Why did Warren Buffett buy half a dozen MLM companies last year?

For a start, I believe that is not true and simply an urban myth … but, it was what caught my eye when I received an interesting e-mail the other day … who it’s from is the most interesting part, but more on that later.

The e-mail opened with: 

Both Trump and Kiyosaki recommend Network Marketing in their latest book “Why we want you to be rich.

Two rich, successful people ‘pushing’ network marketing?! Let’s read on …

Trump and Kiyosaki BOTH say that if they had to do it all over again, they would build their fortunes in THIS industry.

There were rumors travelling the blogosphere that Robert Kiyosaki’s first book “Rich Dad, Poor Dad” only hit the best-seller lists because legions of Amway members were buying it (I’m sure some did, but I’m also sure that the book hit – and stayed on – the best-seller lists simply because it was very popular with the masses).

But, the biggest reason why these guys seem to be pushing MLM is the same reason as Warren Buffett could consider owning one: there is more money in OWNING an MLM than there is in being a member of one.

Over 90% of the money in this industry is made by the COMPANY’S OWNERS and Trump, Buffet, and Kiyosaki know this! (Buffet alone reportedly bought 7 network marketing companies in the last year!)

Let’s look at why this might be so …

In the traditional world, a company manufacturing goods for sale to an end-consumer has to go through ‘many hands’ to make the process work.

This distribution chain (manufacturers -> manufacturer’s agents -> wholesalers -> distributors -> retailers -> consumers) multiplies the manufacturing cost of the product by 6 to 8 times!

If a manufacturer can instead have a highly-motivated, commission-only sales force taking their products directly to consumers in their local area (and, who also buy and use the products themselves at relatively small discounts), these manufacturers can keep a large piece of that distribution pie for themselves. Tempting huh?

But, there must be SOMETHING in this for all the people who pay money, buy product and give up their time to join all of these MLM’s that seem to be springing up everywhere …

The dream, perpetuated by the MLM industry itself, is to earn a perpetual stream of income from your own downline that is, the people (usually friends, relatives, co-workers, casual acquaintances) that you recruit to also join the MLM ‘under’ you.

I guess that explains why MLM is so damn big!

The MLM industry currently consists of well over 2,000 companies in the United States, with sales of more than $28 billion annually. According to the Direct Selling Association (DSA), approximately 13 million Americans participate in this industry. 

Exactly how lucrative can this be? Well let me share a personal story …

My father had a little clothing store in an Italian neighborhood, but he eventually decided to sell it. A young man (he happened to have been in my wife’s year at the same school, but that’s a coincidence) bought the store to ‘trendy up’ the shop downstairs.

At the same time, he opened up a little business upstairs; we didn’t realize it at the time, but he was the first local distributor for a well-known MLM.

Over time he spent more and more time ‘upstairs’ and less and less time in the store ‘downstairs’ eventually closing the clothing store altogether. He is still in the MLM business, although he spends very little time on it and still earns millions of dollars every year on it.

A friend of mine (who received $4.5 million from the sale of his own business two years ago) recently joined his ‘downline’ and is busy building his own MLM stream of income … he must feel that there is enough potential in this to justify putting all of that “ask me how” signage all over his brand new BMW!

Sadly, that is not the case for everybody, as the e-mail went on to mention:

Here are Facts about Network Marketing:
-Less than 1 out of 1000 people in this industry will ever
make 6-figures.
-90% of all business WILL fail within their first 5 years
(Entrepreneur Magazine)
-Over 30, Million (yes million) Americans have either
attempted Network Marketing or are currently involved in the
-Yet 90% make less than $10 a week.
WHY! WHAT ARE THEY THINKING? Why does everyone think this is an
industry of easy-riches when the reality is that most are failing

Pretty strong stuff … so which disgruntled person sent me this apparently anti-MLM message?

A Multi-Level Marketing Company!?

I guess they are trying to get a jump on the competition by saying between-the-lines: 

“The rest of the industry may be in the you-know-what … but, we’re different … we have a support team … a unique model …”. Whatever. At least they brought some interesting information to our attention, if true.

I have already mentioned MLM in passing as one possibility in my Making Money 201 strategies, so what do I really think of MLM?

Going into MLM to ‘strike it rich’ is the same as going into any other business (and, make no mistake, to succeed in MLM you MUST treat it as a business) … you pays your money and you takes your chances.

Only put up as much time/money as you can afford to lose … and, do your homework (what is the commission structure; who’s in it; what are the products like).

And, just remember that if you DO get lucky, the company had better be around for ever if you want your business to fund your retirement … how likely is that?

On the other hand, going into MLM because you like – and, would use for yourself anyway – the products, and you are going in with the more realistic expectation of perhaps making a little extra income on the side, this might be a better way for you to get started (if you do happen to hit it big … more power to you!).

In which case, I would recommend spending no more than 50% of the profits that you make (i.e. commissions after paying for product samples, convention travel, motivational products … believe me you will be offered – and will buy – plenty!).

Invest the other 50% into your long term Investment Plan … even if you do strike MLM-gold, keep funding your passive investment strategy (e.g. buy-and-hold investment real-estate) and live off the income THAT produces.

That way, if the MLM stops, you don’t! This is no different to the advice that I would give to any business owner …

Most of the entrepreneurs are lured to this industry by dreams of riches and easy money. A better lifestyle, less work, more free time, nice cars, and lifestyle. Yet the VAST majority will fail.

This is true … most will fail … what you get out of an MLM will depend upon your expectations up front (easy riches, or supplement to your Investment Plan?) and the amount of effort you put it.

It’s not for me … but, it could be for you …

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64 thoughts on “Why did Warren Buffett buy half a dozen MLM companies last year?

  1. I’ve been a traditional biz owner and I loved it except for the customers, employees and long hours. About 2 yrs ago I was introduced to an awesome network marketing company and decided to go for it. Within 6 months my plan b had doubled my income from plan a. Time to spend more time with plan b less time with my adult day care center. Network marketing is great but it’s not for wimps. You have to put your big boy pants on and go to work. Problem is you have to talk to all kinds of people and everybody’s not smart or motivated. Most folk will live their entire life in their small little comfort zone. I am glad that network marketing is becoming more excepted.

  2. “I’ve been a traditional biz owner and I loved it except for the customers, employees and long hours.”

    @ Steve – I sit very much on the fence with MLM … like everything, it works for some but not for others. But, I am happy when it does work 🙂

    But, I’m not sure that you eliminate the customers (even in MLM, you should have LOTS of those), employees (you have worse: downlines … to be trained, supported, cajoled, etc., etc.) … and, if you want to REALLY succeed, you have no choice but to put in the hard yards (including long hours). Sorry. But, success in any endeavor requires those three (or, similar) …

  3. I agree for the most part. Yes, of course it takes time to dig the ditch and to occassionally coddle your downline, but the crucial thing to consider is does your networking marketing company have the right compensation plan?

    I also come from a traditional business background, but have since tried 2 different NMs. One has been around since the dawn of time and the other is a newcomer. Both are amazing companies with fantastic leadership, but with the former I understood from their annual convention that it could take me 20-30 years to hit the top rank within an overdeveloped industry, whereas with the latter it could take as few as 2-5 years because it was wide-open territory. Furthermore, the latter company’s compensation plan has added benefits that other NM company’s don’t account for!

    So my advice is to choose your battle wisely. All NMs have their ups and downs, so pick one that fits your personality and lifestyle best and not just the first opportunity that comes along!

  4. Steve is obviously not smart and probably not a business owner at all. Please, learn proper grammar.
    MLM is what it is. You can make money working it, but you can make even more letting it work for you…aka (owning MLM).

    That said, use your time wisely!

  5. It is very easy to be rich through network marketing if u understand the concept of building human asset

  6. I have been involved with network marketing for over 35 years. I have build four very large businesses and trained over a million people in this industry. I think this is the BEST business model for the average person with a low investment. The reason people fail is not the business model but either lack of effort or wrong effort. I have earned several million from the business. I am doing it again now after researching 27 companies to find the right one.

  7. There are more people failing in conventional businesses all over the world, after borrowing lots of money from banks, than those who succeed. It is therefore wrong and inconsistent for any person to demonise MLM and consider it an industry hard to succeed in. Which business has ever been easy to do? The truth is business in general is tough and it is not for everyone, else every person would be a business owner. The reality is every business demands TIME, EFFORT and MONEY, but most people who join MLM businesses (no matter how good their compensation plans may be)hope to make millions from just taking care of the MONEY part of the equation and then doing nothing after that… neglecting both TIME and EFFORT. These three have to be consistently and consciously pursued for any business, especially MLM, to succeed.

  8. I think the problem that most people have with mlm’s are their tactics. Pressured recruitment, deceptive sales pitches i.e. taking money you spend elsewhere and investing it into your own business/network. Profits are only gained by the recruitment of others not on the product or service itself. Success is gained through the losses of hundreds of others who are mislead into believing their time will come if they continue the endless training and buy sales material which is the pyramid scheme within the pyramid scheme.

  9. @ Saevere007 – I’m not an MLM’er (I did try a couple when I was MUCH younger), but I like the opportunity that they seem to afford. But, my advice would be to go into an MLM with the expectation of selling product – looking for a little side income – not recruiting.

  10. I don’t know what MLM company is @Saevere007 talking about, but the few ones I know only pay if the products are consumed or sold. But, if they only pay you if you recruit, there are of course piramid schemes and NOT MLM.

    Recruitment is to amplified the amount of products, but if the don’t use the products, you are not payed.

    *sorry if I misspelled something, english is not my main language

  11. Dream, Commit, Succeed.
    We all have dreams to become and do more. The problem is we get comfortable with achieving less than what we’re capable. MLM allows us to dream again, but we must commit ourselves just like we do with our 9-5s. If we were to commit to ourselves like we commit to our jobs, most everyone would be successful. Most people are comfortable with where they are. Success is not easy. If it were everybody would be successful. Like many before me have said, it takes TIME, MONEY, & EFFORT and I will throw in one more, BELIEF. So, if we can make those 4 things work synergistically, you are almost guaranteed to be successful in MLM.

  12. I love the MLM model and I make a six figure income from my home.The dream is real, however it is never a get rich quick deal. Find a good co. with a good product and comp. plan. Then work your a$$ off and maybe a Porche and beach house are in your future.

  13. There are Network Marketing Companies that can bring you income, if you are willing to work, the same as you would in any other business. Building Team Members is not a Pyramid. It is simply adding people to your team to help grow and make your business and their business successful. It is ALL about helping one another accomplish DESIRES AND GOALS to obtain a better life for them and their families. Maybe there are some illegal, pyramid scheme companies, but if you enter into them, it’s your fault because you did not do your research on those companies. It is such a blessing for me to help others venture into, not a new way of doing things, but a better way and more profitable way in the long run.

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