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
industry.
-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
dismally?

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 …