What really is MLM?

What is MLM? Is it really good for you? Does it really work?


By: Fred freddmf@mchsi.com
http://www.makingtherun.com/makingtherun.html

I have had many emails from people saying MTR is "more for traditional business" OR "more for MLM business"...I have no clue what you are saying - it's for all business owners. What's funny is I get emails from "both" sides - like you all are at "war" with each other?? What's going on??????

This post is NOT to support MLM or traditional business. It is NOT to bash traditional business or MLM. I have gone great lengths to "stay neutral" but I'm sure (considering past emails) I will get flamed from both sides for "multiple" reasons.

What's funny about all this? The similarities are MUCH greater then the differences... But if you have an "emotional" mental block, you won't like this post. Some think "there ain't nothin' but MLM, BUDDY!" and some think, "You MLM people are not even "close" to REAL business owners."

My message - both sides lighten up.

MLM is not taking over the world. Traditional business will continue to change. Both are right, and both are wrong. Focus on your "strengths" and leave the other "side" alone (even though both sides are trying to accomplish the same thing).

The bottom line is "MANY" people have been "pitched" MLM VERY unprofessionally. Sometimes MANY times unprofessionally! So, you "think" you know what it is from some BOZO down the street that works at the Burger King in the drive thru.

I am NOT saying that everyone can, or will build a MLM business. I am saying there "is" a need for you (as a business owner) to understand the concept. And, you probably should have some kind of referral system in your business. If you don't believe me...Listen... this will change your perspective...

AllAdvantage put nearly SEVEN MILLION people in a "customer data base" in ONE YEAR with MLM.. NOTHING like that has been done before and I'm sure a book will be written on it. If you can't get it with that "fact" you need to keep the job. I am "very" receptive to "listening" to what is going on with these networks "because" of the loyalty and VOLUME they create!

Also, there is always a lot of talk about personal growth in MLM. And I think that the traditional business owners here "see that" on MTR and think that it's MLM based. But personal development is also very prevalent in upper management and the business ownership ranks of American business. Matter of fact, it's BIGGER in top management then in MLM! But, when the average person sees the "motivation" they "think" MLM because Peggy Sue, that came to their house with a white board and easel, told them to "have a dream" and they could "be rich." She said that "attitude is everything" and she was quoting from the book the guy gave her that showed HER this "thingy"!!!

Understand that MLM - internet style, does not work like this. No one in AllAdvantage is going to show up at your house with a white marker board. NO one I know building ANY internet business is...

Ok, hopefully you have a clear head - and you have the "logic" cap on...

Here we go.

In a true MLM business (no recruiting fees and NO hype) the "process" for building "sales" and "volume" (selling at wholesale (organization) and retail (customers)) are "exactly" the same as traditional business. The "time frame" to turn a profit is about the same too (but with MLM the "time" decreases with size and traditional the time "usually" increases with size). Business takes work, period. If it did not take work, poor people would have all the money while they stay home during the day.

Before we go on, YOU MUST FIRST understand the difference between MLM and a pyramid scheme.

The EASIEST way to determine "legitimacy" is if you "recruit" 100 people do you make ANY MONEY before a "legitimate" product or service flows. If the answer to this is YES, you are involved in a pyramid scheme/scam. There is "no" other way to look at it. STOP now. Get away. Many "legitimate" MLM systems pay YOU to sell/buy their goods!! You should NEVER pay the company or the person that recruits you a dime. The "only" fees to get started might be "administrative" in nature, but even then it should be very small and NO MONEY funneled to person recruiting you. We have discussed the "buy a mall concept." Any way you look at it - you make money recruiting (by selling malls) pyramid scheme.

Skynary - same thing.

Chain letters - send $5 to so-and-so and the other 6 names on this list. Pyramid scam.

These new "paypal" chain letter and chain web sites, pyramid scam. (and, in these they can track you!!! BE VERY CAREFUL PUTTING YOUR NAME ON THIS STUFF!!!!)

If you have a mental block on this "pyramid" versus "MLM" - it will serve you well to understand the difference as soon as you possibly can. If you are seriously building a business online (regardless whether you use the model or not you MAY want to consider teaming up with a MLM contracting company to sell your products and services).

Okay, now that we have that all solved... :-) For those that don't know or don't understand what MLM is (and it is VERY misunderstood), here is the easiest and best overview you will find.

In a traditional company, the "sales commission" (after overhead) are paid to a sales staff, marketing divisions, or a sales person.

In MLM, these "sales commissions" are paid to the "customers" over several "commission layers" based on the "volume" they help create for the contracting (traditional) company.

In MLM the consumer can also "retail" products (in legitimate MLM) to others outside the "network." You will find that "most" products are "wholesaled" to the organization. In structures like AllAdvantage, all products are sold to the organization (the advertising on the banners only goes to "members").

Why implement something like MLM in your company (or why implement it in the world)?

As a "sales" person or "business owner" you can actually make MORE up front WITHOUT MLM (since the commission is NOT distributed over several people). The question is - how many SALES can YOU as a SINGLE business make??

A muti-level commission structure "creates" a model that the "customer" can build a business (based on the SAME principles that a traditional business owner can apply). Leverage, and that's what business is all about - applying leverage to make money.

So, if you just want to "sell" a couple doodads here or there - you don't need MLM (or a business) AND you can make more money in "direct sales" or through a local retailer or selling on eBay. (a bigger percentage --not more money)

BUT, if your objective is to make "full time" money in your business, then a MLM type business system is very legitimate and a "great" addition to "your" company's marketing plan. And, for the "customers" that build large bases of consumers (organizations can be thousands or millions) they have the ability (based on desire) to create a "huge" business of their own while you (the traditional business owner) sell "millions" in products and services to that organization.

It all goes back to what J Paul Getty "taught" and "practiced" his while life.

"It's better to have the opportunity to make 1% of one hundred peoples efforts than 100% of your own."


How can this be? They (MLMs) are just out there recruiting and selling??? How is that a business???

All businesses recruit and sell - matter of fact, the biggest departments (and overhead) for most companies are marketing, human resources, and advertising...The most successful business owners deal with "finding people to run their companies" and "marketing" concepts (i.e. Systems).

What MLM does is "transfer" this overhead by giving the "opportunity" to the customers to make money based on product and service flow. (the costs are still there but "given" to the customer in "hopes" they will tell others) The "advantage" to this for a "traditional business" is the cost for "advertising" is NOT up front - but only when the "organization" does volume! So, it's a 'win-win' for consumers and traditional company owners. PLUS, if the customers are "working" to keep "the pipeline full" of new customers - you (the traditional business owner) does have to do it (or pay for it UP FRONT either - only as the products flow).

You could actually make the case that it would be"better" to be "in" the MLM structure then the"traditional" business owner because the MLM business owner does NOT have to pay any money to create an "infrastructure" to build their business (the traditional business owner is doing that). The trade off is that the MLM business owner has to "train" new people to be business owners and build volume with them (but again, this is no money up front -- it's all "time" leveraging).

The MLM business owner can start with "no capital" outlay. YET, MLM business owners get ALL the benefits of what the traditional business owner has (without the headaches of employees, stocking, staffing, sales staff, etc...) I have many say, "MLM is not a real business because they don't come up with the ideas, have employees, etc..." How silly. The RESULTS are the same. YOU GET PAID BASED ON THE SIZE OF THE network/consumer base you create! What are they thinking???

Let me explain - in a traditional company, you have departments that their "sole" responsibility is to "collect" names and recruit -- to fill positions of employees that are leaving. And, MOST companies have to advertise CONSTANTLY because they are always recruiting new customers! IT'S A CONSTANT BATTLE. At the "top" company positions, the CEO and Owners do the recruiting. It's "crucial" they are involved.

Walmart spends TEN BILLION dollars a year advertising --- recruiting new customers.. Then probably spends more then a billion dollars recruiting employees to run things. If you were "running" Walmart - this would be your PRIMARY TASK!!!

This "process" is the same for MLM business owners. BUT, most "average" people don't understand that this is a "primary" task for most companies - it can make or break you. Kiyosaki says in "Cashflow Quadrant" that the BIGGEST difference between the "left" and the "right" quadrant is the person on the right is "always" looking for good people (either to run their businesses or invest money in them). The people on the left are always focused on themselves and the "products" and "selling" FOR the systems created by the business owners. Even self employed people "usually" end up working for someone else's system.

So, when Joe average is exposed to MLM (and having NO business experience) they "see" it through an employee's eyes, not through the eyes of a business owner. To compound this problem, many "pitch" MLM as FREEDOM BABY, and hearing that from the guy next door who has a job working at nights at the local lumber yard, driving a 1988 Honda Accord, is not very convincing...!!!

I can guarantee you this - you will have "situations" in a MLM business that have to be dealt with that will take you YEARS to work your way into in a traditional company. I have a traditional company and a MLM company. And, within three MONTHS of building a MLM business I was dealing with problems "of equal" importance that took THREE YEARS to create in my traditional company!!! The reason "why" is MLM is a "business" from the start. In my traditional company it took me THREE years to create what a "contracting company" does for you in MLM. I "might" do a thread on this if we get some interest - but it's another 10 pages. :-)

One thing that people don't understand about Bill Gates is he's a "master" with people MORE then he is a master with computers. He recruited people that built Microsoft - and in many ways he admits this. Study and read about the guy - he is "surrounded" by brilliance. Everyone knows it. Many say it's the people around Gates that make him great - not Gates himself. Read about Microsoft and Gates - you be the judge.

But, truly - MLM brings business ownership to the masses. The problem is the masses in America have lost that entrepreneurial edge they use to have and don't understand business. So, MLM people have a tough road to travel... :-) Better training systems. Better support systems. The list goes on.

The "CAUTION" I would have on MLM is the 'hype' that surrounds it. Many are out "pitching" it (just like the traditional business owner pitches in their amateur way - they are just fewer in numbers) "get free in 30 days" and "Make $15,000/month residual income and retire." This will attract some people, but you will not build a network like this. MLM requires a lot of research to understand and implement - probably beyond the focus of
MTR.

Anyway, can you have freedom / money / security from business ownership?

Why of course (traditional or MLM). Traditional business is not structured to do this, but it can be accomplished (it's just very rare) by giving "real ownership" to "key" people running the company.

If you DON'T do this, once you get your "best" people trained - they leave and start their own companies! To say this could not happen with a MLM structure would be silly - but it happens much less often because "each" MLM business owner "is" a business owner - they have no reason to leave (baring contracting company problems, or "system" problems - that can affect any business).

Another problem with MLM people is they make promises they CAN NOT or WILL NOT keep and that comes back to HURT them and the industry (i.e. POOR customer service and support)! So, be careful. Most people are NOT up to making $10,000/month - quit pitching it. That takes a lot of work (traditional or MLM). The good news, if you are involved in MLM, about 10% of "full time" MLM business owners make over $100,000/year and that number for "full time" traditional business owners is about half that. The bad news is MOST that "try" MLM fail because they have been "sold" false promises and a "get rich quick" kind of deal. Or, they think they are involved in MLM when REALLY they are in a pyramid scheme/scam (or a poor system).

Either traditional or MLM, you are going to work your tail off. Many times working for free for several months. Depending on your "level" of business understanding, it could be years (either way).

The bottom line on MTR is what is posted here applies to both traditional and MLM "business" ownership. If you don't think that, you are probably more of a sales mentality then a business owner.

If you are a "single" one person show with your "own" web site and are "out on your own" you are not really a business owner, YOU ARE SELF- EMPLOYED (maybe working towards business ownership). I have been where you are and it's DEFINITELY the hardest way to make a living I have found !!! MOST never make it in the self-employment arena because you have no way to "leverage" time and money and you simply "burn out" over time.

It took me nearly FOUR years to figure this out. Hope you get it faster then I did...

And, if you don't understand most of what is on MTR, you probably are making most of your money as an employee or being self-employed (not from business and investments). This one fact is why I think most don't understand what MLM is (regardless of whether they work in or with the model in their businesses).

Read the Rich Dad Poor Dad threads and then get the books recommend in the thread. Really spend some time researching how money works - it's worth it. Like I started with -- no one product or service is "perfect" for any system or business model. My objective in this post was to open some eyes, make some peace, and "see" what is working in the areas of customer relations and building numbers.

The facts show that MLM on the web is a very serious contender. The single example of AllAdvantage should make you (as a business owner) want to understand it inside and out.


NOTE: "Permission to use this article/material was given by Fred freddmf@mchsi.com who is a member of one of the MakingTheRun discussion groups available at http://www.makingtherun.com/makingtherun.html."