MLM: Beware of Old Friends and Past Acquaintances

You’re in the supermarket just going about your business when you see her from across the aisle. You lock eyes for a split second, but quickly glance away hoping that you can just play it off as you hurriedly scurry to the other side of the store. It’s too late though. She has your scent and cuts you off at the cereal aisle. There’s no escape now. You’re going to have to talk to her. It’s your old coworker that you haven’t seen in five years and judging from her Facebook posts she’s gotten herself involved in one of those scammy Multi-Level Marketing (MLM) schemes…and you’re about to get a sales pitch about it. You really should’ve run faster.

What is Multi-Level Marketing?

“Multi-level marketing (MLM), also called pyramid selling, network marketing, and referral marketing, is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company’s products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.”

-Wikipedia

There are two ways to make money through an MLM company. The first is through selling products and getting a commission from the sales. The real money maker is the second option though. If you can recruit other people to join the business then you get a cut of their sales and also a cut of the sales of anyone they recruit. They assure you that’s it definitely not a pyramid scheme though so no worries.

MLM recruitment structure shaped like pyramid
Hmm, that shape looks vaguely familiar…

If you’re lucky they’ll just try to sell you stuff either in person or through almost daily posts on social media (have you guys heard about how great ketones are?!). If you’re not so lucky though, they’ll actually try to recruit you into their cult of business. I don’t use the word “cult” in jest either. These companies get people to peddle their sub-par products by promising riches and then get them to stay by pushing the lifestyle.

My Experience with MLMs

In the past I had seen people get involved in these, but I had never been approached to join one before. That all changed when I received a message on LinkedIn from a guy I went to college with.

We weren’t close friends but definitely knew each other well enough to call each other acquaintances. The first message he sent seemed innocent enough; it sounded like he genuinely wanted to see how I was doing since graduation. It’s LinkedIn so I figured he’d want to do some networking too. All part of the grind so nothing too unusual. We give each other our life updates, but after that things took an unexpected turn.

He says he has a business opportunity that he wants to talk to me about. Uh-oh. He has a legit job at a well-known company, so I wanted to give him the benefit of the doubt that maybe he was just trying to hire for a position with said company. I wasn’t really looking for a new job, but I figured it couldn’t hurt to hear him out.

He wanted to give me a call to talk about this “opportunity”, so I go along with it still giving him the benefit of the doubt. I should’ve known better.

During the phone call it quickly became evident that he had no intentions of hiring for the legitimate company. Apparently he had started a side hustle after being recruited into it by a stranger that approached him. This stranger was now his “mentor”.

He wanted me to read The Business of the 21st Century by Robert Kiyosaki. This book is about network marketing and if you look up reviews of it you’ll see many mention it is tied to various multi-level marketing/pyramid schemes. It’s basically their holy book that’s used to make sense of their business model and justify it. I’m not sure if Robert Kiyosaki is on-board with how the book is being used, but this isn’t the first sketchy thing he’s been linked to.

He sent me an electronic copy of the book and asked that I let him know when I finished it. He also wanted to go ahead and set up a time during the weekend where I could speak to his mentor. At this point I decided I had let this go on long enough. My curiosity was satiated and I now had 100% confirmation that this was a MLM scheme. I let him know I wasn’t interested, and that he should probably start looking for a new side gig.

You still may be asking yourself why these are so bad. The answer is that the people at the top make almost all of the money. The people towards the bottom of the pyramid recruit hierarchy make almost nothing (sometimes even lose money) and do all of the work. Luckily the signs of an MLM are pretty obvious, so they’re not too hard to spot. Here are just a few:

Signs of a Multi-Level Marketing Scam

Approached By Old Acquaintance Or Stranger With Business Opportunity

You should always be a little wary when someone approaches you with a business opportunity, especially if it’s someone you haven’t talked to in a long time or a stranger. Many recruiters like to frequent malls and grocery stores to scout for recruits.

Usually these are people that you wouldn’t expect to have a high level of business acumen. For example, if you run into a guy you went to high school with and you know he still lives in his mom’s basement you probably shouldn’t be getting into business ventures with him.

Don’t Tell You What The Business Is

Typically in these types of MLM arrangements they will go as long as possible without telling you what the actual business is. They will try to hook you on how much money you’ll make and how great the company is. Then when they actually tell you what they do they hope you’ll already be on-board.

Have To Sell Something

The money has to come from somewhere so selling products is almost always a part of multi-level marketing scams. Cleaning and health-related products seem to be the popular choices. The products are typically inferior to what you would find at the store and have ridiculous mark-ups.

Preach About How Much Money You’ll Make

The main selling point is always how much money you can potentially make. My college acquaintance’s “mentor” was apparently getting ready to retire after making so much from this business. Do you guys smell that? Smells like BS to me.

Mentors

If someone approaches you and volunteers to be your mentor or wants you to talk to their mentor they likely have an ulterior motive.

Use Well-Known Figures or Books

They want to make their business seem more legitimate, so they will reference finance gurus to justify their business model.

Cult-Like

The blind devotion that people involved in MLMs have to their business is almost scary. They eat, sleep, and breathe the business and even attend conventions. They typically get very upset if you question their methods. Many participants don’t even realize how sketchy the company is. Maybe they’re just in denial?

It’s a sad reality that we can’t always trust people that we thought we could, but that’s just life. Hopefully the next time someone reaches out to you they have genuine intentions of reconnecting but always be mindful they may not.

There are numerous ways to make more money, but joining a multi-level marketing company is not a good one. Plus, remember how much selling candy bars in grade school sucked? You would basically be doing that all the time and all your friends and family would hate you for trying to sell them stuff. I think this is an opportunity you can afford to skip.

Author: Finance Brofessor

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