Thursday, August 28, 2014

MLM Basics: Is MLM considered entrepreneurship?

A recent discussion regarding a certain suspect MLM already fined in Europe for pyramid selling brought up an interesting point of discussion... Is participation in MLM considered entrepreneurship?

But first, what exactly is entrepreneurship? defined it as "The capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit."

From the surface, it does appear that participating in network marketing could be considered a business venture, but again, we have to look a little deeper: is becoming an IBO / affiliate a "business venture"?

Same place defined "business venture" as "Start-up entity developed with the intent of profiting financially. A business venture may also be considered a small business."

Ah, here lies the problem.

Most network marketing company deal with you as a hybrid... You're not a business (so it's not a business to business) but you're NOT an employee either. You are an "independent contractor". Here, for example, is Amway's agreement on this specific topic:
3. Independent Contractor Status. You agree this authorization does not make you an employee, agent, or legal representative of Amway, your sponsoring IBO, or any other IBO. As a self-employed independent contractor, you will be operating your own independent business, buying and selling products and services available through and by Amway on your own account. You have complete freedom in determining the number of hours that you will devote to your business, and you have the sole discretion of scheduling such hours. Amway will not provide you with a place of business, and if you desire a place of business other than your own residence, you will be responsible for procuring, furnishing, and paying the rental for such place of business. As a self-employed independent contractor, you are responsible for complying with any provincial licensing requirements and Municipal Zoning and Business Licensing By-Laws. With respect to services performed by you under your IBO Contract, you will not be treated as an employee for federal or provincial tax purposes, and you will be responsible for
payment of any self-employment and other income taxes
Well, Amway certain wants you to think you own an "independent business". In fact, they refer to all of their distributors as "IBOs"... Independent Business Owners. And you are REQUIRED to print that on your business card.

So what's the problem? The problem is in the PROFIT motive. Being an entrepreneur means you intend to profit.

Yet for a MAJORITY of participants in network marketing, apparently profit is NOT a motive.

You're probably going, WHAT?!  Let me give you examples:

In the Herbalife rebuttal to Ackman's charge back in 2013, Herbalife did a survey and quoted the survey results. I'm working from a summary of such rebuttal:
Herbalife Reply: According to the Lieberman survey, only 27% of former distributors joined to make supplementary income. The remaining 73% joined for product discounts. Further, 44% of distributors expected to earn no money.
Yes, you read that right: only 27% of FORMER distributors joined for income / profit. 73% only joined because they want the discount. Most expect to earn NO MONEY.

A MAJORITY (over 2/3rd, almost 3/4th) of people who joined Herbalife expect NO PROFIT, and that's the OFFICIAL WORD from Herbalife.

And the Herbalife 2012  income disclosure confirmed this.
"The compensation chart below indicates that 434,125 Distributors (88%) received no payments from Herbalife during 2012. "
Since majority of Herbalife distributors joined without expectation of profit, joining Herbalife can NOT be entrepreneurship.

How about that OTHER company we mentioned at the beginning? They never did a survey, but as shown in their recent shift of language to "affiliate marketing", the "affiliates" are NOT expect to make any retail profit, and any one who don't "cycle" (i.e. made "sales") are considered "customers" for their uplines.

Well, you can read the income disclosure yourself, but let's just say that 78% of "affiliates" (which is only 30% of all participants) made less than 1600 a YEAR, and 70% of participants (246388) did not 'qualify' and thus are considered customers.

Customers are not expected to make money. That's why they are called CUSTOMERS.

But when a company started to reclassify distributors who did NOT meet sales goals (or recruited enough downlines with autoship commitments) as 'customers', it really makes you wonder: just how profitable is the business for the affiliates?

Thus, you should question the rhetoric that MLM is entrepreneurship. Two of the better known companies have clearly demonstrated they are NOT entrepreneurships for participants. Perhaps you should be skeptical of such claims, and ask how many "distributors" (or whatever term they use) actually expect to profit (and how many actually do).

1 comment:

  1. check the definitions of strategy india on various terms on ds on