come they are not heavily regulated by RBI or SEBI?
No agreements. There should be regulations. It’s part of the problem. The US, Australia and Singapore have stringent regulations on direct selling and MLM companies. This helps to make sure only ethical ones stay. Good regulation will ensure that ‘online survey companies’ stay out and stop spoiling the name of the MLM industry.
How come the promoters are never known to the public?
What makes you say that? I’m not even in Amway, and I know who started the company. He’s extremely popular in the States for that matter. A billionaire, who continues to contribute and owns several franchises. If you find that you are unable to get information on who the people behind the business are, stay cautious (PS – sometimes the people you talk to may not have the required knowledge since they may have just started out. Be open to that too! Not everyone is an industry expert from day one here. )
Could it be that these schemes have the blessing of politicians and perhaps we are opening another can of worms here for yet another scam of humongous proportions?
No. Trust me, India has been very unkind. Precisely why it needs a regulatory body. Wait and watch as to what happens to these online survey companies. Lets take the case of the (in)famous Amway – 60 years of existence, green lighted by the most stringent of rulings. We just don’t have very clear regulations in India yet, and it would be great if the government eventually stepped up to it (which I hear, they probably are).
How come the RBI or SEBI has never come forward to explain this to the lay public inspite of several blogs, columns, issues raised in magazines and periodicals?
They should.
You asked me my take on the scene in India. Here it is :
I hope that we have some regulations set in place. It will help to distinguish things for people. MLM is still very nascent in our country, however widespread it has grown. Compared to its existence in the US, it’s a baby here.
Let’s look at states. Just between FTC regulations and the DSA, network marketing is highly regulated, which is great. Only legal ones get to stay. Same with Singapore, and now, Malaysia. The UAE has also put in laws and regulatory bodies now (The DSA again), that has created a lot more openness. Would be great if India begins to model the same.
I think its time more openness existed. I mean, lets look at a few things :
- Warren buffet invests in several network marketing ventures. He has extremely good things to say about “the pampered chef” which is a network marketing company he’s put his money in.
- Robert Kiyosaki openly advocates network marketing – in his books, business school and business of the 21st century. He highlights the merits of the industry.
- Harv Eker, author of “the millionaire mind” does so too, openly.
- Network marketing has existed for over 60 years. 60 years! It’s not going away, and with good reason. It simply makes sense, especially with the advent of e-commerce. When built with GOOD people, it’s remarkable. And if these so called ‘schemes’ had to collapse, sixty years is simply LONG enough to tell you that with hard work it does NOT collapse.
- In reality, network marketing is no different from ANY organisation. Compensation is for products sold, shared by the entire organisation that has been built. Same rules, really.
Times are changing, and so should we. A lot of what I’ve said is right on google. If you’re interested, I really recommend two sites to have a look at :
- Mark Yarnell, a legend in the network marketing industry, has a great article that appeared in the central new york business journal. Though written from a USA standpoint, still has relevance to us : http://networkmarketingtrialsandtribulations.blogspot.com/2009/09/mark-yarnells-article-in-central-new.html
- Another great read : http://www.networkmarketingexplained.net
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