Friday, July 12, 2013

MLMs and Pyramid Schemes

My first task upon graduating high school was to obtain a good job.  My dad suggested construction, but I refused to apply to any manual labor jobs - not because I was lazy, but because I knew any future career I held would be in an office, so why not get some white collar experience immediately?  I soon had two jobs in phone sales and lead generation, but not before a very short experience with an MLM.

I went to a recruiting meeting for the MLM at an office the organization had.  They were adamant about a two things:
  1. My success was guaranteed - no special skills were prerequisite in order to make lots of money;
  2. To get the benefits, I needed to sign up right then and there... by cutting a substantial check to the manager.
When my dad returned from out of town and I reported I had a job, he seemed quite disappointed in my naive decision.  Taking his advice, I returned to the office and was able to get 80 percent of my money back.  My other jobs worked out very well and have put me on a great path.  Here's a few important things I learned about MLMs from the experience and observations since:
  1. MLMs don't have prerequisites:
    • You have to have good sales (persuasive) skills;
    • You have to be willing to sell to your friends and family, which can jeopardize those relationships. 
  2. MLMs don't screen those entering the opportunity (e.g. I was barely 18, had no experience, and they didn't even ask for a resume or reference).
  3. They use junk taglines like these:
    • "Unlimited potential" - "Limited Risk" - "No boss" - "Work from home" - "Make $X in Y time" - "Newly discovered X with Y results"
  4. Someone has to lose in order for you to win and it's by a direct transfer of money - there will always be people on the bottom of the pyramid who can't expand their downline.
  5. If an organization is more focused on signing new distributors than selling its product, it is a pyramid scheme. Take this company for example, where I can't even figure out how to buy an individual bottle of the product anywhere on the site, let alone the main page where every reasonable and credible business sells their products.  One piece of evidence is in polarized reviews of the actual product that distributors "sell."
  6. There is no easy way to money.  Don't let greed or laziness blind you into investing into something that isn't real.  Consider Elder Holland's speech at BYU, where he talks about how Utahns are particularly susceptible to get-rich-quick schemes.
  7. Finally, economics has taught me that any market without a barrier to entry (e.g. an opportunity which has no prerequisite skills, only requires a cash investment to begin, etc.) is not profitable.  See #s 1 and 2.
Many of my friends have tried to talk me into MLM opportunities over the past few years.  I've research every one my friends get involved with and advise them against it if not too late.  I try to follow up as well, and have found no profitable friends.  None.  Statistically, I think I will eventually have a friend who is profitable, but imagine it will be at the expense of their friends and family.  At least I learned on an MLM that gave me most of my money back.

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