With a bad history of being associated with fraud, the bifurcation between what’s legal and what’s not has blurred over the years.
In India, any MLM is viewed as ultimately getting saturated/caught under the ‘Prize Chits and Money Circulation Schemes (Banning) Act, 1978.’ It was only in late 2021 that the industry got support from the Department of Consumer Affairs.
So I am here, to share my experience with you all; busting 5 popular myths about the industry.
Myth #1 All MLMs are illegal Pyramid/Ponzi schemes
Myth #2 The folks at the top earn; the ones at the bottom lose
Myth #3 Eventually the business structure gets saturated
Myth #4 It’s a shortcut to success! Quick Money!
Myth #5 It’s a cult!
Throughout the blog, I will be backing my points with various points of reference – Indian and International.
Myth #1 All MLMs are illegal Pyramid/Ponzi schemes
As I already stated, the MLM banner has a bad history of being utilized by Ponzi or Pyramid Schemes.
In India alone in 2021, a majority of businesses marketing under the name of MLMs are not likely so. You will hear them getting bankrupt/banned in the years to come.
This has been the situation for a while. And there is no proper legal body protecting its rights apart from DSA- hence the widespread confusion. But for the end customers, there are always certain checks to identify a proper MLM business out of the lot and enjoy the incredible revenue it holds for you. Forget everything else, ask yourself 4 questions:
Is the focus on recruitment, or product sales?
Most of the time, you will come across a trade that pays you a sum of amount just for you to recruit one individual, with or without the sale of any services or products. This kind of structure is dangerous and one of the first symptoms of a pyramid.
The least a legal company should have is a portfolio of products that have tangible value to its consumers, and the commission or payout should be based on the sale of products and not recruitment.
Even if I get no payout from the plan, the products should deliver some kind of value to me as a customer. That’s the basic!
Recruitment of proper individuals who help you realize the dream is the vessel, but it is of no use unless there is a sale of products – the water in the vessel.
Product Quality and Satisfaction Guarantee
Valid MLM companies churn out products of superior quality than that of a similar prized cousin in the open market because they absorb most of the supply chain (Manufacturer to Consumer) and advertisement costs, to invest it into product quality and provide commissions to sales associates or direct sellers.
Hence, most products have a satisfaction return guarantee, up to 100% varying across companies.
This is what I always focus on – use the product, judge its quality, and see the portfolio/range. Once you are confident, move on to recommend others and eventually kickstart your business.
Hence, you know why it’s wise to use it first before recommending others to use it – because it is the honest thing to do.
A Hefty joining amount for no concrete reason
First of all, there shouldn’t be a mandatory joining amount.
And even if there is, it should be a minimum amount to get your account activated.
How much you are willing to invest in your inventory to kickstart your business should be your call.
A basket of products/services for activation of the code is acceptable but an unreasonable higher amount or funnel of payments is not.
Also, you should get a proper GST receipt against your products that explains where each penny will go.
Company age and legacy
Most of the Ponzis/Pyramids saturate at the age of 2-5 yrs; 10 yrs in the market is a safe zone.
If the company has been around for more than a decade, there is some credibility to it.
Company heritage and legacy is an add-on.
Myth #2 The folks at the top earn; the ones at the bottom lose
In an MLM; you can not win without a win-win situation. At least, not for long.
You can not earn 100,000 if you don’t have people under you earning 10,000. The folks at the bottom are not fools at the end of the day, just down the generation line.
They are not going to stay unless they see a situation where they are winning. Not in the future, but today!
Of course, the win is not going to quantify the same value as of an active individual 5 steps up. That’s like a junior employee wishing he/she was paid on par with the CEO, in the company.
However, MLM offers a fair chance to everyone. That new person with higher effort and strategic planning can come closer or even overtake his/her leader in terms of pay-out or rank in time.
This is because of proper structure, capping/threshold on payouts, and limitations on generational payouts. Just because you have a network that has 27-28 layers of generation, does not mean you get income out of all of those.
That capping makes sure there is a controlled distribution of cash across generations.
A person higher the line can not simply eat away your win, just because he is higher and has a larger network.
Your payout increases as you keep on building your network.
The power of the network evolves as you build your structure both in length and depth; thereby accessing commissions across generations. Each individual joins you in the hope of creating a network similar to yours.
Income is more of a function of the buying power of your customers and your education system (which should have a direct impact on the sales skills and efforts of your business partners).
It’s the same way popular businesses earn throughout networks across territories. It’s just not possible to compete with that amount of payout if you are in a 9-5 job.
Myth #3 Eventually the business structure gets saturated
Popular Argument: If I join 3 people and them 3: 1, 3, 9, 27, 84, 252, 756, 2268,…. eventually in the next few steps it will surplus the population of the Indian subcontinent.
There is a multitude of reasons why we should not treat saturation in this business based on elementary geometric progression!
It’s not practical as the calculations are too surface-level.
Here’s why:
1. There isn’t a finite number of people. Every single day the pool and hence the prospect grows.
2. A very small fraction of the individuals who join do succeed. You need to handle big teams and many people. You need Organizational skills, leadership skills, sales skills, common sense, and willingness to adapt to business and territorial changes … the list is similar to all challenges an entrepreneur faces.
A retention rate of 10% is huge and unprecedented in the industry.
Myth #4 It’s a shortcut to success! Quick Money!
The problem is in our hypocrisy – We generally look down on Direct Selling but treat it as a medium for quick money.
I have seen so many people get angry when they realize this business is not a shortcut to success.
That’s why it’s essential we tell individuals this is a long-term plan. 2/5/10 years – you know what it takes to make it big!
Like YouTube or SIPs, Network Marketing too is a compounding vessel. And like all other forms of compounding, network marketing too requires discipline, commitment and patience.
MLM is not a shortcut to success – it’s an n-year plan. You do not get overnight success!
You start with minimum payout and maximum effort, which slowly starts tilting throughout the period.
That’s how after the struggle you reach the passive income.
You sleep, but still, cash keeps flowing into the bank. That’s because, at that time thousands of meetings/operations/sales are happening across the nation, in your team.
But the harsh truth is, that most will not succeed even if we want them to.
Not just in this trade, but in all forms of compounding wealth.
Sad but true!
Myth #5 It’s a cult!
Some individuals displaying high energy attending large networking events might seem off at first.
But I do not blame that, our society and education have designed us in a particular manner.
If I would ask you if you wanted more money, maybe you would become self-conscious. Maybe a feeblish ‘yes’ at most.
But people here will scream a loud ‘yes’ in your face.
We have to understand that this business invites individuals from all walks of life.
It is a melting pot of a more diverse set of individuals than in any corporate/organization.
Since there is no demarcation based on gender, age, socio-economic profile, education, skillset, or experience; It’s as easy to join as it is to leave. There is no hard-and-fast set of rules you have to follow.
But people who succeed simply come to fall in love with their mentors.
If someone changed the world around you as we do, believe me, you would too.
Maybe that’s why when they cheer, it might seem fanatic to the outside world.
Having said that, I have noticed some individuals exaggerate figures and facts. Which I agree is not an honest thing to do.
But if you have so many individuals with different leadership styles, you will have nuances across teams.
Apart from these top 5 accusations, there are some more: it breaks relationships, destroys families, and induces frustration.
I do not know what to say about that except for my personal experience. Nothing is a harsher reality check than working in Direct Selling. It exposes all fake relationships that are anchoring us down and giving us a fake sense of belonging.
You can choose to be happy temporarily in your comfort zone or leave your comfort zone to bring permanent happiness to you and your loved ones.
I found it important to share with you these facts about Direct Selling.
Lack of clarity should not ideally be the factor why you do not enjoy many of the benefits of this industry
In a third-world country like India, money can be a determinant for almost anything. Even hope!
And if Direct Selling is the medium through which we can give people hope, across cities, towns, and villages, what’s the harm in that?
If you do not choose Direct Selling as a career, make sure it is not because of ignorance.
Wish you all the best in your ventures ahead.
KPMG – FICCI Report on the Industry (2014)
