Network marketing has been getting a bit of a bad rap lately from several quarters. It’s been heaped with the worst kinds of criticisms both from disenchanted ex-distributors who were fed with wrong expectations, to outsiders who view it as nothing more than a Ponzi Scheme. Despite this perception problem faced by the industry, it should nonetheless be asserted that network marketing is now more relevant than it has ever been.
Why Network Marketing Has Become Indispensable
Any manufacturer needs to have an effective strategy in place for distributing their products. For the purpose of this article, I have segregated products into two broad categories, defining each with a term of my own making: a) over-the-counter products, and b) specialized products.
I employ the term over-the-counter to describe products that can be purchased from any kind of retail outlet and used immediately by the consumer without the need for any kind of special training. Products in this category would include electronic and electrical appliances like televisions and white goods like washing machines and refrigerators; garden-variety kitchenware; and so on among others.
On the other hand, there are products that require the consumer to be educated about them for effective usage, and which I have christened as specialized products in this article. Products of this sort require the user to have some amount of knowledge and expertise about them, and this knowledge could be in terms of understanding product benefits, as well as using the product in the most optimum manner to derive maximum benefit from it.
Technologically speaking, the society that we live in has evolved considerably over the past couple of decades, with most us using increasingly sophisticated products on a daily basis, practically all of which were the stuff of science fiction just a few decades back. Consequently, as we keep advancing technologically as a society, we are bound to see greater and more sophisticated products hitting the market. And these specialized products are hardly what one could refer to as the plug-and-play kind; products of this sort require the user to be at least minimally trained in how to use them, including having a good idea of what to expect from them, as well as proper usage. One can hardly imagine a dispassionate salesperson — who already has an array of similar and competitive products — in a retail outlet, painstakingly training the customer how to use such a product.
The point is, a specialized product, which requires some amount of hand-holding before the end-user is able to use it effectively, is not a very appropriate candidate for distribution through conventional means; in fact, such products are prime candidates for the MLM distribution model. This kind of specialized product would require a dedicated self-user (this could be your “upline” distributor, the one who introduced you to the business opportunity, or their upline) who will take the onus of training fresh distributors, even if only at a rudimentary level, before the product has been unpacked. And this is what makes a dedicated distributor network so important for products of this nature. Since all distributors are users themselves with most of them expected to be adequately trained, they are in a good position to train neophytes how the product should be used.
As an aside, some examples of specialized products that immediately come to mind would be exercise equipment, health devices like water ionizers; health supplements; cooking ware that requires some amount of expertise to be used; and so on and so forth.
The 3 P’s of MLM Viability
Now that we understand and appreciate the relevance of network marketing as well as its growing importance in the highly evolved society that we live in, it becomes more important than ever for entrepreneurs to be able to figure out whether a claimant to the MLM distribution model is genuine, or if it’s just a fly-by-night operator that has adopted the MLM channel solely to exploit the distribution model’s enormous growth potential. To this end I conceptualized the MLM Viability Triangle ©, which can be a quick and decisively indicative test for gauging the genuineness of any business that purports to be an MLM company. Have a look at the triangle below.
The triangle in this image represents three different factors that any company, which claims to be a legitimate MLM business, needs to demonstrate their clout in; each of the three vertices of the triangle represents one of these factors, which are product, plan, and purpose. The side opposite the vertex specifies the potential loss a distributor would incur if the MLM company is lacking in that particular area.
In fact, it would help us understand the significance of this triangle better if we employed the analogy of a three-legged stool: if the stool is lacking in even one of its legs, it can be hazardous for the person using it. And so is the case while applying our MLM Viability Triangle ©: if the MLM company in question lacks in any one of the three elements specified by each vertex of the triangle, take that as a warning sign. Let’s examine each of these vertices quickly so that you get a good idea of where we’re going.
- If the product is not viable — and we will talk about what product viability exactly means within the context of this discussion — it is a strong indicator that the company is running a Ponzi scheme.
- If it’s lacking in a good and well-structured compensation plan, it would mean you may quite possibly end up wasting valuable years of your life chasing after shadows and never being close to getting anywhere meaningful.
- And finally, the purpose vertex represents the quality of education that the company imparts to its distributors. In other words, the effectiveness of the system employed by the upline support group to help you identify your dream (“purpose”), and working backwards from that dream to convert it into tangible goals that are also achievable.
So do we have objective benchmarks for being able to accurately assess these three factors in any MLM company? As it turns out, the answer is yes. You need to ask yourself the questions that follow before you take the decision to commit the next few years of your life to any network marketing company. Each of these questions addresses the factors identified in the viability triangle that you would need to have solid answers to before you decide to sign up.
The questions are as below.
- Would I buy this company’s product, at its current prices, even if there was no compensation plan attached to the purchase?
- Does this company present me with a high-velocity compensation plan? Does it require regular purchases from me, or would a one-time purchase suffice?
- Is the company interested in developing me as an entrepreneur, or are they solely interested in having me sell their products? Do they have a solid education plan for me?
We will next elaborate on each of these questions so that you know precisely the kind of answers you should expect.
If the company is weak in the product aspect of the triangle, quite possibly it may be running a Ponzi scheme. Be wary, because the government has very little patience with scamsters peddling Ponzi schemes in the guise of a legitimate MLM business. The “distributors” (if at all that word could be used to describe them) at the very bottom of the totem pole will eventually be the losers, because the authorities are bound to get interested sooner or later. And if the authorities were to shut down their operations or have their assets frozen, the last folks to buy into the plan would end up losers; the “distributors” higher up in the chain would have already made their killing by then and moved on.
So how do we know if the company has a viable product? Let’s figure that out next.
Any product — distributed either via the MLM model or via conventional channels — has to have two important attributes: a) its quality should be top-notch; and b) it has to be competitively priced. If the company’s product is of bad quality, that’s a no-brainer: stay well away. On the other hand, if you are sure about the product’s quality, that’s great; go to the next part of the question and ask yourself: how much is the same product or an equivalent product easily available in the open market priced at? A marginal difference in prices is OK. However, a substantial difference implies that the “opportunity” cost has been weaved into the basic product cost, thereby bloating it above its generally available and fair market value. This immediately disqualifies the product in the viability department. However, if the answer is positive for both the questions, that’s a positive sign that it’s a viable product. The point is, if I were to purchase the product and opt *not* to avail of the business opportunity while still continuing to use and enjoy the product, that’s a clear indication that the product is of good quality and also priced competitively.
A very important point to always bear in mind is that good leadership is the oil that keeps an MLM business running smoothly. That said, it should be understood at the outset that not every new distributor is cut out to be a leader. There may be others who signed up in the heat of the moment, but may have later developed cold feet, or what is otherwise known as buyer’s remorse. This often happens after the (typical) 30-day return period has lapsed, and the new distributor is away from all the hype surrounding the company and the opportunity, and they start to coldly examine the numbers and realize that they’ve been had, because the same or equivalent product was available elsewhere at a much cheaper price. This gives them an unsettling feeling of being used, that they paid an exorbitant price to make their upline distributors rich. And which in turn leads to a bunch of unhappy ex-distributors who will then badmouth the company on public forums. This is bad for both the company and its distributors, and you certainly don’t want to be party to that. An undesirable situation of this sort is in fact indicative of an unethical company whose sole interest would seem to be in milking new distributors to put money into their own pockets and those of their topmost distributors. Not to speak that it smacks of a scam.
Moral: Stay away from companies that peddle products that are either of low quality or are not priced competitively. Always bear in mind that the combination of a high quality product with an attractive price tag is what works to make the opportunity feasible. Make sure that the product is viable in the same sense in which I have explained it here before you decide to sign up with any MLM company as a distributor.
A good plan is the second factor to consider in the MLM Viability Triangle ©. If the company is weak in this aspect of the triangle, it will result in the distributor burning out valuable years of their life without really gaining anything much. The compensation plan is what determines how much time you would need to invest in the business before you start seeing good returns.
A good compensation plan is what I call a high-velocity plan. What exactly do I mean by high-velocity here? Broadly, it is an indicator of the distributor’s return on investment (ROI) in terms of time: it is the length of time between when one invested in the distributorship/franchise of the company, and the time this initial investment was fully recovered, so that the opportunity paid for the product, thus making the latter “free,” so to speak. The faster this happens, the more high-velocity the plan is. Naturally, the compensation plan has to be both well-thought-out and well-structured before it can be considered high-velocity. And then of course, the proof of the pudding is in the eating: the ROI of successful distributors in the business should be telling.
So what sets apart a high-velocity compensation plan from slower and sluggish plans?
As a rule of thumb, high-velocity plans tend to have distributor network structures designed to be deep rather than broad. A deep network structure indicates that the company is interested in maximizing its distributors’ earnings. And which is clear evidence of an enlightened vision driving the company, since it is indicative of the realization that the company’s growth is predicated on its distributors’ growth.
Sidebar: My personal favorite is the binary plan because it runs deep rather than wide, and expedites returns for its distributors.
In the same vein vis-a-vis the plan, are payouts time-sensitive? Or in other words, the question you need to ask is, will I lose my earnings if I am late in meeting my targets? Consequently, will my earnings lapse instead of getting carried forward? Time-sensitive payouts are a backhanded way for unethical companies to deprive their distributors of their legitimate wages, and you certainly don’t want to be part of such a company. An ethical MLM company would rather pay its distributors by never lapsing their earnings than lose their loyalty for the sake of immediate and unethical gains. In fact, a good company’s values should always include loyalty; they would rather they generated lower profits by being loyal to their distributors by paying them their fair earnings, than dishonestly appropriate money they acquired through their hard work. The compensation plan should be designed such that a distributor’s profits never lapse — albeit remain in limbo — till such time that they develop a more balanced structure and are able to avail of their legitimate revenues, even if months or years later.
Thirdly, does the plan expect you to commit to a regular business volume every month? Bear in mind that a plan of this sort will eventually carve a large hole in your pocket, and which will be further compounded if the offered products are also unviable. This would be a clear case of burning your hard-earned cash so that an upline distributor is able to hit an achievement level. Always bear in mind that a business “deal” of this sort rarely makes sense.
A distributor may end up wasting years of his life chasing after a dream that was never achievable by employing such a plan in the first place. I have seen more broken hearts and promising futures destroyed in the MLM industry than anywhere else precisely because the compensation plan offered by the company was skewed to maximize their earnings at the expense of their distributors’, with naive downlines desperately pushing sales at the end of the month so that their uplines could hit the next level; all this with the forlorn hope that their downlines too would do the same for them eventually.
Always bear in mind that this is just not a viable strategy because any good business runs solely on profitability, not good intentions or promises, to be sustainable.
As an experienced observer of the network marketing industry for more than two decades, I have reason enough to surmise that, typically, companies with broad (as against deep) network structures tend to unfairly enrich both the principal company and the earliest distributors, with the trailing distributors having to pay the price for their upline distributors’ success. On the other hand, compensation plans with narrow but deep network structures tend to be uniformly advantageous for all distributors, regardless of the time they opted for the opportunity, with quicker ROI, as well as lesser odds of the company usurping their distributors’ legitimate earnings.
Lesson: Opt for an MLM company that has a deep (like binary) rather than a broad compensation plan. Also ask your potential sponsor about the business volume expected of you every month. The best plan of course would be one in which you need to buy a product only once in your lifetime, and such plans typically tend to be binary.
The network marketing industry is a very different one from other, more conventional industries, and therefore requires a different approach altogether, and I would even venture to say that it requires a mindset that is diametrically opposite to that of any conventional industry. This is because network marketing is the sole business in the world that provides an incentive to its people to help one another. I would ask you to read that last sentence again. Unlike other industries – where competition is undesirable with people actively working to sabotage their colleagues’ success – a distributor’s success in the network marketing industry is strongly tied with their team’s success, and their ability to accomplish and advance closely hinges upon close collaboration as well as getting help from others. Ergo, you will rarely find dirty politics at play in an organization of this sort, as against any other conglomeration of humans assembled for a commercial purpose as in other, more conventional organizations.
To this end, any good network marketing company with a far-sighted management looks for more than just product consumers, because by its very nature network marketing stands apart from other business models since its very crux is helping others succeed because one’s success itself is intertwined with their organization’s collective success. And this is where a good system comes in.
By purpose I mean how well (for want of a better word) the system employed by your sponsoring group helped you identify your dreams and helped you convert those dreams into achievable milestones. And once that has been done, how the system helps you improve yourself through ongoing education so that you sprint rather than walk towards your goals’ fulfillment. The system has to be battle-tested and as simple as rinse-and-repeat. And of course, there’s a human component to it, because ultimately it is humans who run the system to make it work. Therefore, for the system to be effective there has to be a ready supply of mentors who are eager to guide you in achieving your milestones. All this requires a solid education system, of course. If the MLM company or your support group does not provide you with a well-designed system, be wary, because it may be quite possible that they may be looking at you as a cheap sales person for pushing their products, and are not really interested in developing you as an entrepreneur.
Any well-aligned MLM company runs on a simple philosophy: develop the distributor into an entrepreneur so that they becomes effective in: a) expanding their own business; and b) mentoring other leaders who will then help develop more leaders within their organization. A virtuous cycle of this sort is so much better than mere sales revenues achieved through retailing and the distributor remaining content with retail margins. Short-term thinking on the part of the company or the distributor can be fatal for everyone’s growth. I hope the significance of constant education and mentoring in this business is not lost on the reader.
Unfortunately, if the company is weak in this aspect of the triangle, it means that the management either lacks a long-term vision to drive the company, or they lack the expertise to develop leaders, both of which are not good signs. Before you realize it, you may end up becoming a cheap sales person for the company and soon begin to feel a sense of stagnation closing in on you. Not that selling is bad; in fact it is a prerequisite to becoming an entrepreneur. However, you should definitely be looking for greater personal growth.
Moral: Go for a company that helps you to not just identify your dreams, but also gives you: a) a solid plan with tangible milestones to achieve it; b) a solid education so that you can optimize your speed and reach your goals faster; and c) a ready supply of mentors who will guide you towards achieving your goals.
In this article, we had a pretty comprehensive discussion on how to differentiate a good MLM company from a weak or a bad one. We spoke about how to employ the MLM Viability Triangle © to be able to do this. If you liked the article, please do like it and I would also request you to also share it.
Najeeb Shaikh is the founder and CEO of najeeb.pro. Najeeb is a veteran software developer, and has also been part of the network marketing industry for well over two decades. He assiduously studied the compensation plans of several MLM companies before designing one, which he strongly believes is a winning plan. Do get in touch with Najeeb via the contact page.