Earlier this week, I reviewed Millionaire Fast Lane by MJ DeMarco calling it one of the best personal finance books I've read (even though most of it trashes traditional personal finance for entrepreneurship). One part of the review that I glossed over was the business of MLM. This was clearly of interest to me as I've dedicated more words that I care to count on informing people about the scam that MonaVie is running.
I've found that DeMarco is one of the few people who actually write about the business of MLM without any kind of financial bias. He has some experience in MLM having been in four and knows a people in MLM who both made money and didn't make money. He offers a very good breakdown of why MLM is a terrible business to get into. He examines the key attributes, called Commandments, of the best business opportunities whether they be MLM or not.
The Commandment of Control
The Commandment of Control says that successful business are ones that you have full control of.
Let's take my blogging business. On one hand, it's awesome because I can work whenever and from wherever I want. So many people get very jealous about that. On the other hand, I'm dependent on advertisers to make money. Sometimes I get referral fees for products that I recommend, but if one of the best ones like the Mohu Leaf stops offering referral fees, I lose a chunk of business. Then there are the times when my website gets hacked because I speak the truth of MLMs and my income drops as I lose readers. If I weren't so Lazy, I'd make my own product, most likely an Ebook of my very best writing, and sell it at a reasonable price. This way, I wouldn't be as dependent on advertising income. I'd have more control of my business and income.
How does this apply to MLM? DeMarco sums it up as such:
"I was involved in four MLM companies. Not once do I remember dictating product decisions, research and marketing, marketing restriction, rules, cost analysis or any other activity fundamental to owning a business."
It gets a lot worse that that. When you sign on as an MLM distributor, there is almost universally clause in the distributor agreement that they can terminate your business at any time for any reason. See this post for an expanded list of all the ways: MLM is a Bad Business due Lack of Control
The Commandment of Entry
One of the pitches that MLM proponents make is that is that anyone can do it. Unfortunately that's also the biggest reason not to do it. There's simply no barrier to entry, meaning that you are competing with other distributors. Worse yet, the more distributors that are in the MLM, the worse the opportunity because that just means more people are recruiting and have probably gotten to the few people who are interested in a sales job. DeMarco puts it this way:
"Network marketing, or multi-level marketing (MLM), always fails the Commandment of Entry—unless you own and create the MLM company yourself. If you’re in a room with 2,000 other people who do exactly what you do, you’re fighting stiff probabilities."
Combine that with the above lack of control and the MLM distributor is left with a lot of competition and no way to create a competitive advantage. It is a losing formula. Here's more on why MLM is a bad business due to lack of barriers to entry.
(Side Note: It isn't lost on me that blogging also faces the commandment of entry. I wouldn't recommend anyone pick the blogging business to make money either. DeMarco also touches on this.)
Summing up the Business of MLM
DeMarco perhaps sums it up best with the following:
"As a network marketer, you don’t own a business - you own a job managing and creating a sales organization... MLM distributors are commissioned employees disguised as entrepreneurs..."
The one thing that DeMarco doesn't mention is that MLM distributors are often required to purchase the product and tools at a greatly inflated price to participate in the business. The product purchase requirement for MonaVie is around $140 of juice. So not only MLM distributors commissioned employees, but they are required to spend a great portion of commissions they earn on the company's product, often taking large losses month after month and never breaking even. In fact, well over 99% of people involved lose money
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