Friday, December 20, 2013

MLM Mythbusting: MLM is a lot like ___________, therefore it is legit

English: David Moor Estate Agent - Queen Street
Real Estate Agent... is it comparable to MLM?
(Photo credit: Wikipedia)
Many of the newcomers to MLM, finding people's natural reluctance toward MLM, tried to use bad facts or outright lies and misinformation to present MLM in favorable "familiar" terms, as they often just "inherit" such bad information from their uplines, who simply parrots the information from THEIR upline without any understanding of the issues. 

For these noobs, MLM is often compared to:

  • Real estate, for its two-level commission system
  • Franchising, for the any one can "own a piece of the action"
  • Buying club, for the "share the low prices sell direct" type deal
Unfortunately, all these analogies just proves that these noobs have NO IDEA what they're talking about. Let me explain one by one. 

The Real Estate Analogy

When I posted my first MLM Critique piece, I was called "king of disinformation" (really?) by a guy who took exception to EVERYTHING I wrote, and his first example was "real estate". (scroll down to first comment)

Creating your own competitors?
What, that is how Realty firms work. They train people on the laws and teach them how to sell houses for them for 1/2 of the commissions. Then once the "new" guy gets his/her license they become direct competition. 
In MLM you should train people how to sell the products and help them develop new business builders. This is where the residual income is found, or as you put it your number 2 flaw.
 My reply to him:
RE: Creating one's own competition -- except real estate agents usually have to sign non-competitive clauses for X years upon joining and getting trained, and MUST work through a "broker" who gets half the commission, right? Hardly comparable to MLM, where there is NO training, NO qualification, NO non-competition period, and runs in the SAME social circles. Real estate agent may run in the same local area, but they usually work on the SAME listings and split the rewards if they share sales. RE is far more cooperative than competitive.
I actually took a real estate course to be a real estate agent, but I never bothered to take the test as I am not interested in the field. But the system is pretty simple. Buyer has an agent. Seller has an agent. Each agent with has a "broker" who's sort of a supervisor / boss. Standard commission on real estate is 6%, which is split 4 ways: 1.5% each for buyer's agent, his broker, seller's agent, and his broker.

Agents basically take a course, pass a test, get RE Agent's license, and work under broker, get a sales streak going, and either become a broker, or find a better market. Brokers train agents to go out and find more deals, both as buyers and as sellers, and as explained, gets 50% of their commission.

But as I said in my reply, trained agents usually sign non-compete contracts and minimum employment length for informal apprenticeship, and agents are NOT allowed to sell without a broker (legally forbidden). MLM has no such restrictions. Real estate also only have two levels. MLM can have bazillion levels.


The Franchising Analogy

Another favorite bull**** analogy used by MLM noobs was "it's like owning Starbucks or McDonalds", except it doesn't cost a million dollars!

When you walk into Starbucks of McDonalds, were you ever approached by the owner and asked "do you want to become a Starbucks / McDonalds owner too? Ask me for details!"

Of course not. He doesn't profit from selling franchises. He profits from selling the PRODUCTS that the franchise sells, coffee or burgers or whatever.

Any one who tries this approach is selling the business opportunity itself, rather than the products, and that makes it a suspect pyramid scheme.


The Buying Club Analogy

The first time I've seen the 'buying club' analogy used, it was by "TVI Express" pyramid promoters, who claimed that this pyramid scheme is a buying club for travel deals and you're being rewarded by recruiting members. I've seen it in plenty more places since, and it still sounds as hokey as ever, because those people have NO IDEA what the law of buying clubs are.

A buying club, by definition, is NOT a profitable enterprise, as its primary purpose is to *save* its members money by leveraging its buying power through aggregation. Its primary purpose is NOT to MAKE its members money.

Buying club is often used by so-called 'travel MLMs' where they don't actually sell travel, but ACCESS to discounted travel. Those are likely to be pyramid schemes. In fact, any such schemes that don't sell the product, but merely access to discounts of product, and promise profit if you recruit more people who also buy such access, is probably a pyramid scheme.

MLM Skeptic has explained this before in detail.


In conclusion, MLM noobs who want to make a proper convincing case for their particular scheme should be aware of the bad analogies as documented here, and avoid them altogether.

(And if you have no argument left, maybe you're in the wrong scheme)

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