Not all firms on the level

06/02/02
Brigham Young University
By By Stephen W. Gibson Printed in the Deseret News

      Every month, tens of thousands of hopeful men and women sign up as distributors for multilevel marketing companies, attracted by the potential for extraordinary business success.
      For some, their dreams of financial independence are realized. A few more may supplement their income with a few hundred dollars monthly. But the largest number join the ranks of the disappointed majority of multilevel marketing distributors who haven't had any change in income at all, primarily because they didn't pay the price of success: they didn't recruit a sufficient number of friends and neighbors to sell the products their MLM companies distribute. Some actually end up worse off than when they started because they borrow on credit cards or from savings to buy the products and training materials they hope will insure success.
      If I were going to become an MLM distributor, I would do all I could to increase the odds of my success by joining the best company available, not just the newest or the one my neighbor joined. Here is my checklist of "10 Things to Look For in a MLM Company."

1. A company with some history. The newer the company, the higher the risk. Yes, there is value in a ground-floor opportunity, but this potential reward needs to be carefully measured against the high risk of company failure. Hundreds of companies come and go each year.

      2. A company that has gone through some rapid growth. Because of their emphasis on sales, MLM companies can grow really fast. Unfortunately, many can't handle the challenges that accompany such growth. Join one that has proven its ability to survive supersonic growth.

      3. A broad product line. One-product companies seldom make it over the long haul. An MLM company that sells services might be the exception if 80 percent or more of the population uses the service, such as telephone long distance.

      4. A global presence, including Asia. Shipping product, paying commissions in foreign currency and understanding other cultures are all challenges rapid-growth MLM companies need to face. You'll need global markets to really make a lot of money in MLM.

      5. A company that makes most of its money through product sales, not training and enrollment fees. If company profit margins are so low that the firm needs to charge up-front fees, the company may crater when growth slows.

      6. A company that has been investigated by the Attorney General's Office. Regulatory scrutiny will come sooner or later for all MLM companies. To my way of thinking, it is better to select one that has already been investigated and passed than one that hasn't been looked at yet.

      7. A company that uses videos, up-to-date computer retrieval, Internet and satellite broadcasts and other high-tech communications systems. All these tools will help you recruit, sell and do the other things that are now necessary for real MLM success.

      8. A payout of commissions to distributors to the fifth or sixth level. This is necessary in order to give an adequate return to the distributor for his recruiting efforts. Any less may not provide sufficient income for full-time employment.

      9. A company that has a highly visible founder still on board, who demonstrates vision and long-term thinking. I might trade the presence of a founder for a long and well-established presence and well-recognized name in the consumer products industry.

      10. A company in which the culture matches your interest, values and age. Some companies recruit primarily professionals, others blue-collar workers or people with a particular religious or political bent. Company culture is important for your long-term comfort.

      Even if a company has all these characteristics, I still say, beware. Multilevel marketing isn't for everyone. Conditions have to be just right in order for it to become your entrepreneurial dream come true.

author1 is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at Mr. Williams is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at cfe@byu.edu. .