Our friend’s pre-school daughter cracks me up.  Her favorite phrase is “because I said so!”  Ask her how she became so cute and she’ll say “because I said so!”  It doesn’t matter the question – that is her response.

Even though I find it cute when she says this, I am sure her parents are over the cuteness and just want a different answer.

It’s not unlike many MLM businesses that operate today.  Many lack credible testimonials or independent test results to back up their claims about their product or services.  If you press them on these they’ll react like my friend’s daughter and expect you to just accept it because they said so.  

Do Your Homework

With so many tools at your disposal to research MLM businesses there is no excuse for being duped by a bad business or a pyramid scheme.  Spend an hour or two on the internet doing research if you have found a MLM business in which you are interested.

You Googled Me?  Yahoo!

I suggest starting with a simple search on Yahoo! or Google.  Use the name of the MLM business along with keywords like “scam,” “complaints,” or “false claims.”

Believe me (because I said so); if there is anything bad about an MLM business, its product, or its owners you will find it on the internet.   Just weight the source appropriately.

Also, search the names of the owners and the product names with those same keywords.

Who Let the Dogs Out?

There are several watch dog organizations that serve to protect the public from fraudulent or bad businesses.

Check with your local Better Business Bureau (BBB), as well as, the local BBB where the MLM business is based.  Check with the Online BBB if your MLM business has a web presence.

There are other watch groups such as MLM Watch, but remember that they report from a perspective that is anti-MLM so take their reports with the proverbial grain of salt.

Big Brother is Watching

The government is always watching for scams and fraudulent businesses.  The most proactive agency is your state attorney general’s office so check with the office in both your state and the MLM business’s state.

The federal agency that watches for scams in the MLM industry is the Federal Trade Commission (FTC).  The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them.

Independent Studies & Reports

You would love to find multiple studies and reports verifying the claims of your MLM business, but it is rare that there will be any.  For those that love to hate the MLM industry, this charge is levied against all MLM businesses as a smoking gun.  But is it?

If we had these reports would we understand how to read them?  Or would they be like so many studies, and be open to the differing interpretations of the experts?

With the exception of very big ticket items, I have never looked for independent reports or studies before I made a purchase.   The fact is that most products on the market do not have independent confirmation of their claims, yet we purchase them every day without a second thought.

As Seen On TV

Who is endorsing the product or service?  Celebrity endorsements are huge in advertising campaigns.

Ask yourself some questions about the celebrity endorsing the product.

Are they actually endorsing the product?

Oprah Winfrey recently announced several lawsuits against people who falsely claimed that she had endorsed their product.

How famous is the celebrity?

Former child stars and D list celebrities are apt to be more likely to make an endorsement, but why?  They may need the income that these endorsements bring.  Also, there is not as much of a downside to them if the product or service is poor as there would be for an A list celebrity.

Does the celebrity have any expertise in the area they are endorsing?

If so, especially if this is why they are famous, they have more to lose by endorsing a bad product or service.

John from North Carolina says …

Personally, if I do not know the person giving the testimony, or someone who is very close to them, I ignore it.  It is too easy to counterfeit personal testimonies on a website or in marketing literature.

Even if I know the person, I will ask for a sample or trial period with no obligation.

Ultimately, my opinion is the only one that matters to me.  I will not sell something to others that I do not personally use or do not have first-hand knowledge that it works.

Just Call Me Dr. Mudd

In days gone by, a man’s word was his bond.  In today’s world, that seems to be less and less the case.  Your name; however, is still something that matters to most people.

If you fail to properly research an MLM business before getting involved you run the risk of selling poor quality goods or services to your network of friends, family, and co-workers.  You could quickly lose your reputation and that of your family name – ask the Mudd family how easy that is to get back.

And if nothing I have written has convinced you, then just do it “Because I said so!”

When I first decided to open my small business I quickly began to feel like Ralphie from A Christmas Story.  All he wanted for Christmas was an “official Red Ryder carbine action 200 shot range model air rifle.”

He told everyone about it.  It was all he could think about.  Like Ralphie, the entrepreneur in me could only think about one thing – starting and growing my small business.

Much to Ralphie’s dismay,  the only thing he heard back was, “you’ll shoot your eye out!”  If you are starting up a part-time home-based business or a full-time traditional small business you have probably heard your fair share of naysayers too.   Why do people tend to react this way? 

Ralphie’s Mother – Genuine Concern

The noblest of all the naysayers are concerned about us.  I think Ralphie’s mother was genuinely concerned that he may actually shoot his eye out.   There is always a risk of failure when starting your own business and they may be concerned for you.

Don’t dismiss these people.  Make sure that you listen to their concerns and have accounted for it in your business plan.  Doing so will increase the odds that your business will succeed.

Ralphie could have taken a gun safety course or promised to use safety goggles and head gear when using his air rifle.  If you have identified the risks and have a plan to mitigate those risks then there is nothing more you can do as concern becomes just worry.

Ralphie’s Teacher – Just a Distraction

Ralphie’s teacher may have been concerned for his safety, but she most likely saw his desire as a day dream – a wasteful distraction.  Many people are too busy living their lives to ever risk following their dreams.

To these people your dream of watching your small business grow is just a reminder to them of the fear that keeps them trapped in their day-to-day lives.

They are quick to point out the has beens that have failed while content being a never was.  There is little to be gained from them.

Department Store Santa - A Bad Reminder

The department store Santa has given up on his dreams.  In the movie, as Ralphie is clinging to his hopes that Santa will grant his wish, the department store Santa forces him down the slide by pushing him down with his foot.

These people have tried, failed, and quit trying to accomplish their dreams.  They have been knocked down one too many times and did not get back up.

There is much that could be learned from these people, but they choose to cling to their bitterness and relish in the opportunity to squash your dreams.

If you can get them to open up and talk about what went wrong there are great lessons to be learned.  Chances are not good though because these people tend to run in packs – just like the department store Santa’s little helpers.  Misery truly does love company!

Ralphie’s Dad – The Perserverer

You just got to love a man that will get excited about a tacky lamp and put it proudly on display in the picture window.  Ralphie’s dad may have been cranky and liked to curse at everything, but he never gave up.  When everything went wrong around him he found a way to make it better.

These are the people with which you want to surround yourself.  They have struggled with their dreams yet they keep on dreaming and trying to accomplish them.

There is so much to learn from one who perserveres.  Just like Ralphie’s dad was the one that gave him the air rifle, it is the perserverers that will be most apt to take you under their wing and show you their failures and successes so that you can learn from them.

I Did It, I Shot My Eye Out!

Why do 4 out of every 5 small businesses fail?  Because it is inevitable that at some time you will fail – you will shoot your eye out.  Or maybe, like Ralphie, you will just shoot a hole in your rose-colored glasses.

How you react to a failure will largely depend on with whom you have surrounded yourself.  Their attitudes will help to shape yours for better or worse.

It is at times like these that you need to hear “it happens, and here’s what we can do about it” rather than “I told you so!”   It is easy to throw in the towel, and many small business owners do.

Look for those people in your life who have struggled and overcome and keep on keeping on.  Surround yourself with them.  It is this attitude that will help your small business grow into your dreams.

When I look at this picture I like to imagine the man on the first camel talking to the man on the second camel about this “amazing new business opportunity.”

When he starts to explain the compensation plan he is quickly interrupted by the man on the third camel who exclaims, “That’s a Pyramid Scheme!”

Okay, I know.  That’s a little corny (or maybe a lot).  Chances are pretty high though that if you have been in the MLM industry for very long you have heard this claim directed towards you.

The Pyramid Scheme

So what is this scheme that has maligned the name of the great structures built by the ancient Egyptians?  Wikipedia states that …

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, often without any product or service being delivered.

The only way to recoup your investment in a pyramid scheme is to recruit other investors.  There is either no product sold or the product has no real market value outside of the pyramid scheme – the product is only meant to be sold to its members but never really used.  Your initial investment earns you the right to receive commissions on all the investments from people you recruit and all the people they recruit and so on.

The Pyramid Problem

Let’s say, for example, that for an investment of $1,000 you are required to recuit six other investors for which you receive $200 each plus $100 dollars for each investor they recruit and so on.  You can get your original investment back quickly and make a ton of money.  At just four levels below you there are already 1,296 people which means you have recouped your original investment of $1,000 plus $129,200!

Sounds like a great plan, huh?  Well it depends on when you get in.  The problem is that as more and more investors are added the possibility that those investors will be able to recoup their money quickly becomes zero.

Why?  The math shows us that you would need an infinite number of investors flowing into the plan for the last investor in to be able to recoup their investment.  In fact, you very quickly run through the world’s population!

At only eleven levels below the top person in the scheme it requires more investors than the U.S. population and at thirteen levels below the top person it requires more investors than the population of the entire world.

Inevitably, these plans collapse well before this point as new investors cannot be recruited.  Only the first few levels of the pyramid scheme have a realistic chance of recouping their original investment and making money.   This is why pyramid schemes are illegal.

Multi-Level Marketing

When it comes to MLM plans people tend to judge the book by the cover – if it walks like a duck and talks like a duck then it must be a duck (or maybe in our case a pyramid building Egyptian!).  MLM plans do have a pyramid shaped structure (as does almost every company, school, or organization).  In fact, many aspects of a MLM company’s compensation plan are almost identical to the pyramid scheme.  If the MLM company only focuses on bringing in new distributors then it has the same problem – there just aren’t enough people to make it work.

So what should you look for when thinking about joining a MLM company?

First, look at the product or service sold by the MLM company.

It should be of high quality, fairly priced, proprietary to the MLM company, and there should be a strong demand in the real world marketplace.

Second, look at how you earn money.

You should be compensated primarily on actual sales that you make plus the sales that your distributors below you make.  A bonus may be paid on new distributors you recruit but the focus should be on sales to end users.

Third, you should not be required to purchase more inventory than you can reasonably be expected to use or sale.

Most MLM companies today have online ordering systems that will drop ship directly to the end user.  You should not have a garage full of inventory!

If these three cursory observations do not hold true for the MLM company, RUN, don’t walk to the nearest exit.

Ultimately, ask this question, “Can I recoup my investment and make money solely by selling the product without ever recruiting anyone to become a distributor?”  The answer to this question must always be yes!  If not, it is most likely a pyramid scheme.

Okay, I know we have all been taught that being a copycat is a bad thing.  In school we were suspended for copying off of our friend’s test, received an F for plagiarizing an essay, or sentenced to detention for mimicking our teacher.