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Provocative Report On Why Thousands
Are Leaving MLM In Favor Of G.P.T.
www.MLMvsGPT.com
Get Your Internet Marketing Degree
Online at Full Sail University!
www.FullSail.edu
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 …
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IF Buffett actually is investing money in MLM companies, and that seems highly suspect, I would guess it is a hedge against the downturn in the economy. As people lose jobs, they will turn to MLM more and more as bills start piling up and jobs get harder to find. It is a little depressing to me to think that Buffett would turn to this type of activity for his investments, but it makes sense in a lot of ways.
@ Special - I doubt whether Buffett did (I’ll ask him at the AGM when I see him in May) … but, it would be a good purchase. I’m not recommending MLM’s because of the < 1% success rate, on the other hand, it is ONE way of gaining extra income (and, we know what to do with that, right?).
Warren Buffet did buy Discovery Toys a couple of years ago so it could be true that he has bought others.
I agree MLMs need to lose the hype, there are no free rides in this world and being successful requires time and effort at first, but you can build a steady residual income if you pay your dues, and a business like this can certainly supplement what you are already doing, pay for retirement, medical expenses as you age, travel, etc. all while having some fun meeting other like-minded people.
Karen
@ Funfelt - Thanks for the info.
Please name the multi-level marketing companies that Warren Buffet bought. There would be no reason for this to be considered a secret — he is not a secretive person — so if he bought them, I would assume there would be a public record of it.
@ SuddenlySimple - I agree! I said: “For a start, I believe that is not true and simply an urban myth …”
I don’t know that I could even support and MLM by buying it’s stock. My taste was soured on such things years ago when I got sucked into a couple of them and found they didn’t really like someone who asked practical, hard questions of how they operate.
@ Martin - Once-bitten-twice-shy but [if you choose a highly reputable] 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.
BTW: 7million7years does NOT participate in any MLM either as owner, member, participant, or promoter … so there!
Very good post! I’m as much a fan of MLM as I am about “As Seen on TV”. There have been too many people getting the short end of the stick in the past. MLM has a very tarnish image to clean up. Perhaps Buffet will help polish things up a bit!
@ Jared - Dude, I didn’t know Buffett was Polish!
I agree on MLM, but it is still a possible way to make some money ‘on the side’.
MLM are more than just making money! Its about taking on your own business. A lost skill in the Great USA. If you want to know what your future will be, look back at our history, and make use of todays technologies, with out reinventing the wheel.
A hundred years ago better than 65 percent of the population were their own boss/business owner. As you learn tax laws and use them to your advantage, you’ll understand the great possibilities you have as a business owner. Its not just making money, its about capitalizing on what you are already doing.
The start up fees are a business expence and deductable…
Training material use to learn from, then use as advertizing and promoting… Deductable (we get junk mail everyday which does the same thing)
Open meetings and Business seminars, teaching and entertainment events that are productive for your own good. Good for a night out with your spouse and a possible vacation destination. Take an extra day or two in the area, build relations and a get a foot hold in the area for possible business growth in the future. All Deductable
As I speek deductions, think of this as your savings account at a bank. A savings account may earn you 1 or 2 percent if any, but cost of living the next year goes up the same. As a deduction, it is given to you in tax returns up to what you develop as an income.
Being in business is truely a matter of balancing your debt and income. Take a look at what you now owe, compared to what you have in your saving and equity…
Now ask your broker or investor what your money is doing for you. If your money is making you more money every year than the interest you are paying out every year on mortgage, Line of Credits, Credit Cards, etc… You’ll feel alot better cashing in all of you savings and paying off your debt. With the debt you do pay off, any debt remaining, apply the extra funds to what is left…
@ Ron - I agree with your sentiments and there are those who would support MLM as a business choice … and, of course those would detract. I can see that you are in the “Yes to MLM” camp! GL
Can you tell me which Network Marketing companies…were bought
by Warren Buffett ? thanks
@ Megan - check Funfelt’s comment, above.
Buffett purchased “The Pampered Chef” a few years ago, and has nothing but good things to say about it. I think he has a tremendous appreciation for the founder who started the business with 3000 bucks.
Hello,
I simply wanted to comment on much I
enjoy your blog and it’s postings.
Thanks.
The following criticism you gave of MLM is illogical: “there is more money in OWNING an MLM than there is in being a member of one.” Your critique of MLM is illogical because the owners of ANY business earn more money than the members, employees or distributor’s, etcetera. There is no business or business model where an employee, member or distributor earns more money than the owner. I suspect you hated MLM before you gave your illogical critique; and then you decide to rationalize your misplaced hatred. When will you choose to eliminate the hate and replace it with a truth-based analysis?
@ S Nzinga - I’m not sure that I see any criticism of MLM’s here … just stating a fact … one that you seem to agree with. Good luck with your own MLM adventures!
You and I DISAGREE. Your statements about the business failure and success rates in MLM are misleading; the statements lead a reader to infer that the failure and success rates in MLM are different form other business. The failure rate in ALL businesses (including non-MLM businesses) is approximately 94 percent in the first 7.5 years. That statistic comes from entrepreneurs and authors Lawrence L. Steinmetz, PhD and William T. Brooks, in their book “How to Sell at Margins Higher than your Competitors (* see note below for the book).” The tone of your argument is designed to malign MLM. Instead, you should focus on showing people how to evaluate a business (ANY kind of business, including non-MLM and MLM businesses) to determine if the venture is a viable investment (you will do this if you are truly interested in helping people make savvy business decisions). Here are some guidelines to evaluating ANY business: (1) Timing: Would starting this venture put me in front of large trends? Would I be in an expanding industry or an industry on the verge of expansion? (2) Is there a huge expanding market? (3) Does the venture offer the marketplace unique consumable products; and is it possible to get regular long-term repeat customers (just like AOL, McDonald’s Hamburgers cable Television, etc). (4) Is it a solo act or is it possible to employ others to get more done? [link removed]