Wednesday, 29 July 2015

A cautionary tale about multi level marketing companies


When I was 23 (four years ago), a friend introduced me to the world of multi level marketing (MLM). MLM is when a company promises to share its profits with everyday people if they tell their friends and family about the amazing products on offer. The most famous MLM company is Amway which began by selling premium soap to households and has gone on to become a ten billion dollar a year global business that pushes just about any household item to customers all around the world. Amway's distributors benefited from this growth, some of them becoming multi millionaires in the process.

The intoxicating concept of MLM is the breathless 'if-you-get-two-and-they-get-two-and-those-two-get-two-each-and-those-four-get-eight-and-those-eight-get-sixteen-and-those-sixteen-get-thirty-two.......you'll be a millionaire in three months!!!'. Circles may be drawn on a whiteboard. Aspersions get hurled at the idiotic 95% sheeple who are stuck in their JOB (just over broke). Hypnotic language is used: "you don't want to be one of those suckers, do you?"

I fell for it hook, line and sinker. My first MLM investment was in a company called My Shopping Genie (MSG). In the days before Google Shopping worked in Australia, MSG had a price comparison engine that was seemingly superior to PriceBot.com.au and other services. One could become a distributor of the app, giving it away for free and then getting a slice of the affiliate commission when someone purchased something via MSG. Without actually trying the app, I handed over my $150 and joined as a distributor. The motivation for me was twofold: I wanted to make money and I desperately wanted a way to improve myself as my self esteem was in the pits and anxiety was a daily experience. Among the MSG distributors were several personal development gurus/life coaches and I figured even if the business didn't work, it was still worth being part of it to get free life coaching.

After going to a few ra-ra seminars and getting thoroughly entranced, I invited a few friends to come along and convinced them to 'invest' in this once-in-a-lifetime business opportunity. Three of them signed up and I saw the cha-ching in my distributor backend. Most of my friends weren't that easy to convince though. I maxed out my phone plan cold calling everyone I had in my contact list but couldn't break through. The three people who signed up were close friends of mine and trusted me despite their reservations about the product.

The others didn't know me so well and looked at the business opportunity with astute detachment. How would it actually work they wondered? To break even, one would have to convince 1500 people to use the app (you got about 10c per user) or convince two people to sign on as distributors. It seemed pretty clear that revenue was far more likely to come from enlisting other distributors than getting customers and wasn't this the definition of a pyramid scheme? MLM remains legally permissible in Australia only so long as the focus of a distributor's activity is on getting retail customers rather than enticing other potential business owners to join.

I brushed these objections aside and decided I needed to improve my persuasive skills if I was going to make this work. Other MSG members suggested listening to the MLM gurus Randy Gage and Tim Sales so I bought $1300 worth of audio CDs.

While I was listening to them, it was revealed that MSG was old hat: there was a new MLM phenomenon on the line: Monitium! Forget about MSG they said, come and join Monitium where the revenue potential is threefold because you have not one, not two but three portfolio companies whose products you can sell.

So I ditched my MSG efforts and reinvested in Monitium, purchasing several hundred dollars of stock in Exfuze (a miracle juice company whose nectar was not only tasty to drink but could also cure acne if one dabbed a drop of the $60/L liquid gold on ones face), WowGreen (environmentally friendly cleaning products that could remove stains out of anything without using petrochemicals) and SmartMediaDesktop (a revolutionary web browser that loaded 3x faster than Chrome or Firefox and would surely be the leading browser of choice for internet users the whole world round). The hype was even bigger this time around: it was not just the opportunity of a lifetime but of a century! How lucky were we to have heard about it just as the company was arriving in Australia?

Flushed with excitement, cheeks rosy red from dabbing Exfuze on my face, I redoubled my efforts. I decided it was time to use internet marketing to grow my business and created a video and landing page (included below for humor's sake):


Despite my best efforts, things just weren't happening. My sponsor decided to leave Monitium and I was only able to convince one other person to join.

To make matters worse, I gradually discovered that the products sucked. Exfuze had no rigorous scientific evidence to support its claims and when you're paying $60/bottle, it had better be based on some decent research. SmartMediaDesktop was actually slower than Chrome.. And to rub solvent into my wounds, WowGreen didn't actually work at all. I discovered this when trying to remove a grass stain from my father's white jeans and after 30 minutes of elbow grease, only succeeded in rubbing a hole in the fabric. (Sorry dad!)

It started to dawn on me then that it was not going to work. I'd spent over $2000 on this venture and the only big thing I'd achieved was to alienate most of my friends and enlist four of them in a scam. Shame faced, I returned the money to the friends and threw the bottles of WowGreen into the recycling.

Reflecting on it now, I did learn a bit about sales and psychology in the process but there are many less painful ways to achieve that learning. If you're ever asked to join an MLM company (Usana, Amway and Herbalife seem to be the common ones in Australia right now), I'd highly recommend you perform a great deal of due diligence. At the end of the day, if everyday consumers would not buy the product (e.g. who spends $60/L on juice) without the allure of business success, then it is not a multi level marketing opportunity, it is a pyramid scheme and that is illegal.

In my experience, most MLM companies do not have products that would flourish on the open market. Perhaps it was a business model that worked before the internet made it easy to achieve marketing scale without a massive TV advertising budget. Nowadays though, if you have an idea for a new product, KickStarter is the way to market your wares.

To succeed at MLM, you have to become very formulaic. Randy Gage emphasises that there is no creativity involved, it is simply about reading out a script to as many people as possible. I think there is a big loss of intellectual and creative capital when people spend time and money trying to start a business selling other people's products.

If you want to make some money on the side, try freelancing or produce some artisan products. Your own creativity is what will make you money not spruiking supplements from Herbalife. According to one estimate, >99.4% of people lose money in product based MLM schemes. The return on investment is higher for recruiting based schemes, but there's a reason for that: they are scams.

I really regret this part of my life and have tried to apologise to as many people as possible and repay everyone who joined me. If you were affected by my MLM days, please drop me an email (jeremymnagel [at] gmail.com) and I'll do my best to make things right.

1 comment:

Mahesh Trellis said...

The information which you have provided is really nice and awesome. Provides some very useful insights of how things actually work. I want to share something more about this as well.
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