Is Network Marketing, Referral Marketing or MLM a Pyramid Scheme?

MIf that was the case, every corporation in the country is a pyramid scheme, your insurance broker is running a pyramid scheme, real estate brokers are running a pyramid scheme, grocery stores are running a pyramid scheme, pastors are running a pyramid scheme and the largest perpetrator of them all - the United States government – is running the biggest pyramid scheme of all . . . Social Security!

If Franklin Delano Roosevelt were alive today and concocted such an elaborate Ponzi scheme, he and Bernie Madoff would be cell mates.

Do you have any idea how many people in the distribution chain are getting paid from the retail price you’re paying for a gallon of milk, e.g. suppliers, warehousers, wholesalers, jobbers, distributors and retailers? It’s funny how the people who claim that legal, legitimate direct marketing companies are scams don’t mind getting scammed themselves when they make retail purchases. That’s because they don’t actually “see” all those middlemen getting a piece of the pie between the manufacturer and the retailer.

If you’re someone who believes Network Marketing or MLM is a pyramid scheme, the next time you’re standing in the checkout line don’t forget to loudly proclaim and vigorously protest that you’re the victim of a pyramid scheme. And as a matter of principal and someone who clings to their deeply-rooted and noble beliefs, make sure you send that social security check back to Uncle Sam with a hand-written note that says . . .

I Don’t Participate in Pyramid Schemes!

For the uneducated and ignorant among us, a classic pyramid scheme has no exchange of value at all. And it is linear or 1-dimensional in scope meaning only one person could benefit the most at any given time – whoever is the capstone. So in my case, the person who enrolled me into my Network Marketing program would always make more money than me no matter how hard I work. Such is not the case.

Network Marketing or MLM is not even structured as a classic pyramid. Each person is the head of his or her own business and can sell as much product or enroll as many independent distributors as they want. That’s only common sense, but self-proclaimed victims who refuse to accept personal responsibility have a negative bias towards direct marketing or referral type businesses and loosely throw around the term pyramid scheme.

Sure, there are unscrupulous hucksters and shysters in Network Marketing companies just like there are in every business, but that doesn’t give one the right to characterize an entire industry as a Ponzi or pyramid scheme.

Don’t get me wrong, I abhor the rampant plagiarism within the (billion-dollar) cottage industry of MLM distributors turned self-aggrandizing life coaches and the often deceptive and deceitful advertising and marketing practices by both companies and distributors alike. But I am a staunch proponent of the business model itself and will vigorously debate and defend it against unwarranted attacks by uneducated people and bureaucratic pundits who claim that Network Marketing is a Ponzi scheme, pyramid scheme or less than admirable profession.

Shame on all those Avon ladies who used to come to our door on a monthly basis pitching my mother on a pyramid scheme! Not to mention all those Tupperware party participants and one of my high school teachers for holding Amway meetings at his house. Damn those hucksters and Ponzi scheme promoters!

Earth to the unenlightened! Network Marketing is legal. And it works if you possess the right characteristics and skill sets, choose the right company, pinpoint your prospects with laser-like precision, and really know what you’re doing.

It’s the companies with inferior and fad products and disingenuous pay-plans shrouded in hyperbolic language that attracts well-meaning but naive people to peddle their products that don’t work. That and motivated but incorrectly trained independent distributors that lack the marketing savvy to attract driven, unafraid-to-work entrepreneurs instead of the typical couch potato with a do-it-all-for-me mentality.

True, Network Marketing is a profession where positive thinking, positive intentions and positive expectations outnumber positive profits for a majority of distributors. And that’s a testament to the cult-like culture and sense of community it provides many participants. Some people are drawn to the “idea” of being rich more than the reality of being rich. They often value recognition over remuneration and “networking” more than marketing.

Adding to its often negative perception are the many failed MLM distributors turned bloggers and “trainers” that disseminate fallible tactics and techniques to a gullible audience who buys their flawed philosophy hook, line, and sinker. Unfortunately, solid sales, marketing, and effective communications training has been replaced by pseudo-scientific “personal development” with a disproportionate emphasis on New Age spirituality, e.g. The Law of Intention; The Law of Attraction; and the Law of Abundance. These have their place in life and our profession, but not without action and adherence to business “laws”.

The only “Law” one needs to apply in business is the Law of Supply and Demand. Create the supply and satisfy the demand. Network Marketing, through the collective efforts or ordinary people, just so happens to be one of the most efficient, effective and empowering ways to accomplish that. But like anything else worthwhile in life, it still requires desire, self-discipline, and that dreaded “work ethic” to succeed.

Feel free to comment, share, and tweet. In the next installment we will briefly go over how to handle prospects who ask, “Is this a Pyramid?”

Please note: I reserve the right to delete comments that are offensive or off-topic.

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3 thoughts on “Is Network Marketing, Referral Marketing or MLM a Pyramid Scheme?

  1. Mike, I am glad to meet another professional that is passionate about the Network Marketing Industry. It is my belief that people who still believe that MLM is a pyramid (scam) has to do a lot with their self image. Not wanting to be in the MLM Industry is different then saying it is a pyramid. Thanks for sharing your passion, and educating people about the Network Marketing Industry.

  2. I like your point about supply and demand being the actual law at play here; I read a lot of blog posts about the law of attraction and so on, but I’m not sure how that translates to sustaining a real business.

    For me, I think the reason people are so skeptical about network marketing is that there are questionable networks out there that don’t seem to deliver a product–the networks seem to only exist to perpetuate themselves and gain commissions for people in the chain. I think that marketers can do the whole profession a real service by becoming clearer about what they are selling, why their products/services are useful, etc.

    • Hi Mandy,
      I am a big proponent of the Law of Attraction, but ONLY with action! All of that stuff is great — you can visualize every day, but if you don’t act, it won’t work.

      Yes, there are tons of not only shady businesses out there, but unscrupulous people marketing legitimate opportunities (which makes them look bad). A great business model will stand on its own, with customers purchasing product even if no compensation were offered.

      You touched upon my big “Why” for writing this blog (and my upcoming book) — which is to create a rising tide that raises all boats (although some “boats” have holes in them and will ultimately sink). By properly educating prospects on what it takes to build a Network Marketing business before they join, this can be accomplished.