MLM: We’re not a pyramid-scheme!
When I debated with MLM’ers - the question that will have them frothing at the mouth and explode into a furious defense is if it is insinuated that their particular MLM-thingy is a pyramid-scheme. They will tell you a couple of things that should persuade you that it isn’t a pyramid-scheme. Most of them will admit that their representatives is in a pyramid-structure - but they will defend it with some of the following arguments. I’ll try and give my explanation why they don’t hold water:
“Every company is organized in a pyramid!”. Yes, that is usually correct - at the top you will have managers and at the lowest level, you will have employees - and yes, there will be more salary to the ones at the top. But that’s about where the similarity stops. In the MLM-pyramid - you start building the pyramid from the top-down. This means that when you design your pyramid, you have no idea who the bottom-layer will turn out to be… you only know they get the short end of the stick… You have no idea (and once you enter the pyramid - they will be reluctant to tell you) how many levels you have above you and how many below you. Basically you only know something about the network below you - because you started those.
“Pyramids are the most stable structure ever!” Yes, indeed pyramids are stable - the ones in Egypt have been standing very long enduring both the weather and time. But I have a newsflash - they were built from the ground up - not from the top-down. A MLM-pyramid isn’t stable - because they lack the foundation - plus, if two out of, say, four persons in a given layer quit (which are about the percentages in AmWay) - I fail to see the structurally sound design… whoever heard of a stable pyramid with only half the foundation? Oh - and if those two quitting had people below them… tell me again how a pyramid is stable with something in the middle missing…
“AmWay is a legal company! We are just like AmWay!” It is true that AmWay survived an investigation by the American FTC in 1979 - but it is also true that they had to live up to a few things to be able to continue business. For one, at least 70% of their products had to end up being sold to non-representatives (i.e. persons outside the pyramid). Latest percentage from AmWay is 18% (and that is one of the high numbers…)… I’ll let those two numbers stand for a while… 18% vs. 70%. In addition every representative must have a number of customers outside the pyramid - in the AmWay ruling - this number was 10. If you ask them about this - they will say that it is an old ruling - and noone has stopped AmWay, and that’s the same as accepting the new numbers…
“MLM is the wave of the future! It is so much more effective!” Yes, indeed - the industry has grown - but it is far from taking over normal distribution - it has existed since the late 1960’s and in 2000 it was at 0,33 percent of the total American market… A revolution indeed… Selling door-to-door is a thing of the past - now-a-days you go to the local mall to buy all your stuff - and that is a growing trend.
“There will never be a bottom-layer! We have an unlimited supply of new persons every year turning 18!” It is correct that every year, someone turns 18 and as such is within legal reach as a new MLM-representative (below 18 you are a minor in Denmark). The problem would be that about an equal number of people every year dies… (yes, I’m aware that the population of the world is growing - but in Europe it is the other way around). The problem is that a given population can only support so many salespersons. Think about it - having 4 McDonalds on the four cornes of an intersection… few of them will make a profit, if any at all. So, everytime you start a new salesperson below you - you are cannibalizing your own market. There is no safety-valve in the train of MLM - it will grow and grow till the market is saturated and then just keep growing till the bubble bursts. The ratio of a sound business for e.g. a small grocer is about 1000 regular customers. For a more narrow product - it is even worse, since they will not buy every week - hell, even every month.
“It’s just like a franchise - only it’s much cheaper!” It is correct that they have some things in common - they all have exactly the same product, they all use the same advertising material (they get kicked out if they produce their own…) and the company behind will take some of the earnings. There are a couple of factors that make it very far from a franchise. In a franchise you have to have experience with the business (typically about 5 years), you are controlled that you live up to your franchise - and most importantly - you know you have enough customers to support your business. You may have competition of course- but someone has gone over the numbers, so if you fail - it is typically because you as the franchise-taker is unable to live up to the market as a whole. I believe the demographic numbers for a typical McDonald’s is about 50.000 people for every restaurant in densely populated areas and more in sparsely inhabited areas. That is about 100 restaurants in Denmark max (the number for 2004 was 84).
For a MLM the story is different - here you have a fixed number of customers… and then an ever-growing number of salespersons - if you believe the pyramid-idea. For every level of the pyramid - you will typically expand by a factor 3. It goes without saying that this is not good in the long run… you will very soon run out of market. The reality is that there will be drop-outs - and a lot of them. The later you enter the pyramid, the higher the chance of the market being saturated already.
I’m sorry, but if it quacks like a duck and walks like one… it’s probably not a tiger…