In response to the original question of why mlm is so hated, consider the pyramid scheme myth explanation below
The Pyramid Scheme Myth
According to the Federal Trade Commission (FTC), as long as a company sells and distributes a valid product or service, that company has the right to pay and motivate it's sales force using a straight, multi-level, multi-tiered commission structure or whatever commission structure they choose. A valid product/service is a product/service individuals would buy regardless of the distribution or sales platform employed. So, the bottom line, network marketing and multilevel marketing organizations are sales organizations ..not pyramid schemes.
So, what is a pyramid scheme?? According to Merriam Webster dictionary: a pyramid scheme is a usually illegal operation in which participants pay to join and profit mainly from payments made by subsequent participants. In other words, no product or service changes hands. Money is simply transferred from one individual to another with some organizational system in the middle direct funds. Those who get in first and rise to the top benefits from payments made by new participants coming in at the bottom. Such a system is top heavy and tends to benefit only those who get in first because eventually the system implodes leaving the most recent new participants who just got in at the bottom holding the bag.
Pyramid scheme is also another name for Ponzi scheme. Recently, in December 2008, the nation and world witness the largest ponzi scheme in history made by investment mogul Bernard Madoff who ran a 50 billion dollar ponzi scheme. Mr Madoff ran a classic ponzi or pyramid scheme where investor thought he was investing their money in stock and bonds when, instead, he was just taking money from investor A and using it to pay investor B. Unlike these pyramid or ponzi schemes, network marketing and multilevel marketing organizations are sales organizations because a product or service changes hands when money is paid and sales commissions are paid against the sale.
So, ask yourself, why do so many people refer to network marketing or multi-level organizations as pyramid schemes? Ans: Over the years, through mis-communications, bad experiences and/or misunderstood marketing campaigns, people have come to associate network marketing or multi-marketing with the notion of only those who get in first make money. This phrase conjures up a vision of a pyramid-like structure where only those at the top of the company is making money and those who come at the bottom, hoping to make money, are suckered into buying products and services ...thus enriching those at the top. In fact, this notion has the same look and feel as the real pyramid scheme/ponzi scheme discussed above. Except, in this case, actual products and services are changing hands.
Now, to understand why the notion of only those who get in first make money is NOT true relative to network marketing, start by reviewing the network marketing and the multi-level marketing business model in it's purest form:
1) Step 1: First, you join as a product distributor and learn how to sell the product. You can sell the product door to door, to friends and relative, over the internet, to companies or whatever. But, first, learn how to sell the product to the general public and generate an income commensurate with whether you are functioning in a full time or part time capacity;
2) Step 2: Once you learn to sale and generate sufficient income, then you have the opportunity recruit and teach others how to go out and sale the product. As those you recruit and train become productive, you earn an override commission or a percentage of their monthly production volume as compensation for your training efforts;
3) Step 3: Then, those you recruited and trained also have the opportunity to recruit and train others and you can earn commission or a percentage of their sales volume as well ...because it all feeds into your overall organizational sales volume;
3) Step 4: Over time, because of the foundational sales skills and knowledge you established in Step 1, you will qualify as a sales manager with a focus of training and managing a sales team and earning income by overriding the sales volume of your team
These are the foundational steps. However, unfortunately, many network marketing or multilevel marketing organizations have deviated from these basic foundational steps to the point where these steps are unrecognizable. Instead, many organizations have opted to focus on recruiting others, selling product to the recruits and encouraging new recruits to do the same. Most people hate direct sales (i.e. door to door), so it's easier to sell the business opportunity as a lead into the product sale.
Now, although this deviates from the foundational steps, when you boil it down, this is simply an organizational sales strategy. It is not illegal in any way, shape or form because, at the end of the day, products and services are being sold and commissions are paid against the sales.
However, over the years, this sales strategy has lead to many characterizing multilevel and network marketing organizations as pyramid schemes or scams wrapped around the notion of only those who get in first make money. This is because, in sales, only the strong survive and many underestimate the sales skills required to make it in network marketing. Or, more accurately, the sales skills required are often overlooked at network marketing business opportunity meetings. The end result: many new recruits quit after buying some products and services and the established up-lines keep putting on opportunity meetings and using this sales strategy to promote and sell products and services. In fact, on the average, 95% fail and around 5% stick.
The 5% who stick get motivated and learn how to sale and/or recruit. So, they learn, persevere and excel at it and, as long as the network marketing company offers a valid and marketable product or services, these new recruits have just as much opportunity as those who got it first. So, this is why the notion of only those who get in first make money is NOT true. It all about the individual's willingness to learn and do what it takes to make it. Even the granddaddy of the them all, Amway, is still a valid and accessible networking marketing business opportunity if you are willing to work hard and do what it takes to succeed.
Unfortunately, however, many fall short and, because of the hyped-up opportunity meetings, conference calls and internet webinars, more often than not, many leave with a negative emotion or feeling regarding the experience. However, if you think about, only above 5% of sales professional in any business, network marketing or otherwise, make it. It's the nature of sales.
Summary
So, here's bottom line with network marketing. Recruiting as a lead in to sales is a valid and legal sales strategy for network marketers ...but it's not efficient. Network marketing leaders continue to extend the opportunity to people, knowing that 95% will fail. Seasoned network marketers are wealthy because of the 5% who stick and the sale of products and services to the 95% who fail. This said, network marketing is still the simplest and most accessible "bottom-up" path to business ownership (little to no investment) given the thousands of dollars it takes to start a typical small business.
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Originally Posted by orson.octavius
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Ok. Also, the presentation just talked about the money, the freedom, blah blah blah without telling the person the work really involved. I agree. This is something that is really missing in this industry for sure. Unfortunately, when that tiny nugget is missed, people develop the "lottery" mindset and they overestimate what they can accomplish in their first year and as soon as they get a few "no's" they fold up like a lawn chair! However, most people "underestimate" what is possible in 4 years. If you understand the "penny doubling every day for a month" example, you would realize that it takes some time for the magic of compounding and leverage to start to kick in. Unfortunately, most people can't stick it out and be patient. Trust me, there were many times when I wanted to quit, but you've got to stick it out if you want the payday MLM promises.
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