Friday, January 23, 2009

The Pros and Cons of MLM Distributorships (versus owning a business) - A conversation

Hi again. I wanted to share with you a letter from an MLM distributor as well as my reply back to him. If you are considering joining an MLM, you may want to read my reply. And, no, I'm not soliciting / recruiting. I actually tend to coach people away from MLMs. You'll see why...

I invited my direct connections on LinkedIn to share with their a new group that I started called "College Graduate Job Hunters."

It was started simply as a gesture to help those who are either recent graduates or changing careers later in life to have the ability to ask questions and get them answered by either experts or their peers. You see, there are a lot of HR recruiters on LinkedIn and they do answer questions.

So, given all the bad news about job losses these days (the worst we've seen since 1945), I thought I'd help job hunters, especially recent college grads.

So, to put it this conversation in perspective, I will first copy and paste the invitation I sent out. Then I'll paste his reponse. Then I'll paste my response. Let me know what you think. Did you find my reponse helpful?


On 01/23/09 2:23 AM, Andrew Barden wrote:

With all of the bad news about job losses, I started a group to help college graduates hunting for a new job.

Do you have connections on LinkedIn who would benefit from the discussions and advise offered on this group?

If so, please forward this invitation. Thanks.

To Your Success,

Andrew Barden



Edward Collignon has sent you a message.

Date: 1/23/2009

Subject: RE: LinkedIn Group: College Graduate Job Hunters

Hi Andrew,

You have quite a challenge to find jobs for people today and it's not going to get any better soon. I am personally recruiting quite a few professionals into network marketing because they can see the bleak future for the next couple of years. It used to be a College education guaranteed you a job but not today. More and more people are starting their own business and network marketing is inexpensive and an individual can earn a very substantial income working from home.

If you are not really familiar with network marketing you can purchase an excellent book on it at Amazon for less the $5 used. The book is "Dare to Dream and Work to Win" by Dr. Tom Barrett. A very good read as it adds a lot of credibility to the industry.

If I run across anyone that would be interested in your group I will tell them about it but most of my connections really are more interested in their own business rather then try to find another job.

Have a very successful and prosperous day,

Ed Collignon


Dear Ed,

I'm very familiar with MLMs, the pros and the cons. I'm a business coach/marketing and sales strategy consultant. I've done a few MLMs, too. The pros are everything you mentioned and more... the cons are, according to the Direct Marketing Association's annual study based on numbers provided by the MLMs themselves, that less than 2% ever make over $1,000 per month NET profit, and less than 1% ever make over $10,000 per month. So, 98% of people who join end up having an expensive hobby, and a lot of trampled dreams.

So, as an option for most people who need guaranteed income, the liklihood, as in, the probability, is simply stacked way against them. Sure, it can be a fun part time gig, making a few hundred bucks a month, which is a good number of people. But, the probability of getting a job and the probabilty of keeping that job and the probability of that job providing enough stable income is so far greater than starting an MLM business, that I would strong caution against looking at it as an "option" at all.

Instead, with the hundreds of clients that have come to me asking for help in their MLM business, I see money invested, money lost, maybe break even, and maybe make a few hundred residual. One client was even making $2,000 residual and he felt it was a major accomplishment. And yet, he is a licensed massage therapist and aestatician, who makes $75/hour, so if he simply attracted more clients, networking with local local wealthy women who are not feeling the recession, he would be making $6k to 10k per month. See my point?

Yes, for a very small percentage, MLMs are dreams come true. And, yes, passive income is the best sort of income. Flexible schedule, low start up costs, etc. Many, many pros. And there are better "models" than others, in terms of the ability to make money fast and grow it to business income level, which I consider at the very least $10,000 NET profit per month or more.

What I've noticed is that the people who have succeeded in MLMs are very good at a specific set of skills that most people do not naturally have... they are learnable, but, not natural for most people: consultative selling, networking, recruiting, effective marketing, both online and offline. These are all business skills that help anyone in any business make their revenues grow. Many of them had large personal networks with other people with similar skills. Many of them have clients from their current job or business, and they can carefully alert their client base to the new problem that they can help them solve. So, yes, it is feasible: for the right people with the right skills... again less than 1% of all MLMers.

Finally, one of the often overlooked cons of MLMs: you don't own the business. You are a commission-only sales rep. That's it. If the owners of the MLM make mistakes and it goes under, so do your monthly checks. They disappear. So, that income is very much NOT in your control. The majority of MLMs that get started, even when they are well funded, do not make it past 2 years. Now, if you create a legal entity, like an LLC, and you treat it like a business that you OWN, you can develop a large recruiting and training organization that could move from a current product/service to the next one, in case the current one tanks. Now you own a business with value. But, most people mistakenly say they are starting a business when they are simply joining the sales force of an MLM and, most often, they have to PAY to have to buy into it and then buy monthly in order to be able to sell the product or service. Everything, and I mean everything, is stacked in favor of the OWNERS, not the distributors.

Too many distributors start out annoying their friends, family, and acquantainces, simply because they don't know how to market and sell. This may be their first time "riding the bike," so to speak, so of course they are not going to get it right until they practice. But, unfortunately, they end up harming relationships. As a model, it would never make sense for a traditional business owner to send out inexperienced and untrain commission only sales reps into the field. It just doesn't happen. But, alas, that is often the case with MLMs. Even though many offer "training," I'm confident that most new recruits don't develop true sales skills for quite some time. Meanwhile, they experience the pain of rejection so deeply that they end up giving up. They were sent into a battlefield with no armor and no weapons. And they were taken out quickly. Marketing and sales are skills that are not natural for most people.

Personally, I'd rather counsel people to spend the time and money on starting THEIR OWN business, where they control everything. Then 100% of their sales goes to them. And, with affiliate systems in place, you can recruit people both online and offline to help you find clients. And your clients can referr you business and get paid/thanked. So, the power of networking and leveraging the time of others is possible to implement in a traditional small business.

Now, to be fair, there are some people for whom an MLM experience is a perfect fit. They benefit greatly from it: they get over their shyness, they start reading and listening to personal development materials recommended by their upline, they meet lots of people at events, they start networking locally and make new friends, etc. Again, there are LOADS of reasons to join an MLM... but, please, know the odds and tell your recruits the odds of actually making serious business income. And, let them know that all their years of hard work could go down the toilet if the MLM get sued or sells to new owners who make too many mistakes. Make sure that the offer is seen as the true gamble that it is.

Of course, all business is a gamble. It is a probability game. So long as your recruits know what they are getting into, you are truly being of service to them.

In Service,

Andrew Barden
Philanthropic Entrepreneur


And, finally... Ed replies with his story...

Hi Andrew,

I don't disagree with most of what you say but there are exceptions and today's market is one of them. I have been in Network marketing for about 18 years and have experienced a lot of what you say; however a person needs to do their due diligence and not get caught up in the hype of most companies. Like it or not Amway has supported millions of reps and still does, so does Mary Kay and others. Yes, many do fail as most small business's also fail. I am in South Florida and I can't tell you how many people come to Florida with their life savings in their pocket, open a Cafe or Pizza joint and end up blowing their entire savings. It costs a lot of money for a conventional start up, how about a McDonalds, a million or so and you have bought yourself a 70 hr. a week job.

Most people never earn over a few hundred dollars a month in MLM but an extra $300 - $500 a month would have saved a lot of homes and stopped many bankruptcies the last few years. It certainly isn't for everyone but job security really doesn't exist as it did in the past. I am in MLM full time making a good living and have helped a lot of people financially. The company I am with is 7 years old, shipping product to 62 countries and quadrupled last year when many major companies went out of business, Their is no start up costs, all marketing material including web sites are free but yes they must buy $30 of product each month and if they can't afford that they need to join the unemployment line. I read today that Sears is not expected to survive this year, what will that do to a lot of people.

Some people just need a job to go to every day and need someone to tell them what to do every moment of their lives and some can step out and take control. Their are many selfish individuals in MLM and then there are others who really do try to support and help their downline to meet their goals and dreams, I like to think I am one of them. MLM is a job and a lot of hard work, too many people get into a company thinking it is easy and they don't have to do anything but call on their relatives, again the lack of real training and hype that you mentioned.

A little over 18 years ago I was an executive with a major corporation, lot's of stock options that was my retirement, when we were taken over by another company and due to circumstances beyond my control seen my options drop from over 550K to 40K as a result I told the new company to stick it and took my buy out and left. We had a home up north and a condo in Florida so I consulted for a couple of years while I built a MLM business and finally moved full time to Florida and never looked back.

Anyway, I really don't mean to vent about MLM but I do feel I need to defend it some.

Have a great day and stay in touch.


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