Does MLM go too far?

Silicon Valley Blogger joins some others in hating on a particular MLM company. You can read his/her post to find out which one and why …

Now, I have absolutely NO experience with that particular MLM, and very little personal MLM experience at all, other than reading a lot about MLM when I was younger and participating in Amway for a little while.

But, I take issue with SVB’s sub-heading (about half-way into his post; asking: “Does MLM go too far?” And, I wasn’t afraid to tell him/her so:

I don’t think that there’s anything inherently wrong with MLM; it’s like saying that franchising sucks: it all depends on the company.

It’s POTENTIALLY a great business model on 3 levels:

1. For the company: they get to take a product straight to market, cutting out layers of fixed marketing costs by replacing them with a multi-level commission structure.

2. For the (very?!) small % of ‘distributors’ who build large networks: they get to build a ‘passive’ income stream that lasts as long as the company does. I have a friend who makes $200k+ a month (for years now), and sips coffee and develops property when he gets bored. Not so bad.

3. For the majority of distributors: they get to buy product that they presumably love and use at discounted prices, and they may even earn some ’side income’. It’s what they do with this money (invest? start a ‘real business’?), and what they learn (people skills? sales skills?) that can provide the real value.

… this is all assuming that they do their homework and choose a reputable company. But, isn’t that the case with everything we do or invest in?

DISCLAIMER: The author of this comment has no relationship with any MLM, being a retired multi-millionaire who made his money in MUCH more mundane ways (‘real business’ and ‘real investing’) ;)

Give me the skinny on MLMs

Disclaimer: 7million7years does NOT participate in any MLM either as owner, member, participant, or promoter … so there!

I wrote a post last month about a rumor that Warren Buffett had bought half a dozen Multi-Level Marketing (MLM) companies. He didn’t … I’m almost, absolutely positive about that. He may have bought one (at least, according to one of our commenters) but I couldn’t even find any independent verification of that.

But, if he did …

… why MLM‘s?

Well, they are one of the many ways that people use to try and build additional income streams … and building additional income streams are one of the key Making Money 201 steps to building wealth (since, you can’t just save your way to wealth).

Now, before I tell you more about MLM’s let me share the following:

MLM’s don’t work for me … I don’t have the personality for them: you need to be able to ‘mine’ from within your circle of friends and acquaintances; you need to be able to also ‘cold call’; but, most importantly you need to be really, really persistent.

I’m none of those things (though, I have learned to cold call … yuk … and, am a little more persistent than I used to be), but …

… it’s this third characteristic that (if well controlled) can help you in ANY endeavor!

Having said that, MLM can be an astoundingly good business model for the operators.

And, if you join because you use and love the product (not just because you can propogate membership), for the members, as well. [AJC: if you choose a highly reputable one]

Think about it this way:

i) If you love the products and will use them anyway, then you get to buy at ‘wholesale’ prices.

Well, not quite … and you usually have membership fees and ‘starter kits’ to buy. But, if you have compared prices and believe that you will buy enough to justify any ‘upfront fees’ then why not buy in?

ii) If you love the products, some of your friends might as well.

Why shouldn’t you subtly recommend them to your friends? If you used a product that you loved but didn’t sell it, wouldn’t you still recommend that product to your friends and family without hesitation? And, if you owned a store in the local mall, wouldn’t you want your friends and family – and wouldn’t they be happy to – shop there?

So, why not sell to your friends – how convenient for them!

Just don’t commit the sin of trying to cajole your friends and family into either buying more or joining just so that you can make more money … keep the attitude of trying to serve them, not have them serve you and your interests –  even if they appear to be happy to do so [AJC: I assure you, they are just being polite].

iii) Now, here is where it gets tricky: if you love the product and it makes you money, why shouldn’t you introduce other people – even your friends and family – to the same opportunity?

In principle, no reason not to: just remember that your friends and family will be ‘expecting’ this move from you [AJC: with rolled eyes … and a sigh or two].

Here is where I failed: I just can’t bring myself to involve friends or family in my ‘deals’ … I don’t like the idea of anybody thinking that I am profiting from them.

But, that’s just me. In truth, most people are looking for an opportunity to ‘get ahead’, just like you … and MAY respond well to an offer to “find out more”.

Just don’t commit the Three Great MLM Sins:

1. Don’t drag your friends/family along to some ‘secret meeting’ – “I can’t tell you what I’m involved in, but if you just come along I think you will thank me later”. That’s just plain tacky … be upfront.

2. Don’t plead/cajole/cry to get your friends/family ‘into’ your meeting/s – MLM’s are a direct-selling business pure and simple; don’t confuse the motivational stuff that goes on [AJC: necessary, because MLM can be a HARD business to grow fast] with how YOU should act.

3. Don’t be persistent with your friends/family – Now doesn’t this conflict with what I just said: “most importantly you need to be really, really persistent”?!

Yes, be really, really persistent with anything you truly believe in – including your beloved MLM – just don’t expect your friends/family to be the same … be persistent with the business, not the person.

In other words, it MAY be OK to politely, subtly ask a friend/family member who has expressed: (a) some liking for the product, and/or (b) some desire for a new opportunity … ONCE.

Anything more is simply out of bounds!

To me, the same rules apply to anybody that you meet: ask them once (OK, if not a friend or family member, go ahead and ask them twice … after all, you don’t want your new MLM Family to laugh at you, right?) … but, twice is enough!

Oh, and don’t do what my multi-millionaire friend does (who joined an MLM after becoming rich) …

4. Don’t plaster your brand new BMW with tacky vinyl stickers that say: “Want to lose weight now? Ask me how!” …. just … don’t 🙂

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 …

Making Money 201 – Going for Broke!

If Making Money 101 could be drastically over-simplified as ‘saving’; then Making Money 201 is equally over-simplified as being about building your income.

If you were serious about getting your financial house in order quickly, then you probably already did some income building to help you pay debt off quickly while you were working your way through Making Money 101.

Unless you’re a CEO of a Fortune 500 company, or a top professional doctor / dentist / attorney / accountant, then you will need to think about starting a business.

And, to accelerate your business or professional income you may also decide to get into the business of active investing (renovating/flipping real estate, trading stocks and options, etc.).

This is the stage that you get to take RISKS (that’s why you need a solid foundation and plenty of runway … you WILL fail at least once, twice, three times …) because that is the only way to get the big financial REWARDS.

This stage is hard work!

But, it is where you actually sow the seeds that will eventually make you rich …

There are plenty of books and a few blogs around, but most of them are specific to just ONE WAY of making money … the author’s way; some are good and some are lousy.

By the end of this stage you will be earning more than 90% of the US population and will be accelerating rapidly down the runway to financial health … but, spending will also increase dramatically and you will struggle to hang on UNLESS you ALWAYS remember your Making Money 101 lessons about saving!

Paradoxically, you will be the ‘richest’ that you will ever be in your life during this stage IF to you, being ‘rich’ means being able to spend lots of money

… the problem is that your ‘wealth’ is only based upon your income, therefore only lasts as long as your business or job does.

Also, many of the Making Money 101 rules now need to change, as do almost all of the tools ….

For example, dollar cost averaging and index funds are replaced with sensible investment and savings rules and strategies.

You are still far from ‘rich’ …

In fact, you are still Just Over Broke … but, starting to break free!

Save your way to a fortune? I don't think so …

You’ve read the blogs … you’ve bought the books … you’ve talked to your financial advisor (your wife).

They’ve all told you that you need to pay yourself first! So you are … 10% of your gross salary !

You’re putting some aside in your 401k (with some employer match) and you have a little change going into the cookie jar next to your bed.


You’re already doing two-and-a-half times better than what CBS News calls ‘most people who only save 4% of their salary”.

But …

… it won’t make you rich!

It will stop you from being poor and may even fund a retirement if you start early enough and are willing to take a 30% pay cut.

The problem is, you can’t just save yourself to the retirement of your dreams on the average salary … you have to at least earn more and save most of the extra.

Look at it this way … the amount you can save is limited …

… limited to less than 100% of your salary, and for most people, limited to something between 0% and 20% of their salary.

But, the amount you can earn is only limited by your imagination and your capacity for hard work.

Here are some examples of ways that you can increase your income:

– Change jobs (maybe)

– Work longer shifts (yuk)

– Ask for a payrise (why not?)

– Take on a second (third?) job (horrible)

– Join an MLM ‘opportunity’ (do your homework carefully!)

– Renovate some houses (now may be the time to get back in)

Start trading some stocks (better know what you’re doing?!)

Start a business ‘on the side’ (my favorite!!!)

Whatever you choose: Start Small … Finish Big!

The point is not how YOU should do it, the point is you CAN do it … if you are prepared for some hard work and sacrifice now for a better future. Are you?

If you keep paying yourself first at only 10% of your current salary in your day job, and 50% of the additional money that you earn (after paying off debts), THEN …

… you just may retire RICH!

Let me know if you think this can/can’t work for you …

I’m about to find out if you can make money online … Part 2

The story so far: in my last post I mentioned that I was trying to see if it’s possible to make money with these internet based ‘business opportunities’ (just try googling ‘online business opportunity’ to see how many are out there).

I randomly came across Ty (yeah, the half-naked guy in my last post); he only wants $3k from me to join an MLM travel marketing thing.

Now, here’s the problem: he wants me to sign up NOW and ONLY on the basis of making money … he never mentions how good/bad the product is!

So, this is how I look at any business opportunity that comes my way (and, I have seen plenty of good ones and bad ones):

FIRST: do I like the product?

My view, and one shared by anybody with an ounce of integrity, is that you simply can’t sell something that (a) you don’t use yourself and (b) wouldn’t recommend to a friend.

Fortunately, this particular product is something I COULD use … I travel a lot, and easily spend $2k – $4k a week on just the accommodation portion, so this product has the CHANCE to say me a lot.

Secondly, I looked around on the net for good or bad feedback on the company … I couldn’t find anything either way, which is probably a good thing. I even checked Ripoff Report and the Better Business Bureau … nothing! Is this a good or bad thing? I don’t know … 

So, I also checked the travel sites like Trip Advisor and Epinion and that’s where I started to see the ‘aha’ issues with this ‘opportunity’ …

… this company, and many others like it seem to source their rentals from the big resort and timeshare exchanges.

Whilst many of these are free, this company charges $3k for a ‘platinum membership’ which gives you access to their database AND the rights to sell memberships to other people.

So that brings me to the SECOND part of the decision making process: how can I sell something to somebody else for $3k that they can at least similar for free (or close to) elsewhere?

I can’t … and I won’t; oh well, sorry Ty … can’t help you.

… and, I’m no closer to finding out if it’s possible to make money online!

I'm about to find out if you can make money online … can you?

I’ve made my money in real world businesses, real world property, and real world ‘paper assets’ (actually, I think I’ve lost more than I made in speculating the stock market!).

But, I have a theory that the internet is the new ‘wild west gold rush’, where people can lay a stack to some turf and mine for internet gold without outlaying much cash.

It’s only a theory right now, so I am launching two internet businesses (one is being developed right now, and the other is still in the business plan stage) … on paper, they both look good! I’ll let you know in a few months how they turn out …

But, those businesses require development skills, business planning skills, etc.

 What about the ‘average Joe’ who just wants to make some money part time? What about all of those ‘get rich online’ ads that you can find just by googling keywords like ‘money making opportunity’?

Are they GENUINE or are they SCAMS?

Well, I’m about to find out …

Yesterday I randomly searched the net and came up with this ‘opportunity’ (yes, it really is a half-naked guy named ‘Ty’):


The first thing I was asked to do was pay $50 ‘application fee’ to prove that I am ‘genuinely interested’ and a ‘go getter’ … smells a bit fishy, huh? … so, what did I do?

I paid it!

After a barrage of e-mails and a conference call invitation that I missed, I got a link to the page in the image above. I’m listening to the audio right now … I think they want me to pay $3k to join a multi-level marketing system to sell memberships to some exclusive travel club.

I’m told to “… Embrace the fact that you are surrounded by a team of leaders that care about you and are going to show you exactly how to bring it all together. Your life will turn around and you will succeed!!

What will I do? I don’t know yet … but, I’ll let you know … right now some guy on the audio is telling me “it’s the best thing that I’ve ever done in my life” … do you think the half-naked guy really has something?