Dreams and Downlines

Multi-level-marketing companies promise their distributors an address on Rasy Streetif they can interest enough other people in selling, say, bee pollen

BY DAVID OWEN

WE KNOW STATISTICALLY THAT THE AVERAGE !NLUvidual in the United States of America will achieve only one third of what he or she is capable of achieving. One third! Also, of the entire work force of the United States of America, only two percent have the discipline and desire to step forth and do something—are self-starters.

Okay, that’s scary enough, but it gets worse: Twentythree percent of individuals in the United States don’t know what they want. Bigger house? More kids? Better reception? They don’t have a clue. They might really want a new car but instead they add a breakfast nook to their kitchen. Sixty-seven percent do know what they want but don’t know how to get it, which, in a lot of ways, is scarier.

That leaves just 10 percent. These are the individuals who know what they want and how to get it. (We know who we’re talking about now, don’t we?) Thirty percent ot these very special individuals get exactly what they want 90 percent of the time. In addition, they are able to help other individuals figure out what they want and how to get it. Why? Because the speed of the leader is the speed of the group. Plus, 20 percent of the individuals in any business organization do 80 percent of the work.

I learned all this at Crossroads to Networking, the Multilevel Marketing Executive Symposium, which was held in Salt Lake City not long ago. Salt Lake City is perhaps not the first place in the United States of America where the average individual would think of holding an executive symposium: it has no bars as we know them. You can buy a temporary membership at a private club for five dollars and then buy cocktails poured from little airline-type bottles, but you can’t go into your hotel’s restaurant and order a drink before dinner. Instead, generally, you have to order a bottle of non-alcoholic sparkling wane, a beverage that makes you realize fairly quickly that probably 67 percent of the reason why 90 percent of the individuals who drink wine drink wine is alcohol.

But there were some good reasons for holding (Tossroads to Networking in Salt Lake City anyway. First, most people are pretty interested in seeing for themselves how’ much the Great Salt Lake has expanded in recent years. (A lot!) Second, Utah is an important state in multi-level marketing, usually referred to simply as MLM. This is the industry that consists of Amw’av, Shaklee, Mary Kay Cosmetics, Herbalife International, and other companies whose products are sold not in stores but by networks of salespeople, whom the companies usually refer to as distributors. Most of these distributors are ordinary individuals who work out of their homes in the United States of America. They not only sell products but also recruit other people to be distributors. They then earn commissions both on their own sales and on those of the distributors they’ve recruited. They also earn commissions on the sales of distributors recruited by the distributors they’ve recruited, and on the sales of distributors recruited by them.

The MLM industry is fairly big, according to some other statistics I heard at Crossroads to Networking, den percent of American households, one speaker said, include at least one person involved in MLM. Fully 80 percent of all households have been approached by an MLM distributor; 40 percent have bought something. MLM products tend to be things like health food, diet aids, soap, detergent, and cosmetics. Also, increasingly, MLM sells services such as life insurance and travel discounts. Last year Amway distributors signed up a million new customers for MCI, the discount long-distance telephone company.

The MLM industry has taken some hard shots over the years from the crowd that engineered the American defeat in Vietnam, drove Richard Nixon from the White House, and cooked up the Iran-contra affair—that is, the media. The media sometimes have trouble distinguishing between MLM companies and illegal pyramid schemes. They also tend to dwell on stories involving state investigations of MLM companies, or assertions by government agencies that certain MLM products don’t do what their distributors claim they do, such as grow hair, cure cancer, or reverse the aging process.

In fairness to the media, it should be said that MLM companies have often made it difficult for the media to emphasize anything but the negative. MLM companies have a very high failure rate. People in the industry estimate that 90 to 95 percent of all MLM companies go out of business within a couple of years of their founding; the true rate may be even higher. In addition, MLM companies tend to do most of their business with some of the more vulnerable segments of the consuming population: senior citizens, people from rural areas, people without much education, and people from California (a state that by itself accounts for something like 20 percent of MLM purchases). MLM companies also have a history of making grandiose claims about the rapidity with which their distributors can expect to become multi-millionaires.

ILLUSTRATIONS BY

Still, there are some good things that can he said about MLM. I don’t want to risk my standing in the media by saying these things myself. Instead, I’ll quote D. Jack Smith, Jr., a Harvard-trained lawyer whose Memphis law firm (which is called The Law Firm of D. Jack Smith. Jr.) represents many MLM companies. At a seminar at (Tossroads to Networking, Smith said, “I think that one of the great things about this industry is that—and I’ve said it before— I think it’s one of the last frontiers. This industry has something known as ease of entry, where the little guy gets to play. It doesn’t take a lot of money to start an MLM company by comparison with what it would take to buy one McDonald’s franchise. I have seen companies go national that started with five thousand dollars in borrowed capital.”

Smith might also have said (and indeed he may have said on another occasion) that MLM gives ordinary people a chance to test their mettle in the marketplace, to see where they stand in the eyes of the Almighty, and to take a stab at achieving what virtually every person in the United States of America, whether secretly or openly, dreams of achieving: financial freedom.

WHEN I WAS FOURTEEN, I spent a few days at a big hotel in Chicago with my mother, my sister, and my brother. I don’t remember the name of the hotel, but I do remember that there was a couch in the lobby where I hid cigarettes. A couple of times a day I would retrieve a pack from under one of the cushions, go into the coffee shop, and smoke about eight Marlboros in a row while I drank a Coke. When I finished the Coke, I’d swish a piece of ice around in my mouth so that my mother wouldn’t know I’d been smoking.

During one ol my cigarette breaks a man sitting on the stool next to mine struck up a conversation. He said I looked like an intelligent fellow and asked me if I’d like to achieve financial freedom. I said, uh, sure. In that case, he said, I ought to come with him later to a meeting in the ballroom. I went. It was a recruitment meeting for an MLM company called Holiday Magic. The man was a distributor for the company, which sold cosmetics and other products. He said he could tell just by talking to me that I’d make a good distributor too. I confessed that despite the cigarettes and everything, I wasn’t as old as he probably assumed. He said that didn’t matter; my mother could drive me around to deliver my products.

I don’t remember much of what went on at the meeting, but I can reconstruct it. All MLM recruitment meetings are basically alike. Undoubtedly there was a rousing speech by a man wearing powerful aftershave and perhaps two pounds of gold jewelry. The speech would have concerned how God or the man’s wife had finally given him the courage to abandon his dead-end job as an executive of a Fortune 500 corporation and achieve financial freedom by becoming a Holiday Magic distributor. Now he had everything he’d ever desired: company car, beautiful wife, plenty of French food, vacations whenever he wanted them. Nothing would make him happier than for us— me—to have those things too. It wouldn’t be easy: I’d have to reach down deep within myself, conquer my fear of big success, and awaken my slumbering potential for greatness. But it wouldn’t be hard, either: all I’d have to do was sign up a lot of other people to do what I was doing. Every month I would earn commissions based on how hard those other people worked. Then I could start shopping around for a bank with a vault big enough to handle my deposits.

I became quite excited at that meeting but (for various hormonal reasons) never followed through on Holiday Magic, thus passing up my chance to become the richest kid in the history of eighth grade. It’s probably just as well. In 1973 the Securities and Exchange Commission filed a civil complaint accusing Holiday Magic of defrauding its distributors and others of $250 million. The following year a federal judge permanently enjoined the company from operating its pyramid-marketing scheme.

As I strolled among the exhibits at Crossroads to Networking, something of that old Holiday Magic magic came back to me. The room was filled with financial opportunities. At a wooden kiosk with television monitors mounted in it I watched a videotaped presentation for a company called Nanci Corporation International. (The kiosk was promoting not Nanci but the company that had made the video, Mountainland Video Productions. One of Mountainland’s producers is named Kelly Thayer; his wife is named Kellie Thayer.) It was a little hard to hear the Nanci soundtrack over the noise in the room, but the story was easy to follow. It involved a young boy who was always losing races and a mom who was terribly disappointed in him. Scenes of the boy losing races alternated with scenes of the mom hanging her head in shame. There were also scenes of the mom feeding the boy junk food. This went on for quite a while. The mom never seemed to see the connection between the junk food and the lost races.

Then, through a friend, the mom discovered Luv-it, a specially formulated powdered food-replacement beverage mix that looks something like Carnation Instant Breakfast. Luv-it comes in different formulations for children, grownups, and old people. It can be used in combination with either Lose-it or Gain-it, depending on whether you’re too tubby or too thin.

The Nanei video also contained quite a lot of footage of Nanci herself, a really attractive woman who exercises in a leotard and has a big house, a nice family, an assistant of some kind, and a snappy red Mercedes-Benz. Nanci introduced Luv-it because she wanted to give people a simple, delicious way to drink wholesome meals. Now she enjoys fabulous wealth. And the little boy? He switched from french fries to Luv-it and became a winner. His mom became a winner too; now she’s a Nanei distributor.

Not far from the Mountainland Video kiosk was the booth of a company called Garden State Nutritionals. Garden State makes vitamin tablets and other health products. It sells them to a number of private-label distributors, including several MLM companies. Most of Garden State’s exhibit had been lost in transit from New Jersey, but there were still a lot of products on display; Charcoal Gaps, Chocolate Thunder (“Instant Energy Fitness Formula for Active People”), Formula AR-19, Back-Eze (“Special supplement containing Nutritional Elements found in healthy spines and discs”), Memoraid Tablets, Thermo Slim, Grapefruit Diet 100, Night Trim (“Extra strength overnight reducer”—take four on an empty stomach before bed), Snooze ‘N Lose. Overnight reducers are supposed to activate your growth-hormone releasers, so that you lose weight while you sleep.

Would activating your growth-hormone releasers also make you get old sooner? 1 don’t know; I’m not a doctor. To be safe, you might also want to take some CoQlO, sometimes known as the youth pill. CoQlO was on display at the AlphaPak booth. It’s an essential dietary coenzyme nutrient that scavenges free radicals, promotes cellular energy conversion, deters oxidation, and offsets CoQlO deficiency caused by aging, according to a sign on the table. Oxidation, another exhibitor had already told me, is the cause of most disease. CoQlO is made from fermented potatoes; it can also be extracted from the hearts of cows, but (fortunately) this is too expensive to do.

I wandered around for a while trying to produce enough saliva in my mouth to get rid of the taste of a milk substitute called Tofu White (warm water with baby powder in it?) that I had been persuaded to drink at the Great American Foods booth. At another booth I drank some aloe-andcranberry juice, which didn’t so much solve the tofu problem as complicate it. I ended up sucking on the insides of my cheeks in front of the booth of a company called Health Flo. BECOME A BEELIEVER, said a sign on the booth; ADD HEALTH FLO PURE BEE POLLEN PRODUCTS TO YOUR COMPANY, said another. Earlier I had spoken with a woman from a company that sold Swedish flower pollen. I asked a man at the Health Flo booth whether Swedish flower pollen was the same thing as bee pollen. He said it was not.

“The basic difference,” he said, “is that bee pollen is collected by bees, while the other people collect their pollen with a machine. We’ve tested it, and bees are more discriminating. Plus, the bees have been doing it for millions of years. The other thing that sets us apart from being just another bee-pollen company is that we’ve developed a process for putting together a pure-bee-pollen tablet without fillers or binders. We’ve also been able to liquefy and stabilize—the key word being stabilize—pure bee pollen. As far as we know, we’re the only company in the free world that’s been able to do that.”

While he was talking, a woman working with him took a bee-pollen tablet from one of the bottles on the table and chewed it up. (Her commitment to bee-oriented health may not be all it appeared to be, though; later I saw her drinking a Pepsi.) When the man was finished, the woman gave me a packet of bee-pollen pills, a packet of propolis pills, and some literature. The literature described bee pollen as “the only food in the world with all the essential ingredients necessary to sustain life.” It referred to propolis as an “antibiotic” whose apparently recent rediscovery “may well be one day as important as the development of penicillin.” (Propolis is stuff that bees make to “keep their hive in more sterile, hygenic [sic] condition than even a modern day operating room.”)

Ordinarily I have a pretty high resistance to doing anything that is supposed to be good for me, even if it doesn’t sound nutty. But a week later, when I was back at home, I got sort of interested in my packets of pollen and propolis pills. One of Health Flo’s brochures quoted a Dr. Sigmund Schmidt, a cancer specialist from “Germany,” as saying that bee pollen “could be a cancer-preventative.” Other experts were quoted as saying that pollen can reverse aging of the skin and relieve allergies, fatigue, colds, weakness, asthma, bronchitis, ulcers, colitis, migraine headaches, urinary disorders, enumeresis, multiple sclerosis, and wrinkling. What the heck! I took one bee-pollen pill and one propolis pill.

A couple of hours later, while I was out working in my yard—and I’m not saying that this discredits the entire industry—I was stung by a bee.

AS INTERESTING AS THEY ARE, MLM PRODUCTS DON’T tell the whole MLM story. In fact, they don’t tell much of the story at all. At many companies the products are an afterthought. The real meat of an MLM company—the thing that gets distributors excited—is usually the compensation plan.

There are many different names for MLM compensation plans: stairstep, breakaway, matrix, several others. All such plans differ one from another, but all are alike in that they derive from that most magical of mathematical phenomena, exponential growth. The Sunrider Corporation—a big Utah-based MLM company that, under the supervision of Dr. Tei Fu Chen, sells health products mentioned in age-old manuscripts formerly owned by Chinese emperors—calls it “multiplication marketing” and, in one of its pamphlets, explains it this way:

Would it surprise you to know that a penny deposited in an account that doubled every day, would grow to $1.28 in one week? By the end of the second week your original deposit would have grown to $163.84, and by the third week $20,971.52. Before you could say pick-up truck, at the end of one month you would need one to haul your money home. One penny would have grown to $5,368,709.12 in just thirty days.

A mathematician would probably be less surprised by the size of those numbers than by the idea of a bank account that paid interest at an annual rate of 3,757,668,132, 438,133,164,623,168,954,862,939, 939,243,801,092,078,253,311,793, 131,665,554,451,534,440,183,373, 509,541,918,397,415,629,924,851,

095,961,500 percent.1 But most people aren’t mathematicians. The thought of watching a penny turn into more than five million bucks in thirty days is appealing in a way that preempts any application of logic. Having thus caught the reader’s attention,

Sunrider—like virtually all MLM companies—draws a conclusion that can’t be drawn:

Here is how it works. You share the Sunrider program and products with others, wrho in turn share the opportunity with more people. Before you know what is happening, you have hundreds of people marketing Sunrider products with all of their efforts contributing to your earnings and financial freedom.

At Sunrider we call it sponsoring, and it is the principle of multiplication marketing upon W’hich all wealth is built. Now instead of working for only eight hours a day, you are able to have a complete sales staff working hundreds of hours daily for your benefit and profit.

Multiplication marketing and Sunrider have proven that they work. All you need to do is substitute people for pennies and you will be well on your way to financial freedom and independence.

If you substituted people for pennies in the Sunrider example, you would surpass the population of the earth in less than five weeks. This is not a business for the fainthearted.

As it happens, I am a Sunrider distributor. I became one by filling out a form and paying $24 for a sales kit. My sponsor is Robert Natiuk, who calls himself “the next Napoleon Hill” (Hill wrote Think and Grow Rich). Natiuk is the co-author of They Dared to Be Free, a collection of MLM success stories, and a frequent contributor to MLM News, a monthly journal of the industry and the sponsor of Crossroads to Networking. Natiuk writes articles for .MLM News in exchange for advertising space. In one of his ads last year he talked about his wife, Martha. “She looks a lot like Linda Evans of‘Dynasty’ and loves our new luxury car, beach home, cruises—all made possible through SCNRIDKR.” The ad included a photograph of Natiuk (who does not look like John Forsythe) sitting in a tree, to drive home the point that many people feel “up a tree” with other MLM companies.

I’ve never felt up a tree with MLM, because I’ve never tried to sponsor any distributors. But if I did, here’s what I’d probably do. First, I’d buy $100 worth of Sunrider products from Natiuk. My initial purchase might include Dandelion Root Concentrate, Loquat Syrup, Coneo, Korean White Ginseng Concentrate, Siberian Ginseng Root Bark Concentrate, Metabalance 44, and several other products. Making this purchase would enhance my body’s powers of regeneration and move me up a rank in the Sunrider organization, from distributor to trainer.

I would now be entitled to a five-percent commission on any further purchases made directly by or through me.

Having done this, I’d call up my parents and ask them if they’d like to become Sunrider distributors too. T hen I’d call my wife’s parents, my siblings, my wife’s siblings, my barber, the plumber, the guy at the hardware store, everybody in my address book, and the entire staff of The Atlantic. If enough of the people in my town seemed interested. I’d rent the gym at the high school and, with Natiuk’s guidance, hold a big introductory meeting. If I found myself sitting next to a fourteen-year-old would-be juvenile delinquent smoking cigarettes in the coffee shop of a hotel in Chicago, I’d recruit him. I also might send around copies of a Sunrider videotape (each of which would cost me $12) that explained everything about the program.

Let’s say I did this for a while and managed to sign up one distributor (my mom). My mom would now constitute my “downline” in the Sunrider organization; Natiuk and everybody else on the direct path between me and the five founders of Sunrider would be my “upline.” Of course, my mom would want to start building her own downline (which would also become part of my downline, since I sponsored her). So she would become a trainer by buying $100 worth of Sunrider products from me. I’d get a fivepercent commission on these purchases, for a total of five dollars.

This would be just the beginning. Full of enthusiasm, my mom and I would start signing up other people like crazy. Since my mom would be a trainer now, she wouldn’t buy her products from me anymore; she’d buy them directly from Sunrider. But that doesn’t mean I’d stop getting rich. As soon as the total purchases of my rapidly growing sales organization exceeded $1,000, including $250 in the qualifying month, I’d move up a rank, to supervisor, and my commission on my purchases from Sunrider would rise to eight percent. In addition, I would begin earning a special commission, called an override, on the purchases of all the people in my downline. A supervisor’s override on downline trainer purchases is three percent.

At this point it begins to get a little confusing and, in truth, I don’t understand how it works. But by increasing my organization’s purchase totals from month to month I would begin to rise through the Sunrider ranks, from supervisor to manager to assistant director to director. A director is someone whose sales organization (his downline plus himself) has bought $8,000 worth of products (including $2,000 worth in the qualifying month). A director, according to a pamphlet in my sales kit, receives a 20 percent commission on direct purchases made by himself, a five percent override on purchases made by downline assistant directors and their downlines, a nine percent override on purchases made by downline managers and their downlines, a 12 percent override on purchases made by downline supervisors and their downlines, and a 15 percent override on purchases made by downline trainers and their downlines.

Wait, there’s more. There are five degrees of directorship: director, lead director, group director, master director, and executive director. As an executive director, I would earn director-leadership bonuses of seven, six, five, four, three, two, and one percent on the sales of various levels of directors below me. I would also receive a diamond pin, membership on the Executive Advisory Board, a one-week vacation for two anywhere in the world, and money from four separate profit-sharing plans. At some point along the way I’d also have earned a free car or motor home.

1 forgot about retail sales. In addition to all those commissions, Fd be earning a retail markup of between 25 and 35 percent on sales outside my downline, assuming I made any. I wouldn’t have to share that money with anybody at all.

Retail sales are something of a sore point in the MLM industry. Actually selling products to people outside one’s sales organization is seldom given as much emphasis as signing up new distributors. At companies with minimum monthly purchase requirements ($100 worth at Sunrider) distributors sometimes simply buy what they have to in order to keep their commission checks coming. (At Sunrider, directors whose purchases fall below the minimum level in any month also lose their downlines to the directors in their uplines and thus their whole commission.) Building a downline can be more profitable than actually hawking the product on the street. Many MLMers view retail selling as little more than a way to prospect for new distributors. The most sparsely attended seminar at Crossroads to Networking was the one on retail sales.

The stress on recruitment rather than selling is one aspect of MEM that perennially attracts the attention of government agencies. Companies that don’t sell much to outsiders sometimes look like pyramid schemes. A pyramid scheme is like a lottery. It’s a form of multiplication marketing in which participants contribute relatively small amounts of money to a pool in the hope of withdrawing relatively gargantuan amounts of money later, as more and more contributors are recruited. Most pyramid schemes are illegal. (The world’s largest pyramid scheme, the Social Security system, is not.)

Recently a non-MLM pyramid scheme known as “airplane” has turned up in states all across the country. In one version of the scam, people are invited to pay $1,500 in order to become one of eight passengers on an imaginary airplane with a crew of one pilot, two co-pilots, and four flight attendants. Once all eight passenger scats are filled, the pilot “bails out” with the money paid by the passengers—$12,000. Then the eo-pilots become the pilots of two new airplanes, the flight attendants become copilots, and the passengers become flight attendants. Eight new paying passengers are recruited for each of the two new airplanes (providing new infusions of $12,000), and the game goes on.

If the world’s supply of suckers were expanding exponentially, we could all get rich this way. As things are, the only way to make money in one of these schemes is to sign up early, before the size of the money pool necessary to sustain it takes off for the stars.

Signing on early with a new MLM can pay off too. Most new MLM companies go out of business very quickly. Distributors who build big downlines right away in such start-ups can often collect a few big commission checks before the company closes its doors and hies for protection from its creditors.

Wheeler-dealers—they are known in the trade as “MLM junkies”—often jump from one new company to another, trailing their downlines behind them. Needless to say, distributors further down the money chain don’t do as well; they can be left with a garage full of products they can’t sell, or with a stack of worthless “product-redemption certificates,” or with nothing at all.

Executives of most MLM companies hate it when their industry is discussed in the same breath as pyramid schemes, but in their company literature they often play up the pyramid angle themselves, as Sunrider does.

Some MLM companies even illustrate their compensation plans with pyramid-shaped diagrams. One such company is Easywav Marketing, which is based in Schaumburg, Illinois.

Easyway’s compensation plan is called a three-by-nine matrix. The company sells grocery coupons, jewelry, and discounts on travel, prescription drugs, cars, and a variety of merchandise. The introductory brochure that it gives to prospective distributors is called “Your Guide to the Easy Life”; on the cover is a photograph of a silverblue Mercedes.

None of this, of course, is meant to suggest that the Sunrider Corporation,

Easyway Marketing, or any other MLM company is necessarily breaking a law or defrauding its distributors.

But the compensation plans adopted by virtually all MLM companies are purposely designed to have a powerful appeal to the same combination of greed and gullibility that leads people to book $1,500 seats on imaginary airplanes.

IF YOU CALLED UP EVERYBODY IN YOUR DOWNLINE AND asked, “Who’s out to get MLM?” 90 percent would probably answer, “The media.” People in MLM are very suspicious of the press. It was this suspicion that led a good number of them to “Analyzing the Media and MLM,” Clifton Jolley’s seminar at Crossroads to Networking. Jolley got right to the point.

“How many of you are in MLM to make money?” he asked. Just about everybody in the room raised a hand, nodded, or grunted affirmatively. Then Jolley asked another question: “How many reporters do you suppose go into journalism to make money?” ‘This produced a lot of chuckling. Reporters, as everyone knows, do what they do in-order to emphasize the negative and make life miserable for other people.

“A good legal secretary makes more than a beginning journalist at The New York Times ” Jolley went on. “The basic motivation of people who are affiliated with the press is very different from the motivation of the large majority of people in this room.”

Jolley is highly qualified to speak on this topic. He’s a former professor of communications at Brigham Young University in Hawaii who is now the president of Avenues Communications, a consulting firm whose clients are mostly MLM companies. He writes a newspaper column, in Salt Lake City’s Deseret News, and he had a television show of some kind, but these low-paying activities are merely outlets for any remaining negativism that wealth beyond his wildest dreams has failed to purge from his system.

For the most part, I thought, Jolley’s seminar was pretty good. He gave some sound advice about how to deal with reporters (don’t lie to them, don’t ask them when their stories will appear, don’t wear a diamond-studded wrist watch and sit on the hood of your Rolls-Royce when Forbes comes over to take your picture). But his comment about the salaries of reporters and legal secretaries gave me pause.

I don’t know what legal secretaries or New York Times reporters make, but I have some idea of what people in MLM make. According to Jeffrey Babener, a bright young MLM attorney who, with D. Jack Smith, gave a seminar on legal issues, the industry consists of somewhere between 5 million and 10 million distributors who sell between $10 billion and $20 billion worth of products and services every year. Let’s say there are 10 million people doing $20 billion worth of business. That works out to $2,000 in gross sales per person per year. Subtract product cost, phone bills, car expenses, gymnasium rentals, and purchases made for personal use, and there isn’t very much left. The average MLM distributor, I would guess, can’t be clearing more than fifty dollars a month. I like making up facts and ruining people’s reputations as much as the next reporter, but if journalism didn’t pay better than that, I’d do something else. And I’ll bet there aren’t more than a few dozen reporters at The New York Times who make less than fifty dollars a month.

Does anybody in MLM make big money? Clearly, some people do. There were some prosperous-looking consultants at Crossroads to Networking, and there are MLM executives who live in $7 million houses and Hy around in private jets. Many companies publish glossy in-house magazines filled with pictures of happy distributors sitting on the hoods of their new luxury cars or yukking it up on company jaunts to island paradises. But the number of people who gross even a thousand dollars a month in MLM is very, very small. The great majority of MLMers could make a lot more money in a lot less time working behind the counter at McDonald’s.

Of course, nobody ever achieved financial freedom by working behind the counter at McDonald’s. MLM is alluring because it seems to offer not a job but a means of transcending the laws of economics. But the appeal is an illusion. Those tantalizing compensation schedules actually work against the average distributor, whose sales efforts serve mostly to line the pockets of other people.

People may sign up with MLM companies because they dream of getting rich, but most of the ones who stay do so for other reasons. One is that it makes them feel important. Receiving a commission check in the mail can be a transforming experience for someone who feels locked out of the mainstream economy, even if the check is only a rebate on a purchase he made himself. A man with a downline is a man who knows he isn’t standing on the bottom rung. The standard MLM message is simple: If you’re strong enough inside, if you’re one of the few who are tough enough to stick it out, you’ll be rich. When it doesn’t work out that way, unsuccessful distributors often blame not the companies but their own characters.

There’s also a heavy evangelical element in MLM. Successful MLM companies maintain their downlines by turning their distributors into crusaders. “People will work for money but they’ll kill for a cause,” someone said at Crossroads to Networking. One participant told me that MLM is “sixty percent Christian”; he was referring to the Christianity of Jerry Falwell and Robert Schuller. Also of Brigham Young. Mormons are a big presence in MLM. The scarcity of alcohol at our hotel was not viewed as an inconvenience by most of the people in attendance. The symposium participant who attracted some of the most admiring attention from other participants was a man from Issaquah, Washington, who was starting an MLM company that would sell books, videos, gifts, and other items, all with Christian themes.

MLM HAS BEEN AROUND SINCE AT LEAST 1945, WHEN a company called Nutrilite adopted a multi-level commission schedule for sales of its nutritional supplements. Amwav and Shaklee have been in business since the late 1950s. But a lot of people at Crossroads to Networking told me that they thought MLM was still in its infancy as an industry. In the next few years, I was told, MLM is going to have a huge impact on the economy. Jeff Babener, the young attorney, told me that he thinks MLM distributor networks have enormous potential. “More and more companies that are outside MLM are looking at this as a new forum, a new channel for marketing their products,” he said in the legal seminar. MCI’s success with Amway, he said, proves that MLM has economic muscle. He may be right.

I don’t think he is, though. I had a very good time at Crossroads to Networking, and I met a lot of nice people, but the numbers don’t add up. An MLM network is actually an inefficient mechanism for moving products through the economy. Starting an MLM company is cheap only because most of the overhead (warehousing, transportation, promotion) is absorbed by naive distributors. Most MLM distributors don’t even think of their own time as a cost of doing business; if they ever added up their expenses and computed their earnings as hourly wages, they’d be appalled. Also, because of the heavy commission schedules, introducing a truly new product through MLM is next to impossible. The industry depends instead on products that cost very little to develop and manufacture (vitamins, cosmetics, food supplements) or on services that have little actual value (discount-travel clubs).

In the end, the words that stuck with me were those of Edwin L. Madison, a symposium participant and the president of a Texas-based company that sells scholarship information and provides other services for college applicants. Madison is a great big man who sounds a bit like Lyndon Johnson. He had come to Crossroads to Networking because his sales force had been urging him to take the company MLM. Before one of the seminars he turned around in his seat to talk to me.

“Statistics show that the average salesman works about fifty-eight hours a week but spends less than seven hours of that actually selling,” he said. “My guys’ theory is that multi-level wall give them an easy way to prospect.”

Before coming to Crossroads to Networking, Madison had been fairly certain that his company would move into MLM in the near future. Now Madison felt differently. “The thing that discourages me about MLM,” he said, “is that we haven’t been able to find anybody at this symposium who’s been in business for as long as three years.” □

  1. In a leap year the interest rate would be 7, 515, 336, 264, 876, 266, 329, 246, 337, 909, 725, 878, 487, 602, 184, 156, 506, 623, 586, 263, 331,108, 903, 068, 880, 366, 747, 019, 083, 836, 794, 831, 259, 849, 702, 191, 923, 100 percent. In any year you’d need more than a pickup truck to take your money home; even if you withdrew it in $100 bills, the largest denomination still printed, the account would weigh more than the known universe.