Exploit Your Own Desire: the Insider’s Reason to Ditch that MLM
I’m not the first person to have an opinion about multi-level marketing (MLM.) The duplicitous sales techniques are easy to pick on and poke fun at. The question of “is it a pyramid scheme?” can be debated but often gets nowhere. You’re familiar with these complaints, so I’m not going to bother addressing those. I want to get to the heart of what MLM is bad business and provide “good business” alternatives that are actionable for each of us.
I feel as a business coach and a fervently ethical person I have an obligation to discuss this topic. Just because something is legal, doesn’t make it ethical. A capitalistic economic system permits exploitation and it’s up to us to prevent those exploitations. Information is power and information lets us make choices that prevent exploitation.
Let’s use an example. I’m going to keep it absurd in the hopes that it lends some levity. Let’s pretend we’re running a pizza shop, aptly named The Pizza Shop. We’ve got a secret family recipe, a great location, and we’ve hired all the kitchen and wait staff. We’re all ready to go. If we just open our doors, thanks to our great location, we’ll get some customers. But margins are tight in food service, so we need a lot of customers. We need to market and advertise our business. We need folks to know they should try our pizza, and eat it frequently!
You can call to mind the usual ways pizza places market. But, see, we’ve got an innovative new model The Pizza Shop. We’re going to have sales representatives that we’re calling Pizza Prophets. If a customer tells us the name of their Pizza Prophet they get 10% off their order. Pizza Prophets earn money from every order they’re named for; it’s a sales commission.
What an innovative system; good job business owner! The next question is how many Pizza Prophets are you going to hire? The business only pays Pizza Prophets when they’ve brought in business. There’s no risk here for the business. If we hire Sally as a Pizza Prophet and she doesn’t do any work, who cares!? Hire too many waitstaff and you’re paying people to stand around bored. But hire more Prophets and the business won’t lose any money. You’re a smart business owner, so you put out an ad and hire anyone who shows up to their interview. (Gotta have some kind of standard, even if it’s as low as “show up”!)
There is nothing wrong with this from a business owner’s perspective. It’s also plenty legal and ethical from a business perspective. But let’s shift our perspective to the Pizza Prophets.
Sally and her new co-workers Karen and Chad are all new Pizza Profits. Their job is to tell people about The Pizza Shop. They’re out there moving and shaking.
Soon Chad is telling someone about The Pizza Shop and they say “oh yeah, Sally’s already told me about that shop! It’s great!” Chad agrees it’s great! A little while later he realizes that he’s probably not going to get a commission off that person. That person is way closer friends with Sally than with Chad. Chad experiences a flash of frustration before moving on.
Sally, Karen, and Chad are all very good at their job. It’s not long before they’ve told everyone they know — and everyone they don’t know — that’s anywhere in a 60mile radius about The Pizza Shop. This means market saturation is pretty high. They pivot to reminding people that *tonight* is the best night to get pizza! They are all working and earning and things are going pretty well.
Meanwhile, the pizza shop owner is thrilled with the results and has continued to hire more Prophets. With every new Prophet, Sally, Karen and Chad see their commissions slip. Soon enough they’re not making the comfortable living they used to be making.
One day Karen notices a number in The Pizza Shop’s quarterly report. It’s an expense line item for the total amount paid out to all Pizza Prophets. That number has held steady for months despite all the new Prophets. It dawns on her that this is why is she making less money. The shop is paying the same amount to the Prophets and is making the same amount of revenue. This means each individual Prophet is making less. The size of the pizza hasn’t changed with more Prophets. Instead, each Prophet is getting a smaller and smaller slice of the pie.
In this scenario the pizza shop has hit market saturation. That is, there are a finite number of people in a given area interested in eating pizza on any given night. More Pizza Prophets are not going to change this. In fact, more Pizza Prophets mean the commissions get split more ways. It’s only natural that this would lead to tension between the Prophets over which clients they’re getting commissions from. This is not good for morale!
The Pizza Shop owner notices the morale problem and decides to gift a car to the most productive Prophet of the quarter. The recent hire, Joe wins the honor in the first quarter. He gets a celebration in his honor and the owner awards him the car. But there’s no car for Sally, Karen, Chad, or anyone else on the team who is struggling to earn enough.
Giving away cars to boost morale won’t fix the structural problem with the Pizza Prophets. There are more Prophets than profits. Expanding to another market will temporarily solve this problem, but saturation will occur again.
Many people participating in MLM businesses aren’t trying to earn their whole income. They may not be experiencing the cutthroat tension that’s bound to occur in a geographically fixed situation like The Pizza Shop. And that doesn’t mean this isn’t happening. The business is pitting sales persons against each other, and not in a healthy-competitive sort of way.
It Gets Worse
To make matters worse, MLM businesses usually reward folks for bringing in more reps. Think about The Pizza Shop — what would have happened if _anyone_ could sign up to be a Prophet? Naturally, a portion of their commission would get shared with the Pizza Prophet who brought them in.
This change doesn’t increase that Pizza Prophet line item Karen noticed The Pizza Shop’s quarterly report. That is still a fixed-sized pie. Sally gets a slice of it per customer. Sally only gets a fraction of that per Prophet she brings in. She’ll need multiple times more customers to get the same amount of the pie. And it’s still a finite pie. In effect, this is making the too many Prophets problem infinitely worse.
Scarcity is Optional
It might sound like I’m painting a very dire, scarcity-driven scenario. I believe in abundance. There is so much opportunity and possibility all around us. This is a situation where someone in a position of power is creating scarcity and profiting from it. I call it out because it is unnecessary scarcity. It benefits the person(s) at the head of the company disproportionately to everyone else involved.
In effect, the leader of the MLM has handed their reps a barrel of fish and told them to go fishing. When the fish are gone, you cannot keep fishing in the barrel expecting there to be more fish. But the MLM would have you believe you can wish the problem away.
So stop fishing in the barrel! Go fishing in a wild lake where you’re not sure exactly what you’re going to catch but there will actually be enough fish! THAT’s where the abundance is. And, yeah, “fishing in the wild” is a metaphor for starting your own business. If you’re interested in finding some great product to sell, you can do that. But go source a quality product, coordinate with a wholesaler, sell sell sell, and keep ALL your proceeds! Use your selling skills for YOUR benefit, not to benefit the leader of the MLM.
If you’re looking for easy money in a side hustle, here’s the secret. Make your side-hustle something fun that you’d be doing anyway. Not hawking some random product that’s trying to extort money from you and your friends.
Good Business Alternatives
Whenever a business is paying you a percentage (rather than a set rate) proceed with caution. Ask how they regulate how quickly they bring on new people. How do they ensure their entire team has enough work to do?
You’re probably going to think about this article the next time you’re invited to a friend’s little party where they’re going to launch into a sales pitch for a great new product. Go attend the party and cheer your friend’s efforts on. If the thing they’re selling sounds great, go ahead and buy one. But if you’re only going to buy one to help them out, just give them the cash instead.
And for any employers out there reading this: Be good to your people. That really should go without saying. Take staffing seriously. The position you’re hiring for is part of someone’s financial health. Ensure you’re enriching that and not destroying it.