This week I want to talk about multi-level marketing. When I was a younger man, and living back in the Washington, D.C. area, a friend of mine approached me about becoming involved in a company called Shakley. It sold a product line of vitamins and cleaners and cosmetics that used natural ingredients. My wife, Sally, and I looked over the products, used them for a while, and decided to get involved. As young as we were, we had entrepreneurial visions of owning our own business and becoming filthy rich.
Shakley was an MLM, a multi-level marketing company. The way to success wasn’t necessarily to sell product but to get as many other people as we could signed up to sell product. Well, that’s not entirely true. The way to success wasn’t to sell product – at least as most of us understand that concept. The way to success was to sign people up who then, as “distributors,” would buy product to share with the people they were looking to sign up. In other words, the mothership company was marketing its products by selling to its employees, not its customers.
Marketing channels are one of the primary keys to a successful business. Wal-Mart is the best at understanding how important marketing is to product sales. People critical of the “big box” formula often miss the point: for Wal-Mart, it’s not just a matter of bigger is better; for Wal-Mart, it’s a matter of maximizing the opportunity for other companies to sell their products in its stores. The Wal-Mart model is to provide manufacturers with a constant flow of potential customers and to give customers easy, one-stop, access to everything they might need.
The MLM model is different but, in many ways, equally effective. MLM market product through an individuals social network of family, friends, and co-workers. This model moves product by word of mouth, the reputation of the seller, and the respect that other people have for the seller. Now, there’s nothing inherently wrong with this form of direct selling. All of us take the word of other people, who we admire or respect, to try something new. In fact, this referral method is so ingrained in our behavior that we’ll often even ask a total stranger, like a waiter, for his opinion about what we ought to order at a restaurant.
So why do MLM’s get such a bum rap? Why are they, on the one hand, so exciting for many people and, on the other hand, so maligned by many people?
The real problem with MLMs is that their strength is their weakness. The strength of their model is found in the necessary relationships involved in direct selling – we take the good word of people we trust. Its weakness is that the relationship becomes the product, and the actual product becomes a secondary cause.
When I was selling Shakley 35 years ago, I soon discovered that the real money was in signing people up, not in directly selling its products. Oh, I got money for selling vitamins and cleaners, but my real financial incentive came through each additional person I could get to come on board. You see, each new person was required to buy a “starter kit” that could be used to give in-home demonstrations and sales pitches. The kits were a couple hundred dollars.
Now think how ingenious this method of marketing really is. Success is the underlying motivation within MLM cultures – most of the leadership meetings are just rah-rah sessions to get people energized to go sign up other people. Very little time is spent on actual products. There’s lots of talk about free enterprise and patriotism and a strong work ethic and very little talk about what we’re actually being asked to sell.
I can’t blame the Shakley people for finding a great way to make money – just as I can’t blame the NuSkin people or the Tahitian Noni people for doing what they do.
But I can blame myself and others like me. There is a fine line between greed and making a living. Our integrity suffers every time we become self-deluded into thinking that we’re doing friends and family a favor by hyping the latest and best fad. If we’re truly being honest with ourselves within these schemes we would simply say, “Hey look, if you really want to make some money, use your good name to get other people to sign up to sell snake oil. By the way, it’s really good snake oil so don’t feel bad about using your good name.”
Thousands upon thousands of wonderful people get caught up in MLMs every year. I’m not saying these good people are dishonest. I am saying that we often get self-deluded. I love free markets and I love that America is a country wherein MLMs can exist. I’m just disappointed that America is a country wherein MLMs often prosper.
